(Exact name of Registrant
as specified in its charter) | Delaware (State or other jurisdiction of incorporation�or�organization) | 1585 Broadway New�York,�NY�10036 (Address�of�principal�executive�offices, including zip code) | 36-3145972 (I.R.S.�Employer�Identification�No.) | (212) 761-4000 (Registrant�s�telephone�number, including area code) | |||
| Title of each class | Name of exchange on which registered | |
| Securities registered pursuant to Section�12(b) of the Act: | ||
| Common Stock, $0.01 par value | New�York�Stock�Exchange | |
| Depositary Shares, each representing 1/1,000th interest in a share of Floating Rate Non-Cumulative Preferred Stock, Series�A, $0.01�par value | New York Stock Exchange | |
| 6 1 / 4 % Capital Securities of Morgan Stanley Capital Trust III (and Registrant�s guaranty with respect thereto) | New York Stock Exchange | |
| 6 1 / 4 % Capital Securities of Morgan Stanley Capital Trust IV (and Registrant�s guaranty with respect thereto) | New York Stock Exchange | |
| 5 3 / 4 % Capital Securities of Morgan Stanley Capital Trust V (and Registrant�s guaranty with respect thereto) | New York Stock Exchange | |
| 6.60% Capital Securities of Morgan Stanley Capital Trust VI (and Registrant�s guaranty with respect thereto) | New York Stock Exchange | |
| 6.60% Capital Securities of Morgan Stanley Capital Trust VII (and Registrant�s guaranty with respect thereto) | New York Stock Exchange | |
| 6.45% Capital Securities of Morgan Stanley Capital Trust VIII (and Registrant�s guaranty with respect thereto) | New York Stock Exchange | |
| Market Vectors ETNs due March�31, 2020 (2 issuances); Market Vectors ETNs due April�30, 2020 (2 issuances) | NYSE Arca, Inc. | |
| Morgan Stanley Cushing � MLP High Income Index ETNs due March�21, 2031 | NYSE Arca, Inc. | |
| Morgan Stanley S&P 500 Crude Oil Linked ETNs due July�1, 2031 | NYSE Arca, Inc. | |
| Large Accelerated Filer x Non-Accelerated�Filer � (Do not check if a smaller reporting company) | Accelerated�Filer � Smaller reporting company � |
ANNUAL REPORT ON FORM 10-K for the year ended December�31, 2012 | Table�of�Contents | Page | |||||
| Part I | ||||||
| Item�1. | Business | 1 | ||||
| Overview | 1 | |||||
| Available Information | 1 | |||||
| Business Segments | 2 | |||||
| Institutional Securities | 2 | |||||
| Global Wealth Management Group | 4 | |||||
| Asset Management | 5 | |||||
| Competition | 6 | |||||
| Supervision and Regulation | 7 | |||||
| Executive Officers of Morgan Stanley | 18 | |||||
| Item�1A. | Risk Factors | 20 | ||||
| Item 1B. | Unresolved Staff Comments | 31 | ||||
| Item 2. | Properties | 32 | ||||
| Item 3. | Legal Proceedings | 33 | ||||
| Item 4. | Mine Safety Disclosures | 44 | ||||
| Part II | ||||||
| Item 5. | Market for Registrant�s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 45 | ||||
| Item 6. | Selected Financial Data | 48 | ||||
| Item 7. | Management�s Discussion and Analysis of Financial Condition and Results of Operations | 50 | ||||
| Introduction | 50 | |||||
| Executive Summary | 52 | |||||
| Business Segments | 63 | |||||
| Accounting Developments | 84 | |||||
| Other Matters | 84 | |||||
| Critical Accounting Policies | 87 | |||||
| Liquidity and Capital Resources | 91 | |||||
| Item�7A. | Quantitative and Qualitative Disclosures about Market Risk | 111 | ||||
| Item 8. | Financial Statements and Supplementary Data | 137 | ||||
| Report of Independent Registered Public Accounting Firm | 137 | |||||
| Consolidated Statements of Financial Condition | 138 | |||||
| Consolidated Statements of Income | 140 | |||||
| Consolidated Statements of Comprehensive Income | 141 | |||||
| Consolidated Statements of Cash Flows | 142 | |||||
| Consolidated Statements of Changes in Total Equity | 143 | |||||
Table of Contents| Table�of�Contents | Page | |||||
| Notes to Consolidated Financial Statements | 145 | |||||
| Financial Data Supplement (Unaudited) | 283 | |||||
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 290 | ||||
| Item�9A. | Controls and Procedures | 290 | ||||
| Item�9B. | Other Information | 292 | ||||
| Part�III | ||||||
| Item 10. | Directors, Executive Officers and Corporate Governance | 293 | ||||
| Item 11. | Executive Compensation | 293 | ||||
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 294 | ||||
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 294 | ||||
| Item 14. | Principal Accountant Fees and Services | 294 | ||||
| Part�IV | ||||||
| Item�15. | Exhibits and Financial Statement Schedules | 295 | ||||
| Signatures | S-1 | |||||
| Exhibit Index | E-1 | |||||
Table of Contents Forward-Looking Statements We have included in or incorporated by reference into this report, and from time to time may make in our public filings, press
releases or other public statements, certain statements, including (without limitation) those under �Legal Proceedings� in Part I, Item�3, �Management�s Discussion and Analysis of Financial Condition and Results of
Operations� in Part II, Item�7 and �Quantitative and Qualitative Disclosures about Market Risk� in Part II, Item�7A, that may constitute �forward-looking statements� within the meaning of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. In addition, our management may make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and
represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control. The nature of our business makes predicting the future trends of our revenues, expenses and net income difficult. The risks and uncertainties involved in
our businesses could affect the matters referred to in such statements, and it is possible that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that
could cause actual results to differ from those in the forward-looking statements include (without limitation): | � | the effect of economic and political conditions and geopolitical events; |
| � | the effect of market conditions, particularly in the global equity, fixed income, credit and commodities markets, including corporate and mortgage (commercial and residential) lending and commercial real estate markets; |
| � | the impact of current, pending and future legislation (including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the �Dodd-Frank Act�)), regulation (including capital, leverage and liquidity requirements), and legal actions in the United States (�U.S.�) and worldwide; |
| � | the level and volatility of equity, fixed income and commodity prices, interest rates, currency values and other market indices; |
| � | the availability and cost of both credit and capital as well as the credit ratings assigned to our unsecured short-term and long-term debt; |
| � | investor sentiment and confidence in the financial markets; |
| � | the performance of our acquisitions, joint ventures, strategic alliances or other strategic arrangements; |
| � | our reputation; |
| � | inflation, natural disasters and acts of war or terrorism; |
| � | the actions and initiatives of current and potential competitors as well as governments, regulators and self-regulatory organizations; |
| � | the effectiveness of our risk management policies; |
| � | technological changes; and |
| � | other risks and uncertainties detailed under �Business�Competition� and �Business�Supervision and Regulation� in Part I, Item�1, �Risk Factors� in Part I, Item�1A and elsewhere throughout this report. |
Table of Contents Part I | Item�1. | Business. |
| 1 | |
| | 2 |
| 3 | |
Table of Contents Products and Services. The Global Wealth Management Group provides clients with a comprehensive
array of financial solutions, including products and services from the Company, Citigroup Inc. (�Citi�) and third-party providers, such as insurance companies and mutual fund families. Global Wealth Management Group provides brokerage and
investment advisory services covering various types of investments, including equities, options, futures, foreign currencies, precious metals, fixed income securities, mutual funds, structured products, alternative investments, unit investment
trusts, managed futures, separately managed accounts and mutual fund asset allocation programs. Global Wealth Management Group also engages in fixed income principal trading, which primarily facilitates clients� trading or investments in such
securities. In addition, Global Wealth Management Group offers education savings programs, financial and wealth planning services, and annuity and other insurance products. In addition, Global Wealth Management Group offers its clients access to
several cash management services through various banks and other third parties, including deposits, debit cards, electronic bill payments and check writing, as well as lending products through affiliates such as Morgan Stanley Private Bank, National
Association (�MS Private Bank�) and MSBNA, including securities based lending, mortgage loans and home equity lines of credit. Global Wealth Management Group also provides trust and fiduciary services, offers access to cash management and
commercial credit solutions to qualified small- and medium-sized businesses in the U.S., and provides individual and corporate retirement solutions, including individual retirement accounts and 401(k) plans and U.S. and global stock plan services to
corporate executives and businesses. Global Wealth Management
Group provides clients a variety of ways to establish a relationship and conduct business, including brokerage accounts with transaction-based pricing and investment advisory accounts with asset-based fee pricing. Operations and Information Technology. The operations and technology supporting the Wealth Management Joint Venture
is provided by a combination of the Company and the Wealth Management Joint Venture�s Operations and Information Technology departments. Pursuant to contractual agreements, the Company and the Wealth Management Joint Venture perform various
broker-dealer related functions, such as execution and clearing of brokerage transactions, margin lending and custody of client assets. For the Company and the Wealth Management Joint Venture, these activities are undertaken through their own
facilities, through memberships in various clearing and settlement organizations, and through agreements with unaffiliated third parties. Although Citi no longer provides support for broker-dealer related clearing functions, Citi continues to
provide certain other services and systems to support the Global Wealth Management Group through transition services agreements with the Wealth Management Joint Venture. Asset Management. The Company�s Asset Management business segment, consisting of Merchant
Banking, Traditional Asset Management and Real Estate Investing activities, is one of the largest global investment management organizations of any full-service financial services firm and offers clients a broad array of equity, fixed income and
alternative investments and merchant banking strategies. Portfolio managers located in the U.S., Europe and Asia manage investment products ranging from money market funds to equity and fixed income strategies, alternative investment and merchant
banking products in developed and emerging markets across geographies and market cap ranges. The Company offers a range of alternative investment, real estate investing and merchant banking products for institutional investors and high net worth individuals. The Company�s alternative
investments platform includes funds of hedge funds, funds of private equity and real estate funds and portable alpha strategies. The Company�s alternative investments platform also includes minority stakes in Lansdowne Partners, Avenue Capital
Group and 5 Table of Contents Traxis Partners LP. The Company�s real estate and merchant banking businesses include its real estate investing business, private equity funds, corporate mezzanine debt investing group and
infrastructure investing group. The Company typically acts as general partner of, and investment adviser to, its alternative investment, real estate and merchant banking funds and typically commits to invest a minority of the capital of such funds
with subscribing investors contributing the majority. Institutional Investors. The Company provides investment management strategies and products to institutional investors worldwide, including corporations, pension plans,
endowments, foundations, sovereign wealth funds, insurance companies and banks through a broad range of pooled vehicles and separate accounts. Additionally, the Company provides sub-advisory services to various unaffiliated financial institutions
and intermediaries. A Global Sales and Client Service team is engaged in business development and relationship management for consultants to help serve institutional clients. Intermediary Clients and Individual Investors. The Company offers open-end and alternative investment funds and separately
managed accounts to individual investors through affiliated and unaffiliated broker-dealers, banks, insurance companies, financial planners and other intermediaries. Closed-end funds managed by the Company are available to individual investors
through affiliated and unaffiliated broker-dealers. The Company also distributes mutual funds through numerous retirement plan platforms. Internationally, the Company distributes traditional investment products to individuals outside the U.S.
through non-proprietary distributors and distributes alternative investment products through affiliated broker-dealers and banks. Operations and Information Technology. The Company�s Operations and Information Technology departments provide or oversee the process and technology platform required to support its Asset
Management business segment. Support activities include transfer agency, mutual fund accounting and administration, transaction processing and certain fiduciary services on behalf of institutional, intermediary and high net worth clients. These
activities are undertaken through the Company�s own facilities, through membership in various clearing and settlement organizations, and through agreements with unaffiliated third parties. Competition. All aspects of the Company�s businesses are highly competitive, and the
Company expects them to remain so. The Company competes in the U.S. and globally for clients, market share and human talent in all aspects of its business segments. The Company�s competitive position depends on its reputation and the quality
and consistency of its long-term investment performance. The Company�s ability to sustain or improve its competitive position also depends substantially on its ability to continue to attract and retain highly qualified employees while managing
compensation and other costs. The Company competes with commercial banks, brokerage firms, insurance companies, electronic trading and clearing platforms, financial data repositories, sponsors of mutual funds, hedge funds, energy companies and other
companies offering financial or ancillary services in the U.S., globally and through the internet. Over time, certain sectors of the financial services industry have become more concentrated, as institutions involved in a broad range of financial
services have left businesses, been acquired by or merged into other firms or have declared bankruptcy. Such changes could result in the Company�s remaining competitors gaining greater capital and other resources, such as the ability to offer a
broader range of products and services and geographic diversity, or new competitors may emerge. See also ��Supervision and Regulation� below and �Risk Factors� in Part I, Item 1A herein. 6 Table of Contents Institutional Securities and Global Wealth Management Group. The Company�s competitive position for its Institutional Securities and
Global Wealth Management Group business segments depends on innovation, execution capability and relative pricing. The Company competes directly in the U.S. and globally with other securities and financial services firms and broker-dealers and with
others on a regional or product basis. The Company�s ability
to access capital at competitive rates (which is generally impacted by the Company�s credit ratings) and to commit capital efficiently, particularly in its capital-intensive underwriting and sales, trading, financing and market-making
activities, also affects its competitive position. Corporate clients may request that the Company provide loans or lending commitments in connection with certain investment banking activities and such requests are expected to increase in the future. It is possible that competition may become even more intense as
the Company continues to compete with financial institutions that may be larger, or better capitalized, or may have a stronger local presence and longer operating history in certain areas. Many of these firms have the ability to offer a wide range
of products and services that may enhance their competitive position and could result in pricing pressure in its businesses. The complementary trends in the financial services industry of consolidation and globalization present, among other things,
technological, risk management, regulatory and other infrastructure challenges that require effective resource allocation in order for the Company to remain competitive. In addition, the Company�s business is subject to increased regulation in
the U.S. and abroad, while certain of its competitors may be subject to less stringent legal and regulatory regimes than the Company, thereby putting the Company at a competitive disadvantage. The Company has experienced intense price competition in some of its businesses in recent years. In particular, the ability to
execute securities trades electronically on exchanges and through other automated trading markets has increased the pressure on trading commissions or comparable fees. The trend toward direct access to automated, electronic markets will likely
increase as additional markets move to more automated trading models. It is possible that the Company will experience competitive pressures in these and other areas in the future as some of its competitors may seek to obtain market share by reducing
prices (in the form of commissions or pricing). Asset
Management. Competition in the asset management industry is
affected by several factors, including the Company�s reputation, investment objectives, quality of investment professionals, performance of investment strategies or product offerings relative to peers and an appropriate benchmark index,
advertising and sales promotion efforts, fee levels, the effectiveness of and access to distribution channels and investment pipelines, and the types and quality of products offered. The Company�s alternative investment products, such as
private equity funds, real estate and hedge funds, compete with similar products offered by both alternative and traditional asset managers, who may be subject to less stringent legal and regulatory regimes than the Company. Supervision and Regulation. As a major financial services firm, the Company is subject to extensive
regulation by U.S. federal and state regulatory agencies and securities exchanges and by regulators and exchanges in each of the major markets where it conducts its business. Moreover, in response to the 2007�2008 financial crisis, legislators
and regulators, both in the U.S. and around the world, are in the process of adopting and implementing a wide range of reforms that will result in major changes to the way the Company is regulated and conducts its business. It will take time for the
comprehensive effects of these reforms to emerge and be understood. 7 Table of Contents Regulatory Outlook. The Dodd-Frank Act was enacted on July�21, 2010. While certain portions
of the Dodd-Frank Act were effective immediately, other portions will be effective following extended transition periods or through numerous rulemakings by multiple governmental agencies, and only a portion of those rulemakings have been completed.
It remains difficult to assess fully the impact that the Dodd-Frank Act will have on the Company and on the financial services industry generally. In addition, various international developments, such as the adoption of risk-based capital, leverage
and liquidity standards by the Basel Committee on Banking Supervision, known as �Basel III,� will continue to impact the Company in the coming years. It is likely that 2013 and subsequent years will see further material changes in the way major financial institutions are regulated in both the U.S. and
other markets in which the Company operates, although it remains difficult to predict the exact impact these changes will have on the Company�s business, financial condition, results of operations and cash flows for a particular future period. Financial Holding Company. The Company has operated as a bank holding company and financial holding
company under the BHC Act since September 2008. Consolidated Supervision. As a bank holding company, the Company is subject to comprehensive consolidated supervision, regulation and examination by the Federal Reserve. As a
result of the Dodd-Frank Act, the Federal Reserve also gained heightened authority to examine, prescribe regulations and take action with respect to all of the Company�s subsidiaries. In particular, as a result of the Dodd-Frank Act, the
Company is, or will become, subject to (among other things) significantly revised and expanded regulation and supervision, to more intensive scrutiny of its businesses and plans for expansion of those businesses, to new activities limitations, to a
systemic risk regime which will impose heightened capital and liquidity requirements, to new restrictions on activities and investments imposed by a section of the BHC Act added by the Dodd-Frank Act referred to as the �Volcker Rule� and
to comprehensive new derivatives regulation. In addition, the Consumer Financial Protection Bureau has primary rulemaking, enforcement and examination authority over the Company and its subsidiaries with respect to federal consumer protection laws,
to the extent applicable. Scope of Permitted
Activities. The BHC Act provides a two-year period from September�21, 2008, the date that the Company became a bank holding company, for the Company to conform or dispose of certain nonconforming activities
as defined by the BHC Act. Three one-year extensions may be granted by the Federal Reserve upon approval of the Company�s application for each extension. The Company has received the third of these extensions with respect to certain activities
relating to its real estate and other funds businesses. It has also disposed of certain nonconforming assets and conformed certain activities to the requirements of the BHC Act. The Company expects to have conformed or sold its remaining
nonconforming real estate fund businesses by the September�21, 2013 deadline and does not believe that such conformance or divestiture will have a material adverse impact on the Company�s financial condition. In addition, the Company continues to engage in discussions with the Federal
Reserve regarding its commodities activities, as the BHC Act also grandfathers �activities related to the trading, sale or investment in commodities and underlying physical properties,� provided that the Company was engaged in �any of
such activities as of September�30, 1997 in the United States� and provided that certain other conditions that are within the Company�s reasonable control are satisfied. If the Federal Reserve were to determine that any of the
Company�s commodities activities did not qualify for the BHC Act grandfather exemption, then the Company would likely be required to divest any such activities that did not otherwise conform to the BHC Act by the end of any extensions of the
grace period. At this time, the Company does not believe, based on its interpretation of applicable law, that any such required divestment would have a material adverse impact on its financial condition. 8 Table of Contents Activities Restrictions under the Volcker Rule. The Volcker Rule will,
over time, prohibit �banking entities,� including the Company and its affiliates, from engaging in �proprietary trading,� as defined by the regulators. The Volcker Rule�will also require banking entities to either
restructure or unwind certain investments and relationships with �hedge funds,� �private equity funds� and other �similar funds� as such terms are defined in the Volcker Rule and by the regulators. The Volcker Rule became effective on July�21, 2012. However, banking
entities have until July�21, 2014 to bring all of their activities and investments into conformance with the Volcker Rule, subject to possible extensions. U.S. regulators issued proposed rules to implement the Volcker Rule in 2011 and have not
yet issued final regulations. There remains considerable uncertainty about what the final version of those regulations will be or the impact they may have on our businesses. Even after the final rules are issued, there may be continued uncertainty
regarding their interpretation and impact on our businesses. The Company is closely monitoring regulatory developments related to the Volcker Rule, and when the regulations are final, it will complete a review of its relevant activities and make
plans to implement compliance with the Volcker Rule. The Company
continues to review its private equity fund, hedge fund and trading operations in relation to the Volcker Rule. With respect to the �proprietary trading� prohibition of the Volcker Rule, as of January�1, 2013, the Company has divested
control of its remaining in-house proprietary quantitative trading unit, Process-Driven Trading (�PDT�). For the year ended December�31, 2012, PDT did not have a material impact on the Company�s financial condition, results of
operations and liquidity. The Company has also previously exited other standalone proprietary trading businesses (defined as those businesses dedicated solely to investing the Company�s capital), and the Company is continuing to liquidate
legacy positions related to those businesses. Capital and
Liquidity Standards. The Federal Reserve establishes capital requirements for the Company and evaluates its compliance with such capital requirements. The Office of the Comptroller of the Currency (the �OCC�)
establishes similar capital requirements and standards for the Company�s national bank subsidiaries. Under current capital requirements, for the Company to remain a financial holding company, its national bank subsidiaries must qualify as
�well capitalized� by maintaining a total capital ratio (total capital to risk-weighted assets) of at least 10% and a Tier 1 capital ratio of at least 6%. To maintain its status as a financial holding company, the Company is also required
to be �well capitalized� by maintaining these capital ratios. The Federal Reserve may require the Company and its peer financial holding companies to maintain risk-based and leverage capital ratios substantially in excess of mandated
minimum levels, depending upon general economic conditions and their particular condition, risk profile and growth plans. In addition, under the Federal Reserve�s leverage capital rules, bank holding companies that have implemented the Federal
Reserve�s risk-based capital measure for market risk, such as the Company, are subject to a Tier 1 minimum leverage ratio (Tier 1 capital to average total consolidated assets) of 3%. The Company calculates its capital ratios and risk-weighted assets in accordance with the capital adequacy standards for
financial holding companies adopted by the Federal Reserve. These standards are based upon a framework described in the �International Convergence of Capital Measurement and Capital Standards,� July 1988, as amended, also referred to as
Basel I. In December 2007, the U.S. banking regulators published final regulations incorporating the Basel II Accord, which requires internationally active U.S. banking organizations, as well as certain of their U.S. bank subsidiaries, to implement
Basel II standards over the next several years. In July 2010, the Company began reporting its capital adequacy standards on a parallel basis to its regulators under Basel I and Basel II as part of a phased implementation of Basel II. On
January�1, 2013, the U.S. banking regulators� rules to implement the Basel Committee�s market risk capital framework, referred to as �Basel 2.5,� became effective. In December 2010, the Basel Committee reached an agreement on Basel III. In June 2012, the U.S. banking regulators proposed
rules to implement many aspects of Basel III (the �Basel III proposals�). The U.S. Basel III proposals contain new capital standards that raise the quality of capital, strengthen counterparty credit risk capital requirements, introduce a
leverage ratio as a supplemental measure to the risk-based ratio and replace the use of 9 Table of Contents externally developed credit ratings with alternatives such as internally developed credit ratings. The proposals include a new capital conservation buffer, which imposes a common equity
Tier�1 capital requirement above the new minimum that can be depleted under stress, and could result in restrictions on capital distributions and discretionary bonuses under certain circumstances. The proposals also provide for a potential
countercyclical buffer which regulators can activate during periods of excessive credit growth in their jurisdiction. Although the U.S. Basel III proposals do not address the Basel Committee�s new additional loss absorbency capital requirement
for Global Systemically Important Banks (�G-SIBs�), such as the Company, the U.S. banking regulators indicated that guidance on the implementation of the Basel Committee�s G-SIB capital surcharge in the U.S. would be forthcoming. In
November 2012, the Financial Stability Board provisionally assigned the Company a capital surcharge of 1.5�percent of common equity Tier�1 capital to risk-weighted assets on a scale of 1.0 percent to 2.5�percent. The U.S. Basel III
proposals contemplate that the new capital requirements would be phased in over several years, beginning in 2013. In November 2012, the U.S. banking�regulators announced that the U.S. Basel III proposals would not become effective on
January�1, 2013. The announcement did not�specify new implementation or phase in dates for the U.S. Basel III proposals. In June 2011, the U.S. banking regulators published final regulations implementing a provision of the Dodd-Frank Act requiring that certain institutions
supervised by the Federal Reserve, including the Company, be subject to minimum capital requirements that are not less than the generally applicable risk-based capital requirements. Currently, this minimum �capital floor� is based on Basel
I. The U.S. Basel III proposals would replace the current Basel I-based �capital floor� with a standardized approach that, among other things, modifies the existing risk weights for certain types of asset classes. See also �Management�s Discussion and Analysis of Financial
Condition and Results of Operation�Liquidity and Capital Resources�Regulatory Requirements� in Part II, Item�7 herein. Capital Planning, Stress Tests and Dividends. Pursuant to the Dodd-Frank Act, the Federal Reserve has adopted new
capital planning and stress test requirements for large bank holding companies, including the Company. Under the Federal Reserve�s capital plan final rule, bank holding companies with $50 billion or more of consolidated assets, such as the
Company, must submit an annual capital plan to the Federal Reserve, taking into account the results of separate stress tests designed by the bank holding company and the Federal Reserve. The capital plan must include a description of all planned capital actions over a nine-quarter planning horizon, including any
issuance of a debt or equity capital instrument, any capital distribution (i.e., payments of dividends or stock repurchases), and any similar action that the Federal Reserve determines could impact the bank holding company�s consolidated
capital. The capital plan must include a discussion of how the bank holding company will maintain capital above the minimum regulatory capital ratios and above a Tier 1 common ratio of 5%, and serve as a source of strength to its subsidiary U.S.
depository institutions under supervisory stress scenarios. The capital plan final rule requires that such companies receive no objection from the Federal Reserve before making a capital distribution. In addition, even with an approved capital plan,
the bank holding company must seek the approval of the Federal Reserve before making a capital distribution if, among other reasons, the bank holding company would not meet its regulatory capital requirements after making the proposed capital
distribution. In addition to capital planning requirements, the OCC, the Federal Reserve and the Federal Deposit Insurance Corporation (�FDIC�) have authority to prohibit or to limit the payment of dividends by the banking organizations
they supervise, including the Company, MSBNA and MS Private Bank, if, in the banking regulator�s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization. All
of these policies and other requirements could influence the Company�s ability to pay dividends, or require it to provide capital assistance to MSBNA or MS Private Bank under circumstances under which the Company would not otherwise decide to
do so. The Company expects that, by March�14, 2013, the
Federal Reserve will either object or provide a notice of non-objection to the Company�s 2013 capital plan that was submitted to the Federal Reserve on January�7, 2013. In October 2012, the Federal Reserve issued its stress test final rule as
required by the Dodd-Frank Act that requires the Company to conduct semi-annual company-run stress tests. Under this rule, the Company is required to publicly disclose the summary results of its company-run stress tests under the severely adverse
economic 10 Table of Contents scenario. The rule also subjects the Company to an annual supervisory stress test conducted by the Federal Reserve. The Federal Reserve has announced that it will, by March�7, 2013, publish
a summary of the supervisory stress test results of each company subject to the stress test final rule, including the Company. The Dodd-Frank Act also requires national banks and federal savings associations with total consolidated assets of more than $10 billion to conduct an
annual stress test. Beginning in 2013, the implementing regulation requires national banks with more than $50 billion in average total consolidated assets, including MSBNA, to conduct its first stress test. MSBNA submitted its stress test results to
the OCC and the Federal Reserve in January 2013. See also
��Capital and Liquidity Standards� above and �Management�s Discussion and Analysis of Financial Condition and Results of Operation�Liquidity and Capital Resources�Regulatory Requirements� in Part II,
Item�7 herein. Systemic Risk
Regime. The Dodd-Frank Act established a new regulatory framework applicable to financial institutions deemed to pose systemic risks. Bank holding companies with $50 billion or more in consolidated assets, such as the
Company, became automatically subject to the systemic risk regime in July 2010. A new oversight body, the Financial Stability Oversight Council (the �Council�), can recommend prudential standards, reporting and disclosure requirements to
the Federal Reserve for systemically important financial institutions, and must approve any finding by the Federal Reserve that a financial institution poses a grave threat to financial stability and must undertake mitigating actions. The Council is
also empowered to designate systemically important payment, clearing and settlement activities of financial institutions, subjecting them to prudential supervision and regulation, and, assisted by the new Office of Financial Research within the U.S.
Department of the Treasury (�U.S. Treasury�) (established by the Dodd-Frank Act), can gather data and reports from financial institutions, including the Company. Pursuant to the Dodd-Frank Act, each bank holding company with $50 billion or
more in consolidated assets must also provide to the Federal Reserve and FDIC an annual plan for its rapid and orderly resolution in the event of material financial distress. The Company submitted its first resolution plan to the Federal Reserve and
FDIC on June�29, 2012. In addition, the Company�s principal U.S. bank subsidiary, MSBNA, submitted a resolution plan for its rapid and orderly resolution in the event of material financial distress or failure on June�29, 2012, as
required by the FDIC. In December 2011, the Federal Reserve
issued proposed rules to implement certain requirements of the Dodd-Frank Act�s systemic risk regime. Among other provisions, the proposed rules would require bank holding companies with over $50�billion in assets, such as the Company, and
any other company designated by the Council, to maintain a sufficient quantity of highly liquid assets to survive a projected 30-day liquidity stress event, to conduct regular liquidity stress tests, and to implement various liquidity risk
management requirements. More generally, the proposed rules would require institutions to comply with a range of corporate governance requirements, such as establishment of a risk committee of the board of directors and appointment of a chief risk
officer, both of which the Company already has. The proposed
rules would also limit the aggregate exposure of each bank holding company with over $500�billion in assets, such as the Company, and each company designated by the Council, to each other such institution to 10% of the aggregate capital and
surplus of each institution, and limit the aggregate exposure of such institutions to any other bank holding company with $50 billion or more of consolidated assets to 25% of each institution�s aggregate capital and surplus. In addition, the
proposed rules would create a new early remediation regime to address financial distress or material management weaknesses determined with reference to four levels of early remediation, including heightened supervisory review, initial remediation,
recovery, and resolution assessment, with specific limitations and requirements tied to each level. 11 Table of Contents The systemic risk regime also provides that, for institutions posing a grave threat to U.S. financial
stability, the Federal Reserve, upon Council vote, must limit that institution�s ability to merge, restrict its ability to offer financial products, require it to terminate activities, impose conditions on activities or, as a last resort,
require it to dispose of assets. Upon a grave threat determination by the Council, the Federal Reserve must issue rules that require financial institutions subject to the systemic risk regime to maintain a debt-to-equity ratio of no more than
15-to-1 if the Council considers it necessary to mitigate the risk. The Federal Reserve also has the ability to establish further standards, including those regarding contingent capital, enhanced public disclosures, and limits on short-term debt,
including off-balance sheet exposures. See also
��Capital and Liquidity Standards� above and ��Orderly Liquidation Authority� below. Orderly Liquidation Authority. Under the Dodd-Frank Act, financial companies, including bank holding companies such as the Company and certain covered subsidiaries,
can be subjected to a new orderly liquidation authority. The U.S. Treasury must first make certain extraordinary financial distress and systemic risk determinations. Absent such U.S. Treasury determinations, the Company as a bank holding company
would remain subject to the U.S. Bankruptcy Code. The orderly
liquidation authority went into effect in July 2010, and rulemaking to render it fully operative is proceeding in stages, with some implementing regulations now finalized and others planned but not yet proposed. If the Company were subjected to the
orderly liquidation authority, the FDIC would be appointed receiver, which would give the FDIC considerable rights and powers that it must exercise with the goal of liquidating and winding up the Company, including (i)�the FDIC�s right to
assign assets and liabilities and transfer some to a third party or bridge financial company without the need for creditor consent or prior court review; (ii)�the ability of the FDIC to differentiate among creditors, including by treating
junior creditors better than senior creditors, subject to a minimum recovery right to receive at least what they would have received in bankruptcy liquidation; and (iii)�the broad powers given the FDIC to administer the claims process to
determine which creditor receives what, and in which order, from assets not transferred to a third party or bridge financial institution. U.S. Bank Subsidiaries. U.S. Banking Institutions. MSBNA, primarily a wholesale commercial bank, offers consumer margin lending and
commercial lending services in addition to deposit products. Certain foreign exchange activities are also conducted in MSBNA. As an FDIC-insured national bank, MSBNA is subject to supervision, regulation and examination by the OCC. MS Private Bank offers certain mortgage and other secured lending products
primarily for customers of its affiliate retail broker-dealer, Morgan Stanley Smith Barney LLC (�MSSB LLC�). MS Private Bank also offers certain deposit products, as well as personal trust and prime brokerage custody services. MS Private
Bank is an FDIC-insured national bank whose activities are subject to supervision, regulation and examination by the OCC. Effective July�1, 2013, the lending limits applicable to the Company�s U.S. bank subsidiaries will be required to take into account credit
exposure from derivative transactions, securities lending, securities borrowing and repurchase and reverse repurchase agreements with counterparties. Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 provides a framework for
regulation of depository institutions and their affiliates, including parent holding companies, by their federal banking regulators. Among other things, it requires the relevant federal banking regulator to take �prompt corrective action�
(�PCA�) with respect to a depository institution if that institution does not meet certain capital adequacy standards. Current PCA regulations generally apply only to insured banks and thrifts such as MSBNA or MS Private Bank and not to
their parent holding companies, such as Morgan Stanley. The Federal Reserve is, however, subject to limitations, authorized to take appropriate action at the holding company level. In addition, as described above, under the systemic risk regime, the
Company will become subject to an 12 Table of Contents early remediation protocol in the event of financial distress. The Dodd-Frank Act also formalized the requirement that bank holding companies, such as Morgan Stanley, serve as a source of
strength to their U.S. bank subsidiaries in the event such subsidiaries are in financial distress. Transactions with Affiliates. The Company�s U.S. bank subsidiaries are subject to Sections 23A and 23B of the Federal Reserve Act, which impose restrictions on
any extensions of credit to, purchase of assets from, and certain other transactions with, any affiliates. These restrictions limit the total amount of credit exposure that they may have to any one affiliate and to all affiliates, as well as
collateral requirements, and they require all such transactions to be made on market terms. Effective July 2012, derivatives, securities borrowing and securities lending transactions between the Company�s U.S. bank subsidiaries and their
affiliates became subject to these restrictions. The Federal Reserve has indicated that it will propose rulemaking to implement these restrictions. These reforms will place limits on the Company�s U.S. bank subsidiaries� ability to engage
in derivatives, repurchase agreements and securities lending transactions with other affiliates of the Company. In addition, the Volcker Rule imposes similar restrictions on transactions between the Company or any of its affiliates and hedge funds, private equity funds or similar funds for which the banking entity
serves as the investment manager, investment adviser or sponsor. FDIC Regulation. An FDIC�insured depository institution is generally liable for any loss incurred or expected to
be incurred by the FDIC in connection with the failure of an insured depository institution under common control by the same bank holding company. As FDIC-insured depository institutions, MSBNA and MS Private Bank are exposed to each other�s
losses. In addition, both institutions are exposed to changes in the cost of FDIC insurance. In 2010, the FDIC adopted a restoration plan to replenish the reserve fund over a multi-year period. Under the Dodd-Frank Act, some of the restoration must
be paid for exclusively by large depository institutions, including MSBNA, and assessments are calculated using a new methodology that generally favors banks that are mostly funded by deposits. Institutional Securities and Global Wealth Management Group. Broker-Dealer
Regulation. The Company�s primary U.S. broker-dealer subsidiaries, MS&Co. and MSSB LLC, are registered broker-dealers with the SEC and in all 50 states, the District of Columbia, Puerto Rico and the U.S.
Virgin Islands, and are members of various self-regulatory organizations, including the Financial Industry Regulatory Authority, Inc. (�FINRA�), and various securities exchanges and clearing organizations. In addition, MS&Co. and MSSB
LLC are registered investment advisers with the SEC. Broker-dealers are subject to laws and regulations covering all aspects of the securities business, including sales and trading practices, securities offerings, publication of research reports,
use of customers� funds and securities, capital structure, recordkeeping and retention, and the conduct of their directors, officers, representatives and other associated persons. Broker-dealers are also regulated by securities administrators
in those states where they do business. Violations of the laws and regulations governing a broker-dealer�s actions could result in censures, fines, the issuance of cease-and-desist orders, revocation of licenses or registrations, the suspension
or expulsion from the securities industry of such broker-dealer or its officers or employees, or other similar consequences by both federal and state securities administrators. The Dodd-Frank Act includes various provisions that affect the regulation of
broker-dealer sales practices and customer relationships. For example, the SEC is authorized to adopt a fiduciary duty applicable to broker-dealers when providing personalized investment advice about securities to retail customers. The Dodd-Frank
Act also created a new category of regulation for �municipal advisors,� which are subject to a fiduciary duty with respect to certain activities. The U.S. Department of Labor is considering revisions to regulations under the Employee
Retirement Income Security Act of 1974 that could subject broker-dealers to a fiduciary duty and prohibit specified transactions for a wider range of customer interactions. If the SEC exercises authority provided to it under the Dodd-Frank Act to
prohibit or limit the use of mandatory pre-dispute arbitration agreements between a broker-dealer and its customers, it may materially increase the Company�s litigation costs. These developments 13 Table of Contents may impact the manner in which affected businesses are conducted, decrease profitability and increase potential liabilities. Margin lending by broker-dealers is regulated by the Federal Reserve�s
restrictions on lending in connection with customer and proprietary purchases and short sales of securities, as well as securities borrowing and lending activities. Broker-dealers are also subject to maintenance and other margin requirements imposed
under FINRA and other self-regulatory organization rules. In many cases, the Company�s broker-dealer subsidiaries� margin policies are more stringent than these rules. As registered U.S. broker-dealers, certain subsidiaries of the Company are
subject to the SEC�s net capital rule and the net capital requirements of various exchanges, other regulatory authorities and self-regulatory organizations. Many non-U.S. regulatory authorities and exchanges also have rules relating to capital
and, in some cases, liquidity requirements that apply to the Company�s non-U.S. broker-dealer subsidiaries. These rules are generally designed to measure general financial integrity and/or liquidity and require that at least a minimum amount of
net and/or more liquid assets be maintained by the subsidiary. See also ��Financial Holding Company�Consolidated Supervision� and ��Financial Holding Company�Capital and Liquidity Standards� above. Rules of
FINRA and other self-regulatory organizations also impose limitations and requirements on the transfer of member organizations� assets. Compliance with regulatory capital requirements may limit the Company�s operations requiring the intensive use of capital. Such requirements restrict
the Company�s ability to withdraw capital from its broker-dealer subsidiaries, which in turn may limit its ability to pay dividends, repay debt, or redeem or purchase shares of its own outstanding stock. Any change in such rules or the
imposition of new rules affecting the scope, coverage, calculation or amount of capital requirements, or a significant operating loss or any unusually large charge against capital, could adversely affect the Company�s ability to pay dividends
or to expand or maintain present business levels. In addition, such rules may require the Company to make substantial capital infusions into one or more of its broker-dealer subsidiaries in order for such subsidiaries to comply with such rules. MS&Co. and MSSB LLC are members of the Securities Investor
Protection Corporation (�SIPC�), which provides protection for customers of broker-dealers against losses in the event of the insolvency of a broker-dealer. SIPC protects customers� eligible securities held by a member broker-dealer
up to $500,000 per customer for all accounts in the same capacity subject to a limitation of $250,000 for claims for uninvested cash balances. To supplement this SIPC coverage, each of MS&Co. and MSSB LLC have purchased additional protection for
the benefit of their customers in the form of an annual policy issued by certain underwriters and various insurance companies that provides protection for each eligible customer above SIPC limits subject to an aggregate firmwide cap of $1 billion
with no per client sublimit for securities and a $1.9 million per client limit for the cash portion of any remaining shortfall. As noted under ��Financial Holding Company�Systemic Risk Regime� above, the Dodd-Frank Act contains
special provisions for the orderly liquidation of covered financial institutions (which could potentially include MS&Co. and/or MSSB LLC). While these provisions are generally intended to provide customers of covered broker-dealers with
protections at least as beneficial as they would enjoy in a broker-dealer liquidation proceeding under the Securities Investor Protection Act, the details and implementation of such protections are subject to further rulemaking. Over the past few years, the SEC has undertaken a review of a wide range of
equity market structure issues. As a part of this review, the SEC has adopted new regulations and proposed various rules regarding market transparency and stability. A new short sale uptick rule that limits the ability to sell short securities that
have experienced specified price declines is now in effect. The SEC also adopted rules requiring broker-dealers to maintain risk management controls and supervisory procedures with respect to providing access to securities markets, which became
fully effective in 2012. In July 2012, the SEC adopted a consolidated audit trail rule, which, when fully implemented, will require large broker-dealers to report into one consolidated audit trail comprehensive information about every material event
in the lifecycle of every quote, order, and execution in all exchange-listed stocks and options. It is possible that the SEC or self-regulatory organizations could propose or adopt additional market structure rules in the future. The provisions, new
rules and proposals discussed above 14 Table of Contents could result in increased costs and could otherwise adversely affect trading volumes and other conditions in the markets in which we operate. Regulation of Futures Activities and Certain Commodities
Activities. As futures commission merchants, MS&Co. and MSSB LLC are subject to net capital requirements of, and their activities are regulated by, the U.S. Commodity Futures Trading Commission (the
�CFTC�) and various commodity futures exchanges. The Company�s futures and options-on-futures also are regulated by the National Futures Association (�NFA�), a registered futures association, of which MS&Co. and MSSB LLC
and certain of their affiliates are members. These regulatory requirements address obligations related to, among other things, the segregation of customer funds and the holding apart of a secured amount, the use of customer funds, recordkeeping and
reporting obligations, risk disclosure and discretionary trading. MS&Co. and MSSB LLC have affiliates that are registered as commodity trading advisors and/or commodity pool operators, or are operating under certain exemptions from such
registration pursuant to CFTC rules and other guidance. Under CFTC and NFA rules, commodity trading advisors who manage accounts and are registered with the NFA must distribute disclosure documents and maintain specified records relating to their
activities, and clients and commodity pool operators have certain responsibilities with respect to each pool they operate. Violations of the rules of the CFTC, the NFA or the commodity exchanges could result in remedial actions, including fines,
registration restrictions or terminations, trading prohibitions or revocations of commodity exchange memberships. The Company�s commodities activities are subject to extensive and evolving energy, commodities, environmental, health and safety and other governmental laws and regulations in the U.S. and abroad.
Intensified scrutiny of certain energy markets by U.S. federal, state and local authorities in the U.S. and abroad and by the public has resulted in increased regulatory and legal enforcement and remedial proceedings involving energy companies,
including those engaged in power generation and liquid hydrocarbons trading. Terminal facilities and other assets relating to the Company�s commodities activities also are subject to environmental laws both in the U.S. and abroad. In addition,
pipeline, transport and terminal operations are subject to state laws in connection with the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by us or locations to which we have sent
wastes for disposal. See also ��Financial Holding Company�Scope of Permitted Activities� above. Derivatives Regulation. Through the Dodd-Frank Act, the Company will face a comprehensive U.S. regulatory regime for its activities in certain OTC derivatives. The
regulation of �swaps� and �security-based swaps� (collectively, �Swaps�) in the U.S. will be effected and implemented through the CFTC, SEC and other agency regulations, which are currently being adopted. The Dodd-Frank Act requires central clearing of certain types of Swaps,
public and regulatory reporting, and mandatory trading on regulated exchanges or execution facilities. These requirements are subject to some exceptions and will be phased in over time, with the first clearing requirements coming into effect for
certain swaps with certain counterparties beginning in March 2013. When fully implemented, market participants, including the Company�s entities engaging in Swaps, will have to centrally clear, report and trade on an exchange or execution
facility certain Swap transactions that are currently uncleared, not reported publicly and executed bilaterally. The Dodd-Frank Act also requires the registration of �swap dealers� and �major swap participants� with the CFTC and �security-based swap dealers� and �major
security-based swap participants� with the SEC (collectively, �Swaps Entities�). Certain of the Company�s subsidiaries have registered with the CFTC as swap dealers and in the future additional subsidiaries may register with the
CFTC as swap dealers. Certain subsidiaries of the Company will in the future be required to register with the SEC as security-based swap dealers. Swaps Entities are subject to a comprehensive regulatory regime with new obligations for the Swaps activities for which they are registered, including new
capital requirements, a new margin regime for uncleared Swaps and a new segregation regime for collateral of counterparties to uncleared Swaps. Swaps Entities are subject to 15 Table of Contents additional duties, including, among others, internal and external business conduct and documentation standards with respect to their Swaps counterparties, recordkeeping and reporting. Certain
subsidiaries of the Company will be or are also subject to new rules under the Dodd-Frank Act regarding segregation of customer collateral for cleared transactions, large trader reporting regimes, compensation requirements and anti-fraud and
anti-manipulation requirements related to activities in Swaps. The specific parameters of these requirements for Swaps are being developed through CFTC, SEC and bank regulator rulemakings. While some of these
requirements are already final and effective, others are subject to further rulemaking or deferred compliance dates. In particular, the CFTC, SEC and the banking regulators have proposed, but not yet adopted, rules regarding margin and capital
requirements for Swaps Entities. Furthermore, in July 2012 and again in February 2013, the Basel Committee and the International Organization of Securities Commissions released a consultative document proposing margin requirements for
non-centrally-cleared derivatives. The full impact of these proposals on the Company will not be known with certainty until the rules are finalized. Although the full impact of U.S. derivatives regulation on the Company remains unclear, the Company will face increased costs and regulatory oversight due
to the registration and regulatory requirements indicated above. Complying with the Swaps rules also has required, and will in the future require, the Company to restructure its Swaps businesses, and has required, and will in the future require,
extensive systems and personnel changes, and raise additional potential liabilities. Compliance with Swap-related partially finalized regulatory capital requirements may require the Company to devote more capital to its Swaps business. The
extraterritorial impact of the rules also remains unclear. The
E.U. and other non-U.S. jurisdictions are in the process of adopting and implementing legislation emanating from the G20 commitments that will require, among other things, the central clearing of certain OTC derivatives, mandatory reporting of
derivatives and bilateral risk mitigation procedures for non-cleared trades. It is unclear at present how the non-U.S. and U.S. derivatives regulatory regimes will interact. Non-U.S. Regulation. The Company�s
institutional securities businesses also are regulated extensively by non-U.S. regulators, including governments, securities exchanges, commodity exchanges, self-regulatory organizations, central banks and regulatory bodies, especially in those
jurisdictions in which the Company maintains an office. Non-U.S. policy makers and regulators, including the European Commission and European Supervisory Authorities, continue to propose and adopt numerous market reforms, including those that may
further impact the structure of banks, and formulate regulatory standards and measures that will be of relevance and importance to the Company�s European operations. Certain Morgan Stanley subsidiaries are regulated as broker-dealers under the
laws of the jurisdictions in which they operate. Subsidiaries engaged in banking and trust activities outside the U.S. are regulated by various government agencies in the particular jurisdiction where they are chartered, incorporated and/or conduct
their business activity. For instance, the United Kingdom (�U.K.�) Financial Services Authority (�FSA�), which is expected to be replaced by the Prudential Regulatory Authority and the Financial Conduct Authority on April�1,
2013, and several U.K. securities and futures exchanges, including the London Stock Exchange and Euronext.liffe, regulate the Company�s activities in the U.K.; the Bundesanstalt f�r Finanzdienstleistungsaufsicht (the Federal Financial
Supervisory Authority) and the Deutsche B�rse AG regulate its activities in the Federal Republic of Germany; Eidgen�ssische Finanzmarktaufsicht (the Financial Market Supervisory Authority) regulates its activities in Switzerland; the
Financial Services Agency, the Bank of Japan, the Japanese Securities Dealers Association and several Japanese securities and futures exchanges, including the Tokyo Stock Exchange, the Osaka Securities Exchange and the Tokyo International Financial
Futures Exchange, regulate its activities in Japan; the Hong Kong Securities and Futures Commission, the Hong Kong Monetary Authority and the Hong Kong Exchanges and Clearing Limited regulate its operations in Hong Kong; and the Monetary Authority
of Singapore and the Singapore Exchange Limited regulate its business in Singapore. Asset Management. Many of the subsidiaries engaged in the Company�s asset management activities are registered as investment advisers with the SEC. Many aspects of the Company�s asset management activities are
subject to federal and 16 Table of Contents state laws and regulations primarily intended to benefit the investor or client. These laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including
the power to limit or restrict the Company from carrying on its asset management activities in the event that it fails to comply with such laws and regulations. Sanctions that may be imposed for such failure include the suspension of individual
employees, limitations on the Company engaging in various asset management activities for specified periods of time or specified types of clients, the revocation of registrations, other censures and significant fines. In order to facilitate its
asset management business, the Company owns a registered U.S. broker-dealer, Morgan Stanley Distribution, Inc., which acts as distributor to the Morgan Stanley mutual funds and as placement agent to certain private investment funds managed by the
Company�s asset management business segment. See also ��Institutional Securities and Global Wealth Management Group�Broker-Dealer Regulation� above. As a result of the passage of the Dodd-Frank Act, the Company�s asset
management activities will be subject to certain additional laws and regulations, including, but not limited to, additional reporting and recordkeeping requirements (including with respect to clients that are private funds), restrictions on
sponsoring or investing in, or maintaining certain other relationships with, hedge funds and private equity funds under the Volcker Rule (subject to certain limited exceptions) and certain rules and regulations regarding trading activities,
including trading in derivatives markets. Many of these new requirements may increase the expenses associated with the Company�s asset management activities and/or reduce the investment returns the Company is able to generate for its asset
management clients. Many important elements of the Dodd-Frank Act will not be known until rulemaking is finalized and certain final regulations are adopted. See also ��Financial Holding Company�Activities Restrictions under the
Volcker Rule� and ��Institutional Securities and Global Wealth Management Group�Derivatives Regulation� above. The Company�s Asset Management business is also regulated outside the U.S. For example, the FSA regulates the Company�s business in the U.K.;
the Financial Services Agency regulates the Company�s business in Japan; the Securities and Exchange Board of India regulates the Company�s business in India; and the Monetary Authority of Singapore regulates the Company�s business in
Singapore. European and local regulators are proposing additional obligations on the management and marketing of funds in the E.U. Anti-Money Laundering and Economic Sanctions. The Company�s Anti-Money Laundering (�AML�) program is coordinated on an enterprise-wide basis. In the U.S., for example, the Bank Secrecy
Act, as amended by the USA PATRIOT Act of 2001, imposes significant obligations on financial institutions to detect and deter money laundering and terrorist financing activity, including requiring banks, bank holding company subsidiaries,
broker-dealers, futures commission merchants, and mutual funds to implement AML programs, verify the identity of customers that maintain accounts, and monitor and report suspicious activity to appropriate law enforcement or regulatory authorities.
Outside the U.S., applicable laws, rules and regulations similarly require designated types of financial institutions to implement AML programs. The Company has implemented policies, procedures and internal controls that are designed to comply with
all applicable AML laws and regulations. The Company has also implemented policies, procedures, and internal controls that are designed to comply with the regulations and economic sanctions programs administered by the U.S. Treasury�s Office of
Foreign Assets Control (�OFAC�), which enforces economic and trade sanctions against targeted foreign countries, entities and individuals based on external threats to the U.S. foreign policy, national security, or economy; by other
governments; or by global or regional multilateral organizations, such as the United Nations Security Council and the E.U. as applicable. Anti-Corruption. The Company is subject to applicable anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, in the jurisdictions
in which it operates. Anti-corruption laws generally prohibit offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a government official or private party in order to influence official
action or otherwise gain an unfair business advantage, such as to obtain or retain business. The Company has implemented policies, procedures, and internal controls that are designed to comply with such laws, rules and regulations. 17 Table of Contents Protection of Client Information. Many aspects of the Company�s business are subject to legal requirements concerning the use and protection of certain
customer information, including those adopted pursuant to the Gramm-Leach-Bliley Act and the Fair and Accurate Credit Transactions Act of 2003 in the U.S., the E.U. Data Protection Directive and various laws in Asia, including the Japanese Personal
Information (Protection) Law, the Hong Kong Personal Data (Protection) Ordinance and the Australian Privacy Act. The Company has adopted measures designed to comply with these and related applicable requirements in all relevant jurisdictions. Research. Both U.S. and non-U.S. regulators continue to focus on research conflicts of
interest. Research-related regulations have been implemented in many jurisdictions. New and revised requirements resulting from these regulations and the global research settlement with U.S. federal and state regulators (to which the Company is a
party) have necessitated the development or enhancement of corresponding policies and procedures. Compensation Practices and Other Regulation. The Company�s compensation practices are subject to oversight by the Federal Reserve. In particular, the Company is subject to the Federal Reserve�s guidance that is designed to help ensure that
incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations� safety and soundness. The scope and content of the Federal Reserve�s policies on executive compensation are
continuing to develop and may change based on findings from its peer review process, and the Company expects that these policies will evolve over a number of years. The Company is subject to the compensation-related provisions of the
Dodd-Frank Act, which may impact its compensation practices. Pursuant to the Dodd-Frank Act, among other things, federal regulators, including the Federal Reserve, must prescribe regulations to require covered financial institutions, including the
Company, to report the structures of all of their incentive-based compensation arrangements and prohibit incentive-based payment arrangements that encourage inappropriate risks by providing employees, directors or principal shareholders with
compensation that is excessive or that could lead to material financial loss to the covered financial institution. In April 2011, seven federal agencies, including the Federal Reserve, jointly proposed an interagency rule implementing this
requirement. The rule has not yet been finalized. Further, pursuant to the Dodd-Frank Act, the SEC must direct listing exchanges to require companies to implement policies relating to disclosure of incentive-based compensation that is based on
publicly reported financial information and the clawback of such compensation from current or former executive officers following certain accounting restatements. In addition to the guidelines issued by the Federal Reserve and referenced
above, the Company�s compensation practices may also be impacted by other regulations promulgated in accordance with the Financial Stability Board compensation principles and standards. These standards are to be implemented by local regulators,
including in the U.K., where the remuneration of employees of certain banks is governed by the Remuneration Code. For a discussion of certain risks relating to the Company�s regulatory environment, see �Risk Factors� in Part I, Item 1A herein. Executive Officers of Morgan Stanley. The executive officers of Morgan Stanley and their ages and titles as of
February 26, 2013 are set forth below. Business experience for the past five years is provided in accordance with SEC rules. 18 Table of Contents Gregory J. Fleming (49) .����Executive Vice President (since February 2010),
President of Asset Management (since February 2010) and President of Global Wealth Management Group of Morgan Stanley (since January 2011). President of Research of Morgan Stanley (February 2010 to January 2011). Senior Research Scholar at Yale Law
School and Distinguished Visiting Fellow of the Center for the Study of Corporate Law at Yale Law School (January 2009 to December 2009). President of Merrill Lynch�& Co., Inc. (�Merrill Lynch�) (February 2008 to January 2009).
Co-President of Merrill Lynch (May 2007 to February 2008). Executive Vice President and Co-President of the Global Markets and Investment Banking Group of Merrill Lynch (August 2003 to May 2007). James P. Gorman (54) .����Chairman of the Board of
Directors and Chief Executive Officer of Morgan Stanley (since January 2012). President and Chief Executive Officer (January 2010 through December 2011) and member of the Board of Directors (since January 2010). Co-President (December 2007 to
December 2009) and Co-Head of Strategic Planning (October 2007 to December 2009). President and Chief Operating Officer of Global Wealth Management Group (February 2006 to April 2008). Eric F. Grossman (46) .����Executive Vice President and Chief Legal Officer of Morgan Stanley (since
January 2012). Global Head of Legal (September 2010 to January 2012). Global Head of Litigation (January 2006 to September 2010) and General Counsel of the Americas (May 2009 to September 2010). General Counsel of Global Wealth Management Group
(November 2008 to June 2009) and General Counsel of Morgan Stanley Wealth Management (June 2009 to September 2010). Partner at the law firm of Davis Polk�& Wardwell LLP (June 2001 to December 2005). Keishi Hotsuki (50) .����Chief Risk Officer of
Morgan Stanley (since May 2011). Interim Chief Risk Officer (January 2011 to May 2011) and Head of Market Risk Department (since March 2008). Director of Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (since May 2010). Global Head of Market Risk
Management at Merrill Lynch (June 2005 to September 2007). Colm Kelleher (55) .����Executive Vice President (since October 2007) and President of Institutional Securities (since January
2013). Co-President of Institutional Securities of Morgan Stanley (January 2010 to December 2012). Chief Financial Officer and Co-Head of Strategic Planning (October 2007 to December 2009). Head of Global Capital Markets (February 2006 to October
2007). Co-Head of Fixed Income Europe (May 2004 to February 2006). Ruth Porat (55) .����Executive Vice President and Chief Financial Officer of Morgan Stanley (since January 2010). Vice Chairman
of Investment Banking (September 2003 to December 2009). Global Head of Financial Institutions Group (September 2006 to December 2009) and Chairman of the Financial Sponsors Group (July 2004 to September 2006) within Investment Banking. James A. Rosenthal (59) .����Executive Vice
President and Chief Operating Officer of Morgan Stanley (since January 2011). Head of Corporate Strategy (January 2010 to May 2011). Chief Operating Officer of Morgan Stanley Wealth Management (January 2010 to August 2011). Head of Firmwide
Technology and Operations of Morgan Stanley (March 2008 to January 2010). Chief Financial Officer of Tishman Speyer (May 2006 to March�2008). 19 Table of Contents Item�1A.����Risk
Factors. Liquidity and Funding Risk. Liquidity and funding risk refers to the risk that we will be unable to
finance our operations due to a loss of access to the capital markets or difficulty in liquidating our assets. Liquidity and funding risk also encompasses our ability to meet our financial obligations without experiencing significant business
disruption or reputational damage that may threaten our viability as a going concern. For more information on how we monitor and manage liquidity and funding risk, see �Management�s Discussion and Analysis of Financial Condition and
Results of Operations�Liquidity and Capital Resources� in Part II, Item�7 herein. Liquidity is essential to our businesses and we rely on external sources to finance a significant portion of our operations. Liquidity is essential to our businesses. Our liquidity could be negatively affected by our inability to raise funding in the
long-term or short-term debt capital markets or our inability to access the secured lending markets. Factors that we cannot control, such as disruption of the financial markets or negative views about the financial services industry generally,
including concerns regarding the European sovereign debt crisis or fiscal matters in the U.S., could impair our ability to raise funding. In addition, our ability to raise funding could be impaired if investors or lenders develop a negative
perception of our long-term or short-term financial prospects due to factors such as if we were to incur large trading losses, are downgraded by the rating agencies, suffer a decline in the level of our business activity, or if regulatory
authorities take significant action against us, or we discover significant employee misconduct or illegal activity. If we are unable to raise funding using the methods described above, we would likely need to finance or liquidate unencumbered
assets, such as our investment and trading portfolios, to meet maturing liabilities. We may be unable to sell some of our assets, or we may have to sell assets at a discount from market value, either of which could adversely affect our results of
operations, cash flows and financial condition. Global markets
and economic conditions have been negatively impacted by the European sovereign debt crisis. The continued uncertainty over the outcome of the E.U. governments� financial support programs and the possibility that other E.U. member states may
experience similar financial troubles could further disrupt global markets. In particular, it has and could in the future disrupt equity markets and result in volatile bond yields on the sovereign debt of E.U. members. These factors, or market
perceptions concerning such matters, could have an adverse effect on our business, financial condition and liquidity. In particular, in connection with certain of our Institutional Securities business segment activities, we have exposure to European
peripheral countries, which are defined as exposures in Greece, Ireland, Italy, Portugal and Spain (the �European Peripherals�). At December�31, 2012, exposure before hedges to the European Peripherals was approximately $7,590 million
and net exposure after hedges was approximately $6,346 million. Exposure includes obligations from sovereign governments, corporations, and financial institutions. In addition, at December�31, 2012, we had European Peripherals exposure for
overnight deposits with banks of approximately $81 million. See �Quantitative and Qualitative Disclosure about Market Risk�Credit Risk�Country Risk Exposure�Select European Countries� in Part II, Item�7A herein. Our borrowing costs and access to the debt capital markets
depend significantly on our credit ratings. The cost and
availability of unsecured financing generally are impacted by our short-term and long-term credit ratings. The rating agencies are continuing to monitor certain issuer specific factors that are important to the determination of our credit ratings
including governance, the level and quality of earnings, capital adequacy, funding and liquidity, risk appetite and management, asset quality, strategic direction, and business mix. Additionally, the rating agencies will look at other industry-wide
factors such as regulatory or legislative changes, macro-economic environment, and perceived levels of government support, and it is possible that they could downgrade our ratings and those of similar institutions. See also �Management�s
Discussion and Analysis of Financial Condition and Results of Operation�Liquidity and Capital Resources�Credit Ratings� in Part II, Item�7 herein. 20 Table of Contents Our credit ratings also can have a significant impact on certain trading revenues, particularly in those
businesses where longer term counterparty performance is a key consideration, such as OTC derivative transactions, including credit derivatives and interest rate swaps. In connection with certain OTC trading agreements and certain other agreements
associated with the Institutional Securities business segment, we may be required to provide additional collateral to, or immediately settle any outstanding liability balance with, certain counterparties in the event of a credit ratings downgrade.
Termination of our trading and other agreements could cause us to sustain losses and impair our liquidity by requiring us to find other sources of financing or to make significant cash payments or securities movements. Our long-term credit ratings
by Moody�s Investor Services, Inc (�Moody�s�) and Standard�& Poor�s Financial Services LLC (�S&P�) are currently at different levels (commonly referred to as �split ratings�). At
December�31, 2012, the amounts of future potential collateral amounts that could be called by counterparties under the terms of such OTC trading agreements and other agreements in the event of a downgrade of our long-term credit rating under
various scenarios for Moody�s and S&P were as follows: $472 million (Baa1 Moody�s/BBB+ S&P); $2,556 million (Baa2 Moody�s/BBB S&P); and $3,574 million (Baa3 Moody�s/BBB- S&P). In addition, we are required to
pledge additional collateral to certain exchanges and clearing organizations in the event of a credit rating downgrade. At December�31, 2012, the increased collateral requirement at certain exchanges and clearing organizations under various
scenarios was zero (Baa1 Moody�s/BBB+ S&P); zero (Baa2 Moody�s/BBB S&P); and $128 million (Baa3 Moody�s/BBB- S&P). We are a holding company and depend on payments from our subsidiaries. The parent holding company depends on dividends, distributions and other
payments from its subsidiaries to fund dividend payments and to fund all payments on its obligations, including debt obligations. Regulatory, tax restrictions or elections and other legal restrictions may limit our ability to transfer funds freely,
either to or from our subsidiaries. In particular, many of our subsidiaries, including our broker-dealer subsidiaries, are subject to laws, regulations and self-regulatory organization rules that authorize regulatory bodies to block or reduce the
flow of funds to the parent holding company, or that prohibit such transfers altogether in certain circumstances. These laws, regulations and rules may hinder our ability to access funds that we may need to make payments on our obligations.
Furthermore, as a bank holding company, we may become subject to a prohibition or to limitations on our ability to pay dividends or repurchase our stock. The OCC, the Federal Reserve and the FDIC have the authority, and under certain circumstances
the duty, to prohibit or to limit the payment of dividends by the banking organizations they supervise, including us and our bank company subsidiaries. Our liquidity and financial condition have in the past been, and in the future could be, adversely affected by U.S. and international markets and
economic conditions. Our ability to raise funding in the
long-term or short-term debt capital markets or the equity markets, or to access secured lending markets, has in the past been, and could in the future be, adversely affected by conditions in the U.S. and international markets and economy. Global
market and economic conditions have been particularly disrupted and volatile in the last several years and continue to be, including as a result of the European sovereign debt crisis, and uncertainty regarding U.S. fiscal matters. In particular, our
cost and availability of funding have been, and may in the future be, adversely affected by illiquid credit markets and wider credit spreads. Continued turbulence in the U.S., the E.U. and other international markets and economies could adversely
affect our liquidity and financial condition and the willingness of certain counterparties and customers to do business with us. Market Risk. Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, implied volatilities (the price volatility of the underlying instrument imputed from option prices),
correlations or other market factors, such as market liquidity, will result in losses for a position or portfolio. For more information on how we monitor and manage market risk, see �Quantitative and Qualitative Disclosure about Market
Risk� in Part II, Item�7A herein. 21 Table of Contents Our results of operations may be materially affected by market fluctuations and by global and economic
conditions and other factors. Our results of operations
may be materially affected by market fluctuations due to global and economic conditions and other factors. Our results of operations in the past have been, and in the future may continue to be, materially affected by many factors, including the
effect of economic and political conditions and geopolitical events; the effect of market conditions, particularly in the global equity, fixed income, credit and commodities markets, including corporate and mortgage (commercial and residential)
lending and commercial real estate markets; the impact of current, pending and future legislation (including the Dodd-Frank Act), regulation (including capital, leverage and liquidity requirements), and legal actions in the U.S. and worldwide; the
level and volatility of equity, fixed income and commodity prices, interest rates, currency values and other market indices; the availability and cost of both credit and capital as well as the credit ratings assigned to our unsecured short-term and
long-term debt; investor, consumer and business sentiment and confidence in the financial markets; the performance of our acquisitions, joint ventures, strategic alliances or other strategic arrangements (including the Wealth Management Joint
Venture and with Mitsubishi UFJ Financial Group, Inc. (�MUFG�)); our reputation; inflation, natural disasters, and acts of war or terrorism; the actions and initiatives of current and potential competitors, as well as governments,
regulators and self-regulatory organizations; the effectiveness of our risk management policies; and technological changes; or a combination of these or other factors. In addition, legislative, legal and regulatory developments related to our
businesses are likely to increase costs, thereby affecting results of operations. These factors also may have an adverse impact on our ability to achieve our strategic objectives. The results of our Institutional Securities business segment, particularly
results relating to our involvement in primary and secondary markets for all types of financial products, are subject to substantial fluctuations due to a variety of factors, such as those enumerated above that we cannot control or predict with
great certainty. These fluctuations impact results by causing variations in new business flows and in the fair value of securities and other financial products. Fluctuations also occur due to the level of global market activity, which, among other
things, affects the size, number and timing of investment banking client assignments and transactions and the realization of returns from our principal investments. During periods of unfavorable market or economic conditions, the level of individual
investor participation in the global markets, as well as the level of client assets, may also decrease, which would negatively impact the results of our Global Wealth Management Group business segment. In addition, fluctuations in global market
activity could impact the flow of investment capital into or from assets under management or supervision and the way customers allocate capital among money market, equity, fixed income or other investment alternatives, which could negatively impact
our Asset Management business segment. We may experience
declines in the value of our financial instruments and other losses related to volatile and illiquid market conditions. Market volatility, illiquid market conditions and disruptions in the credit markets have made it extremely difficult to value certain of our securities,
particularly during periods of market displacement. Subsequent valuations, in light of factors then prevailing, may result in significant changes in the values of these securities in future periods. In addition, at the time of any sales and
settlements of these securities, the price we ultimately realize will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value. Any of these factors could cause a decline in the value of
our securities portfolio, which may have an adverse effect on our results of operations in future periods. In addition, financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Under these extreme conditions, hedging and
other risk management strategies may not be as effective at mitigating trading losses as they would be under more normal market conditions. Moreover, under these conditions market participants are particularly exposed to trading strategies employed
by many market participants simultaneously and on a large scale, such as crowded trades. 22 Table of Contents Our risk management and monitoring processes seek to quantify and mitigate risk to more extreme market moves. However, severe market events have historically been difficult to predict, as seen in
the last several years, and we could realize significant losses if extreme market events were to occur. Holding large and concentrated positions may expose us to losses. Concentration of risk may reduce revenues or result in losses in our market-making, investing, block trading, underwriting and lending businesses in the
event of unfavorable market movements. We commit substantial amounts of capital to these businesses, which often results in our taking large positions in the securities of, or making large loans to, a particular issuer or issuers in a particular
industry, country or region. We have incurred, and may
continue to incur, significant losses in the real estate sector. We finance and acquire principal positions in a number of real estate and real estate-related products for our own account, for investment vehicles managed by affiliates in which we also may have a
significant investment, for separate accounts managed by affiliates and for major participants in the commercial and residential real estate markets. We also originate loans secured by commercial and residential properties. Further, we securitize and trade in a wide range of commercial and residential
real estate and real estate-related whole loans, mortgages and other real estate and commercial assets and products, including residential and commercial mortgage-backed securities. These businesses have been, and may continue to be, adversely
affected by the downturn in the real estate sector. In connection with these activities, we have provided, or otherwise agreed to be responsible for, certain representations and warranties. Under certain circumstances, we may be required to
repurchase such assets or make other payments related to such assets if such representations and warranties were breached. Between 2004 and December�31, 2012, we sponsored approximately $148 billion of residential mortgage-backed securities
(�RMBS�) primarily containing U.S. residential loans. Of that amount, we made representations and warranties concerning approximately $47 billion of loans and agreed to be responsible for the representations and warranties made by
third-party sellers, many of which are now insolvent, on approximately $21 billion of loans. At December�31, 2012, the current unpaid principal balance (�UPB�) for all the residential assets subject to such representations and
warranties was approximately $20.1 billion and the cumulative losses associated with U.S. RMBS were approximately $12.3 billion. We did not make, or otherwise agree to be responsible, for the representations and warranties made by third party
sellers on approximately $80 billion of residential loans that we securitized during that time period. We have not sponsored any U.S. RMBS transactions since 2007. We have also made representations and warranties in connection with our role
as an originator of certain commercial mortgage loans that we securitized in commercial mortgage-backed securities (�CMBS�). Between 2004 and December�31, 2012, we originated approximately $45 billion and $21 billion of U.S. and
non-U.S. commercial mortgage loans, respectively, that were placed into CMBS sponsored by us. At December�31, 2012, the current UPB for all U.S. commercial mortgage loans subject to such representations and warranties was $33.2�billion. At
December�31, 2012, the current UPB when known for all non-U.S. commercial mortgage loans, subject to such representations and warranties was approximately $6.3 billion and the UPB at the time of sale when the current UPB is not known was $0.4
billion. Over the last several years, the level of litigation and
investigatory activity focused on residential mortgage and credit crisis-related matters has increased materially in the financial services industry. As a result, we have been and expect that we may continue to become, the subject of increased
claims for damages and other relief regarding residential mortgages and related securities in the future. We continue to monitor our real estate-related activities in order to manage our exposures and potential liability from these markets and
businesses. See �Legal Proceedings�Residential Mortgage and Credit Crisis Related Matters� in Part I, Item�3 herein. 23 Table of Contents Credit Risk. Credit risk refers to the risk of loss arising when a borrower, counterparty
or issuer does not meet its financial obligations. For more information on how we monitor and manage credit risk, see �Quantitative and Qualitative Disclosure about Market Risk�Risk Management�Credit Risk� in Part II,
Item�7A herein. We are exposed to the risk that third
parties that are indebted to us will not perform their obligations. We incur significant credit risk exposure through the Institutional Securities business segment. This risk may arise from a variety of business activities, including but not limited to entering into swap
or other derivative contracts under which counterparties have obligations to make payments to us; extending credit to clients through various lending commitments; providing short or long-term funding that is secured by physical or financial
collateral whose value may at times be insufficient to fully cover the loan repayment amount; posting margin and/or collateral to clearing houses, clearing agencies, exchanges, banks, securities firms and other financial counterparties; and
investing and trading in securities and loan pools whereby the value of these assets may fluctuate based on realized or expected defaults on the underlying obligations or loans. We also incur credit risk in the Global Wealth Management Group business
segment lending to individual investors, including, but not limited to, margin and non-purpose loans collateralized by securities, residential mortgage loans and home equity lines of credit. While we believe current valuations and reserves adequately address our perceived levels of risk, there is a possibility that
continued difficult economic conditions may further negatively impact our clients and our current credit exposures. In addition, as a clearing member firm, we finance our customer positions and we could be held responsible for the defaults or
misconduct of our customers. Although we regularly review our credit exposures, default risk may arise from events or circumstances that are difficult to detect or foresee. A default by another large financial institution could adversely affect
financial markets generally. The commercial soundness of
many financial institutions may be closely interrelated as a result of credit, trading, clearing or other relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to
significant market-wide liquidity and credit problems, losses or defaults by other institutions. This is sometimes referred to as �systemic risk� and may adversely affect financial intermediaries, such as clearing agencies, clearing
houses, banks, securities firms and exchanges, with which we interact on a daily basis, and therefore could adversely affect us. See also �Systemic Risk Regime� under �Business�Supervision and Regulation�Financial Holding
Company� in Part I, Item�1 herein. Operational Risk. Operational risk refers to the risk of financial or other
loss, or potential damage to a firm�s reputation, resulting from inadequate or failed internal processes, people, resources and systems or from external events ( e.g. ,�fraud, legal and compliance risks or damage to physical assets).
We may incur operational risk across the full scope of our business activities, including revenue-generating activities ( e.g. , sales and trading) and control groups ( e.g. , information technology and trade processing). Legal, regulatory
and compliance risk is included in the scope of operational risk and is discussed below under �Legal, Regulatory and Compliance Risk.� For more information on how we monitor and manage operational risk, see �Quantitative and
Qualitative Disclosures about Market Risk�Risk Management�Operational Risk� in Part II, Item�7A herein. We are subject to operational risk that could adversely affect our businesses. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous
and diverse markets in many currencies. In general, the transactions we process are increasingly complex. We perform the functions required to operate our different businesses either by ourselves or through agreements with third parties. We rely on
the ability of our employees, our internal systems and systems at technology centers operated by unaffiliated third parties to process a high volume of transactions. 24 Table of Contents We also face the risk of operational failure or termination of any of the clearing agents, exchanges,
clearing houses or other financial intermediaries we use to facilitate our securities transactions. In the event of a breakdown or improper operation of our or a third party�s systems or improper or unauthorized action by third parties or our
employees, we could suffer financial loss, an impairment to our liquidity, a disruption of our businesses, regulatory sanctions or damage to our reputation. Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems. Like other financial
services firms, we have been and continue to be subject to unauthorized access, mishandling or misuse, computer viruses or malware, cyber attacks and other events. Events such as these could have a security impact on our systems and jeopardize our
or our clients� or counterparties� personal, confidential, proprietary or other information processed and stored in, and transmitted through, our computer systems. Furthermore, such events could cause interruptions or malfunctions in our,
our clients�, our counterparties� or third parties� operations, which could result in reputational damage, litigation or regulatory fines or penalties not covered by insurance maintained by us, and adversely affect our business,
financial condition or results of operations. Despite the
business contingency plans we have in place, our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our business and the communities where we are located. This may include a disruption involving
physical site access, terrorist activities, disease pandemics, catastrophic events, electrical, environmental, communications or other services we use, our employees or third parties with whom we conduct business. Legal, Regulatory and Compliance Risk. Legal, regulatory and compliance risk includes the risk of exposure to
fines, penalties, judgments, damages and/or settlements in connection with regulatory or legal actions as a result of non-compliance with applicable legal or regulatory requirements and standards or litigation. Legal, regulatory and compliance risk
also includes contractual and commercial risk such as the risk that a counterparty�s performance obligations will be unenforceable. In today�s environment of rapid and possibly transformational regulatory change, we also view regulatory
change as a component of legal, regulatory and compliance risk. For more information on how we monitor and manage legal, regulatory and compliance risk, see �Quantitative and Qualitative Disclosures about Market Risk�Risk
Management�Legal, Regulatory and Compliance Risk� in Part II, Item�7A herein. The financial services industry is subject to extensive regulation, which is undergoing major changes that will impact our business. Like other major financial services firms, we are subject to extensive regulation by U.S. federal and state regulatory agencies
and securities exchanges and by regulators and exchanges in each of the major markets where we conduct our business. These laws and regulations significantly affect the way we do business, and can restrict the scope of our existing businesses and
limit our ability to expand our product offerings and pursue certain investments. In response to the financial crisis, legislators and regulators, both in the U.S. and worldwide, have adopted, or are currently considering enacting, financial market reforms that have resulted and could
result in major changes to the way our global operations are regulated. In particular, as a result of the Dodd-Frank Act, we are, or will become, subject to (among other things) significantly revised and expanded regulation and supervision, to more
intensive scrutiny of our businesses and any plans for expansion of those businesses, to new activities limitations, to a systemic risk regime that will impose heightened capital and liquidity requirements to new restrictions on activities and
investments imposed by the Volcker Rule, and to comprehensive new derivatives regulation. While certain portions of the Dodd-Frank Act were effective immediately, other portions will be effective following extended transition periods or through
numerous rule makings by multiple government agencies, and only a portion of those rulemakings have been completed. Many of the changes required by the Dodd-Frank Act could in the future materially impact the profitability of our businesses and the
value of assets we hold, expose us to 25 Table of Contents additional costs, require changes to business practices or force us to discontinue businesses, adversely affect our ability to pay dividends, or require us to raise capital, including in ways
that may adversely impact our shareholders or creditors. While there continues to be uncertainty about the full impact of these changes, we do know that the Company will be subject to a more complex regulatory framework, and will incur costs to
comply with new requirements as well as to monitor for compliance in the future. For example, the Volcker Rule provision of the Dodd-Frank Act will have an impact on us, including potentially limiting various aspects of our business. Although the Volcker Rule became effective on
July�21, 2012, compliance is not required until July�21, 2014, subject to possible extensions. U.S. regulators issued proposed regulations to implement the Volcker Rule in 2011 but have not yet issued final regulations. There remains
considerable uncertainty about what the final version of those regulations will be or the impact they may have on our businesses. Even after the final rules are issued, there may be continued uncertainty regarding their interpretation and impact on
our businesses. We are closely monitoring regulatory developments related to the Volcker Rule, and when the regulations are final, we will complete a review of our relevant activities and make plans to implement compliance with the Volcker Rule. The financial services industry faces substantial
litigation and is subject to regulatory investigations, and we may face damage to our reputation and legal liability. As a global financial services firm, we face the risk of investigations and proceedings by governmental and self-regulatory organizations in all countries
in which we conduct our business. Interventions by authorities may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In addition to the monetary consequences, these measures could, for example, impact our
ability to engage in, or impose limitations on, certain of our businesses. The number of these investigations and proceedings, as well as the amount of penalties and fines sought, has increased substantially in recent years with regard to many firms
in the financial services industry, including us. Significant regulatory action against us could materially adversely affect our business, financial condition or results of operations or cause us significant reputational harm, which could seriously
harm our business. The Dodd-Frank Act also provides compensation to whistleblowers who present the SEC or CFTC with information related to securities or commodities laws violations that leads to a successful enforcement action. As a result of this
compensation, it is possible we could face an increased number of investigations by the SEC or CFTC. We have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation, as well as investigations or proceedings brought by regulatory
agencies, arising in connection with our activities as a global diversified financial services institution. Certain of the actual or threatened legal or regulatory actions include claims for substantial compensatory and/or punitive damages, claims
for indeterminate amounts of damages, or may result in penalties, fines, or other results adverse to us. In some cases, the issuers that would otherwise be the primary defendants in such cases are bankrupt or in financial distress. Like any large
corporation, we are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability could materially adversely affect our business,
financial condition or results of operations or cause us significant reputational harm, which could seriously harm our business. For example, recently, the level of litigation activity focused on residential mortgage and credit crisis related
matters has increased materially in the financial services industry. As a result, we have been and expect that we may continue to become, the subject of increased claims for damages and other relief regarding residential mortgages and related
securities in the future and there can be no assurance that additional material losses will not be incurred from residential mortgage claims that have not yet been notified to us or are not yet determined to be material. For more information
regarding legal proceedings in which we are involved see �Legal Proceedings� in Part I, Item�3 herein. 26 Table of Contents Our business, financial condition and results of operations could be adversely affected by
governmental fiscal and monetary policies. We are
affected by fiscal and monetary policies adopted by regulatory authorities and bodies of the U.S. and other governments. For example, the actions of the Federal Reserve and international central banking authorities directly impact our cost of funds
for lending, capital raising and investment activities and may impact the value of financial instruments we hold. In addition, such changes in monetary policy may affect the credit quality of our customers. Changes in domestic and international
monetary policy are beyond our control and difficult to predict. Our commodities activities subject us to extensive regulation, potential catastrophic events and environmental risks and regulation that may expose
us to significant costs and liabilities. In connection
with the commodities activities in our Institutional Securities business segment, we engage in the production, storage, transportation, marketing and trading of several commodities, including metals (base and precious), agricultural products, crude
oil, oil products, natural gas, electric power, emission credits, coal, freight, liquefied natural gas and related products and indices. In addition, we are an electricity power marketer in the U.S. and own electricity generating facilities in the
U.S. and Europe; we own TransMontaigne Inc. and its subsidiaries, a group of companies operating in the refined petroleum products marketing and distribution business; and we own a minority interest in Heidmar Holdings LLC, which owns a group of
companies that provide international marine transportation and U.S. marine logistics services. As a result of these activities, we are subject to extensive and evolving energy, commodities, environmental, health and safety and other governmental
laws and regulations. In addition, liability may be incurred without regard to fault under certain environmental laws and regulations for the remediation of contaminated areas. Further, through these activities we are exposed to regulatory, physical
and certain indirect risks associated with climate change. Our commodities business also exposes us to the risk of unforeseen and catastrophic events, including natural disasters, leaks, spills, explosions, release of toxic substances, fires,
accidents on land and at sea, wars, and terrorist attacks that could result in personal injuries, loss of life, property damage, and suspension of operations. Although we have attempted to mitigate our pollution and other environmental risks by, among other measures, adopting appropriate policies and procedures
for power plant operations, monitoring the quality of petroleum storage facilities and transport vessels and implementing emergency response programs, these actions may not prove adequate to address every contingency. In addition, insurance covering
some of these risks may not be available, and the proceeds, if any, from insurance recovery may not be adequate to cover liabilities with respect to particular incidents. As a result, our financial condition, results of operations and cash flows may
be adversely affected by these events. We continue to engage in
discussions with the Federal Reserve regarding our commodities activities, as the BHC Act provides a grandfather exemption for �activities related to the trading, sale or investment in commodities and underlying physical properties,�
provided that we were engaged in �any of such activities as of September�30, 1997 in the United States� and provided that certain other conditions that are within our reasonable control are satisfied. If the Federal Reserve were to
determine that any of our commodities activities did not qualify for the BHC Act grandfather exemption, then we would likely be required to divest any such activities that did not otherwise conform to the BHC Act by the end of any extensions of the
grace period. See also �Scope of Permitted Activities� under �Business�Supervision and Regulation� in Part I, Item�1 herein. We also expect the other laws and regulations affecting our commodities business to increase in both scope and complexity. During the past several years,
intensified scrutiny of certain energy markets by federal, state and local authorities in the U.S. and abroad and the public has resulted in increased regulatory and legal enforcement, litigation and remedial proceedings involving companies engaged
in the activities in which we are engaged. For example, the U.S. and the E.U. have increased their focus on the energy markets which has resulted in increased regulation of companies participating in the energy markets, including those engaged in
power generation and 27 Table of Contents liquid hydrocarbons trading. In addition, new regulation of OTC derivatives markets in the U.S. and similar legislation proposed or adopted abroad will impose significant new costs and impose new
requirements on our commodities derivatives activities. We may incur substantial costs or loss of revenue in complying with current or future laws and regulations and our overall businesses and reputation may be adversely affected by the current
legal environment. In addition, failure to comply with these laws and regulations may result in substantial civil and criminal fines and penalties. A failure to address conflicts of interest appropriately could adversely affect our businesses and reputation. As a global financial services firm that provides products and services to a
large and diversified group of clients, including corporations, governments, financial institutions and individuals, we face potential conflicts of interest in the normal course of business. For example, potential conflicts can occur when there is a
divergence of interests between us and a client, among clients, or between an employee on the one hand and us or a client on the other. We have policies, procedures and controls that are designed to address potential conflicts of interest. However,
identifying and mitigating potential conflicts of interest can be complex and challenging, and can become the focus of media and regulatory scrutiny. Indeed, actions that merely appear to create a conflict can put our reputation at risk even if the
likelihood of an actual conflict has been mitigated. It is possible that potential conflicts could give rise to litigation or enforcement actions, which may lead to our clients being less willing to enter into transactions in which a conflict may
occur and could adversely affect our businesses and reputation. Our regulators have the ability to scrutinize our activities for potential conflicts of interest, including through detailed examinations of specific
transactions. In addition, our status as a bank holding company supervised by the Federal Reserve subjects us to direct Federal Reserve scrutiny with respect to transactions between our U.S. bank subsidiaries and their affiliates. Risk Management. Our hedging strategies and other risk management techniques may not be
fully effective in mitigating our risk exposure in all market environments or against all types of risk. We have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future. Nonetheless, our hedging strategies and other risk management
techniques may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. Some of our methods of managing risk are based upon our use of
observed historical market behavior. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures indicate. For example, market conditions over the last several years have
involved unprecedented dislocations and highlight the limitations inherent in using historical information to manage risk. Management of market, credit, liquidity, operational, legal, regulatory and compliance risks requires, among other things,
policies and procedures to record properly and verify a large number of transactions and events, and these policies and procedures may not be fully effective. Our trading risk management strategies and techniques also seek to balance our ability to
profit from trading positions with our exposure to potential losses. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate
every economic and financial outcome or the timing of such outcomes. We may, therefore, incur losses in the course of our trading activities. For more information on how we monitor and manage market and certain other risks, see �Quantitative
and Qualitative Disclosures about Market Risk�Risk Management�Market Risk� in Part II, Item�7A herein. 28 Table of Contents Competitive Environment. We face strong competition from other financial services firms, which
could lead to pricing pressures that could materially adversely affect our revenue and profitability. The financial services industry and all aspects of our businesses are intensely competitive, and we expect them to remain so. We compete with commercial banks, brokerage firms, insurance companies,
electronic trading and clearing platforms, financial data repositories, sponsors of mutual funds, hedge funds, energy companies and other companies offering financial or ancillary services in the U.S., globally and through the internet. We compete
on the basis of several factors, including transaction execution, capital or access to capital, products and services, innovation, reputation, risk appetite and price. Over time, certain sectors of the financial services industry have become more
concentrated, as institutions involved in a broad range of financial services have left businesses, been acquired by or merged into other firms or have declared bankruptcy. Such changes could result in our remaining competitors gaining greater
capital and other resources, such as the ability to offer a broader range of products and services and geographic diversity, or new competitors may emerge. We have experienced and may continue to experience pricing pressures as a result of these
factors and as some of our competitors seek to obtain market share by reducing prices. In addition, certain of our competitors may be subject to different, and in some cases, less stringent, legal and regulatory regimes, than we are, thereby putting
us at a competitive disadvantage. For more information regarding the competitive environment in which we operate, see �Business�Competition� and �Business�Supervision and Regulation� in Part I, Item�1 herein. Automated trading markets may adversely affect our business
and may increase competition. We have experienced
intense price competition in some of our businesses in recent years. In particular, the ability to execute securities trades electronically on exchanges and through other automated trading markets has increased the pressure on trading commissions or
comparable fees. The trend toward direct access to automated, electronic markets will likely continue and will likely increase as additional markets move to more automated trading models. We have experienced and it is likely that we will continue to
experience competitive pressures in these and other areas in the future as some of our competitors may seek to obtain market share by reducing prices. Our ability to retain and attract qualified employees is critical to the success of our business and the failure to do so may materially adversely
affect our performance. Our people are our most
important resource and competition for qualified employees is intense. In order to attract and retain qualified employees, we must compensate such employees at market levels. Typically, those levels have caused employee compensation to be our
greatest expense as compensation is highly variable and changes based on business and individual performance and market conditions. If we are unable to continue to attract and retain highly qualified employees, or do so at rates necessary to
maintain our competitive position, or if compensation costs required to attract and retain employees become more expensive, our performance, including our competitive position, could be materially adversely affected. The financial industry has and
may continue to experience more stringent regulation of employee compensation, including limitations relating to incentive-based compensation, clawback requirements and special taxation, which could have an adverse effect on our ability to hire or
retain the most qualified employees. International Risk. We are subject to numerous political, economic, legal,
operational, franchise and other risks as a result of our international operations which could adversely impact our businesses in many ways. We are subject to political, economic, legal, tax, operational, franchise and other risks that are inherent in operating in many countries, including
risks of possible nationalization, expropriation, price controls, capital controls, exchange controls, increased taxes and levies and other restrictive governmental actions, as well as the 29 Table of Contents outbreak of hostilities or political and governmental instability. In many countries, the laws and regulations applicable to the securities and financial services industries are uncertain and
evolving, and it may be difficult for us to determine the exact requirements of local laws in every market. Our inability to remain in compliance with local laws in a particular market could have a significant and negative effect not only on our
business in that market but also on our reputation generally. We are also subject to the enhanced risk that transactions we structure might not be legally enforceable in all cases. Various emerging market countries have experienced severe political, economic
and financial disruptions, including significant devaluations of their currencies, defaults or potential defaults on sovereign debt, capital and currency exchange controls, high rates of inflation and low or negative growth rates in their economies.
Crime and corruption, as well as issues of security and personal safety, also exist in certain of these countries. These conditions could adversely impact our businesses and increase volatility in financial markets generally. The emergence of a disease pandemic or other widespread health emergency, or
concerns over the possibility of such an emergency as well as natural disasters, terrorist activities or military actions, could create economic and financial disruptions in emerging markets and other areas throughout the world, and could lead to
operational difficulties (including travel limitations) that could impair our ability to manage our businesses around the world. As a U.S. company, we are required to comply with the economic sanctions and embargo programs administered by OFAC and similar multi-national bodies and
governmental agencies worldwide, as well as applicable anti-corruption laws in the jurisdictions in which we operate. A violation of a sanction, embargo program, or anti-corruption law, could subject us, and individual employees, to a regulatory
enforcement action as well as significant civil and criminal penalties. Acquisition and Joint Venture Risk. We may be unable to fully capture the expected value from acquisitions, joint ventures, minority stakes and strategic alliances. In connection with past or future acquisitions, joint ventures (including the Wealth Management Joint Venture) or strategic
alliances (including with MUFG), we face numerous risks and uncertainties combining or integrating the relevant businesses and systems, including the need to combine accounting and data processing systems and management controls and to integrate
relationships with clients, trading counterparties and business partners. In the case of joint ventures and minority stakes, we are subject to additional risks and uncertainties because we may be dependent upon, and subject to liability, losses or
reputational damage relating to, systems, controls and personnel that are not under our control. For example, the ownership arrangements relating to the Company�s joint venture in Japan with MUFG of their respective investment banking and securities businesses are complex. MUFG and the Company
have integrated their respective Japanese securities businesses by forming two joint venture companies, MUMSS and MSMS.�See �Management�s Discussion and Analysis of Financial Condition and Results of Operations�Other
Matters�Japanese Securities Joint Venture� in Part II, Item�7 herein. In addition, conflicts or disagreements between us and any of our joint venture partners may negatively impact the benefits to be achieved by the relevant joint venture. There is no assurance that any of our acquisitions will be successfully
integrated or yield all of the positive benefits anticipated. If we are not able to integrate successfully our past and future acquisitions, there is a risk that our results of operations, financial condition and cash flows may be materially and
adversely affected. Certain of our business initiatives,
including expansions of existing businesses, may bring us into contact, directly or indirectly, with individuals and entities that are not within our traditional client and counterparty base and may expose us to new asset classes and new markets.
These business activities expose us to new and 30 Table of Contents enhanced risks, greater regulatory scrutiny of these activities, increased credit-related, sovereign and operational risks, and reputational concerns regarding the manner in which these assets
are being operated or held. For more information regarding the
regulatory environment in which we operate, see also �Business�Supervision and Regulation� in Part I, Item�1 herein. Item�1B.����Unresolved Staff Comments. The Company, like other well-known seasoned issuers,�from time to time
receives written comments from the staff of the SEC regarding its periodic or current reports under the Exchange Act. There are no comments that remain unresolved that the Company received not less than 180 days before the end of the year to which
this report relates that the Company believes are material. 31 Table of Contents| Item�2.����Properties. |
| Location | Owned/ Leased | Lease�Expiration | Approximate�Square�
Footage as of December�31, 2012(A) | |||||
| U.S. Locations | ||||||||
| 1585 Broadway New York, New York (Global Headquarters and Institutional Securities Headquarters) | Owned | N/A | 1,346,500�square�feet | |||||
| 2000 Westchester Avenue Purchase, New York (Global Wealth Management Group Headquarters) | Owned | N/A | 597,400�square�feet | |||||
| 522 Fifth Avenue New York, New York (Asset Management Headquarters) | Owned | N/A | 581,250�square�feet | |||||
| New York, New York (Several locations) | Leased | 2013���2029 | 2,579,400�square�feet | |||||
| Brooklyn, New York (Several locations) | Leased | 2013 � 2023 | 478,850�square�feet | |||||
| Jersey City, New Jersey (Several locations) | Leased | 2013 � 2014 | 479,550�square�feet | |||||
| International Locations | ||||||||
| 20 Bank Street London (London Headquarters) | Leased | 2038 | 546,500�square�feet | |||||
| Canary Wharf London (Several locations) | Leased(B) | 2036 | 625,950�square�feet | |||||
| 1 Austin Road West Kowloon (Hong Kong Headquarters) | Leased | 2019 | 572,600 square feet | |||||
| Sapporo�s Yebisu Garden Place Ebisu, Shibuya-ku (Tokyo Headquarters) | Leased | 2013 | (C) | 302,000�square feet | ||||
| (A) | The indicated total aggregate square footage leased does not include space occupied by Morgan Stanley branch offices. |
| (B) | The Company holds the freehold interest in the land and building. |
| (C) | Option to return any amount of space up to the full space with six months prior notice. |
Table of Contents| Item�3.����Legal�Proceedings. |
Table of Contents Class Actions. Beginning in December 2007, several purported class
action complaints were filed in the United�States District Court for the Southern District of New York (the �SDNY�) asserting claims on behalf of participants in the Company�s 401(k) plan and employee stock ownership plan against
the Company and other parties, including certain present and former directors and officers, under the Employee Retirement Income Security Act of 1974 (�ERISA�). In February 2008, these actions were consolidated in a single proceeding,
styled In re Morgan Stanley ERISA Litigation . The consolidated complaint relates in large part to the Company�s subprime and other mortgage related losses, but also includes allegations regarding the Company�s disclosures, internal
controls, accounting and other matters. The consolidated complaint alleges, among other things, that the Company�s common stock was not a prudent investment and that risks associated with its common stock and its financial condition were not
adequately disclosed. Plaintiffs are seeking, among other relief, class certification, unspecified compensatory damages, costs, interest and fees. On March�26, 2012, defendants filed a renewed motion to dismiss the complaint. On March�16, 2011, a purported class action, styled Coulter v. Morgan
Stanley�& Co. Incorporated et al. , was filed in the SDNY asserting claims on behalf of participants in the Company�s 401(k) plan and employee stock ownership plan against the Company and certain current and former officers and
directors for breach of fiduciary duties under ERISA. The complaint alleges, among other things, that defendants knew or should have known that from January�2, 2008 to December�31, 2008, the plans� investment in Company stock was
imprudent given the extraordinary risks faced by the Company and its common stock during that period. Plaintiffs are seeking, among other relief, class certification, unspecified compensatory damages, costs, interest and fees. On July�20, 2011,
plaintiffs filed an amended complaint and on October�28, 2011, defendants filed a motion to dismiss the amended complaint. On February�12, 2008, a purported class action, styled Joel Stratte-McClure, et al. v. Morgan�Stanley, et al. , was filed in the SDNY
against the Company and certain present and former executives asserting claims on behalf of a purported class of persons and entities who purchased shares of the Company�s common stock during the period June�20, 2007 to December�19,
2007 and who suffered damages as a result of such purchases. The allegations in the amended complaint related in large part to the Company�s subprime and other mortgage related losses, but also included allegations regarding the Company�s
disclosures, internal controls, accounting and other matters. On August�8, 2011, defendants filed a motion to dismiss the second amended complaint, which was granted on January�18, 2013. On February�14, 2013, the plaintiffs filed a
notice of appeal in the United States Court of Appeals for the Second Circuit (the �Second Circuit�). On May�7, 2009, the Company was named as a defendant in a purported class action lawsuit brought under Sections 11, 12 and 15 of the Securities Act of 1933, as amended (the �Securities
Act�), which is now styled In re Morgan Stanley Mortgage Pass-Through Certificate Litigation and is pending in the SDNY. The third amended complaint, filed on September�30, 2011, alleges, among other things, that the registration
statements and offering documents related to the offerings of certain mortgage pass-through certificates in 2006 contained false and misleading information concerning the pools of residential loans that backed these securitizations. The plaintiffs
seek, among other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. On January�11, 2013, the court granted plaintiffs� motion for reconsideration which sought to expand the offerings
at issue in the litigation based on recent precedent from the Second Circuit. On January 31, 2013, plaintiffs filed a fourth amended complaint, in which they purport to represent investors who purchased approximately $7.82 billion in mortgage
pass-through certificates issued in 2006 by 14 trusts. Beginning
in 2007, the Company was named as a defendant in several putative class action lawsuits brought under Sections 11 and 12 of the Securities Act, related to its role as a member of the syndicates that underwrote offerings of securities and mortgage
pass-through certificates for certain non-Morgan Stanley related entities that have been exposed to subprime and other mortgage-related losses. The plaintiffs in these actions allege, among other things, that the registration statements and offering
documents for the offerings at issue contained material misstatements or omissions related to the extent to which the issuers were exposed to subprime and other mortgage-related risks and other matters and seek various forms of relief including
class certification, 34 Table of Contents unspecified compensatory and rescissionary damages, costs, interest and fees. The Company�s exposure to potential losses in these cases may be impacted by various factors including, among
other things, the financial condition of the entities that issued or sponsored the securities and mortgage pass-through certificates at issue, the principal amount of the offerings underwritten by the Company, the financial condition of
co-defendants and the willingness and ability of the issuers (or their affiliates) to indemnify the underwriter defendants. Some of these cases, including In re: Lehman Brothers Equity/Debt Securities Litigation and In re IndyMac
Mortgage-Backed Securities Litigation , relate to issuers or sponsors (or their affiliates) that have filed for bankruptcy or have been placed into receivership. In re: Lehman Brothers Equity/Debt Securities Litigation is pending in
the SDNY and relates to several offerings of debt and equity securities issued by Lehman Brothers Holdings Inc. during 2007 and 2008. The Company underwrote approximately $232 million of the principal amount of the offerings at issue. A group of
underwriter defendants, including the Company, settled the main litigation on December�2, 2012. The underwriter defendants, including the Company, continue to defend claims by investors who opted out of the settlement or who purchased
securities not covered by the settlement. In re IndyMac
Mortgage-Backed Securities Litigation is pending in the SDNY and relates to offerings of mortgage pass-through certificates issued by seven trusts sponsored by affiliates of IndyMac Bancorp during 2006 and 2007. On June�21, 2010, the court
granted in part and denied in part the underwriter defendants� motion to dismiss the amended consolidated class action complaint. The Company underwrote approximately $46�million of the principal amount of the offerings currently at issue.
In July 2011, certain putative additional plaintiffs appealed the court�s June 2011 order denying the motion to add them as additional plaintiffs as to the Company. The Company is opposing the appeals. On August�17, 2012, the court granted
class certification. On October�12, 2012, the plaintiffs filed a motion seeking to expand the offerings at issue in the litigation, relying on recent precedent from the Second Circuit. Defendants have opposed the motion. If the motion is
granted and the offerings are included in the class that is certified, the principal amount of the offerings underwritten by the Company at issue in the litigation will be approximately $1.68 billion. Luther, et al. v. Countrywide Financial Corporation, et al. , pending
in the Superior Court of the State of California, was filed on November�14, 2007 and involves claims related to the Company�s role as an underwriter of various residential mortgage backed securities offerings issued by affiliates of
Countrywide Financial Corporation. The amended complaint includes allegations that the registration statements and the offering documents contained false and misleading statements about the residential mortgage loans backing the securities.�The
Company underwrote approximately $6.3 billion of the principal amount of the offerings at issue.�On December�19, 2011, defendants moved to dismiss the complaint. In February�2012, defendants moved to stay the case pending resolution
of a securities class action brought by the same plaintiffs, styled Maine State Retirement System v. Countrywide Financial Corporation, et al. , in the United States District Court for the Central District of California. In June 2012, the
defendants removed the case to the United States District Court for the Central District of California. The motion to remand the matter was denied in August 2012. Other Litigation. On August�25,
2008, the Company and two ratings agencies were named as defendants in a purported class action related to securities issued by a SIV called Cheyne Finance PLC and Cheyne Finance LLC (together, the �Cheyne SIV�). The case is styled Abu
Dhabi Commercial Bank, et al. v. Morgan Stanley�& Co. Inc., et al. and is pending in the SDNY. The complaint alleges, among other things, that the ratings assigned to the securities issued by the SIV were false and misleading, including
because the ratings did not accurately reflect the risks associated with the subprime RMBS held by the SIV. The plaintiffs currently assert allegations of aiding and abetting fraud and negligent misrepresentation relating to approximately $852
million of securities issued by the Cheyne SIV. The plaintiffs� motion for class certification was denied in June 2010. The court denied the Company�s motion for summary judgment on the aiding and abetting fraud claim in August 2012. The
Company�s motion for summary judgment on the negligent misrepresentation claim, filed on November�30, 2012, is pending. The court has set a trial date of May�6, 2013. There are currently 14 named plaintiffs in the action claiming
damages of approximately $638 million, as well as punitive damages. 35 Table of Contents On December�14, 2009, Central Mortgage Company (�CMC�) filed a complaint against the Company,
in a matter styled Central Mortgage Company v. Morgan Stanley Mortgage Capital Holdings LLC , pending in the Court of Chancery of the State of Delaware. The complaint alleged that that Morgan Stanley Mortgage Capital Holdings LLC improperly
refused to repurchase certain mortgage loans that CMC, as servicer, was required to repurchase from the Federal Home Loan Mortgage Corporation (�Freddie Mac�) and the Federal National Mortgage Association (�Fannie Mae�). On
November�4, 2011, CMC filed an amended complaint adding claims related to its purchase of servicing rights in connection with approximately $4.1 billion of residential loans deposited into RMBS trusts sponsored by the Company. The amended
complaint asserts claims for breach of contract, quasi-contract, equitable and tort claims and seeks compensatory damages and equitable remedies, including rescission, injunctive relief, damages, restitution and disgorgement. On August�7, 2012,
the court granted in part the Company�s motion to dismiss the amended complaint. On December�23, 2009, the Federal Home Loan Bank of Seattle filed a complaint�against the Company and another defendant in�the Superior Court of the State of Washington, styled Federal
Home Loan Bank of Seattle v. Morgan Stanley�& Co. Inc., et al. The amended complaint, filed on September�28, 2010, alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain
mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by the Company was approximately $233 million.�The complaint raises claims
under the Washington State Securities Act and seeks, among other things,�to rescind�the plaintiff�s purchase of such certificates.�On October�18, 2010, defendants filed a motion to dismiss the action. By orders
dated�June 23, 2011 and July�18, 2011,�the court denied defendants� omnibus�motion to dismiss plaintiff�s amended complaint and on�August 15, 2011, the court denied the Company�s individual motion to dismiss
the amended complaint. On March�15, 2010, the Federal Home
Loan Bank of San Francisco filed two complaints against the Company and other defendants in�the Superior Court of the State of California. These actions are styled Federal Home Loan Bank of San Francisco�v. Credit Suisse Securities
(USA) LLC, et al. ,�and Federal Home Loan Bank of San�Francisco�v. Deutsche Bank Securities Inc.�et al. , respectively. Amended complaints were filed on June�10, 2010. The amended complaints allege that defendants
made untrue statements and material omissions in connection with the sale to plaintiff of�a number of�mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates
allegedly sold to plaintiff by the Company in these cases was approximately $704 million and $276 million, respectively. The complaints raise claims under both the federal securities laws and California law and seek, among other things,�to
rescind�the plaintiff�s purchase of such certificates.�On July�29, 2011 and September�8, 2011, the court presiding over both actions sustained defendants� demurrers with respect to claims brought under�the
Securities Act, and overruled defendants� demurrers with respect to all other claims. On June�10, 2010, the Company was named as a new defendant in a pre-existing action related to securities issued by a SIV called Rhinebridge PLC and Rhinebridge LLC (together, the �Rhinebridge
SIV�). The case is styled King County, Washington, et al. v. IKB Deutsche Industriebank AG, et al. and is pending in the SDNY before the same judge presiding over the litigation concerning the Cheyne SIV, described above. The complaint
alleges, among other things, that the ratings assigned to the securities issued by the SIV were false and misleading, including because the ratings did not accurately reflect the risks associated with the subprime RMBS held by the SIV. The court
dismissed plaintiffs� claims for breach of fiduciary duty and negligence on May�4, 2012. On September�7, 2012, the Company moved for summary judgment with respect to the remaining claims for fraud, negligent misrepresentation and
aiding and abetting fraud. On January�3, 2013, the court granted the motion for summary judgment with respect to the fraud and negligent misrepresentation claims and denied it with respect to the aiding and abetting fraud claim. The two named
plaintiffs claim approximately $65 million in lost principal and interest, as well as punitive damages. On July�9, 2010 and February�11, 2011, Cambridge Place Investment Management Inc. filed two separate complaints�against the Company and other defendants in�the Superior Court of the
Commonwealth of Massachusetts, both styled Cambridge Place Investment Management Inc. v. Morgan Stanley�& Co., Inc., et 36 Table of Contents al. The complaints assert claims on behalf of certain clients of plaintiff�s affiliates and allege that defendants made untrue statements and material omissions in the sale
of�a number of�mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans.�The�total amount of certificates allegedly issued by the Company or sold to plaintiff�s
affiliates� clients by the Company in the two matters was�approximately $344 million. The complaints raise claims under�the Massachusetts Uniform Securities Act�and seek, among other things, to rescind the plaintiff�s
purchase of such certificates.�On October�14, 2011, plaintiffs filed an amended complaint in each action. On November�22, 2011, defendants filed a motion to dismiss the amended complaints. On March�12, 2012, the court denied
defendants� motion to dismiss with respect to plaintiff�s standing to bring suit. Defendants sought interlocutory appeal from that decision on April�11, 2012. On April�26, 2012, defendants filed a second motion to dismiss for
failure to state a claim upon which relief can be granted, which the court denied, in substantial part, on October�2, 2012. On July�15, 2010, The Charles Schwab Corp. filed a complaint against the Company and other defendants in�the Superior Court of the State of
California, styled The Charles Schwab Corp. v. BNP Paribas Securities Corp., et al . The complaint alleges that defendants made untrue statements and material omissions in the sale to one of plaintiff�s subsidiaries of�a number
of�mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The�total amount of certificates allegedly sold to plaintiff�s subsidiary by the Company was�approximately $180
million.�The complaint raises claims under both the federal securities laws and California law and seeks, among other things,�to rescind�the plaintiff�s purchase of such certificates.�Plaintiff filed an amended complaint on
August�2, 2010. On September�22, 2011, defendants filed demurrers to the amended complaint. On October�13, 2011, plaintiff voluntarily dismissed its claims brought under the Securities Act. On January�27, 2012, the court, in a
ruling from the bench, substantially overruled defendants� demurrers. On March�5, 2012, the plaintiff filed a second amended complaint. On April�10, 2012, the Company filed a demurrer to certain causes of action in the second amended
complaint, which the court overruled on July�24, 2012. On
July�15, 2010, China Development Industrial Bank (�CDIB�) filed a complaint against the Company, which is styled China Development Industrial Bank v. Morgan Stanley�& Co. Incorporated and is pending in the Supreme
Court of the State of New York, New York County (�Supreme Court of NY, NY County�). The Complaint relates to a $275 million credit default swap referencing the super senior portion of the STACK 2006-1 CDO. The complaint asserts claims for
common law fraud, fraudulent inducement and fraudulent concealment and alleges that the Company misrepresented the risks of the STACK 2006-1 CDO to CDIB, and that the Company knew that the assets backing the CDO were of poor quality when it entered
into the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that CDIB alleges it has already lost under the credit default swap, rescission of CDIB�s obligation to pay an additional
$12 million, punitive damages, equitable relief, fees and costs. On September�30, 2010, the Company filed a motion to dismiss the complaint. On February�28, 2011, the Court denied the Company�s motion to dismiss the complaint. On
July�7, 2011, the appellate court affirmed the lower court�s decision denying the Company�s motion to dismiss. On October�15, 2010,�the Federal Home Loan Bank of Chicago filed two complaints�against the Company and other defendants. One was filed
in�the�Circuit Court of the State of Illinois styled Federal Home Loan Bank of�Chicago�v.�Bank of America Funding Corporation�et al . The other was filed in�the Superior Court of the State of California,
styled Federal Home Loan Bank of Chicago v.�Bank of America Securities�LLC, et al . The complaints allege that defendants made untrue statements and material omissions in the sale to plaintiff of�a number of�mortgage
pass-through certificates backed by securitization trusts containing residential mortgage loans.�The�total amount of certificates allegedly sold to plaintiff by the Company in the two actions was�approximately $203 million and $75
million respectively.�The complaint filed in Illinois raises claims under�Illinois law. The complaint filed in California raises claims under the federal securities laws, Illinois law and California law. Both complaints seek, among other
things,�to rescind�the plaintiff�s purchase of such certificates. On March�24, 2011, the court presiding over Federal Home Loan Bank of�Chicago�v.�Bank of America Funding Corporation�et al. granted
plaintiff leave to file an amended complaint. On May�27, 2011, 37 Table of Contents defendants filed a motion to dismiss the amended complaint, which motion was denied on September�19, 2012. The Company filed its answer on December�21, 2012. On September�15, 2011,
plaintiff filed an amended complaint in Federal Home Loan Bank of Chicago v.�Bank of America Securities�LLC, et al . On December�1, 2011, defendants filed a demurrer to the amended complaint on statute of limitations and statute
of repose grounds, which demurrer was overruled on June�28, 2012. On August�31, 2012, defendants filed demurrers on the merits of the complaint. On April�20, 2011, the Federal Home Loan Bank of Boston filed a complaint�against the Company and other defendants in�the Superior Court of
the Commonwealth of Massachusetts styled Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al .�An amended complaint was filed on June�19, 2012 and alleges that defendants made untrue statements and material
omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company or sold to plaintiff by the
Company was approximately $550 million.�The amended complaint raises claims under�the Massachusetts Uniform Securities Act, the Massachusetts consumer protection act and common law�and seeks, among other things, to rescind the
plaintiff�s purchase of such certificates. On May�26, 2011, defendants removed the case to the United States District Court for the District of Massachusetts. On October�11, 2012, defendants filed motions to dismiss the amended
complaint . On�July 5,�2011,�Allstate
Insurance Company and certain of�its affiliated entities�filed a complaint�against the Company�in�the Supreme Court of NY, NY County styled Allstate Insurance Company, et al. v. Morgan Stanley, et al . An amended
complaint was filed on September�9, 2011 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential
mortgage loans. The total amount of certificates allegedly issued and/or sold to plaintiffs by the Company was approximately $104 million.�The complaint raises common law claims of fraud,�fraudulent inducement, aiding and abetting fraud
and negligent misrepresentation and seeks, among other things,�compensatory and/or rescissionary damages�associated with�plaintiffs� purchases of such certificates. On October�14, 2011, defendants filed a motion to dismiss
the amended complaint. On July�18, 2011, the Western and
Southern Life Insurance Company and certain affiliated companies filed a complaint�against the Company and other defendants in�the Court of Common Pleas in Ohio, styled Western and Southern Life Insurance Company, et al. v. Morgan
Stanley Mortgage Capital Inc., et al .�An amended complaint was filed on April�2, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates
backed by securitization trusts containing residential mortgage loans. The amount of the certificates allegedly sold to plaintiffs by the Company was approximately $153 million.�The amended complaint raises claims under�the Ohio Securities
Act, federal securities laws, and common law and seeks, among other things, to rescind the plaintiffs� purchases of such certificates. On May�21, 2012, the Company filed a motion to dismiss the amended complaint, which motion was denied on
August�3, 2012. Trial is currently scheduled to begin in November 2013. On September�2, 2011, the Federal Housing Finance Agency (�FHFA�), as conservator for Fannie Mae�and Freddie Mac, filed 17 complaints against numerous financial services companies,
including the Company. A complaint against the Company and other defendants was filed in the Supreme Court of NY, NY County, styled Federal Housing Finance Agency, as Conservator v. Morgan Stanley et al . The complaint alleges that defendants
made untrue statements and material omissions in connection with the sale to Fannie Mae and Freddie Mac of�residential mortgage pass-through certificates with an original unpaid balance of approximately $11 billion. The complaint raises claims
under federal and state securities laws and common law and seeks, among other things, rescission and compensatory and punitive damages.�On September�26, 2011, defendants removed the action to the SDNY and on October�26, 2011, the FHFA
moved to remand the action back to the Supreme Court of NY, NY County. On May�11, 2012, plaintiff withdrew its motion to remand. On July�13, 2012, the Company filed a motion to dismiss the complaint, which motion was denied in large part
on November�19, 2012. Trial is currently scheduled to begin in January 2015. 38 Table of Contents On September�2, 2011, the FHFA,�as conservator�for Freddie Mac,�also filed a complaint
against the Company and other defendants in the Supreme Court of NY, NY County, styled Federal Housing Finance Agency, as Conservator v.�General Electric Company et al . The complaint alleged that defendants made untrue statements
and material omissions in connection with the sale to�Freddie Mac of�residential mortgage pass-through certificates with an original unpaid balance of approximately $549 million.�The complaint raised claims under federal and state
securities laws and common law and sought, among other things, rescission and compensatory and punitive damages.�On October�6, 2011, defendants removed the action to the SDNY. On January�22, 2013, the plaintiff voluntarily dismissed
the action with prejudice as to all defendants. On
November�4, 2011, the Federal Deposit Insurance Corporation (�FDIC�), as receiver for Franklin Bank S.S.B, filed two complaints against the Company in the District Court of the State of Texas. Each was styled Federal Deposit
Insurance Corporation, as Receiver for Franklin Bank S.S.B v. Morgan Stanley�& Company LLC F/K/A Morgan Stanley�& Co. Inc. and alleged that the Company made untrue statements and material omissions in connection with the sale
to plaintiff of�mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly underwritten and sold to plaintiff by the Company in these cases was approximately
$67 million and $35 million, respectively. The complaints each raised claims under both federal securities law and the Texas Securities Act and each seeks, among other things,�compensatory damages associated with plaintiff�s purchase of
such certificates. On March�20, 2012, the Company filed answers to the complaints in both cases. On June�13, 2012, the Company removed the cases to the United States District Court for the Southern District of Texas. On June�21, 2012,
the Company moved to transfer the action to the SDNY. On November�27, 2012, the court granted the plaintiff�s motion to remand the action to Texas state court and denied the Company�s motion to transfer the case to New York. On
January�10, 2013, the Company filed a motion for summary judgment and special exceptions with respect to plaintiff�s claims. On February 6, 2013, the FDIC filed an amended consolidated complaint. On January�20, 2012, Sealink Funding Limited filed a
complaint�against the Company in the Supreme Court of NY, NY County, styled Sealink Funding Limited v. Morgan Stanley, et al .�Plaintiff purports to be the assignee of claims of certain special purpose vehicles
(�SPVs�) formerly sponsored by SachsenLB Europe. An amended complaint was filed on May�21, 2012 and alleges that defendants made untrue statements and material omissions in the sale to the SPVs of certain mortgage pass-through
certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company and/or sold by the Company was approximately $507 million.�The amended complaint raises common
law claims of fraud,�fraudulent inducement, and aiding and abetting fraud and seeks, among other things,�compensatory and/or rescissionary damages�as well as punitive damages associated with�plaintiffs� purchases of such
certificates. On September�7, 2012, the Company filed a motion to dismiss the amended complaint. On January�25, 2012, Dexia SA/NV and certain of its affiliated entities filed a complaint�against the Company�in the Supreme Court of NY, NY County styled Dexia SA/NV et al. v. Morgan
Stanley, et al .�An amended complaint was filed on May�24, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization
trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company and/or sold to plaintiffs by the Company was approximately $626 million.�The amended complaint raises common law claims of
fraud,�fraudulent inducement, and aiding and abetting fraud and seeks, among other things,�compensatory and/or rescissionary damages�as well as punitive damages associated with�plaintiffs� purchases of such certificates. On
August�10, 2012, the Company filed a motion to dismiss the amended complaint . On January�25, 2012, Bayerische Landesbank, New York Branch filed a complaint�against the Company�in the Supreme Court of NY, NY County styled Bayerische Landesbank, New York Branch v.
Morgan Stanley, et al .�An amended complaint was filed on May�24, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by
securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company and/or sold to plaintiff by the Company was approximately $411 million.�The amended complaint raises common 39 Table of Contents law claims of fraud,�fraudulent inducement, and aiding and abetting fraud and seeks, among other things,�compensatory and/or rescissionary damages�as well as punitive damages
associated with�plaintiffs� purchases of such certificates. On July�27, 2012, the Company filed a motion to dismiss the amended complaint . On April�25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against the Company and certain affiliates in
the Superior Court of the State of New Jersey styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale
to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company is approximately $1
billion. The complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud and tortious interference with contract and seeks, among other things, compensatory damages,
punitive damages, rescission and rescissionary damages associated with plaintiffs� purchases of such certificates. On October�16, 2012, plaintiffs filed an amended complaint which, among other things, increases the total amount of the
certificates at issue by approximately $80 million, adds causes of action for fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey RICO statute, and includes a claim for treble damages. On
January�23, 2013, defendants filed a motion to dismiss the amended complaint. On April�25, 2012, Metropolitan Life Insurance Company and certain affiliates filed a complaint against the Company and certain affiliates in the Supreme Court of NY, NY County styled Metropolitan
Life Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on June�29, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through
certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company was approximately $758 million. The amended complaint raises common law
claims of fraud, fraudulent inducement, and aiding and abetting fraud and seeks, among other things, rescission, compensatory and/or rescissionary damages, as well as punitive damages, associated with plaintiffs� purchases of such certificates.
On September�21, 2012, the Company filed a motion to dismiss the amended complaint. On August�7, 2012, U.S. Bank, in its capacity as Trustee, filed a complaint on behalf of Morgan Stanley Mortgage Loan Trust 2006-4SL and Mortgage Pass-Through Certificates, Series 2006-4SL (together,
the �Trust�) against the Company. The matter is styled Morgan Stanley Mortgage Loan Trust 2006-4SL, et al. v. Morgan Stanley Mortgage Capital Inc. and is pending in the Supreme Court of NY, NY County. The complaint asserts claims
for breach of contract and alleges, among other things, that the loans in the Trust, which had an original principal balance of approximately $303 million, breached various representations and warranties. The complaint seeks, among other relief,
rescission of the mortgage loan purchase agreement underlying the transaction, specific performance and unspecified damages and interest. On October�8, 2012, the Company filed a motion to dismiss the complaint. On August�8, 2012, U.S. Bank, in its capacity as Trustee, filed a
complaint on behalf of Morgan Stanley Mortgage Loan Trust 2006-14SL, Mortgage Pass-Through Certificates, Series 2006-14SL, Morgan Stanley Mortgage Loan Trust 2007-4SL and Mortgage Pass-Through Certificates, Series 2007-4SL against the Company. The
complaint is styled Morgan Stanley Mortgage Loan Trust 2006-14SL, et al. v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc . and is pending in the Supreme Court of NY, NY County.
The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trusts, which had original principal balances of approximately $354 million and $305�million respectively, breached various
representations and warranties. The complaint seeks, among other relief, rescission of the mortgage loan purchase agreements underlying the transactions, specific performance and unspecified damages and interest. On October�9, 2012, the Company
filed a motion to dismiss the complaint. On August�10, 2012,
the FDIC, as receiver for Colonial Bank, filed two complaints against the Company in the Circuit Court of Montgomery, Alabama.�The first action is styled Federal Deposit Insurance Corporation as 40 Table of Contents Receiver for Colonial Bank v. Citigroup Mortgage Loan Trust Inc. et al. and alleges that the Company made untrue statements and material omissions in connection with the sale to Colonial
Bank of a mortgage pass-through certificate backed by a securitization trust containing residential mortgage loans.�The total amount of the certificate allegedly sponsored, underwritten and/or sold by the Company to Colonial Bank was
approximately $65 million.�On September�12, 2012, defendants removed the case to the United States District Court for the Middle District of Alabama, and on October�12, 2012, plaintiff moved to remand the case to state court.�The
second action is styled Federal Deposit Insurance Corporation as Receiver for Colonial Bank v. Countrywide Securities Corporation et al. and alleges that the Company made untrue statements and material omissions in connection with the sale to
Colonial Bank of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans.�The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to Colonial Bank
was approximately $144 million.�On September�10, 2012, defendants removed the case to the United States District Court for the Middle District of Alabama, and on September�21, 2012, the United States Judicial Panel on Multidistrict
Litigation transferred the action to the United States District Court for the Central District of California.�On October�11, 2012, plaintiff moved to remand the case back to state court, which motion was denied on December�7,
2012.�Defendants filed a motion to dismiss on January�22, 2013. The complaints each raise claims under federal securities law and the Alabama Securities Act and each seeks, among other things, compensatory damages associated with Colonial
Bank�s purchase of such certificates. On September�28,
2012, U.S. Bank, in its capacity as Trustee, filed a complaint on behalf of Morgan Stanley Mortgage Loan Trust 2006-13ARX against the Company styled Morgan Stanley Mortgage Loan Trust 2006-13ARX v. Morgan Stanley Mortgage Capital Holdings LLC, as
successor in interest to Morgan Stanley Mortgage Capital Inc., pending in the Supreme Court of NY, NY County. U.S. Bank filed an amended complaint on January�17, 2013, which asserts claims for breach of contract and alleges, among other
things, that the loans in the trust, which had an original principal balance of approximately $609 million, breached various representations and warranties. The amended complaint seeks, among other relief, declaratory judgment relief, specific
performance and unspecified damages and interest. On
October�5, 2012, a complaint was filed against the Company and�others in the Supreme Court of NY, NY County, styled Phoenix Light SF Limited et al v. J.P. Morgan Securities LLC et al. The complaint alleges that defendants made
untrue statements and material omissions in the sale to plaintiffs, or their assignors, of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly
issued by the Company and/or sold to plaintiffs or their assignors by the Company was approximately $344 million.�The complaint raises common law claims of fraud,�fraudulent inducement, aiding and abetting fraud, negligent
misrepresentation and rescission based on mutual mistake and seeks, among other things,�compensatory damages, punitive damages or alternatively rescission or rescissionary damages�associated with�the purchase of such certificates. The
Company filed a motion to dismiss the complaint on December�14, 2012. On May�1, 2012,�Asset Management Fund d/b/a AMF Funds and certain of its affiliated funds�filed a summons with notice against the Company�in the Supreme Court of NY, NY County, styled Asset Management Fund d/b/a AMF Funds et al v. Morgan Stanley et al. The notice alleges that defendants made material misrepresentations and omissions in the�sale to plaintiffs�of certain mortgage pass-through certificates
backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiffs was approximately $122 million.�The notice identifies causes of
action against the Company for, among other things, common-law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation.�The notice identifies the relief sought to include, among other things,�monetary
damages, punitive damages and rescission. Plaintiffs filed their complaint on October�22, 2012. On December�3, 2012, the Company filed a motion to dismiss the complaint. On November�16, 2012, IKB International S.A. and an affiliate filed a
summons with notice against the Company and certain affiliates in the Supreme Court of NY, NY County, styled IKB International S.A. In 41 Table of Contents Liquidation v. Morgan Stanley et al. The notice alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through
certificates backed by securitization trusts containing residential mortgage loans.�The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was approximately $147 million.�The notice
identifies causes of action against the Company for, among other things, common law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation as well as contract claims.�The notice identifies the relief sought to
include, among other things, monetary damages, punitive damages, and rescission. On November�21, 2012, Deutsche Zentral Genossenshaftsbank AG and an affiliate filed a summons with notice against the Company and certain affiliates in the Supreme Court of NY, NY County, styled Deutsche Zentral Genossenshaftsbank AG, New York Branch, d/b/a DZ Bank AG New York Branch v. Morgan Stanley et al. The notice alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain
mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans.�The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was approximately $694
million.�The notice identifies causes of action against the Company for, among other things, common law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation as well as contract claims.�The notice
identifies the relief sought to include, among other things, monetary damages, punitive damages, and rescission. On�November 28, 2012,�Stichting Pensioenfonds ABP filed a complaint�against the Company�in�the Supreme Court of NY, NY County styled Stichting Pensioenfonds ABP. v. Morgan
Stanley, et al . The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of an unspecified amount of certain mortgage pass-through certificates backed by securitization trusts containing
residential mortgage loans. The complaint raises common law claims of fraud,�fraudulent inducement, aiding and abetting fraud and seeks, among other things,�compensatory and/or rescissionary damages�associated
with�plaintiff�s purchases of such certificates. On February 8, 2013, the Company filed a motion to dismiss the complaint. On December 14, 2012, Royal Park Investments SA/NV filed a complaint against the Company, certain affiliates, and other defendants in the Supreme Court of
NY, NY County, styled Royal Park Investments SA/NV v. Merrill Lynch et al. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed
by securitization trusts containing residential mortgage loans.�The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was approximately $628 million.�The complaint raises common law
claims of fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, and rescission and seeks, among other things, compensatory and punitive damages. On January�10, 2013,�U.S. Bank, in its capacity as Trustee, filed a
complaint on behalf of Morgan Stanley Mortgage Loan Trust 2006-10SL and Mortgage Pass-Through Certificates, Series 2006-10SL against the Company. The�complaint is styled Morgan Stanley Mortgage Loan Trust 2006-10SL, et al. v. Morgan Stanley
Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc. and is pending in the Supreme Court of NY, NY County. The�complaint asserts claims for breach of contract and alleges, among other things, that
the loans in the trust, which had an original principal balance of approximately $300 million, breached various representations and warranties. The�complaint seeks, among other relief, an order requiring the Company to comply with the loan
breach remedy procedures in the transaction documents, unspecified damages, and interest. On January�25, 2013, the FHFA filed a summons with notice on behalf of the Trustee of the Morgan Stanley ABS Capital I Inc. Trust, Series 2007-NC1, against the Company. The matter is styled Federal Housing Finance Agency, as Conservator for the Federal Home Loan Mortgage Corporation, on behalf of the Trustee of the Morgan Stanley ABS Capital I Inc. Trust, Series 007-NC1 v. Morgan Stanley ABS Capital I Inc. and is pending in the
Supreme Court of NY, NY County. The notice asserts claims for breach of contract and alleges, among other things, that the loans in the Trust, which had an original principal balance of approximately $1.25 billion, 42 Table of Contents breached various representations and warranties. The notice seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, unspecified damages,
and interest. On January�30, 2013, U.S. Bank, in its
capacity as Trustee, filed a summons with notice on behalf of Morgan Stanley Mortgage Loan Trust 2007-2AX against the Company. The matter is styled Morgan Stanley Mortgage Loan Trust 2007-2AX, by U.S. Bank National Association, solely in its
capacity as Trustee v. Morgan Stanley Mortgage Capital Holdings LLC, as successor-by-merger to Morgan Stanley Mortgage Capital Inc ., and Greenpoint Mortgage Funding, Inc. and is pending in the Supreme Court of NY, NY County. The notice
asserts claims for breach of contract and alleges, among other things, that the loans in the Trust, which had an original principal balance of approximately $650 million, breached various representations and warranties. The complaint seeks, among
other relief, specific performance of the loan breach remedy procedures in the transaction documents, unspecified damages, and interest. On August�24, 2012, HSH Nordbank AG and certain affiliates filed a summons with notice against the Company, certain affiliates, and other defendants
in the Supreme Court of NY, NY County, styled HSH Nordbank AG et al. v. Morgan Stanley et al. The notice alleges that defendants made material misrepresentations and omissions in the sale to plaintiffs of certain mortgage pass-through
certificates backed by securitization trusts containing residential mortgage loans.�The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was approximately $524 million.�The notice
identifies causes of action against the Company for, among other things, common law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation.�The notice identifies the relief sought to include, among other
things, monetary damages, punitive damages, and rescission. An amended summons with notice was filed on November�28, 2012. On August�29, 2012, Bank Hapoalim B.M. filed a summons with notice against the Company and certain affiliates in the Supreme Court of NY, NY County,
styled Bank Hapoalim B.M. v. Morgan Stanley et al. The notice alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts
containing residential mortgage loans.�The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was approximately $141 million.�The notice identifies causes of action against the Company
for, among other things, common law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation.�The notice identifies the relief sought to include, among other things, monetary damages, punitive damages, and
rescission. An amended summons with notice was filed on December�4, 2012. Other Matters. On a case-by-case basis the Company has entered into agreements to toll the statute of limitations applicable to potential civil claims related to RMBS,
CDOs and other mortgage-related products and services when the Company has concluded that it is in its interest to do so. On October�18, 2011, the Company received a letter from Gibbs�& Bruns LLP (the �Law Firm�), which is purportedly representing a
group of investment advisers and holders of mortgage pass-through certificates issued by RMBS trusts that were sponsored or underwritten by the Company. The letter asserted that the Law Firm�s clients collectively hold 25% or more of the voting
rights in 17 RMBS trusts sponsored or underwritten by the Company and that these trusts have an aggregate outstanding balance exceeding $6 billion. The letter alleged generally that large numbers of mortgages in these trusts were sold or deposited
into the trusts based on false and/or fraudulent representations and warranties by the mortgage originators, sellers and/or depositors. The letter also alleged generally that there is evidence suggesting that the Company has failed prudently to
service mortgage loans in these trusts. On January�31, 2012, the Law Firm announced that its clients hold over 25% of the voting rights in 69 RMBS trusts securing over $25 billion of RMBS sponsored or underwritten by the Company, and that its
clients had issued instructions to the trustees of these trusts to open investigations into allegedly ineligible mortgages held by these trusts. The Law Firm�s press release also indicated that the Law Firm�s clients anticipate that they
may provide additional instructions to the trustees, as needed, to further the investigations. On September�19, 2012, the Company received two purported Notices of Non-Performance from the Law Firm purportedly on behalf of the holders of
significant voting rights in various trusts securing over $28 billion of residential mortgage backed securities sponsored or underwritten by the Company. The Notice purports 43 Table of Contents to identify certain covenants in Pooling and Servicing Agreements (�PSAs�) that the holders allege that the Servicer and Master Servicer failed to perform, and alleges that each of
these failures has materially affected the rights of certificate holders and constitutes an ongoing event of default under the relevant PSAs. On November�2, 2012, the Company responded to the letters, denying the allegations therein. On April�2, 2012, the Company entered into a Consent Order
(the �Order�) with the Board of Governors of the Federal Reserve System (the �Federal Reserve�) relating to the servicing of residential mortgage loans. The terms of the Order are substantially similar and, in many respects,
identical to the orders entered into with the Federal Reserve by other large U.S. financial institutions. The Order, which is available on the Federal Reserve�s website, sets forth various allegations of improper conduct in servicing by Saxon,
requires that the Company and its affiliates cease and desist such conduct, and requires that the Company, and its Board of Directors and affiliates, take various affirmative steps. The Order requires (i)�the Company to engage an independent
third-party consultant to conduct a review of certain foreclosure actions or proceedings that occurred or were pending between January�1, 2009 and December�31, 2010; (ii)�the adoption of policies and procedures related to management
of third parties used to outsource residential mortgage servicing, loss mitigation or foreclosure; (iii)�a �validation report� from an independent third-party consultant regarding compliance with the Order for the first year; and
(iv)�submission of quarterly progress reports as to compliance with the Order by the Company�s the Board of Directors. The Order also provides that the Company will be responsible for the payment of any civil money penalties or
compensatory payments assessed by the Federal Reserve related to such alleged conduct, which penalties or payments have not yet been determined. On January�15, 2013, the Company entered into a settlement with the Federal Reserve which resulted
in the early termination of the foreclosure review process required by the Order and, in its place, the Company agreed to pay into a settlement fund and to pay additional funds for borrower relief efforts. The Federal Reserve has reserved the
ability to impose civil monetary penalties on Saxon. Commercial Mortgage Related Matter. On January�25, 2011, the Company was named as a defendant in The Bank of New York Mellon Trust, National Association v. Morgan Stanley Mortgage
Capital, Inc., a litigation pending in the SDNY. The suit, brought by the trustee of a series of commercial mortgage pass-through certificates, alleges that the Company breached certain representations and warranties with respect to an $81
million commercial mortgage loan that was originated and transferred to the trust by the Company. The complaint seeks, among other things, to have the Company repurchase the loan and pay additional monetary damages. On June�27, 2011, the court
denied the Company�s motion to dismiss, but directed the filing of an amended complaint. On July�29, 2011, the Company filed its answer to the first amended complaint. On September�21, 2012, the Company and plaintiff filed motions for
summary judgment. | Item�4.����Mine�Safety�Disclosures |
Table of Contents Part II | Item�5. | Market for Registrant�s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
| Low Sale�Price | High Sale�Price | Dividends | ||||||||||
| 2012: | ||||||||||||
| Fourth Quarter | $ | 13.49 | $ | 19.45 | $ | 0.05 | ||||||
| Third Quarter | $ | 12.29 | $ | 18.50 | $ | 0.05 | ||||||
| Second Quarter | $ | 12.26 | $ | 20.05 | $ | 0.05 | ||||||
| First Quarter | $ | 13.49 | $ | 21.19 | $ | 0.05 | ||||||
| 2011: | ||||||||||||
| Fourth Quarter | $ | 11.58 | $ | 19.67 | $ | 0.05 | ||||||
| Third Quarter | $ | 12.49 | $ | 24.46 | $ | 0.05 | ||||||
| Second Quarter | $ | 21.76 | $ | 28.24 | $ | 0.05 | ||||||
| First Quarter | $ | 26.70 | $ | 31.04 | $ | 0.05 | ||||||
Table of Contents The table below sets forth the information with respect to purchases made by or on behalf of the Company of
its common stock during the fourth quarter of the year ended December�31, 2012. Issuer Purchases of Equity Securities (dollars in millions, except per
share amounts) | Period | Total Number of Shares Purchased | Average Price Paid�Per Share | Total Number�of Shares Purchased As�Part�of�Publicly Announced Plans or Programs(C) | Approximate�Dollar Value of Shares that May Yet Be Purchased Under the Plans�or Programs | ||||||||||||
| Month�#1�(October 1, 2012�October 31, 2012) | ||||||||||||||||
| Share Repurchase Program(A) | � | � | � | $ | 1,560 | |||||||||||
| Employee Transactions(B) | 120,413 | $ | 17.32 | � | � | |||||||||||
| Month #2 (November 1, 2012�November 30, 2012) | ||||||||||||||||
| Share Repurchase Program(A) | � | � | � | $ | 1,560 | |||||||||||
| Employee Transactions(B) | 57,617 | $ | 16.96 | � | � | |||||||||||
| Month #3 (December 1, 2012�December 31, 2012) | ||||||||||||||||
| Share Repurchase Program(A) | � | � | � | $ | 1,560 | |||||||||||
| Employee Transactions(B) | 124,389 | $ | 17.93 | � | � | |||||||||||
| Total | ||||||||||||||||
| Share Repurchase Program(A) | � | � | � | $ | 1,560 | |||||||||||
| Employee Transactions(B) | 302,419 | $ | 17.50 | � | � | |||||||||||
| (A) | On December�19, 2006, the Company announced that its Board of Directors authorized the repurchase of up to $6 billion of the Company�s outstanding stock under a share repurchase program (the �Share Repurchase Program�). The Share Repurchase Program is a program for capital management purposes that considers, among other things, business segment capital needs, as well as equity-based compensation and benefit plan requirements. The Share Repurchase Program has no set expiration or termination date. Share repurchases by the Company are subject to regulatory approval. |
| (B) | Includes: (1)�shares delivered or attested in satisfaction of the exercise price and/or tax withholding obligations by holders of employee and director stock options (granted under employee and director stock compensation plans) who exercised options; (2)�shares withheld, delivered or attested (under the terms of grants under employee and director stock compensation plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares; (3)�shares withheld, delivered and attested (under the terms of grants under employee and director stock compensation plans) to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying restricted stock units; and (4)�shares withheld, delivered and attested (under the terms of grants under employee and director stock compensation plans) to offset the cash payment for fractional shares. The Company�s employee and director stock compensation plans provide that the value of the shares withheld, delivered or attested, shall be valued using the fair market value of the Company�s common stock on the date the relevant transaction occurs, using a valuation methodology established by the Company. |
| (C) | Share purchases under publicly announced programs are made pursuant to open-market purchases, Rule 10b5-1 plans or privately negotiated transactions (including with employee benefit plans) as market conditions warrant and at prices the Company deems appropriate. |
Table of Contents Stock performance graph. The following graph compares the cumulative total shareholder return
(rounded to the nearest whole dollar) of the Company�s common stock, the S&P 500 Stock Index (�S&P 500�) and the S&P 500 Financials Index (�S5FINL�) for the last five years. The graph assumes a $100 investment at
the closing price on December�30, 2007 and reinvestment of dividends on the respective dividend payment dates without commissions. This graph does not forecast future performance of the Company�s common stock. 
| MS | S&P 500 | S5FINL | ||||||||||
| 12/31/2007 | $ | 100.00 | $ | 100.00 | $ | 100.00 | ||||||
| 12/31/2008 | $ | 31.25 | $ | 63.00 | $ | 44.73 | ||||||
| 12/31/2009 | $ | 58.73 | $ | 79.67 | $ | 52.44 | ||||||
| 12/31/2010 | $ | 54.39 | $ | 91.68 | $ | 58.82 | ||||||
| 12/30/2011 | $ | 30.50 | $ | 93.61 | $ | 48.81 | ||||||
| 12/31/2012 | $ | 39.01 | $ | 108.59 | $ | 62.92 | ||||||
Table of Contents| Item�6. | Selected Financial Data. |
| 2012 | 2011 | 2010 | 2009(1)(2) | Fiscal 2008 | One
Month Ended December�31, 2008(2) | |||||||||||||||||||
| Income Statement Data: | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Investment banking | $ | 4,758 | $ | 4,991 | $ | 5,122 | $ | 5,020 | $ | 4,057 | $ | 196 | ||||||||||||
| Principal transactions: | ||||||||||||||||||||||||
| Trading | 6,991 | 12,384 | 9,393 | 7,722 | 6,071 | (1,493 | ) | |||||||||||||||||
| Investments | 742 | 573 | 1,825 | (1,034 | ) | (3,888 | ) | (205 | ) | |||||||||||||||
| Commissions and fees | 4,257 | 5,347 | 4,913 | 4,212 | 4,443 | 213 | ||||||||||||||||||
| Asset management, distribution and administration fees | 9,008 | 8,410 | 7,843 | 5,802 | 4,839 | 292 | ||||||||||||||||||
| Other | 555 | 175 | 1,236 | 671 | 3,836 | 105 | ||||||||||||||||||
| Total non-interest revenues | 26,311 | 31,880 | 30,332 | 22,393 | 19,358 | (892 | ) | |||||||||||||||||
| Interest income | 5,725 | 7,258 | 7,305 | 7,472 | 38,928 | 1,089 | ||||||||||||||||||
| Interest expense | 5,924 | 6,902 | 6,407 | 6,680 | 36,216 | 1,137 | ||||||||||||||||||
| Net interest | (199 | ) | 356 | 898 | 792 | 2,712 | (48 | ) | ||||||||||||||||
| Net revenues | 26,112 | 32,236 | 31,230 | 23,185 | 22,070 | (940 | ) | |||||||||||||||||
| Non-interest expenses: | ||||||||||||||||||||||||
| Compensation and benefits | 15,622 | 16,333 | 15,866 | 14,295 | 11,759 | 578 | ||||||||||||||||||
| Other | 9,975 | 9,804 | 9,166 | 7,762 | 8,901 | 473 | ||||||||||||||||||
| Total non-interest expenses | 25,597 | 26,137 | 25,032 | 22,057 | 20,660 | 1,051 | ||||||||||||||||||
| Income (loss) from continuing operations before income taxes | 515 | 6,099 | 6,198 | 1,128 | 1,410 | (1,991 | ) | |||||||||||||||||
| Provision for (benefit from) income taxes | (239 | ) | 1,410 | 743 | (299 | ) | 128 | (722 | ) | |||||||||||||||
| Income (loss) from continuing operations | 754 | 4,689 | 5,455 | 1,427 | 1,282 | (1,269 | ) | |||||||||||||||||
| Discontinued operations(3): | ||||||||||||||||||||||||
| Gain (loss) from discontinued operations | (43 | ) | (160 | ) | 610 | (111 | ) | 848 | (18 | ) | ||||||||||||||
| Provision for (benefit from) income taxes | (5 | ) | (116 | ) | 363 | (90 | ) | 352 | (2 | ) | ||||||||||||||
| Net gain (loss) from discontinued operations | (38 | ) | (44 | ) | 247 | (21 | ) | 496 | (16 | ) | ||||||||||||||
| Net income (loss) | 716 | 4,645 | 5,702 | 1,406 | 1,778 | (1,285 | ) | |||||||||||||||||
| Net income applicable to redeemable noncontrolling interests | 124 | � | � | � | � | � | ||||||||||||||||||
| Net income applicable to nonredeemable noncontrolling interests | 524 | 535 | 999 | 60 | 71 | 3 | ||||||||||||||||||
| Net income (loss) applicable to Morgan Stanley | $ | 68 | $ | 4,110 | $ | 4,703 | $ | 1,346 | $ | 1,707 | $ | (1,288 | ) | |||||||||||
| Earnings (loss) applicable to Morgan Stanley common shareholders(4) | $ | (30 | ) | $ | 2,067 | $ | 3,594 | $ | (907 | ) | $ | 1,495 | $ | (1,624 | ) | |||||||||
| Amounts applicable to Morgan Stanley: | ||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 135 | $ | 4,161 | $ | 4,469 | $ | 1,390 | $ | 1,249 | $ | (1,269 | ) | |||||||||||
| Net gain (loss) from discontinued operations | (67 | ) | (51 | ) | 234 | (44 | ) | 458 | (19 | ) | ||||||||||||||
| Net income (loss) applicable to Morgan Stanley | $ | 68 | $ | 4,110 | $ | 4,703 | $ | 1,346 | $ | 1,707 | $ | (1,288 | ) | |||||||||||
Table of Contents| 2012 | 2011 | 2010 | 2009(1)(2) | Fiscal 2008 | One Month Ended December 31, 2008(2) | |||||||||||||||||||
| Per Share Data: | ||||||||||||||||||||||||
| Earnings (loss) per basic common share(5): | ||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 0.02 | $ | 1.28 | $ | 2.48 | $ | (0.73 | ) | $ | 1.04 | $ | (1.60 | ) | ||||||||||
| Net gain (loss) from discontinued operations | (0.04 | ) | (0.03 | ) | 0.16 | (0.04 | ) | 0.41 | (0.02 | ) | ||||||||||||||
| Earnings (loss) per basic common share | $ | (0.02 | ) | $ | 1.25 | $ | 2.64 | $ | (0.77 | ) | $ | 1.45 | $ | (1.62 | ) | |||||||||
| Earnings (loss) per diluted common share(5): | ||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 0.02 | $ | 1.26 | $ | 2.45 | $ | (0.73 | ) | $ | 0.99 | $ | (1.60 | ) | ||||||||||
| Net gain (loss) from discontinued operations | (0.04 | ) | (0.03 | ) | 0.18 | (0.04 | ) | 0.40 | (0.02 | ) | ||||||||||||||
| Earnings (loss) per diluted common share | $ | (0.02 | ) | $ | 1.23 | $ | 2.63 | $ | (0.77 | ) | $ | 1.39 | $ | (1.62 | ) | |||||||||
| Book value per common share(6) | $ | 30.70 | $ | 31.42 | $ | 31.49 | $ | 27.26 | $ | 30.24 | $ | 27.53 | ||||||||||||
| Dividends declared per common share | $ | 0.20 | $ | 0.20 | $ | 0.20 | $ | 0.17 | $ | 1.08 | $ | 0.27 | ||||||||||||
| Balance Sheet and Other Operating Data: | ||||||||||||||||||||||||
| Total assets | $ | 780,960 | $ | 749,898 | $ | 807,698 | $ | 771,462 | $ | 659,035 | $ | 676,764 | ||||||||||||
| Total capital(7) | 206,377 | 211,201 | 222,757 | 213,974 | 192,297 | 208,008 | ||||||||||||||||||
| Long-term borrowings(7) | 144,268 | 149,152 | 165,546 | 167,286 | 141,466 | 159,255 | ||||||||||||||||||
| Morgan Stanley shareholders� equity | 62,109 | 62,049 | 57,211 | 46,688 | 50,831 | 48,753 | ||||||||||||||||||
| Return on average common equity(8) | N/M | 3.8 | % | 9.0 | % | N/M | 4.9 | % | N/M | |||||||||||||||
| Average common shares outstanding(4): | ||||||||||||||||||||||||
| Basic | 1,885,774,276 | 1,654,708,640 | 1,361,670,938 | 1,185,414,871 | 1,028,180,275 | 1,002,058,928 | ||||||||||||||||||
| Diluted | 1,918,811,270 | 1,675,271,669 | 1,411,268,971 | 1,185,414,871 | 1,073,496,349 | 1,002,058,928 | ||||||||||||||||||
| (1) | Information includes Morgan Stanley Smith Barney Holdings LLC effective May�31, 2009 (see Note 3 to the consolidated financial statements). |
| (2) | On December�16, 2008, the Board of Directors of the Company approved a change in the Company�s fiscal year-end from November�30 to December�31 of each year. This change to the calendar year reporting cycle began January�1, 2009. As a result of the change, the Company had a one-month transition period in December 2008. |
| (3) | Prior-period amounts have been recast for discontinued operations. See Notes 1 and 25 to the consolidated financial statements for information on discontinued operations. |
| (4) | Amounts shown are used to calculate earnings per basic and diluted common share. |
| (5) | For the calculation of basic and diluted earnings per common share, see Note 16 to the consolidated financial statements. |
| (6) | Book value per common share equals common shareholders� equity of $60,601 million at December�31, 2012, $60,541 million at December�31, 2011, $47,614 million at December�31, 2010, $37,091 million at December�31, 2009, $31,676 million at November�30, 2008, and $29,585 million at December�31, 2008, divided by common shares outstanding of 1,974�million at December�31, 2012, 1,927�million at December�31, 2011, 1,512�million at December�31, 2010, 1,361�million at December�31, 2009, 1,048�million at November�30, 2008 and 1,074�million at December�31, 2008. |
| (7) | These amounts exclude the current portion of long-term borrowings and include junior subordinated debt issued to capital trusts. |
| (8) | The calculation of return on average common equity uses net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity. The return on average common equity is a non-generally accepted accounting principle financial measure that the Company considers to be a useful measure to the Company and investors to assess operating performance. |
Table of Contents| Item�7. | Management�s Discussion and Analysis of Financial Condition and Results of Operations. |
Table of Contents The discussion of the Company�s results of operations below may contain forward-looking statements.
These statements, which reflect management�s beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect the Company�s
future results, please see �Forward-Looking Statements� immediately preceding �Business�Competition� and �Business�Supervision and Regulation� in Part I, Item�1, �Risk Factors� in Part I,
Item�1A, and �Executive Summary�Significant Items� and �Other Matters� herein. 51 Table of Contents Executive Summary. Financial Information and Statistical Data (dollars in millions,
except where noted and per share amounts). | 2012 | 2011 | 2010 | ||||||||||
| Net revenues: | ||||||||||||
| Institutional Securities | $ | 10,553 | $ | 17,175 | $ | 16,129 | ||||||
| Global Wealth Management Group | 13,516 | 13,289 | 12,519 | |||||||||
| Asset Management | 2,219 | 1,887 | 2,685 | |||||||||
| Intersegment Eliminations | (176 | ) | (115 | ) | (103 | ) | ||||||
| Consolidated net revenues | $ | 26,112 | $ | 32,236 | $ | 31,230 | ||||||
| Net income | $ | 716 | $ | 4,645 | $ | 5,702 | ||||||
| Net income applicable to redeemable noncontrolling interests(1) | 124 | � | � | |||||||||
| Net income applicable to nonredeemable noncontrolling interests(1) | 524 | 535 | 999 | |||||||||
| Net income applicable to Morgan Stanley | $ | 68 | $ | 4,110 | $ | 4,703 | ||||||
| Income (loss) from continuing operations applicable to Morgan Stanley: | ||||||||||||
| Institutional Securities | $ | (796 | ) | $ | 3,468 | $ | 3,762 | |||||
| Global Wealth Management Group | 799 | 658 | 514 | |||||||||
| Asset Management | 136 | 35 | 205 | |||||||||
| Intersegment Eliminations | (4 | ) | � | (12 | ) | |||||||
| Income from continuing operations applicable to Morgan Stanley | $ | 135 | $ | 4,161 | $ | 4,469 | ||||||
| Amounts applicable to Morgan Stanley: | ||||||||||||
| Income from continuing operations applicable to Morgan Stanley | $ | 135 | $ | 4,161 | $ | 4,469 | ||||||
| Net gain (loss) from discontinued operations applicable to Morgan�Stanley(2) | (67 | ) | (51 | ) | 234 | |||||||
| Net income applicable to Morgan Stanley | $ | 68 | $ | 4,110 | $ | 4,703 | ||||||
| Earnings (loss) applicable to Morgan Stanley common shareholders | $ | (30 | ) | $ | 2,067 | $ | 3,594 | |||||
| Earnings (loss) per basic common share: | ||||||||||||
| Income from continuing operations | $ | 0.02 | $ | 1.28 | $ | 2.48 | ||||||
| Net gain (loss) from discontinued operations(2) | (0.04 | ) | (0.03 | ) | 0.16 | |||||||
| Earnings (loss) per basic common share(3) | $ | (0.02 | ) | $ | 1.25 | $ | 2.64 | |||||
| Earnings (loss) per diluted common share: | ||||||||||||
| Income from continuing operations | $ | 0.02 | $ | 1.26 | $ | 2.45 | ||||||
| Net gain (loss) from discontinued operations(2) | (0.04 | ) | (0.03 | ) | 0.18 | |||||||
| Earnings (loss) per diluted common share(3) | $ | (0.02 | ) | $ | 1.23 | $ | 2.63 | |||||
| Regional net revenues: | ||||||||||||
| Americas | $ | 20,200 | $ | 22,306 | $ | 21,452 | ||||||
| Europe, Middle East and Africa | 3,078 | 6,619 | 5,458 | |||||||||
| Asia | 2,834 | 3,311 | 4,320 | |||||||||
| Net revenues | $ | 26,112 | $ | 32,236 | $ | 31,230 | ||||||
| | 52 |
| 2012 | 2011 | 2010 | ||||||||||
| Average common equity (dollars in billions): | ||||||||||||
| Institutional Securities | $ | 29.0 | $ | 32.7 | $ | 17.7 | ||||||
| Global Wealth Management Group | 13.3 | 13.2 | 6.8 | |||||||||
| Asset Management | 2.4 | 2.6 | 2.1 | |||||||||
| Parent capital | 16.1 | 5.9 | 15.5 | |||||||||
| Total from continuing operations | 60.8 | 54.4 | 42.1 | |||||||||
| Discontinued operations | � | � | 0.3 | |||||||||
| Consolidated average common equity | $ | 60.8 | $ | 54.4 | $ | 42.4 | ||||||
| Return on average common equity(4): | ||||||||||||
| Institutional Securities | N/M | 5 | % | 19 | % | |||||||
| Global Wealth Management Group | 6 | % | 3 | % | 7 | % | ||||||
| Asset Management | 5 | % | N/M | 8 | % | |||||||
| Consolidated | N/M | 4 | % | 9 | % | |||||||
| Book value per common share(5) | $ | 30.70 | $ | 31.42 | $ | 31.49 | ||||||
| Tangible common equity(6) | $ | 53,014 | $ | 53,850 | $ | 40,667 | ||||||
| Return on average tangible common equity(7) | 0.1 | % | 4.5 | % | 10.2 | % | ||||||
| Tangible book value per common share(8) | $ | 26.86 | $ | 27.95 | $ | 26.90 | ||||||
| Effective income tax rate from continuing operations(9) | (46.4 | )% | 23.1 | % | 12.0 | % | ||||||
| Worldwide employees at December�31, 2012, 2011 and 2010 | 57,061 | 61,546 | 62,156 | |||||||||
| Global liquidity reserve held by the bank and non-bank legal entities at December�31, 2012, 2011 and 2010 (dollars�in�billions)(10) | $ | 182 | $ | 182 | $ | 171 | ||||||
| Average global liquidity reserve (dollars in billions)(10): | ||||||||||||
| Bank legal entities | $ | 63 | $ | 64 | $ | 63 | ||||||
| Non-bank legal entities | 113 | 113 | 96 | |||||||||
| Total global liquidity reserve | $ | 176 | $ | 177 | $ | 159 | ||||||
| Long-term borrowings at December�31, 2012, 2011 and 2010 | $ | 169,571 | $ | 184,234 | $ | 192,457 | ||||||
| Maturities of long-term borrowings at December�31, 2012, 2011 and 2010 (next 12 months) | $ | 25,303 | $ | 35,082 | $ | 26,911 | ||||||
| Capital ratios at December�31, 2012, 2011 and 2010(11): | ||||||||||||
| Total capital ratio | 18.5 | % | 17.5 | % | 16.0 | % | ||||||
| Tier 1 common capital ratio | 14.6 | % | 12.6 | % | 10.2 | % | ||||||
| Tier 1 capital ratio | 17.7 | % | 16.2 | % | 15.5 | % | ||||||
| Tier 1 leverage ratio | 7.1 | % | 6.6 | % | 6.6 | % | ||||||
| Consolidated assets under management or supervision at December�31, 2012, 2011, 2010 (dollars in billions)(12): | ||||||||||||
| Asset Management(13) | $ | 338 | $ | 287 | $ | 272 | ||||||
| Global Wealth Management Group(14) | 563 | 482 | 466 | |||||||||
| Total | $ | 901 | $ | 769 | $ | 738 | ||||||
| 53 | |
| 2012 | 2011 | 2010 | ||||||||||
| Institutional Securities: | ||||||||||||
| Pre-tax profit margin(15) | N/M | 27 | % | 27 | % | |||||||
| Global Wealth Management Group: | ||||||||||||
| Global representatives at December 2012, 2011 and 2010(14) | 16,780 | 17,512 | 18,333 | |||||||||
| Annualized revenues per global representative (dollars in thousands)(14)(16) | $ | 793 | $ | 741 | $ | 683 | ||||||
| Assets by client segment at December�31, 2012, 2011 and 2010 (dollars in billions)(14): | ||||||||||||
| $10 million or more | $ | 584 | $ | 508 | $ | 520 | ||||||
| $1 million to $10 million | 724 | 704 | 702 | |||||||||
| Subtotal $1 million or more | 1,308 | 1,212 | 1,222 | |||||||||
| $100,000 to $1 million | 422 | 383 | 394 | |||||||||
| Less than $100,000 | 46 | 42 | 41 | |||||||||
| Total client assets | $ | 1,776 | $ | 1,637 | $ | 1,657 | ||||||
| Fee-based client assets as a percentage of total client assets(14)(17) | 32 | % | 30 | % | 28 | % | ||||||
| Client assets per global representative(14)(18) | $ | 106 | $ | 93 | $ | 90 | ||||||
| Global fee-based client asset flows (dollars in billions)(14)(19) | $ | 24.0 | $ | 41.6 | $ | 31.9 | ||||||
| Bank deposits at December�31, 2012, 2011 and 2010 (dollars in billions)(20) | $ | 131 | $ | 111 | $ | 113 | ||||||
| Global retail locations at December 2012, 2011 and 2010(14) | 712 | 753 | 840 | |||||||||
| Pre-tax profit margin(15) | 12 | % | 9 | % | 9 | % | ||||||
| Asset Management: | ||||||||||||
| Pre-tax profit margin(15) | 27 | % | 13 | % | 27 | % | ||||||
| Selected Management Financial Measures�Non-GAAP(21): | ||||||||||||
| Net revenues, excluding DVA(22)�Non-GAAP | $ | 30,514 | $ | 28,555 | $ | 32,103 | ||||||
| Income from continuing operations applicable to Morgan Stanley, excluding DVA(22)�Non-GAAP | $ | 3,253 | $ | 1,886 | $ | 5,003 | ||||||
| Income (loss) per diluted common share from continuing operations, excluding DVA(22)�Non-GAAP | $ | 1.64 | $ | (0.08 | ) | $ | 2.75 | |||||
| (1) | See Notes 2 and 3 to the consolidated financial statements for information on redeemable and nonredeemable noncontrolling interests. |
| (2) | See Notes 1 and 25 to the consolidated financial statements for information on discontinued operations. |
| (3) | For the calculation of basic and diluted earnings per share (�EPS�), see Note 16 to the consolidated financial statements. |
| (4) | The calculation of each business segment�s return on average common equity uses income from continuing operations applicable to Morgan Stanley less preferred dividends as a percentage of each business segment�s average common equity. The return on average common equity is a non-generally accepted accounting principle (�non-GAAP�) financial measure that the Company considers to be a useful measure to the Company and investors to assess operating performance. The computation of average common equity for each business segment is determined using the Company�s Required Capital framework (�Required Capital Framework�), an internal capital adequacy measure (see �Liquidity and Capital Resources�Regulatory Requirements�Required Capital� herein). The effective tax rates used in the computation of business segment return on average common equity were determined on a separate legal entity basis. |
| (5) | Book value per common share equals common shareholders� equity of $60,601 million at December�31, 2012, $60,541 million at December�31, 2011 and $47,614 million at December�31, 2010 divided by common shares outstanding of 1,974�million at December�31, 2012, 1,927�million at December�30, 2011 and 1,512�million at December�31, 2010. Book value per common share in 2011 was reduced by approximately $2.61 per share as a result of the MUFG stock conversion (see �Significant Items�MUFG Stock Conversion� herein). Book value per common share in 2010 included a benefit of approximately $1.40 per share due to the issuance of 116�million shares of common stock in 2010 corresponding to the mandatory redemption of the junior subordinated debentures underlying $5.6 billion of equity units (see �Other Matters�Redemption of CIC Equity Units and Issuance of Common Stock� herein). |
| | 54 |
| (6) | Tangible common equity is a non-GAAP financial measure that the Company considers to be a useful measure that the Company and investors use to assess capital adequacy. For a discussion of tangible common equity, see �Liquidity and Capital Resources�The Balance Sheet� herein. |
| (7) | Return on average tangible common equity is a non-GAAP financial measure that the Company considers to be a useful measure that the Company and investors use to assess capital adequacy. The calculation of return on average tangible common equity uses income from continuing operations applicable to Morgan Stanley less preferred dividends as a percentage of average tangible common equity. |
| (8) | Tangible book value per common share is a non-GAAP financial measure that the Company considers to be a useful measure that the Company and investors use to assess capital adequacy. Tangible book value per common share equals tangible common equity divided by period-end common shares outstanding. |
| (9) | For a discussion of the effective income tax rate, see �Overview of 2012 Financial Results� and �Significant Items�Income Tax Items� herein. |
| (10) | For a discussion of Global Liquidity Reserve and average liquidity, see �Liquidity and Capital Resources�Liquidity Risk Management Framework�Global Liquidity Reserve� herein. |
| (11) | The Company�s December�31, 2011 Tier 1 common capital ratio, Tier 1 capital ratio and Total capital ratio were each reduced by approximately 30 basis points and Tier 1 leverage ratio was reduced by approximately 20 basis points due to an approximate $1.2 billion deferred tax asset disallowance adjustment, which resulted in a reduction to the Company�s Tier 1 common capital, Tier 1 capital, Total capital, risk-weighted assets (�RWAs�) and adjusted average assets by such amount. |
| (12) | Revenues and expenses associated with these assets are included in the Company�s Global Wealth Management Group and Asset Management business segments. |
| (13) | Amounts exclude the Asset Management business segment�s proportionate share of assets managed by entities in which it owns a minority stake. |
| (14) | Prior-period amounts have been recast to exclude Quilter�& Co. Ltd. (�Quilter�). See Notes 1 and 25 to the consolidated financial statements for information on discontinued operations. |
| (15) | Pre-tax profit margin is a non-GAAP financial measure that the Company considers to be a useful measure that the Company and investors use to assess operating performance. Percentages represent income from continuing operations before income taxes as a percentage of net revenues. |
| (16) | Annualized revenues per global representative equal Global Wealth Management Group business segment�s annualized revenues divided by average global representative headcount. |
| (17) | Fee-based client assets represent the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets. |
| (18) | Client assets per global representative equal total period-end client assets divided by period-end global representative headcount. |
| (19) | Global fee-based client asset flows represent the net asset flows, excluding interest and dividends, in client accounts where the basis of payment for services is a fee calculated on those assets. |
| (20) | Approximately $72�billion, $56 billion and $55 billion of the bank deposit balances at December�31, 2012, 2011 and 2010, respectively, are held at Company-affiliated depositories with the remainder held at Citigroup, Inc. (�Citi�) affiliated depositories. These deposit balances are held at certain of the Company�s Federal Deposit Insurance Corporation (the �FDIC�) insured depository institutions for the benefit of the Company�s clients through their accounts. For additional information regarding the Company�s deposits, see Note 10 to the consolidated financial statements and �Liquidity and Capital Resources�Funding Management�Deposits� herein. |
| (21) | From time to time, the Company may disclose certain �non-GAAP financial measures� in the course of its earnings releases, earnings conference calls, financial presentations and otherwise. For these purposes, �GAAP� refers to generally accepted accounting principles in the United States. The Securities and Exchange Commission (�SEC�) defines a �non-GAAP financial measure� as a numerical measure of historical or future financial performance, financial positions, or cash flows that excludes or includes amounts or is subject to adjustments that effectively exclude, or include, amounts from the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures disclosed by the Company are provided as additional information to investors in order to provide them with further transparency about, or an alternative method for assessing, our financial condition and operating results. These measures are not in accordance with, or a substitute for, GAAP, and may be different from or inconsistent with non-GAAP financial measures used by other companies. Whenever the Company refers to a non-GAAP financial measure, the Company will also generally present the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measure and the GAAP financial measure. |
| 55 | |
| 2012 | 2011 | 2010 | ||||||||||
| Reconciliation of Selected Management Financial Measures from a Non-GAAP to a GAAP Basis (dollars in millions, except per share amounts): | ||||||||||||
| Net revenues | ||||||||||||
| Net revenues�Non-GAAP | $ | 30,514 | $ | 28,555 | $ | 32,103 | ||||||
| Impact of DVA | (4,402 | ) | 3,681 | (873 | ) | |||||||
| Net revenues�GAAP | $ | 26,112 | $ | 32,236 | $ | 31,230 | ||||||
| Income from continuing operations applicable to Morgan Stanley | ||||||||||||
| Income applicable to Morgan Stanley�Non-GAAP | $ | 3,253 | $ | 1,886 | $ | 5,003 | ||||||
| Impact of DVA | (3,118 | ) | 2,275 | (534 | ) | |||||||
| Income applicable to Morgan Stanley�GAAP | $ | 135 | $ | 4,161 | $ | 4,469 | ||||||
| Earnings (loss) per diluted common share | ||||||||||||
| Income (loss) per diluted common share from continuing operations�Non-GAAP | $ | 1.64 | $ | (0.08 | ) | $ | 2.75 | |||||
| Impact of DVA | (1.62 | ) | 1.34 | (0.30 | ) | |||||||
| Income (loss) per diluted common share from continuing operations�GAAP | $ | 0.02 | $ | 1.26 | $ | 2.45 | ||||||
| Average diluted shares�Non-GAAP (in millions) | 1,919 | 1,655 | 1,722 | |||||||||
| Impact of DVA (in millions) | � | 20 | (311 | ) | ||||||||
| Average diluted shares�GAAP (in millions) | 1,919 | 1,675 | 1,411 | |||||||||
| (22) | Debt Valuation Adjustment (�DVA�) represents the change in the fair value of certain of the Company�s long-term and short-term borrowings resulting from the fluctuation in the Company�s credit spreads and other credit factors. |
| | 56 |
| 57 | |
| | 58 |
| 59 | |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars in millions) | ||||||||||||
| Other sales and trading: | ||||||||||||
| Gains (losses) on loans and lending commitments | $ | 1,650 | $ | (699 | ) | $ | 327 | |||||
| Gains (losses) on hedges | (910 | ) | 68 | (669 | ) | |||||||
| Total Other sales and trading revenues | $ | 740 | $ | (631 | ) | $ | (342 | ) | ||||
| Other revenues: | ||||||||||||
| Provision for loan losses(1) | $ | (85 | ) | $ | (6 | ) | $ | � | ||||
| Losses on loans held for sale | (54 | ) | � | � | ||||||||
| Total Other revenues | $ | (139 | ) | $ | (6 | ) | $ | � | ||||
| Other expenses: Provision for unfunded commitments(1) | (71 | ) | (18 | ) | � | |||||||
| Total | $ | 530 | $ | (655 | ) | $ | (342 | ) | ||||
| (1) | The increases for 2012 were primarily driven by enhancements to the estimate for the inherent losses for and growth in the Company�s held for investment portfolio. |
| | 60 |
| 61 | |
| | 62 |
| 63 | |
| | 64 |
Table of Contents INSTITUTIONAL SECURITIES INCOME STATEMENT INFORMATION | 2012 | 2011 | 2010 | ||||||||||
| (dollars in millions) | ||||||||||||
| Revenues: | ||||||||||||
| Investment banking | $ | 3,929 | $ | 4,228 | $ | 4,295 | ||||||
| Principal transactions: | ||||||||||||
| Trading | 5,853 | 11,294 | 8,142 | |||||||||
| Investments | 219 | 239 | 809 | |||||||||
| Commissions and fees | 1,999 | 2,611 | 2,274 | |||||||||
| Asset management, distribution and administration fees | 144 | 124 | 104 | |||||||||
| Other | 195 | (241 | ) | 731 | ||||||||
| Total non-interest revenues | 12,339 | 18,255 | 16,355 | |||||||||
| Interest income | 4,128 | 5,740 | 5,910 | |||||||||
| Interest expense | 5,914 | 6,820 | 6,136 | |||||||||
| Net interest | (1,786 | ) | (1,080 | ) | (226 | ) | ||||||
| Net revenues | 10,553 | 17,175 | 16,129 | |||||||||
| Compensation and benefits | 6,653 | 7,199 | 6,966 | |||||||||
| Non-compensation expenses | 5,571 | 5,385 | 4,798 | |||||||||
| Total non-interest expenses | 12,224 | 12,584 | 11,764 | |||||||||
| Income (loss) from continuing operations before income taxes | (1,671 | ) | 4,591 | 4,365 | ||||||||
| Provision for (benefit from) income taxes | (1,065 | ) | 879 | 313 | ||||||||
| Income (loss) from continuing operations | (606 | ) | 3,712 | 4,052 | ||||||||
| Discontinued operations: | ||||||||||||
| Income (loss) from discontinued operations | (154 | ) | (205 | ) | (1,203 | ) | ||||||
| Provision for (benefit from) income taxes | (35 | ) | (106 | ) | 13 | |||||||
| Net gains (losses) on discontinued operations | (119 | ) | (99 | ) | (1,216 | ) | ||||||
| Net income (loss) | (725 | ) | 3,613 | 2,836 | ||||||||
| Net income applicable to nonredeemable noncontrolling interests | 194 | 244 | 290 | |||||||||
| Net income (loss) applicable to Morgan Stanley | $ | (919 | ) | $ | 3,369 | $ | 2,546 | |||||
| Amounts applicable to Morgan Stanley: | ||||||||||||
| Income (loss) from continuing operations | $ | (796 | ) | $ | 3,468 | $ | 3,762 | |||||
| Net gains (losses) from discontinued operations | (123 | ) | (99 | ) | (1,216 | ) | ||||||
| Net income (loss) applicable to Morgan Stanley | $ | (919 | ) | $ | 3,369 | $ | 2,546 | |||||
Table of Contents Investment banking revenues were as follows: | 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Advisory revenues | $ | 1,369 | $ | 1,737 | $ | 1,470 | ||||||
| Underwriting revenues: | ||||||||||||
| Equity underwriting revenues | 891 | 1,132 | 1,454 | |||||||||
| Fixed income underwriting revenues | 1,669 | 1,359 | 1,371 | |||||||||
| Total underwriting revenues | 2,560 | 2,491 | 2,825 | |||||||||
| Total investment banking revenues | $ | 3,929 | $ | 4,228 | $ | 4,295 | ||||||
| 2012(1) | 2011(1) | 2010(1) | ||||||||||
| (dollars�in�billions) | ||||||||||||
| Announced mergers and acquisitions(2) | $ | 473 | $ | 508 | $ | 535 | ||||||
| Completed mergers and acquisitions(2) | 388 | 652 | 356 | |||||||||
| Equity and equity-related offerings(3) | 52 | 47 | 80 | |||||||||
| Fixed income offerings(4) | 264 | 204 | 225 | |||||||||
| (1) | Source: Thomson Reuters, data at January�16, 2013. Announced and completed mergers and acquisitions volumes are based on full credit to each of the advisors in a transaction. Equity and equity-related offerings and fixed income offerings are based on full credit for single book managers and equal credit for joint book managers. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal or change in the value of a transaction. |
| (2) | Amounts include transactions of $100 million or more. Announced mergers and acquisitions exclude terminated transactions. |
| (3) | Amounts include Rule 144A and public common stock, convertible and rights offerings. |
| (4) | Amounts include non-convertible preferred stock, mortgage-backed and asset-backed securities and taxable municipal debt. Amounts also include publicly registered and Rule 144A issues. Amounts exclude leveraged loans and self-led issuances. |
| 2012 | 2011(1) | 2010(1) | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Principal transactions�Trading | $ | 5,853 | $ | 11,294 | $ | 8,142 | ||||||
| Commissions and fees | 1,999 | 2,611 | 2,274 | |||||||||
| Asset management, distribution and administration fees | 144 | 124 | 104 | |||||||||
| Net interest | (1,786 | ) | (1,080 | ) | (226 | ) | ||||||
| Total sales and trading net revenues | $ | 6,210 | $ | 12,949 | $ | 10,294 | ||||||
| (1) | All prior-year amounts have been reclassified to conform to the current year�s presentation. For further information, see Notes 1 and 25 to the consolidated financial statements. |
Table of Contents Sales and trading net revenues by business were as follows: | 2012 | 2011(1) | 2010(1) | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Equity | $ | 4,347 | $ | 6,770 | $ | 4,840 | ||||||
| Fixed income and commodities | 2,358 | 7,506 | 5,895 | |||||||||
| Other(2) | (495 | ) | (1,327 | ) | (441 | ) | ||||||
| Total sales and trading net revenues | $ | 6,210 | $ | 12,949 | $ | 10,294 | ||||||
| (1) | All prior-year amounts have been reclassified to conform to the current year�s presentation. For further information, see Notes 1 and 25 to the consolidated financial statements. |
| (2) | Other sales and trading net revenues include net gains (losses) from certain loans and lending commitments and related hedges associated with the Company�s lending activities, net gains (losses) on economic hedges related to the Company�s long-term debt and net losses associated with costs related to negative carry. |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Total sales and trading net revenues�non-GAAP(1) | $ | 10,612 | $ | 9,268 | $ | 11,118 | ||||||
| Impact of DVA | (4,402 | ) | 3,681 | (824 | ) | |||||||
| Total sales and trading net revenues | $ | 6,210 | $ | 12,949 | $ | 10,294 | ||||||
| Equity sales and trading net revenues�non-GAAP(1) | $ | 5,477 | $ | 6,151 | $ | 4,961 | ||||||
| Impact of DVA | (1,130 | ) | 619 | (121 | ) | |||||||
| Equity sales and trading net revenues | $ | 4,347 | $ | 6,770 | $ | 4,840 | ||||||
| Fixed income and commodities sales and trading net revenues | ||||||||||||
| �non-GAAP(1) | $ | 5,630 | $ | 4,444 | $ | 6,598 | ||||||
| Impact of DVA | (3,272 | ) | 3,062 | (703 | ) | |||||||
| Fixed income and commodities sales and trading net revenues | $ | 2,358 | $ | 7,506 | $ | 5,895 | ||||||
| (1) | Sales and trading net revenues, including fixed income and commodities and equity sales and trading net revenues that exclude the impact of DVA, are non-GAAP financial measures that the Company considers useful for the Company and investors to allow further comparability of period-to-period operating performance. |
Table of Contents Equity. Equity sales and trading net revenues decreased 36% to $4,347 million
in 2012 from 2011. The results in equity sales and trading net revenues included negative revenue in 2012 of $1,130 million due to the impact of DVA compared with positive revenue of $619 million in 2011 due to the impact of DVA. Equity sales and
trading net revenues, excluding the impact of DVA, in 2012 decreased 11% from 2011, reflecting lower revenues in the cash business, as a result of lower volumes. In 2012, equity sales and trading net revenues also reflected gains of $68
million related to changes in the fair value of net derivative contracts attributable to the tightening of counterparties� CDS spreads and other credit factors compared with losses of $38 million in 2011 due to the widening of such spreads and
other credit factors. The Company also recorded losses of $243 million in 2012 related to changes in the fair value of net derivative contracts attributable to the tightening of the Company�s CDS spreads and other credit factors compared with
gains of $182 million in 2011 due to the widening of such spreads and other credit factors. The gains and losses on CDS spreads and other credit factors include gains and losses on related hedging instruments. Fixed Income and Commodities. Fixed income and
commodities sales and trading net revenues were $2,358 million in 2012 compared with net revenues of $7,506 million in 2011. Results in 2012 included negative revenue of $3,272 million due to the impact of DVA, compared with positive revenue of
$3,062 million in 2011 due to the impact of DVA. Fixed income net revenues, excluding the impact of DVA, in 2012 increased 34% over 2011, reflecting higher results in interest rate, foreign exchange and credit products, including higher levels of
client activity in securitized products, with results in 2011 being negatively impacted by losses of $1,838 million from Monolines, including a loss approximating $1.7 billion in the fourth quarter of 2011 from the Company�s comprehensive
settlement with MBIA (see �Executive Summary�Significant Items�Monoline Insurers� herein for further information). The results in 2011 also included interest rate product revenues of approximately $600 million, primarily related
to the release of credit valuation adjustments upon the restructuring of certain derivative transactions that decreased the Company�s exposure to the European Peripherals (see �Executive Summary�Significant Items�European
Peripheral Countries� herein for further information). Commodity net revenues, excluding the impact of DVA, decreased 20% in 2012 due to a difficult market environment. Results in the fourth quarter of 2011 included a loss of approximately $108
million upon application of the OIS curve to certain fixed income products (see �Executive Summary�Significant Items�OIS Fair Value Measurement� herein and Note 4 to the consolidated financial statements). In 2012, fixed income and commodities sales and trading net revenues
reflected net losses of $128 million related to changes in the fair value of net derivative contracts attributable to the widening of counterparties� CDS spreads and other credit factors compared with losses of $1,249 million, including
Monolines, in 2011. The Company also recorded losses of $482�million in 2012 related to changes in the fair value of net derivative contracts attributable to the tightening of the Company�s CDS spreads and other credit factors compared
with gains of $746 million in 2011 due to the widening of such spreads and other credit factors. The gains and losses on CDS spreads and other factors include gains and losses on related hedging instruments. Other. In addition to the equity and fixed
income and commodities sales and trading net revenues discussed above, sales and trading net revenues included other trading revenues, consisting of certain activities associated with the Company�s lending activities, gains (losses) on economic
hedges related to the Company�s long-term debt, costs related to negative carry and revenues related to hedge accounting on certain derivative contracts. The fair value measurement of loans and lending commitments takes into account fee income
that is considered an attribute of the contract. The valuation of these commitments could change in future periods depending on, among other things, the extent that they are renegotiated or repriced or if the associated acquisition transaction does
not occur. During 2011, in accordance with its risk management practices, the Company began accounting for certain new loans and lending commitments as held for investment. Mark-to-market valuations were not recorded for these loans and lending
commitments, but they were evaluated for collectability and an allowance for credit losses was recorded. Effective April�1, 2012, the Company began accounting for all new corporate loans and lending commitments as either held for investment or
held for sale. This corporate lending portfolio 69 Table of Contents has grown, and the Company expects this trend to continue. See �Quantitative and Qualitative Disclosures about Market Risk�Credit Risk� in Part II, Item�7A, herein. Other sales and trading net losses were $495 million in 2012
compared with net losses of $1,327 million in 2011. The results in both years included losses related to negative carry. The 2012 results also included losses on economic hedges related to the Company�s long-term debt compared with gains in
2011. Results in 2012 were partially offset by net gains of $740 million associated with loans and lending commitments (mark-to-market valuations and realized gains of $1,650 million and losses on related hedges of $910 million). Results in 2011
included net losses of approximately $631 million associated with loans and lending commitments (mark-to-market valuations and realized losses of approximately $699 million and gains on related hedges of approximately $68 million). The results in
2012 also included net investment gains in the Company�s deferred compensation and co-investment plans compared with net losses in 2011. Net Interest. Net interest expense increased to $1,786 million in 2012 from net interest expense of $1,080 million in 2011, primarily due to lower
revenues from securities purchased under agreements to resell and securities borrowed transactions. Principal Transactions�Investments. See �Business Segments�Net Revenues� herein for further information on what is included in Principal
transactions�Investments. Principal transactions net
investment gains of $219 million were recognized in 2012 compared with net investment gains of $239 million in 2011. The gains in 2012 and 2011 primarily included mark-to-market gains on principal investments in real estate funds and net gains from
investments associated with the Company�s deferred compensation and co-investment plans. Other. Other revenues of $195 million were recognized in 2012 compared with other losses of $241 million in 2011. The results in 2012 included income of $152 million,
arising from the Company�s 40% stake in MUMSS. The results in 2011 included pre-tax losses of $783 million arising from the Company�s 40% stake in MUMSS (see �Executive Summary�Significant Items�Japanese Securities Joint
Venture� herein). The gains in 2012 were partially offset by increases in the provision for loan losses. The results in both periods also included gains from the Company�s retirement of certain of its debt. Non-interest Expenses. Non-interest
expenses decreased 3% in 2012. The decrease was due to lower compensation expenses, partially offset by higher non-compensation expenses. Compensation and benefits expenses decreased 8% in 2012, in part due to lower net revenues, excluding DVA and
the comprehensive settlement with MBIA, and were partially offset by severance expenses related to reductions in force during the year. Non-compensation expenses increased 3% in 2012, compared with 2011. Brokerage, clearing and exchange expenses
decreased 9% in 2012, primarily due to lower volumes of activity. Information processing and communications expense increased 6% in 2012, primarily due to ongoing investments in technology. Professional services expenses increased 22% in 2012,
primarily due to higher legal and regulatory costs and consulting expenses. Other expenses increased 5% in 2012. The results in 2012 included increased litigation costs of approximately $280 million and a higher provision for unfunded loan
commitments. The results in 2011 included the initial costs of $130 million associated with Morgan Stanley Huaxin Securities Company Limited (see �Executive Summary�Significant Items�Huaxin Securities Joint Venture� herein for
further information). The results in 2011 also included a charge of $59 million due to the bank levy on relevant liabilities and equities on the consolidated balance sheets of �U.K. Banking Groups� at December�31, 2011 as defined
under the bank levy legislation enacted by the U.K government in July 2011 (see �Executive Summary�Significant Items�U.K. Matters� herein for further information). 2011 Compared with 2010. Investment Banking. Investment banking revenues in 2011 decreased 2% from 2010, reflecting lower revenues from equity
and fixed income underwriting transactions, partially offset by higher advisory revenues. 70 Table of Contents Overall, underwriting revenues of $2,491 million decreased 12% from 2010, reflecting lower levels of market activity. Investment banking revenues were also impacted by the contribution in
2010�of the majority of the�Company�s�Japanese investment banking�business as a result of a transaction with MUFG�(see �Other Matters�Japanese Securities Joint Venture� herein). Equity underwriting
revenues decreased 22% to $1,132 million in 2011. Fixed income underwriting revenues decreased 1% to $1,359 million in 2011. Advisory revenues from merger, acquisition and restructuring transactions were $1,737 million in 2011, an increase of
18%�from 2010, reflecting higher levels of completed activity. Sales and Trading Net Revenues. Total sales and trading net revenues increased to $12,949 million in 2011 from
$10,294 million in 2010, reflecting higher equity and fixed income and commodities sales and trading net revenues, partially offset by higher losses in other sales and trading net revenues. Equity. Equity sales and trading net revenues increased 40% to $6,770 million in 2011 from 2010,
primarily due to higher revenues in the derivatives business, the Company�s electronic trading platform and prime brokerage. The increase in the derivatives business and the Company�s electronic trading platform primarily reflected higher
levels of client activity. The increase in prime brokerage net revenues was primarily due to higher average client balances. The results in equity sales and trading net revenues also included positive revenue in 2011 of $619 million due to the
impact of DVA compared with negative revenue of $121 million in 2010 due to the impact of DVA. In 2011, equity sales and trading net revenues also reflected losses of $38 million related to changes in the fair value of net derivative contracts attributable to the widening of counterparties�
CDS spreads and other credit factors compared with gains of $20 million in 2010 due to the tightening of counterparties� CDS spreads and other credit factors. The Company also recorded gains of $182 million in 2011 related to changes in the
fair value of net derivative contracts attributable to the widening of the Company�s CDS spreads and other credit factors compared with gains of $32 million in 2010. The gains and losses on CDS spreads and other factors include gains and losses
on related hedging instruments. Fixed Income and
Commodities. Fixed income and commodities sales and trading net revenues increased 27% to $7,506 million in 2011 from $5,895 million in 2010. Results in 2011 included positive revenue of $3,062 million due to the impact of
DVA, compared with negative revenues of $703 million in 2010 due to the impact of DVA. Fixed income and commodities sales and trading net revenues, excluding the impact of DVA, in 2011 decreased 33% over 2010. Fixed income revenues, excluding DVA,
in 2011 decreased 30% over 2010. Results in 2011 were negatively impacted by losses of $1,838 million from Monolines compared with losses of $865 million in 2010. On December�13, 2011, the Company announced a comprehensive settlement with MBIA.
The loss on the settlement was approximately $1.7 billion in the fourth quarter of 2011 (see �Executive Summary�Significant Items�Monoline Insurers� herein for further information). The results in 2011 also reflected lower
revenues in credit products due to the stressed credit environment and lower revenues in currency products, partially offset by higher revenues in interest rate products due to higher levels of market volatility and client activity and approximately
$600 million primarily related to the release of credit valuation adjustments upon the restructuring of certain derivative transactions that decreased the Company�s exposure to the European Peripherals (see �Executive
Summary�Significant Items�European Peripheral Countries� herein for further information). Commodity revenues, excluding DVA, decreased 18% in 2011, primarily due to lower levels of client activity, including structured transactions.
Results in the fourth quarter of 2011 included a loss of approximately $108 million upon application of the OIS curve to certain fixed income products. Results in 2010 included a gain of approximately $123 million related to a change in the fair
value measurement methodology to use the OIS curve as an input to value substantially all collateralized interest rate derivative contracts (see �Executive Summary�Significant Items�OIS Fair Value Measurement� herein and Note 4
to the consolidated financial statements). In 2011, fixed income
and commodities sales and trading net revenues reflected net losses of $1,249�million related to changes in the fair value of net derivative contracts attributable to the widening of counterparties� CDS 71 Table of Contents spreads and other credit factors compared with losses of $717 million in 2010. The Company also recorded gains of $746�million in 2011 related to changes in the fair value of net derivative
contracts attributable to the widening of the Company�s CDS spreads and other credit factors compared with gains of $443 million in 2010. The gains and losses on CDS spreads and other factors include gains and losses on related hedging
instruments. Other. In 2011, other
sales and trading net revenues reflected a net loss of $1,327 million compared with a net loss of $441 million in 2010. Results in 2011 included net losses of $631 million associated with loans and lending commitments (mark-to-market valuations and
realized losses of $699 million and gains on related hedges of $68 million). The results in 2011 included higher net losses related to negative carry. Results in 2010 also included a gain of approximately $53 million related to the OIS curve fair
value methodology referred to above (see �Executive Summary�Significant Items�OIS Fair Value Measurement� and Note 4 to the consolidated financial statements). Net Interest. Net interest expense increased
to $1,080 million in 2011 from $226 million in 2010, primarily due to higher interest expenses that resulted from increased interest rates associated with the Company�s long-term borrowings and stock lending transactions. Principal
Transactions�Investments. Principal transaction net investment gains of $239 million were recognized in 2011 compared with net investment gains of $809�million in 2010. Results in both periods reflected gains
in principal investments in real estate funds and investments associated with certain employee deferred compensation plans and co-investment plans. The results for 2010 also reflected a gain of $313 million on a principal investment held by a
consolidated investment partnership, which was sold in 2010. The portion of the gain related to third-party investors amounted to $183 million and was recorded in the net income applicable to noncontrolling interests in the consolidated statement of
income. Other. Other losses
of $241 million were recognized in 2011 compared with other revenues of $731 million in 2010. The results in 2011 primarily included pre-tax losses of approximately $783 million arising from the Company�s 40% stake in MUMSS (see �Executive
Summary�Significant Items�Japanese Securities Joint Venture� herein), partially offset by gains from the Company�s retirement of its long-term debt. Results in 2010 included a pre-tax gain of $668 million from the sale of the
Company�s investment in CICC, partially offset by pre-tax losses of approximately $62 million arising from the Company�s 40% stake in MUMSS. Non-interest Expenses. Non-interest expenses increased 7% in 2011. The increase was due to higher compensation
expenses and higher non-compensation expenses. Compensation and benefits expenses increased 3% in 2011. Compensation and benefits expenses in 2010 included a non-recurring charge of approximately $269 million related to the U.K. government�s
payroll tax on discretionary above-base compensation in 2010. Brokerage, clearing and exchange fees increased 14% in 2011, primarily due to higher levels of business activity. Information processing and communications expenses increased 13% in 2011,
primarily due to ongoing investments in technology. Professional services expenses decreased 9% in 2011, primarily due to lower legal fees and consulting expenses. Other expenses increased 43% in 2011, primarily due to the initial costs of $130
million associated with Morgan Stanley Huaxin Securities Company Limited and a charge of $59 million due to the U.K. bank levy (see �Executive Summary�Significant Items�U.K. Matters� herein for further information). Other
expenses in 2010 included $102.7 million related to the Assurance of Discontinuance between the Company and the Office of the Attorney General for the Commonwealth of Massachusetts (�Massachusetts OAG�) to resolve the Massachusetts
OAG�s investigation of the Company�s financing, purchase and securitization of certain subprime residential mortgages. Income Tax Items. In 2012, the Company recognized in income from continuing operations a net tax benefit of approximately $249 million attributable to the Institutional
Securities business segment. This included a discrete benefit of approximately $299 million related to the remeasurement of reserves and related interest associated with either 72 Table of Contents the expiration of the applicable statute of limitations or new information regarding the status of certain Internal Revenue Service examinations. Additionally, in 2012, the Company recognized an
out-of-period net tax provision of approximately $50 million primarily related to the overstatement of deferred tax assets associated with repatriated earnings of foreign subsidiaries recorded in prior years. The Company has evaluated the effects of
the understatement of the income tax provision both qualitatively and quantitatively, and concluded that it did not have a material impact on any prior annual or quarterly consolidated financial statements. Discontinued Operations. On October�24, 2011, the Company announced that it had reached an
agreement to sell Saxon, a provider of servicing and subservicing of residential mortgage loans, to Ocwen Financial Corporation. Accordingly, the results of Saxon are reported as discontinued operations within the Institutional Securities business
segment for all periods presented. The transaction with Ocwen, which was restructured as a sale of Saxon�s assets during the first quarter of 2012, was substantially completed in the second quarter of 2012. The remaining operations of Saxon
were substantially wound down during the year. The net loss from discontinued operations in 2012 includes a provision of approximately $115 million related to a settlement with the Federal Reserve concerning the independent foreclosure review
related to Saxon. The Company expects to incur incremental wind-down costs in future periods. On February�17, 2011, the Company completed the sale of Revel. The sale price approximated the carrying value of Revel at the time of disposal and, accordingly, the Company did not recognize any
pre-tax gain or loss on the sale. The results of Revel are reported as discontinued operations within the Institutional Securities business segment for all periods presented through the date of sale. Results for 2010 included losses of approximately
$1.2 billion in connection with writedowns and related costs of such disposition. For further information on Revel, see �Executive Summary�Significant Items�Income Tax Items� herein. In the third quarter of 2010, the Company completed the disposal of
CityMortgage Bank (�CMB�), a Moscow-based mortgage bank. The results of CMB are reported as discontinued operations for all periods presented through the date of sale within the Institutional Securities business segment. For further information, see Notes 1 and 25 to the consolidated financial
statements. Nonredeemable Noncontrolling Interests. Nonredeemable noncontrolling interests primarily relate
to Morgan Stanley MUFG Securities Co., Ltd. (�MSMS�) (see Note 2 to the consolidated financial statements for further information). 73 Table of Contents GLOBAL WEALTH MANAGEMENT GROUP INCOME STATEMENT INFORMATION | 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Revenues: | ||||||||||||
| Investment banking | $ | 836 | $ | 750 | $ | 827 | ||||||
| Principal transactions: | ||||||||||||
| Trading | 1,193 | 1,119 | 1,305 | |||||||||
| Investments | 10 | 4 | 19 | |||||||||
| Commissions and fees | 2,261 | 2,737 | 2,642 | |||||||||
| Asset management, distribution and administration fees | 7,288 | 6,792 | 6,273 | |||||||||
| Other | 316 | 410 | 337 | |||||||||
| Total non-interest revenues | 11,904 | 11,812 | 11,403 | |||||||||
| Interest income | 2,015 | 1,863 | 1,581 | |||||||||
| Interest expense | 403 | 386 | 465 | |||||||||
| Net interest | 1,612 | 1,477 | 1,116 | |||||||||
| Net revenues | 13,516 | 13,289 | 12,519 | |||||||||
| Compensation and benefits | 8,128 | 8,286 | 7,791 | |||||||||
| Non-compensation expenses | 3,788 | 3,748 | 3,598 | |||||||||
| Total non-interest expenses | 11,916 | 12,034 | 11,389 | |||||||||
| Income from continuing operations before income taxes | 1,600 | 1,255 | 1,130 | |||||||||
| Provision for income taxes | 559 | 458 | 328 | |||||||||
| Income from continuing operations | 1,041 | 797 | 802 | |||||||||
| Discontinued operations: | ||||||||||||
| Income from discontinued operations | 94 | 21 | 26 | |||||||||
| Provision for income taxes | 26 | 7 | 8 | |||||||||
| Net gain from discontinued operations | 68 | 14 | 18 | |||||||||
| Net income | 1,109 | 811 | 820 | |||||||||
| Net income applicable to redeemable noncontrolling interests | 124 | � | � | |||||||||
| Net income applicable to nonredeemable noncontrolling interests | 143 | 146 | 301 | |||||||||
| Net income applicable to Morgan Stanley | $ | 842 | $ | 665 | $ | 519 | ||||||
| Amounts applicable to Morgan Stanley: | ||||||||||||
| Income from continuing operations | $ | 799 | $ | 658 | $ | 514 | ||||||
| Net gain from discontinued operations | 43 | 7 | 5 | |||||||||
| Net income applicable to Morgan Stanley | $ | 842 | $ | 665 | $ | 519 | ||||||
Table of Contents and all other net interest revenues. Other revenues include revenues from available for sale securities, customer account services fees, other miscellaneous revenues and revenues from Principal
transactions�Investments. | 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Revenues: | ||||||||||||
| Transactional | $ | 4,290 | $ | 4,606 | $ | 4,774 | ||||||
| Asset management | 7,288 | 6,792 | 6,273 | |||||||||
| Net interest | 1,612 | 1,477 | 1,116 | |||||||||
| Other | 326 | 414 | 356 | |||||||||
| Net revenues | $ | 13,516 | $ | 13,289 | $ | 12,519 | ||||||
Table of Contents Asset management, distribution and administration fees increased 7% to $7,288 million in 2012 from 2011,
primarily due to higher fee-based revenues, and higher revenues from annuities and the bank deposit program held at Citi depositories. The referral fees for deposits placed with Citi affiliated depository institutions were $383 million and $255
million in 2012 and 2011, respectively. Balances in the bank
deposit program increased to $130.8 billion at December�31, 2012 from $110.6 billion at December�31, 2011. Deposits held by Company-affiliated FDIC-insured depository institutions were $71.7 billion at December�31, 2012 and $56.3
billion at December�31, 2011. Client assets in fee-based
accounts increased to $573 billion and represented 32% of total client assets at December�31, 2012 compared with $485 billion and 30% at December�31, 2011, respectively. Total client asset balances increased to $1,776 billion at
December�31, 2012 from $1,637 billion at December�31, 2011, primarily due to the impact of market conditions and net new asset inflows.�Client asset balances in households with assets greater than $1 million increased to $1,308
billion at December�31, 2012 from $1,212 billion at December�31, 2011. Global fee-based client asset flows for 2012 were $24.0 billion compared with $41.6 billion in 2011. Net Interest. Interest income and Interest expense are a function of the level and mix of total assets and liabilities, including customer bank deposits and margin
loans and securities borrowed and securities loaned transactions. Net interest increased 9% to $1,612 million in 2012 from 2011, primarily resulting from higher revenues from the bank deposit program, interest on the
available for sale portfolio and secured financing activities. Other. Other. Other revenues were $316 million in 2012, a decrease of 23% from 2011, primarily due to lower gains on sales
of securities available for sale. Non-interest
Expenses. Non-interest expenses decreased 1% in 2012 from 2011. Compensation and benefits expenses decreased 2% from 2011, primarily due to lower compensable revenues, partially offset by higher expenses associated
with certain employee deferred compensation plans. Non-compensation expenses increased 1% in 2012 from 2011. Information processing and communications expenses increased 6% in 2012, primarily due to higher telecommunications and data storage costs.
Marketing and business development expenses increased 6% from 2011, primarily due to higher costs associated with advertising and infrastructure, partially offset by lower costs associated with conferences and seminars. Other expenses increased 5%
in 2012, primarily due to non-recurring costs related to Morgan Stanley Wealth Management integration (see �Executive Summary�Significant Items�Wealth Management JV� herein). Professional services expenses decreased 8% in 2012
from 2011, primarily due to lower technology consulting costs. 2011 Compared with 2010. Transactional. Investment Banking. Investment banking revenues decreased 9% in 2011 from 2010, primarily due to lower equity and
fixed income underwriting activities. Principal
Transactions�Trading. Principal transactions�Trading revenues decreased 14% in 2011 from 2010, primarily due to losses related to investments associated with certain employee deferred compensation plans,
lower revenues from corporate equity and fixed income securities, government securities and structured notes, partially offset by higher revenues from municipal securities, derivatives and unit trusts. 76 Table of Contents Commissions and Fees. Commissions and fees revenues increased 4% in
2011 from 2010, primarily due to higher client activity. Asset Management. Asset Management, Distribution and Administration Fees. Asset management, distribution and administration fees
increased 8% in 2011 from 2010, primarily due to higher fee-based revenues, partially offset by lower revenues as a result of the change in classification of the fees generated by the bank deposit program. From�June�2009 until
April�1, 2010, revenues in the bank deposit program�were primarily included in Asset�management, distribution and administration fees. Beginning on April�1, 2010, revenues in the bank deposit program held at the Company�s
U.S. depository institutions were recorded as Interest income due to renegotiations of the revenue sharing agreement as part of the Global Wealth Management Group business segment�s retail banking strategy. The Global Wealth Management Group
business segment continues to earn referral fees for deposits placed with Citi affiliated depository institutions, and these fees continue to be recorded in Asset management, distribution and administration fees until the legacy Smith Barney
deposits are migrated to the Company�s U.S. depository institutions. The referral fees for deposits were $255 million and $382 million in 2011 and 2010, respectively. Balances in the bank deposit program decreased to $110.6 billion at
December�31, 2011 from $113.3 billion at December�31, 2010. Client assets in fee-based accounts increased to $485 billion and represented 30% of total client assets at December�31, 2011 compared with $460 billion and 28% at December�31, 2010,
respectively. Total client asset balances decreased to $1,637 billion at December�31, 2011 from $1,657 billion at December�31, 2010, primarily due to the impact of weakened market conditions, partially offset by an increase in net new
assets. Client asset balances in households with assets greater than $1 million decreased to $1,212 billion at December�31, 2011 from $1,222 billion at December�31, 2010. Global fee-based asset net inflows for 2011 were $41.6 billion
compared with $31.9 billion in 2010. Net Interest. Net interest increased 32% in 2011 from 2010, primarily
resulting from an increase in Interest income due to interest on the securities available for sale portfolio and mortgages and the change in classification of the fees generated by the bank deposit program noted above. Other. Principal
Transactions�Investments. Principal transaction net investment gains were $4 million in 2011 compared with net investment gains of $19 million in 2010. The decrease in 2011 primarily reflected losses related to
investments associated with certain employee deferred compensation plans compared with such investments in the prior year. Other . Other revenues were $410 million in 2011, an increase of 22% from 2010, primarily due to gains
on sales of securities available for sale. Non-interest
Expenses . Non-interest expenses increased 6% in 2011 from 2010. Compensation and benefits expenses increased 6% in 2011 from 2010, primarily reflecting higher net revenues and support services-related
compensation, partially offset by lower expenses associated with certain employee deferred compensation plans. Non-compensation expenses increased 4% in 2011 from 2010. In 2011, marketing and business development expenses increased 13% from 2010,
primarily due to higher costs associated with conferences and seminars. Professional services expenses increased 14% in 2011 from 2010, primarily due to increased technology 77 Table of Contents consulting costs and legal fees. Information processing and communications expenses increased 10% in 2011 from 2010, primarily due to higher telecommunications and data storage costs. Occupancy
and equipment expenses decreased 5% in 2011 from 2010, primarily due to lower infrastructure costs and continued branch consolidation. Discontinued Operations. On April�2, 2012, the Company completed the sale of Quilter, its retail wealth management business in the�U.K., resulting in a pre-tax gain of
$108 million in 2012 in the Global Wealth Management Group business segment. The results of�Quilter are reported as discontinued operations for all periods presented. See Notes 1 and 25 to the consolidated financial statements. 78 Table of Contents ASSET MANAGEMENT INCOME STATEMENT INFORMATION | 2012 | 2011 | 2010 | ||||||||||
| (dollars in millions) | ||||||||||||
| Revenues: | ||||||||||||
| Investment banking | $ | 17 | $ | 13 | $ | 20 | ||||||
| Principal transactions: | ||||||||||||
| Trading | (45 | ) | (22 | ) | (49 | ) | ||||||
| Investments | 513 | 330 | 996 | |||||||||
| Asset management, distribution and administration fees | 1,703 | 1,582 | 1,630 | |||||||||
| Other | 55 | 25 | 164 | |||||||||
| Total non-interest revenues | 2,243 | 1,928 | 2,761 | |||||||||
| Interest income | 10 | 10 | 22 | |||||||||
| Interest expense | 34 | 51 | 98 | |||||||||
| Net interest | (24 | ) | (41 | ) | (76 | ) | ||||||
| Net revenues | 2,219 | 1,887 | 2,685 | |||||||||
| Compensation and benefits | 841 | 848 | 1,108 | |||||||||
| Non-compensation expenses | 788 | 786 | 859 | |||||||||
| Total non-interest expenses | 1,629 | 1,634 | 1,967 | |||||||||
| Income from continuing operations before income taxes | 590 | 253 | 718 | |||||||||
| Provision for income taxes | 267 | 73 | 105 | |||||||||
| Income from continuing operations | 323 | 180 | 613 | |||||||||
| Discontinued operations: | ||||||||||||
| Gain from discontinued operations | 13 | 24 | 999 | |||||||||
| Provision for (benefit from) income taxes | 4 | (17 | ) | 335 | ||||||||
| Net gain from discontinued operations | 9 | 41 | 664 | |||||||||
| Net income | 332 | 221 | 1,277 | |||||||||
| Net income applicable to nonredeemable noncontrolling interests | 187 | 145 | 408 | |||||||||
| Net income applicable to Morgan Stanley | $ | 145 | $ | 76 | $ | 869 | ||||||
| Amounts applicable to Morgan Stanley: | ||||||||||||
| Income from continuing operations | $ | 136 | $ | 35 | $ | 205 | ||||||
| Net gain from discontinued operations | 9 | 41 | 664 | |||||||||
| Net income applicable to Morgan Stanley | $ | 145 | $ | 76 | $ | 869 | ||||||
Table of Contents Statistical Data. The Asset Management business segment�s period-end and average assets
under management or supervision was as follows: | At December�31, | Average for | |||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | 2010 | ||||||||||||||||
| (dollars in billions) | ||||||||||||||||||||
| Assets under management or supervision by asset class: | ||||||||||||||||||||
| Traditional Asset Management: | ||||||||||||||||||||
| Equity | $ | 120 | $ | 104 | $ | 114 | $ | 112 | $ | 97 | ||||||||||
| Fixed income | 62 | 57 | 59 | 60 | 60 | |||||||||||||||
| Liquidity | 100 | 74 | 87 | 66 | 53 | |||||||||||||||
| Alternatives(1) | 27 | 25 | 26 | 18 | 17 | |||||||||||||||
| Total Traditional Asset Management | 309 | 260 | 286 | 256 | 227 | |||||||||||||||
| Real Estate Investing | 20 | 18 | 19 | 17 | 15 | |||||||||||||||
| Merchant Banking: | ||||||||||||||||||||
| Private Equity | 9 | 9 | 9 | 9 | 9 | |||||||||||||||
| FrontPoint(2) | � | � | � | 1 | 7 | |||||||||||||||
| Total Merchant Banking | 9 | 9 | 9 | 10 | 16 | |||||||||||||||
| Total assets under management or supervision | $ | 338 | $ | 287 | $ | 314 | $ | 283 | $ | 258 | ||||||||||
| Share of minority stake assets(2)(3) | $ | 5 | $ | 6 | $ | 5 | $ | 7 | $ | 7 | ||||||||||
| (1) | The alternatives asset class includes a range of investment products such as funds of hedge funds, funds of private equity funds and funds of real estate funds. |
| (2) | On March�1, 2011, the Company and the principals of FrontPoint completed a transaction whereby FrontPoint senior management and portfolio managers own a majority equity stake in FrontPoint, and the Company retains a minority stake. At December�31, 2011, the assets under management attributed to FrontPoint are represented within the share of minority stake assets. |
| (3) | Amounts represent the Asset Management business segment�s proportional share of assets managed by entities in which it owns a minority stake. |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�billions) | ||||||||||||
| Balance at beginning of period | $ | 287 | $ | 272 | $ | 259 | ||||||
| Net flows by asset class: | ||||||||||||
| Traditional Asset Management: | ||||||||||||
| Equity | (2 | ) | 4 | � | ||||||||
| Fixed income(1) | (1 | ) | (6 | ) | � | |||||||
| Liquidity | 26 | 20 | (6 | ) | ||||||||
| Alternatives(2) | 1 | 8 | � | |||||||||
| Total Traditional Asset Management | 24 | 26 | (6 | ) | ||||||||
| Real Estate Investing | 1 | 1 | 2 | |||||||||
| Merchant Banking: | ||||||||||||
| FrontPoint(3) | � | (1 | ) | (2 | ) | |||||||
| Total Merchant Banking | � | (1 | ) | (2 | ) | |||||||
| Total net flows | 25 | 26 | (6 | ) | ||||||||
| Net market appreciation (depreciation) | 26 | (7 | ) | 19 | ||||||||
| Decrease due to FrontPoint transaction | � | (4 | ) | � | ||||||||
| Total net increase | 51 | 15 | 13 | |||||||||
| Balance at end of period | $ | 338 | $ | 287 | $ | 272 | ||||||
Table of Contents| (1) | Fixed income outflows for 2011 include $1.3 billion due to the revised treatment of assets under management previously reported as a net flow. |
| (2) | The alternatives asset class includes a range of investment products such as funds of hedge funds, funds of private equity funds and funds of real estate funds. |
| (3) | The amount in 2011 includes two months of net flows related to FrontPoint, whereas 2010 includes twelve months of net flows related to FrontPoint. |
Table of Contents Other. Other revenues were $55 million in 2012 as compared with $25
million in 2011. The results in 2012 included gains associated with the expiration of a lending facility to a real estate fund sponsored by the Company. The results in 2012 also included lower revenues associated with the Company�s minority
investments in Avenue Capital Group (�Avenue�), a New York-based investment manager, and Lansdowne Partners (�Lansdowne�), a London-based investment manager. The results in 2011 were partially offset by a $27 million writedown in
the Company�s minority investment in FrontPoint. Non-interest Expenses. Non-interest expenses were $1,629 million in 2012 as compared with $1,634 million in 2011.
Compensation and benefits expenses decreased 1% in 2012. Non-compensation expenses were relatively unchanged in 2012 compared with 2011. 2011 Compared with 2010. Investment Banking . Investment banking revenues decreased in 2011 from 2010, primarily reflecting lower
revenues from infrastructure products. Principal
Transactions�Trading . In 2011, the Company recognized losses of $22 million compared with losses of $49 million in 2010. Trading results in 2011 primarily reflected losses related to certain investments
associated with the Company�s employee deferred compensation and co-investment plans and certain consolidated real estate funds sponsored by the Company. Trading results in 2010 primarily included losses from hedges on certain investments and
long-term debt. Trading results in 2010 also included $25 million related to�contributions to money market funds. Principal Transactions�Investments . The Company recorded principal transactions net investment gains of
$330 million in 2011 compared with gains of $996 million in 2010. The decrease in 2011 was primarily related to lower net gains in the Company�s Merchant Banking and Traditional Asset Management businesses, including certain investments
associated with the Company�s employee deferred compensation and co-investment plans, as well as lower net investment gains associated with certain consolidated real estate funds sponsored by the Company. Asset Management, Distribution and Administration
Fees . Asset management, distribution and administration fees decreased 3% to $1,582 million in 2011. The decrease in 2011 primarily reflected lower performance fees and�lower fund management and
administration fees, primarily due to the absence of FrontPoint for ten months of the current year, partially offset by an increase in revenues associated with higher average assets under management. The Company�s assets under management increased $15 billion from $272
billion at December�31, 2010 to $287 billion at December�31, 2011, reflecting net customer inflows. The Company recorded net customer inflows of $26 billion in 2011 compared with net outflows of $6 billion in 2010. The increase in flows
for 2011 primarily reflected the sweep of Morgan Stanley Wealth Management client cash balances of approximately $19 billion into Morgan Stanley managed liquidity funds and inflows of $8 billion into alternatives funds, partially offset by outflows
of $6 billion in fixed income products. Other . Other revenues were $25 million in 2011 as compared with $164 million in 2010. The results in 2011
included revenues associated with�the Company�s minority investments in Lansdowne and Avenue, partially offset by a $27 million writedown in the Company�s minority investment in FrontPoint. The results in 2010 primarily reflected
revenues associated with these minority stakes and a pre-tax gain of approximately $96 million from the sale of the Company�s investment in Invesco (see Note 19 to the consolidated financial statements). The results in 2010 also reflected gains
associated with the reduction of a lending facility to a real estate fund sponsored by the Company and impairment charges of $126 million related to FrontPoint. 82 Table of Contents Non-interest Expenses . Non-interest expenses decreased 17% in
2011 from 2010, primarily reflecting a decrease in compensation expenses. Compensation and benefits expenses decreased 23% in 2011 from 2010, primarily due to the absence of FrontPoint for ten months of the current year and decreases associated with
lower net revenues. Non-compensation expenses decreased 8% in 2011 compared with the prior year, as the prior year included intangible asset impairment charges of $67 million related to certain FrontPoint management contracts. Income Tax Items. In 2012, the Company recognized in income from continuing operations an
out-of-period net tax provision of approximately $107 million, attributable to the Asset Management business segment, primarily related to the overstatement of deferred tax assets associated with partnership investments in prior years. The Company
has evaluated the effects of the understatement of the income tax provision both qualitatively and quantitatively and concluded that it did not have a material impact on any prior annual or quarterly consolidated financial statements. Discontinued Operations. On June�1, 2010, the Company completed the sale of Retail Asset
Management, including Van Kampen, to Invesco. The Company recorded a cumulative after-tax gain of $718 million, of which $8 million, $28 million and $570 million were recorded in 2012, 2011 and 2010, respectively. The results of Retail Asset
Management are reported as discontinued operations within the Asset Management business segment for all periods presented. See �Executive Summary�Significant Items�Gain on Sale of Retail Asset Management� for further information. In the fourth quarter of 2011, the Company classified a real
estate property management company as held for sale within the Asset Management business segment. The transaction closed during the first quarter of 2012. The results of this company are reported as discontinued operations for all periods presented. In the third quarter of 2010, the Company completed a disposal of
a real estate property within the Asset Management business segment. The results related to this property are reported as discontinued operations for all periods presented through the date of sale. For further information on discontinued operations, see Notes 1 and 25 to the
consolidated financial statements. Nonredeemable
Noncontrolling Interests. Nonredeemable noncontrolling
interests are primarily related to the consolidation of certain real estate funds sponsored by the Company. Principal investment gains associated with these consolidated funds were $225 million, $180 million and $444 million in 2012, 2011 and 2010,
respectively. 83 Table of Contents Accounting Developments. Disclosures about Offsetting Assets and Liabilities. In December 2011, the Financial Accounting Standards Board
(�FASB�) issued an accounting update that creates new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the statement of
financial condition or subject to an enforceable master netting arrangement or similar arrangement. In January 2013, the FASB issued an accounting update that clarified the intended scope of the new balance sheet offsetting disclosures to derivatives, repurchase agreements, and securities lending
transactions to the extent that they are either offset in the financial statements or subject to an enforceable master netting arrangement or similar agreement. These disclosure requirements are effective for the Company beginning on or after January�1, 2013. Since these amended principles require only
additional disclosures concerning offsetting and related arrangements, adoption will not affect the Company�s consolidated statements of income or financial condition. Other Matters. Real Estate. The Company acts as the general partner for various real estate funds and
also invests in certain of these funds as a limited partner. The Company�s real estate investments at December�31, 2012 and December�31, 2011 are described below. Such amounts exclude investments associated with certain employee
deferred compensation and co-investment plans. At
December�31, 2012 and December�31, 2011, the consolidated statements of financial condition included amounts representing real estate investment assets of consolidated subsidiaries of approximately $2.2 billion and $2.0 billion,
respectively, including noncontrolling interests of approximately $1.8 billion and $1.6 billion, respectively, for a net amount of $0.4 billion in both periods. This net presentation is a non-GAAP financial measure that the Company considers to be a
useful measure for the Company and investors to use in assessing the Company�s net exposure. In addition, the Company has contractual capital commitments, guarantees, lending facilities and counterparty arrangements with respect to real estate
investments of $0.5 billion at December�31, 2012. In
addition to the Company�s real estate investments, the Company engages in various real estate-related activities, including origination of loans secured by commercial and residential properties. The Company also securitizes and trades in a wide
range of commercial and residential real estate and real estate-related whole loans, mortgages and other real estate. In connection with these activities, the Company has provided, or otherwise agreed to be responsible for, representations and
warranties. Under certain circumstances, the Company may be required to repurchase such assets or make other payments related to such assets if such representations and warranties were breached. The Company continues to monitor its real
estate-related activities in order to manage its exposures and potential liability from these markets and businesses. See �Legal Proceedings�Residential Mortgage and Credit Crisis Related Matters� in Part I, Item�3, herein and
Note 13 to the consolidated financial statements for further information. Japanese Securities Joint Venture. On May�1, 2010, the Company and MUFG formed a joint venture in Japan of their respective investment banking and securities businesses. MUFG and the Company have integrated their respective Japanese
securities companies by forming two joint venture companies. MUFG contributed the investment banking, wholesale and retail securities businesses conducted in Japan by Mitsubishi UFJ Securities Co., Ltd. into MUMSS. The 84 Table of Contents Company contributed the investment banking operations conducted in Japan by its subsidiary MSMS, formerly known as Morgan Stanley Japan Securities Co., Ltd., into MUMSS (MSMS, together with
MUMSS, the �Joint Venture�). MSMS has continued its sales and trading and capital markets business conducted in Japan. Following the respective contributions to the Joint Venture and a cash payment of 23 billion yen ($247 million) from
MUFG to the Company, the Company owns a 40% economic interest in the Joint Venture, and MUFG owns a 60% economic interest in the Joint Venture. The Company holds a 40% voting interest and MUFG holds a 60% voting interest in MUMSS, while the Company holds a 51% voting interest and MUFG holds a 49%
voting interest in MSMS. The Company continues to consolidate MSMS in its consolidated financial statements and, commencing on May�1, 2010, accounted for its interest in MUMSS as an equity method investment within the Institutional Securities
business segment. During 2012, 2011 and 2010, the Company recorded income (loss) of $152 million, $(783) million and $(62) million, respectively, within Other revenues in the consolidated statements of income, arising from the Company�s 40%
stake in MUMSS. In order to enhance the risk management at MUMSS,
during 2011, the Company entered into a transaction with MUMSS whereby the risk associated with the fixed income trading positions that previously caused the majority of the aforementioned MUMSS losses in 2011 was transferred to MSMS. In return for
entering into the transaction, the Company received total consideration of $659 million, which represented the estimated fair value of the fixed income trading positions transferred. To the extent that losses incurred by MUMSS result in a requirement to restore its capital, MUFG is solely responsible for
providing this additional capital to a minimum level, and the Company is not obligated to contribute additional capital to MUMSS. Because of losses incurred by MUMSS, MUFG contributed approximately $370 million and $259 million of capital to MUMSS
on April�22, 2011 and November�24, 2011, respectively. The MUFG capital injection improved the capital base and restored the capital adequacy ratio of MUMSS in each case.�As a result of the capital injections, during 2011, the Company
recorded increases of approximately $251 million in the carrying amount of the equity method investment in MUMSS, reflecting the Company�s 40% share of the increases in the net asset value of MUMSS, and increases in the Company�s Paid-in
capital of approximately $146 million�(after-tax). To the
extent that MUMSS is required to increase its capital level due to factors other than losses, such as changes in regulatory requirements, both MUFG and the Company are required to contribute the necessary capital based upon their economic interest
as set forth above. In this context, the Company contributed $129 million and MUFG contributed $195 million of additional proportionate capital investments on November�24, 2011 to meet an anticipated change in regulatory capital requirements of
MUMSS. See Note 24 to the consolidated financial statements and
�Executive Summary�Significant Items�Japanese Securities Joint Venture� herein for further information. Defined Benefit Pension and Other Postretirement Plans. Expense. The Company recognizes the compensation cost of an employee�s pension benefits (including prior-service
cost) over the employee�s estimated service period. This process involves making certain estimates and assumptions, including the discount rate and the expected long-term rate of return on plan assets. On June�1, 2010, the defined benefit
pension plan that is qualified under Section�401(a) of the Internal Revenue Code (the �U.S. Qualified Plan�) was amended to cease future benefit accruals after December�31, 2010. Any benefits earned by participants under the U.S.
Qualified Plan at December�31, 2010 were preserved and will be payable based on the U.S. Qualified Plan�s provisions. Net periodic pension expense for U.S. and non-U.S. plans was $99 million, $72 million and $96 million for 2012, 2011 and
2010, respectively. 85 Table of Contents Contributions. The Company made contributions of $42 million, $57
million and $72 million to its U.S. and non-U.S. defined benefit pension plans in 2012, 2011 and 2010, respectively. These contributions were funded with cash from operations. The Company determines the amount of its pension contributions to its funded
plans by considering several factors, including the level of plan assets relative to plan liabilities, the types of assets in which the plans are invested, expected plan liquidity needs and expected future contribution requirements. The
Company�s policy is to fund at least the amounts sufficient to meet minimum funding requirements under applicable employee benefit and tax laws (for example, in the U.S., the minimum required contribution under the Employee Retirement Income
Security Act of 1974, or �ERISA�). At December�31, 2012,�December�31, 2011 and December�31, 2010, there were no minimum required ERISA contributions for the U.S. Qualified Plan. No contributions were made to the U.S.
Qualified Plan for 2012, 2011 and 2010. See Note 21 to the
consolidated financial statements for more information on the Company�s defined benefit pension and postretirement plans. American Taxpayer Relief Act. On January�2, 2013, the U.S. President signed into law the American Taxpayer Relief Act of 2012 (the �Act�). Among other things, the Act
extends with retroactive effect to January�1, 2012 a provision of U.S. tax law that defers the imposition of tax on certain active financial services income of certain foreign subsidiaries earned outside of the U.S. until such income is
repatriated to the United States as a dividend. As enactment of the Act was not completed until 2013, the provisions of the Act that benefit the Company�s 2012 tax position will not be recognized until 2013. Accordingly, the Company will record
an approximate $80 million benefit attributable to the Act�s retroactive extension of these provisions as part of income taxes from continuing operations in the quarter ending March�31, 2013. Further, while the Company estimates a similar
amount of benefit related to 2013 activities, the overall financial impact to the Company will depend upon the actual level, composition, and geographic mix of earnings. The current year effective tax rate would have been a benefit of 62.1% had the
Act been enacted in 2012. Regulatory Outlook. The Dodd-Frank Act was enacted on July�21, 2010. While certain portions
of the Dodd-Frank Act were effective immediately, other portions will be effective following extended transition periods or through numerous rulemakings by multiple governmental agencies, and only a portion of those rulemakings have been completed.
It remains difficult to assess fully the impact that the Dodd-Frank Act will have on the Company and on the financial services industry generally. In addition, various international developments, such as the adoption of risk-based capital, leverage
and liquidity standards by the Basel Committee on Banking Supervision, known as �Basel III,� will continue to impact the Company in the coming years. It is likely that 2013 and subsequent years will see further material changes in the way major financial institutions are regulated in both the U.S. and
other markets in which the Company operates, although it remains difficult to predict the exact impact these changes will have on the Company�s business, financial condition, results of operations and cash flows for a particular future period.
See also �Business�Supervision and Regulation� in Part I, Item 1 herein. 86 Table of Contents Critical Accounting Policies. The Company�s consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the U.S., which require the Company to make estimates and assumptions (see Note 1 to the consolidated financial statements). The Company believes that of its significant accounting policies
(see Note 2 to the consolidated financial statements), the following policies involve a higher degree of judgment and complexity. Fair Value. Financial Instruments Measured at Fair Value. A significant number of the Company�s financial instruments are carried at fair value. The Company makes estimates
regarding valuation of assets and liabilities measured at fair value in preparing the consolidated financial statements. These assets and liabilities include but are not limited to: | � | Financial instruments owned and Financial instruments sold, not yet purchased; |
| � | Securities available for sale; |
| � | Securities received as collateral and Obligation to return securities received as collateral; |
| � | Certain Securities purchased under agreements to resell; |
| � | Certain Deposits; |
| � | Certain Commercial paper and other short-term borrowings, primarily structured notes; |
| � | Certain Securities sold under agreements to repurchase; |
| � | Certain Other secured financings; and |
| � | Certain Long-term borrowings, primarily structured notes. |
Table of Contents Assets and Liabilities Measured at Fair Value on a Non-recurring
Basis. At December�31, 2012, certain of the Company�s assets were measured at fair value on a non-recurring basis, primarily relating to loans, other investments, premises, equipment and software
costs, and intangible assets. The Company incurs losses or gains for any adjustments of these assets to fair value. A downturn in market conditions could result in impairment charges in future periods. For assets and liabilities measured at fair value on a non-recurring basis,
fair value is determined by using various valuation approaches. The same hierarchy as described above, which maximizes the use of observable inputs and minimizes the use of unobservable inputs by generally requiring that the observable inputs be
used when available, is used in measuring fair value for these items. See Note 4 to the consolidated financial statements for further information on assets and liabilities that are measured at fair value on a non-recurring basis. Fair Value Control Processes . The
Company employs control processes to validate the fair value of its financial instruments, including those derived from pricing models. These control processes are designed to ensure that the values used for financial reporting are based on
observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are
reasonable. See Note 2 to the consolidated financial statements
for additional information regarding the Company�s valuation policies, processes and procedures. Goodwill and Intangible Assets. Goodwill. The Company tests goodwill for impairment on an annual basis on July�1 and on an interim basis when certain events or circumstances exist. The Company
tests for impairment at the reporting unit level, which is generally at the level of or one level below its business segments. Goodwill no longer retains its association with a particular acquisition once it has been assigned to a reporting unit. As
such, all of the activities of a reporting unit, whether acquired or organically developed, are available to support the value of the goodwill. For both the annual and interim tests, the Company has the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances,
the Company determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing the two-step impairment test is not required. However, if the Company concludes otherwise, then it is
required to perform the first step of the two-step impairment test. Goodwill impairment is determined by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying
value, goodwill at the reporting unit level is not deemed to be impaired. If the estimated fair value is below carrying value, however, further analysis is required to determine the amount of the impairment. Additionally, if the carrying value of a
reporting unit is zero or a negative value and it is determined that it is more likely than not the goodwill is impaired, further analysis is required. The estimated fair values of the reporting units are derived based on valuation techniques the
Company believes market participants would use for each of the reporting units. The estimated fair values are generally determined utilizing methodologies that incorporate price-to-book, price-to-earnings and assets under management multiples of
certain comparable companies. The Company also utilizes a discounted cash flow methodology for certain reporting units. At December�31, 2012 and December�31, 2011, each of the Company�s reporting units with goodwill had a fair value
that was substantially in excess of its carrying value. Intangible Assets . Amortizable intangible assets are amortized over their estimated useful lives and are
reviewed for impairment on an interim basis when certain events or circumstances exist. For amortizable intangible assets, an impairment exists when the carrying amount of the intangible asset exceeds its fair value. An impairment loss will be
recognized only if the carrying amount of the intangible asset is not recoverable and exceeds its fair value. The carrying amount of the intangible asset is not recoverable if it exceeds the sum of the expected undiscounted cash flows. 88 Table of Contents Indefinite-lived intangible assets are not amortized but are reviewed annually (or more frequently when
certain events or circumstances exist) for impairment. For indefinite-lived intangible assets, an impairment exists when the carrying amount exceeds its fair value. For both goodwill and intangible assets, to the extent an impairment loss is
recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. For amortizable intangible assets, the new cost basis is amortized over the remaining useful life of that asset. Adverse
market or economic events could result in impairment charges in future periods. See Notes 4 and 9 to the consolidated financial statements for additional information about goodwill and intangible assets. Legal and Regulatory Contingencies. In the normal course of business, the Company has been named, from time to
time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for
substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases are bankrupt or in financial distress. The Company is also involved, from time to time, in other reviews,
investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company�s business, including, among other matters, accounting and operational matters, certain of which may result in adverse
judgments, settlements, fines, penalties, injunctions or other relief. Accruals for litigation and regulatory proceedings are generally determined on a case-by-case basis. Where available information indicates that it is probable a liability had been incurred at the date of
the consolidated financial statements and the Company can reasonably estimate the amount of that loss, the Company accrues the estimated loss by a charge to income. In many proceedings, however, it is inherently difficult to determine whether any
loss is probable or even possible or to estimate the amount of any loss. For certain legal proceedings, the Company can estimate possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amounts accrued. For
certain other legal proceedings, the Company cannot reasonably estimate such losses, particularly for proceedings that are in their early stages of development or where plaintiffs seek substantial or indeterminate damages. Numerous issues may need
to be resolved, including through potentially lengthy discovery and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before a loss or additional loss or range
of loss or additional loss can be reasonably estimated for any proceeding. Significant judgment is required in deciding when and if to make these accruals and the actual cost of a legal claim or regulatory fine/penalty may ultimately be materially different from the recorded
accruals. See Note 13 to the consolidated financial statements
for additional information on legal proceedings. Income Taxes. The Company is subject to the income tax laws of the U.S.,
its states and municipalities and those of the foreign jurisdictions in which the Company has significant business operations. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing
authorities. The Company must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes and must also make estimates about when certain items affect taxable income
in the various tax jurisdictions. Disputes over interpretations of the tax laws may be settled with the taxing authority 89 Table of Contents upon examination or audit. The Company periodically evaluates the likelihood of assessments in each taxing jurisdiction resulting from current and subsequent years� examinations, and
unrecognized tax benefits related to potential losses that may arise from tax audits are established in accordance with the guidance on accounting for unrecognized tax benefits. Once established, unrecognized tax benefits are adjusted when there is
more information available or when an event occurs requiring a change. The Company�s provision for income taxes is composed of current and deferred taxes. Current income taxes approximate taxes to be paid or refunded for the current period. The Company�s deferred
income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the applicable enacted tax rates and laws that will be in effect when such differences
are expected to reverse. The Company�s deferred tax balances also include deferred assets related to tax attributes carryforwards, such as net operating losses and tax credits that will be realized through reduction of future tax liabilities
and, in some cases, are subject to expiration if not utilized within certain periods. The Company performs regular reviews to ascertain whether deferred tax assets are realizable. These reviews include management�s estimates and assumptions
regarding future taxable income and incorporate various tax planning strategies, including strategies that may be available to utilize net operating losses before they expire. Once the deferred tax asset balances have been determined, the Company
may record a valuation allowance against the deferred tax asset balances to reflect the amount of these balances (net of valuation allowance) that the Company estimates it is more likely than not to realize at a future date. Both current and
deferred income taxes could reflect adjustments related to the Company�s unrecognized tax benefits. Significant judgment is required in estimating the consolidated provision for (benefit from) income taxes, current and deferred tax balances (including valuation allowance, if any), accrued interest or
penalties and uncertain tax positions. Revisions in our estimates and/or the actual costs of a tax assessment may ultimately be materially different from the recorded accruals and unrecognized tax benefits, if any. See Note 22 to the consolidated financial statements for additional
information on our provision for income taxes, related income tax assets and liabilities and tax examinations. 90 Table of Contents Liquidity and Capital Resources. The Company�s senior management establishes the liquidity and capital
policies of the Company. Through various risk and control committees, the Company�s senior management reviews business performance relative to these policies, monitors the availability of alternative sources of financing, and oversees the
liquidity and interest rate and currency sensitivity of the Company�s asset and liability position. The Company�s Treasury Department, Firm Risk Committee, Asset and Liability Management Committee and other control groups assist in
evaluating, monitoring and controlling the impact that the Company�s business activities have on its consolidated statements of financial condition, liquidity and capital structure. Liquidity and capital matters are reported regularly to the
Board�s Risk Committee. The Balance Sheet. The Company monitors and evaluates the composition and size
of its balance sheet on a regular basis. The Company�s balance sheet management process includes quarterly planning, business specific limits, monitoring of business specific usage versus limits, key metrics and new business impact assessments. The Company establishes balance sheet limits at the consolidated,
business segment and business unit levels. The Company monitors balance sheet usage versus limits and variances resulting from business activity or market fluctuations are reviewed. On a regular basis, the Company reviews current performance versus
limits and assesses the need to re-allocate limits based on business unit needs. The Company also monitors key metrics, including asset and liability size, composition of the balance sheet, limit utilization and capital usage. 91 Table of Contents The tables below summarize total assets for the Company�s business segments at December�31, 2012
and December�31, 2011: | At December�31, 2012 | ||||||||||||||||
| Institutional Securities | Global�Wealth Management Group | Asset Management | Total | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents(1) | $ | 32,350 | $ | 13,734 | $ | 820 | $ | 46,904 | ||||||||
| Cash deposited with clearing organizations or segregated under federal and other regulations or requirements(2) | 23,068 | 7,902 | � | 30,970 | ||||||||||||
| Financial instruments owned: | ||||||||||||||||
| U.S. government and agency securities | 53,238 | 777 | � | 54,015 | ||||||||||||
| Other sovereign government obligations | 41,695 | 1,467 | � | 43,162 | ||||||||||||
| Corporate and other debt | 47,889 | 1,268 | � | 49,157 | ||||||||||||
| Corporate equities | 69,371 | 55 | 1 | 69,427 | ||||||||||||
| Derivatives and other contracts | 35,762 | 225 | 210 | 36,197 | ||||||||||||
| Investments | 4,018 | 106 | 4,222 | 8,346 | ||||||||||||
| Physical commodities | 7,296 | 3 | � | 7,299 | ||||||||||||
| Total financial instruments owned | 259,269 | 3,901 | 4,433 | 267,603 | ||||||||||||
| Securities available for sale | � | 39,869 | � | 39,869 | ||||||||||||
| Securities received as collateral(2) | 14,278 | � | � | 14,278 | ||||||||||||
| Federal funds sold and securities purchased under agreements to resell(2) | 120,488 | 13,924 | � | 134,412 | ||||||||||||
| Securities borrowed(2) | 121,302 | 399 | � | 121,701 | ||||||||||||
| Receivables: | ||||||||||||||||
| Customers(2) | 28,044 | 18,156 | (3 | ) | 46,197 | |||||||||||
| Brokers, dealers and clearing organizations | 6,274 | 1,019 | 42 | 7,335 | ||||||||||||
| Fees, interest and other | 2,374 | 7,656 | 726 | 10,756 | ||||||||||||
| Loans | 11,748 | 17,298 | � | 29,046 | ||||||||||||
| Other assets(3) | 19,657 | 10,904 | 1,328 | 31,889 | ||||||||||||
| Total assets(4) | $ | 638,852 | $ | 134,762 | $ | 7,346 | $ | 780,960 | ||||||||
Table of Contents| At December�31, 2011 | ||||||||||||||||
| Institutional Securities | Global�Wealth Management Group | Asset Management | Total | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents(1) | $ | 35,288 | $ | 11,253 | $ | 771 | $ | 47,312 | ||||||||
| Cash deposited with clearing organizations or segregated under federal and other regulations or requirements(2) | 22,390 | 7,064 | � | 29,454 | ||||||||||||
| Financial instruments owned: | ||||||||||||||||
| U.S. government and agency securities | 62,818 | 631 | � | 63,449 | ||||||||||||
| Other sovereign government obligations | 29,056 | 3 | � | 29,059 | ||||||||||||
| Corporate and other debt | 67,925 | 998 | � | 68,923 | ||||||||||||
| Corporate equities | 47,937 | 28 | 1 | 47,966 | ||||||||||||
| Derivatives and other contracts | 47,624 | 219 | 221 | 48,064 | ||||||||||||
| Investments | 4,165 | 123 | 3,907 | 8,195 | ||||||||||||
| Physical commodities | 9,693 | 4 | � | 9,697 | ||||||||||||
| Total financial instruments owned | 269,218 | 2,006 | 4,129 | 275,353 | ||||||||||||
| Securities available for sale | � | 30,495 | � | 30,495 | ||||||||||||
| Securities received as collateral(2) | 11,651 | � | � | 11,651 | ||||||||||||
| Federal funds sold and securities purchased under agreements to resell(2) | 116,819 | 13,336 | � | 130,155 | ||||||||||||
| Securities borrowed(2) | 126,573 | 501 | � | 127,074 | ||||||||||||
| Receivables: | ||||||||||||||||
| Customers(2) | 27,558 | 6,418 | 1 | 33,977 | ||||||||||||
| Brokers, dealers and clearing organizations | 4,935 | 283 | 30 | 5,248 | ||||||||||||
| Fees, interest and other | 1,663 | 7,134 | 647 | 9,444 | ||||||||||||
| Loans | 3,867 | 11,477 | 25 | 15,369 | ||||||||||||
| Other assets(3) | 21,494 | 11,460 | 1,412 | 34,366 | ||||||||||||
| Total assets(4) | $ | 641,456 | $ | 101,427 | $ | 7,015 | $ | 749,898 | ||||||||
| (1) | Cash and cash equivalents include Cash and due from banks and Interest bearing deposits with banks. |
| (2) | These assets are included in secured financing assets (see �Secured Financing� herein). |
| (3) | Other assets include Other investments; Premises, equipment and software costs; Goodwill; Intangible assets; and Other assets. |
| (4) | Total assets include Global Liquidity Reserves of $182 billion at both December�31, 2012 and December�31, 2011. |
Table of Contents agreements, securities borrowed and loaned transactions, securities received as collateral and obligation to return securities received and customer receivables and payables. Securities borrowed
or purchased under agreements to resell and securities loaned or sold under agreements to repurchase are treated as collateralized financings (see Notes 2 and 6 to the consolidated financial statements). Securities sold under agreements to
repurchase and Securities loaned were $160 billion at December�31, 2012 and averaged $161 billion during 2012. Securities purchased under agreements to resell and Securities borrowed were $256 billion at December�31, 2012 and averaged $281
billion during 2012. Securities financing assets and liabilities
also include matched book transactions with minimal market, credit and/or liquidity risk. Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions. The customer receivable
portion of the securities financing transactions includes customer margin loans, collateralized by customer-owned securities, and customer cash, which is segregated in accordance with regulatory requirements. The customer payable portion of the
securities financing transactions primarily includes customer payables to the Company�s prime brokerage customers. The Company�s risk exposure on these transactions is mitigated by collateral maintenance policies that limit the
Company�s credit exposure to customers. Included within securities financing assets were $14 billion and $12 billion at December�31, 2012 and December�31, 2011, respectively, recorded in accordance with accounting guidance for the
transfer of financial assets that represented offsetting assets and liabilities for fully collateralized non-cash loan transactions. Liquidity Risk Management Framework. The primary goal of the Company�s liquidity risk management framework is to ensure that the Company has access to adequate funding across a wide
range of market conditions. The framework is designed to enable the Company to fulfill its financial obligations and support the execution of the Company�s business strategies. The following principles guide the Company�s liquidity risk management framework: | � | Sufficient liquid assets should be maintained to cover maturing liabilities and other planned and contingent outflows; |
| � | Maturity profile of assets and liabilities should be aligned, with limited reliance on short-term funding; |
| � | Source, counterparty, currency, region, and term of funding should be diversified; and |
| � | Limited access to funding should be anticipated through the Contingency Funding Plan (�CFP�). |
Table of Contents The assumptions underpinning the Liquidity Stress Tests include, but are not limited to, the following: | � | No government support; |
| � | No access to equity and unsecured debt markets; |
| � | Repayment of all unsecured debt maturing within the stress horizon; |
| � | Higher haircuts and significantly lower availability of secured funding; |
| � | Additional collateral that would be required by trading counterparties and certain exchanges and clearing organizations related to multi-notch credit rating downgrades; |
| � | Additional collateral that would be required due to collateral substitutions, collateral disputes and uncalled collateral; |
| � | Discretionary unsecured debt buybacks; |
| � | Drawdowns on unfunded commitments provided to third parties; |
| � | Client cash withdrawals and reduction in customer short positions that fund long positions; |
| � | Limited access to the foreign exchange swap markets; |
| � | Return of securities borrowed on an uncollateralized basis; and |
| � | Maturity roll-off of outstanding letters of credit with no further issuance. |
Table of Contents Global Liquidity Reserve by Type of Investment. The table below summarizes the Company�s Global Liquidity Reserve by
type of investment: | At December 31, 2012 | ||||
| (dollars�in�billions) | ||||
| Cash deposits with banks | $ | 12 | ||
| Cash deposits with central banks | 29 | |||
| Unencumbered highly liquid securities: | ||||
| U.S. government obligations | 62 | |||
| U.S. agency and agency mortgage-backed securities | 42 | |||
| Non-U.S. sovereign obligations(1) | 21 | |||
| Investments in money market funds | 1 | |||
| Other investment grade securities | 15 | |||
| Global Liquidity Reserve | $ | 182 | ||
| (1) | Non-U.S. sovereign obligations are composed of unencumbered�German, French, Dutch, U.K., Brazilian and Japanese government obligations. |
| At�December�31, 2012 | Average�Balance(1) 2012 | |||||||
| (dollars in billions) | ||||||||
| Bank legal entities: | ||||||||
| Domestic | $ | 66 | $ | 57 | ||||
| Foreign | 5 | 6 | ||||||
| Total Bank legal entities | 71 | 63 | ||||||
| Non-Bank legal entities: | ||||||||
| Domestic | 81 | 83 | ||||||
| Foreign | 30 | 30 | ||||||
| Total Non-Bank legal entities | 111 | 113 | ||||||
| Total | $ | 182 | $ | 176 | ||||
| (1) | The Company calculates the average Global Liquidity Reserve based upon daily amounts. |
Table of Contents Funding Management. The Company manages its funding in a manner that reduces the risk of
disruption to the Company�s operations. The Company pursues a strategy of diversification of secured and unsecured funding sources (by product, by investor and by region) and attempts to ensure that the tenor of the Company�s liabilities
equals or exceeds the expected holding period of the assets being financed. The Company funds its balance sheet on a global basis through diverse sources. These sources may include the Company�s equity capital, long-term debt, repurchase agreements, securities lending,
deposits, commercial paper, letters of credit and lines of credit. The Company has active financing programs for both standard and structured products targeting global investors and currencies. Secured Financing. A substantial portion
of the Company�s total assets consists of liquid marketable securities and short-term collateralized receivables arising principally from its Institutional Securities business segment�s sales and trading activities. The liquid nature of
these assets provides the Company with flexibility in funding these assets with secured financing. The Company�s goal is to achieve an optimal mix of durable secured and unsecured financing. Secured financing investors�principally
focus�on�the quality of the eligible collateral posted. Accordingly, the Company actively manages its secured financing book based on the quality of the assets being funded. The Company utilizes shorter-term secured financing only for highly liquid assets and has established longer tenor limits for
less liquid asset classes, for which funding may be at risk in the event of a market disruption. The Company defines highly liquid assets as that which is consistent with the standards of the Global Liquidity Reserve, and less liquid assets as that
which does not meet those standards. At December�31, 2012, the weighted average maturity of the Company�s secured financing against less liquid assets was greater than 120 days. To further minimize the refinancing risk of secured financing
for less liquid assets, the Company has established concentration limits to diversify its investor base and reduce the amount of monthly maturities for secured financing of less liquid assets. Furthermore, the Company obtains spare capacity, or term
secured funding liabilities in excess of less liquid inventory, as an additional risk mitigant to replace maturing trades in the event that secured financing markets or our ability to access them become limited. Finally, in addition to the above
risk management framework, the Company holds a portion of its Global Liquidity Reserve against the potential disruption to its secured financing capabilities. Unsecured Financing . The Company views long-term debt and deposits as stable sources of funding. Unencumbered
securities and non-security assets are financed with a combination of long- and short-term debt and deposits.�The Company�s�unsecured financings�include structured borrowings, whose payments and redemption values
are�based�on the performance of�certain underlying assets, including equity, credit, foreign exchange, interest rates and commodities.�When appropriate, the Company may use derivative products to conduct asset and liability
management and to make adjustments to the Company�s interest rate risk profile (see Note 12 to the consolidated financial statements). Short-Term Borrowings. The Company�s unsecured short-term borrowings consist of commercial paper, bank loans,
bank notes and structured notes with maturities of 12 months or less at issuance. The table below summarizes the Company�s short-term unsecured borrowings: | At December�31, 2012 | At December�31, 2011 | |||||||
| (dollars�in�millions) | ||||||||
| Commercial paper(1) | $ | 306 | $ | 978 | ||||
| Other short-term borrowings | 1,832 | 1,865 | ||||||
| Total | $ | 2,138 | $ | 2,843 | ||||
Table of Contents| (1) | At December�31, 2011, the majority of the commercial paper balance was issued as part of client transactions and was not used for the Company�s general funding purposes. During 2012, the client transactions matured, and the remaining balance at December�31, 2012 was used for the Company�s general funding purposes. |
| At December�31, 2012(1) | At December�31, 2011(1) | |||||||
| (dollars in millions) | ||||||||
| Savings and demand deposits(2) | $ | 80,058 | $ | 63,029 | ||||
| Time deposits(3) | 3,208 | 2,633 | ||||||
| Total | $ | 83,266 | $ | 65,662 | ||||
| (1) | Total deposits subject to FDIC insurance at December�31, 2012 and December�31, 2011 were $62 billion and $52 billion, respectively. |
| (2) | Amounts include non-interest bearing deposits of $1,037 million and $1,270 million at December�31, 2012 and December�31, 2011, respectively. |
| (3) | Certain time deposit accounts are carried at fair value under the fair value option (see Note 4 to the consolidated financial statements). |
| Parent | Subsidiaries | Total | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Due in 2013 | $ | 23,805 | $ | 1,498 | $ | 25,303 | ||||||
| Due in 2014 | 20,770 | 981 | 21,751 | |||||||||
| Due in 2015 | 20,200 | 4,453 | 24,653 | |||||||||
| Due in 2016 | 18,210 | 1,774 | 19,984 | |||||||||
| Due in 2017 | 26,291 | 1,846 | 28,137 | |||||||||
| Thereafter | 47,997 | 1,746 | 49,743 | |||||||||
| Total | $ | 157,273 | $ | 12,298 | $ | 169,571 | ||||||
Table of Contents Long-Term Borrowing Activity in 2012. During 2012, the Company issued and reissued notes with a principal amount
of approximately $24�billion. In connection with the note issuances, the Company generally enters into certain transactions to obtain floating interest rates based primarily on short-term LIBOR trading levels. The weighted average maturity of
the Company�s long-term borrowings, based upon stated maturity dates, was approximately 5.3 years at December�31, 2012. During 2012, approximately $43 billion in aggregate long-term borrowings matured or were retired. On February�25,
2013, the Company issued $4.5 billion in senior unsecured debt. The Company issued $2.0 billion of 10 year subordinated debt in October�2012. This issuance represented the Company�s first subordinated debt
issuance since 2004. At December�31, 2012, the aggregate
outstanding carrying amount of the Company�s senior indebtedness was approximately $158 billion (including guaranteed obligations of the indebtedness of subsidiaries) compared with $176 billion at December�31, 2011. The decrease in the
amount of senior indebtedness was primarily due to repayments of notes, net of new issuances in long-term borrowings. Credit Ratings. The Company relies on external sources to finance a significant portion of its day-to-day operations. The cost and availability of financing generally is
impacted by the Company�s credit ratings. In addition, the Company�s credit ratings can have an impact on certain trading revenues, particularly in those businesses where longer term counterparty performance is a key consideration, such as
OTC derivative transactions, including credit derivatives and interest rate swaps. Issuer-specific factors that are important to the determination of the Company�s credit ratings include governance, the level and quality of earnings, capital
adequacy, funding and liquidity, risk appetite and management, asset quality, strategic direction and business mix. Additionally, the agencies will look at other industry-wide factors such as regulatory or legislative changes, macro-economic
environment and perceived levels of government support. The
rating agencies have stated that they currently incorporate various degrees of credit rating uplift from external sources of potential support, as well as perceived government support of systemically important banks, including the credit ratings of
the Company. Rating agencies continue to monitor the progress of U.S. financial reform legislation to assess whether the possibility of extraordinary government support for the financial system in any future financial crises is negatively impacted.
Legislative and rulemaking outcomes may lead to reduced uplift assumptions for U.S. banks and thereby place downward pressure on credit ratings. At the same time, proposed U.S. financial reform legislation and attendant rulemaking also have positive
implications for credit ratings such as higher standards for capital and liquidity levels. The net result on credit ratings and the timing of any change in rating agency assumptions on support is currently uncertain. At January�31, 2013, the Parent�s and Morgan Stanley Bank,
N.A.�s senior unsecured ratings were as set forth below : | Parent | Morgan�Stanley�Bank,�N.A. | |||||||||||
| Short-Term Debt | Long-Term Debt | Rating Outlook | Short-Term Debt | Long-Term Debt | Rating Outlook | |||||||
| Dominion Bond Rating Service Limited | R-1�(middle) | A�(high) | Negative | � | � | � | ||||||
| Fitch Ratings Ltd. | F1 | A | Stable | F1 | A | Stable | ||||||
| Moody�s Investor Services, Inc.(1) | P-2 | Baa1 | Negative | P-2 | A3 | Stable | ||||||
| Rating and Investment Information, Inc.(2) | a-1 | A | Negative | � | � | � | ||||||
| Standard�& Poor�s Financial Services LLC | A-2 | A- | Negative | A-1 | A | Negative | ||||||
Table of Contents| (1) | On June�21, 2012, Moody�s Investor Services, Inc. (�Moody�s�) downgraded the ratings of 15 banks on review for downgrade in the context of a broad review of global banks with capital markets operations. The Parent�s long- and short-term debt ratings were lowered two notches to Baa1/P-2 from A2/P-1, and Morgan Stanley Bank, N.A.�s long- and short-term debt ratings were lowered to A3/P-2 from A1/P-1. A Negative outlook was assigned to the Parent, and a Stable outlook was assigned to Morgan Stanley Bank, N.A. |
| (2) | On May�14, 2012, Rating and Investment Information, Inc. downgraded the Parent�s long-term rating one notch to A from A+. |
| Company Rating Scenario (Moody's/S&P) | OTC Agreements | Other Agreements | Exchanges�and Clearing Organizations | |||||||||
| (dollars in millions) | ||||||||||||
| Baa1/BBB+ | $ | 472 | $ | � | $ | � | ||||||
| Baa2/BBB | $ | 2,556 | $ | � | $ | � | ||||||
| Baa3/BBB- | $ | 3,248 | $ | 326 | $ | 128 | ||||||
Table of Contents The following table sets forth the Company�s tangible common equity at December�31, 2012 and
December�31, 2011 and average balances during 2012: | Balance at | Average�Balance(1) | |||||||||||
| December�
31, 2012 | December�
31, 2011 | 2012 | ||||||||||
| (dollars in millions) | ||||||||||||
| Common equity | $ | 60,601 | $ | 60,541 | $ | 60,828 | ||||||
| Preferred equity | 1,508 | 1,508 | 1,508 | |||||||||
| Morgan Stanley shareholders� equity | 62,109 | 62,049 | 62,336 | |||||||||
| Junior subordinated debentures issued to capital trusts | 4,827 | 4,853 | 4,836 | |||||||||
| Less: Goodwill and net intangible assets(2) | (7,587 | ) | (6,691 | ) | (6,935 | ) | ||||||
| Tangible Morgan Stanley shareholders� equity | $ | 59,349 | $ | 60,211 | $ | 60,237 | ||||||
| Common equity | $ | 60,601 | $ | 60,541 | $ | 60,828 | ||||||
| Less: Goodwill and net intangible assets(2) | (7,587 | ) | (6,691 | ) | (6,935 | ) | ||||||
| Tangible common equity(3) | $ | 53,014 | $ | 53,850 | $ | 53,893 | ||||||
| (1) | The Company calculates its average balances based upon month-end balances. |
| (2) | The goodwill and net intangible assets deduction exclude mortgage servicing rights (net of disallowable mortgage servicing rights) of $6 million and $120 million at December�31, 2012 and December�31, 2011, respectively, and include only the Company�s share of the Wealth Management JV�s goodwill and intangible assets (see �Executive Summary�Significant Items�Wealth Management JV� herein for further information). |
| (3) | Tangible common equity, a non-GAAP financial measure, equals common equity less goodwill and net intangible assets as defined above. The Company views tangible common equity as a useful measure to investors because it is a commonly utilized metric and reflects the common equity deployed in the Company�s businesses. |
Table of Contents Market RWAs reflect�capital charges attributable to the risk of loss resulting from adverse changes in
market prices and other factors.�For a further discussion of the Company�s�market risks and Value-at-Risk (�VaR�) model, see �Quantitative and Qualitative Disclosures about Market Risk� in Part II, Item�7A
herein. Market RWAs incorporate two components: general risk and specific risk. General and specific risk charges are computed using either the Company�s VaR model or Standardized Approach in accordance with regulatory requirements. Credit RWAs reflect capital charges attributable to the risk of loss arising
from a borrower or counterparty failing to meet its financial obligations. For a further discussion of the Company�s credit risks, see �Quantitative and Qualitative Disclosures about Market Risk� in Part II, Item�7A herein. Total allowable capital is composed of Tier 1 capital, which
includes Tier 1 common capital, and Tier 2 capital. Under the Federal Reserve�s final rules regarding capital plans,�Tier 1 common capital is calculated as Tier 1 capital less non-common elements in Tier 1 capital. Non-common elements
include�perpetual preferred stock and related surplus, minority interests in subsidiaries, trust preferred securities and mandatory convertible preferred securities. Tier 1 capital consists predominantly of common shareholders� equity as
well as qualifying preferred stock and qualifying restricted core capital elements (qualifying trust preferred securities and noncontrolling interests) less goodwill, non-servicing intangible assets (excluding allowable mortgage servicing rights),
net deferred tax assets (recoverable in excess of one year), an after-tax debt valuation adjustment and certain other deductions, including equity investments. The debt valuation adjustment in the below table represents the cumulative change in fair
value of certain long-term and short-term borrowings that was attributable to the Company�s own instrument-specific credit spreads and is included in retained earnings. For a further discussion of fair value, see Note 4 to the consolidated
financial statements. At December�31, 2012, the Company was
in compliance with Basel I capital requirements with ratios of Tier�1 capital to RWAs of 17.7% and total capital to RWAs of 18.5% (6% and 10% being well-capitalized for regulatory purposes, respectively). The total capital to RWAs ratio
reflects an increase of approximately 65 basis points that is the result of a $2 billion subordinated debt issuance by the Company in October 2012. See �Long-Term Borrowing Activity in 2012� for the detail of the subordinated debt
issuance. The ratio of Tier 1 common�capital to RWAs�was 14.6% (5% being the minimum under the Federal Reserve�s Comprehensive Capital Analysis and Review (�CCAR�) framework). Financial holding companies are subject to a
Tier 1 leverage ratio as defined by the Federal Reserve. The Company calculated its Tier 1 leverage ratio as Tier 1 capital divided by adjusted average total assets (which reflects adjustments for disallowed goodwill, certain intangible assets,
deferred tax assets and financial and non-financial equity investments). The adjusted average total assets are derived using weekly balances for the year. At December�31, 2012, the Company was in compliance with this leverage restriction with a
Tier 1 leverage ratio of 7.1% (5% being well-capitalized for regulatory purposes). 102 Table of Contents The following table reconciles the Company�s total shareholders� equity to Tier 1 common, Tier 1,
Tier 2 and Total allowable capital as defined by the regulations issued by the Federal Reserve and presents the Company�s consolidated capital ratios at December�31, 2012 and December�31, 2011: | At December�31, 2012 | At December�31, 2011 | |||||||
| (dollars�in�millions) | ||||||||
| Allowable capital | ||||||||
| Common shareholders� equity | $ | 60,601 | $ | 60,541 | ||||
| Less: Goodwill | (6,650 | ) | (6,686 | ) | ||||
| Less: Non-servicing intangible assets | (3,777 | ) | (4,165 | ) | ||||
| Less: Net deferred tax assets(1) | (4,785 | ) | (6,098 | ) | ||||
| Less: After-tax debt valuation adjustment | 823 | (2,296 | ) | |||||
| Other deductions | (1,418 | ) | (1,511 | ) | ||||
| Tier 1 common capital(1)(2) | 44,794 | 39,785 | ||||||
| Qualifying preferred stock | 1,508 | 1,508 | ||||||
| Qualifying restricted core capital elements | 8,058 | 9,821 | ||||||
| Tier 1 capital(1) | 54,360 | 51,114 | ||||||
| Qualifying subordinated debt and restricted core capital elements | 2,783 | 4,546 | ||||||
| Other qualifying amounts | 197 | 17 | ||||||
| Other deductions | (714 | ) | (721 | ) | ||||
| Tier 2 capital | 2,266 | 3,842 | ||||||
| Total allowable capital(1) | $ | 56,626 | $ | 54,956 | ||||
| Total risk-weighted assets(1) | $ | 306,746 | $ | 314,817 | ||||
| Capital ratios | ||||||||
| Total capital ratio(1) | 18.5 | % | 17.5 | % | ||||
| Tier 1 common capital ratio(1)(2) | 14.6 | % | 12.6 | % | ||||
| Tier 1 capital ratio(1) | 17.7 | % | 16.2 | % | ||||
| Tier 1 leverage ratio(1) | 7.1 | % | 6.6 | % | ||||
| (1) | The Company�s December�31, 2011 Tier 1 common capital ratio, Tier 1 capital ratio and Total capital ratio were each reduced by approximately 30 basis points, and Tier 1 leverage ratio was reduced by approximately 20 basis points due to an approximate $1.2 billion deferred tax asset disallowance adjustment, which resulted in a reduction to the Company�s Tier 1 common capital, Tier 1 capital, Total capital, RWAs and adjusted average assets by such amount. |
| (2) | Tier 1 common capital ratio equals Tier 1 common capital divided by RWAs. On December�30, 2011, the Federal Reserve formalized regulatory definitions for Tier 1 common capital and Tier 1 common capital ratio.�The Federal Reserve defined Tier 1 common capital as Tier 1 capital less non-common elements in Tier 1 capital, including perpetual preferred stock and related surplus, minority interest in subsidiaries, trust preferred securities and mandatory convertible preferred securities. Previously, the Company�s definition of Tier 1 common capital included all of the items noted in the Federal Reserve�s definition, but it also included an adjustment for the portion of goodwill and non-servicing intangible assets associated with the Wealth Management JV�s noncontrolling interests ( i.e. , Citi�s share of the Wealth Management JV�s goodwill and intangibles). The Company�s conformance to the Federal Reserve�s definition under the final rule reduced�its Tier 1 common capital and Tier 1 common ratio by approximately $4.2 billion and 132 basis points, respectively, at December�31, 2011. |
Table of Contents objection to its 2012 capital plan, including the acquisition of an additional 14% of the Wealth Management JV, which was completed in September 2012, and ongoing payment of current common and
preferred dividends. The Dodd-Frank Act imposes stress test
requirements on large bank holding companies, including the Company. In October 2012, the Federal Reserve issued its stress test final rule as required by the Dodd-Frank Act that requires the Company to conduct semi-annual company-run stress tests.
The Company is required to publicly disclose the summary results of its company-run stress tests under the severely adverse economic scenario. The rule also subjects the Company to an annual supervisory stress test conducted by the Federal Reserve.
The Federal Reserve has announced that it will, by March�7, 2013 publish a summary of the supervisory stress test results of each company subject to the final rule, including the Company.�In November 2012, the Federal Reserve issued
instructions regarding the 2013 CCAR process to the 19 bank holding companies, including the Company, that became subject to the Federal Reserve�s final rule on November�15, 2012.�The 2013 CCAR instructions described how the Federal
Reserve�s CCAR capital planning process would be integrated with the stress test requirements in the Dodd-Frank Act. The Company submitted its 2013 capital plan to the Federal Reserve in January 2013. The Dodd-Frank Act also requires national banks and federal savings
associations with total consolidated assets of more than $10 billion to conduct an annual stress test. Beginning in 2013, the regulation requires national banks with more than $50 billion in average total consolidated assets, including Morgan
Stanley Bank, N.A. (�MSBNA�), to conduct its first stress test. MSBNA submitted its stress test results to the OCC and the Federal Reserve in January 2013. The Company�s public disclosure of the results of the stress tests is
required to include, with respect to the severely adverse scenario, any changes in regulatory capital ratios of the Company and MSBNA and an explanation of the most significant causes for the changes in regulatory capital ratios. In December 2007, the U.S. banking regulators published final regulations
incorporating the Basel II Accord, which requires internationally active U.S. banking organizations, as well as certain of their U.S. bank subsidiaries, to implement Basel II standards over the next several years. In July 2010, the Company began
reporting its capital adequacy standards on a parallel basis to its regulators under Basel I and Basel II as part of a phased implementation of Basel II. In June 2012, the U.S. banking regulators issued final rules that implement the Basel Committee�s revised market risk framework, referred to as
�Basel 2.5,� which increases capital requirements for securitizations and correlation trading within the Company�s trading book. On January�1, 2013, the U.S. banking regulators� rules to implement Basel 2.5 became effective.
The Company�s risk-weighted assets will increase under the Basel 2.5 guidelines, and if such rules were applied as of December 31, 2012, they would have decreased the Company�s Tier 1 common capital ratio by approximately 400 basis points.
The estimates are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of risks and uncertainties that may affect the Company, see �Risk Factors� in Part I Item�1A herein. In December 2010, the Basel Committee reached an agreement on Basel III. In
June 2012, the U.S. banking regulators proposed rules to implement many aspects of Basel III (the �U.S. Basel III proposals�). The U.S. Basel III proposals contain new capital standards that raise the quality of capital, strengthen counterparty credit risk capital requirements,
introduce a leverage ratio as a supplemental measure to the risk-based ratio and replace the use of externally developed credit ratings with alternatives such as internally developed credit ratings. The proposals include a new capital conservation
buffer, which imposes a common equity Tier 1 capital requirement above the new minimum that can be depleted under stress, and could result in restrictions on capital distributions and discretionary bonuses under certain circumstances. The proposals
also provide for a potential countercyclical buffer which regulators can activate during periods of excessive credit growth in their jurisdiction. Although the U.S. Basel III proposals do not address the Basel Committee�s new 104 Table of Contents additional loss absorbency capital requirement for Global Systemically Important Banks (�G-SIBs�), such as the Company, the U.S. banking regulators indicated that guidance on the
implementation of the Basel Committee�s G-SIB capital surcharge in the United States would be forthcoming. In November 2012, the Financial Stability Board provisionally assigned the Company a capital surcharge of 1.5 percent of common equity
Tier 1 capital to RWA on a scale of 1.0 percent to 2.5 percent. The Financial Stability Board stated that it intends to update the G-SIB list annually based on new data. The U.S. Basel III proposals also propose amendments to the advanced approaches
risk-based capital rule that change certain aspects of the treatment of counterparty credit risk under the Basel II framework and replace the use of externally developed credit ratings with proposed alternatives such as internally developed credit
ratings. The U.S. Basel III proposals contemplate that the new capital requirements would be phased in over several years, beginning in 2013. In November 2012, the U.S. banking�regulators announced that the U.S. Basel III proposals would not
become effective on January�1, 2013. The announcement did not�specify new implementation or phase-in dates for the U.S. Basel III proposals. In June 2011, the U.S. banking regulators published final regulations implementing a provision of the Dodd-Frank Act requiring that certain institutions
supervised by the Federal Reserve, including the Company, be subject to minimum capital requirements that are not less than the generally applicable risk-based capital requirements.�Currently, this minimum �capital floor� is based on
Basel I. The U.S. Basel III proposals would replace the current Basel I-based �capital floor� with a standardized approach that, among other things, modifies the existing risk weights for certain types of asset classes. Pursuant to provisions of the Dodd-Frank Act, over time, trust preferred
securities that meet Tier 2 capital eligibility criteria will no longer qualify as Tier 1 capital but will qualify only as Tier 2 capital. This change in regulatory capital treatment will be phased in incrementally during a transition period that
started on January�1, 2013 and will end on January�1, 2016. This provision of the Dodd-Frank Act accelerates the phasing out of trust preferred securities provided in Basel III. The Company estimates its RWAs based on a preliminary analysis of the Basel III guidelines published to date and other factors.
The Company estimates its pro forma Tier 1 common capital ratio under Basel III to be approximately 9.5% as of December�31, 2012. This is a preliminary estimate assuming relevant advanced approach regulatory model approvals and may change based
on final rules to be issued by the Federal Reserve. If the Company does not receive such model approvals, this could have a significant impact on the Company�s estimates. In addition, our estimate may not be comparable with that of other
financial services firms given the final rules have not been issued and our estimate may be calculated differently from other financial services firms. The pro forma Tier 1 common capital ratio under Basel III is a non-GAAP financial measure that
the Company considers to be a useful measure to the Company and investors to gauge future regulatory capital requirements. The pro forma Tier 1 common capital ratio estimate is based on shareholders� equity, Tier 1 common capital and RWAs at
December�31, 2012. This preliminary estimate is subject to risks and uncertainties that may cause actual results to differ materially and should not be taken as a projection of what the Company�s capital ratios, RWAs, earnings or other
results will actually be at these future dates. For a discussion of risks and uncertainties that may affect the future results of the Company, please see �Risk Factors� in Part I, Item�1A herein. Required Capital. The Company�s required capital (�Required Capital�)
estimation is based on the Required Capital Framework, an internal capital adequacy measure. This framework is a risk-based internal use of capital measure, which is compared with the Company�s regulatory capital to help ensure the Company
maintains an amount of risk-based going concern capital after absorbing potential losses from extreme stress events where applicable, at a point in time. The difference between the Company�s regulatory capital and aggregate Required Capital is
Parent capital. Average Tier 1 common capital, aggregate Required Capital and Parent capital for 2012 were approximately $42.8 billion, $27.3 billion and $15.5 billion, respectively. The Company generally holds Parent capital for prospective
regulatory requirements, organic growth, acquisitions and other capital needs. 105 Table of Contents Tier 1 common capital and common equity attribution to the business segments is based on capital usage
calculated by the Required Capital Framework. In principle, each business segment is capitalized as if it were an independent operating entity with limited diversification benefit between the business segments. Required Capital is assessed at each
business segment and further attributed to product lines. This process is intended to align capital with the risks in each business segment in order to allow senior management to evaluate returns on a risk-adjusted basis. The Required Capital
Framework will evolve over time in response to changes in the business and regulatory environment and to incorporate enhancements in modeling techniques. The Company will continue to evaluate the framework with respect to the impact of future
regulatory requirements, as appropriate. Beginning in the quarter
ended March�31, 2012, the Company and segment Required Capital is met by Tier 1 common capital. Prior to the quarter ended March�31, 2012, the Company�s Required Capital was met by regulatory Tier 1 capital or Tier 1 common equity.
Segment capital for prior periods has been recast under this framework. For a further discussion of the Company�s Tier 1 common capital, see �Capital� herein. The following table presents the business segments� and Parent�s average Tier 1 common capital and average common equity for 2012 and 2011: | 2012 | 2011 | |||||||||||||||
| Average Tier�1�Common Capital | Average Common Equity | Average Tier�1�Common Capital | Average Common Equity | |||||||||||||
| (dollars�in�billions) | ||||||||||||||||
| Institutional Securities | $ | 22.3 | $ | 29.0 | $ | 25.9 | $ | 32.7 | ||||||||
| Global Wealth Management Group | 3.7 | 13.3 | 3.3 | 13.2 | ||||||||||||
| Asset Management | 1.3 | 2.4 | 1.5 | 2.6 | ||||||||||||
| Parent capital | 15.5 | 16.1 | 5.3 | 5.9 | ||||||||||||
| Total | $ | 42.8 | $ | 60.8 | $ | 36.0 | $ | 54.4 | ||||||||
Table of Contents In addition, in December 2011, the Federal Reserve issued proposed rules to implement certain requirements
of the Dodd-Frank Act�s systemic risk regime, including with respect to liquidity. The proposed rules would require systemically important financial institutions, such as the Company, to maintain a sufficient quantity of highly liquid assets to
survive a projected 30-day liquidity stress event, to conduct regular liquidity stress tests, and to implement various liquidity risk management requirements. Off-Balance Sheet Arrangements with Unconsolidated Entities. The Company enters into various arrangements with unconsolidated entities,
including variable interest entities (�VIE�), primarily in connection with its Institutional Securities and Asset Management business segments. Institutional Securities Activities. The Company utilizes special purpose entities (�SPE�) primarily in
connection with securitization activities. The Company engages in securitization activities related to commercial and residential mortgage loans, U.S. agency collateralized mortgage obligations, corporate bonds and loans, municipal bonds and other
types of financial assets. The Company may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are included in the consolidated statements of financial condition at fair value.
Any changes in the fair value of such retained interests are recognized in the consolidated statements of income. Retained interests in securitized financial assets were approximately $3.2 billion and $2.9 billion at December�31, 2012 and
December�31, 2011, respectively, substantially all of which were related to U.S. agency collateralized mortgage obligations, commercial mortgage loan and residential mortgage loan securitization transactions. For further information about the
Company�s securitization activities, see Note 7 to the consolidated financial statements. The Company has entered into liquidity facilities with SPEs and other counterparties, whereby the Company is required to make certain payments if losses or defaults occur. The Company often may have
recourse to the underlying assets held by the SPEs in the event payments are required under such liquidity facilities (see Note 13 to the consolidated financial statements). Asset Management Activities. As a
general partner in certain private equity and real estate partnerships, the Company receives distributions from the partnerships according to the provisions of the partnership agreements. The Company may, from time to time, be required to return all
or a portion of such distributions to the limited partners in the event the limited partners do not achieve a certain return as specified in various partnership agreements, subject to certain limitations. These amounts are noted in the table below
under �General partner guarantees�. Guarantees. The Company discloses information about its obligations under certain guarantee arrangements. Guarantees
are defined as contracts and indemnification agreements that contingently require a guarantor to make payments to the guaranteed party based on changes in an underlying measure (such as an interest or foreign exchange rate, a security or commodity
price, an index, or the occurrence or non-occurrence of a specified event) related to an asset, liability or equity security of a guaranteed party. Guarantees are also defined as contracts that contingently require the guarantor to make payments to
the guaranteed party based on another entity�s failure to perform under an agreement as well as indirect guarantees of the indebtedness of others. 107 Table of Contents The table below summarizes certain information regarding the Company�s obligations under guarantee
arrangements at December�31, 2012: | Maximum Potential Payout/Notional | Carrying Amount (Asset)/ Liability | Collateral/ Recourse | ||||||||||||||||||||||||||
| Years to Maturity | ||||||||||||||||||||||||||||
| Type of Guarantee | Less�than�1 | 1-3 | 3-5 | Over�5 | Total | |||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||
| Credit�derivative�contracts(1) | $ | 444,092 | $ | 583,649 | $ | 716,945 | $ | 148,506 | $ | 1,893,192 | $ | 10,883 | $ | � | ||||||||||||||
| Other credit contracts | 796 | 125 | 155 | 1,323 | 2,399 | (745 | ) | � | ||||||||||||||||||||
| Non-credit�derivative�contracts(1) | 943,448 | 798,348 | 281,877 | 411,271 | 2,434,944 | 76,880 | � | |||||||||||||||||||||
| Standby letters of credit and other financial guarantees issued(2)(3) | 796 | 1,253 | 1,269 | 5,742 | 9,060 | (189 | ) | 7,086 | ||||||||||||||||||||
| Market value guarantees | � | 93 | 108 | 531 | 732 | 10 | 101 | |||||||||||||||||||||
| Liquidity facilities | 2,403 | 148 | � | � | 2,551 | (4 | ) | 3,764 | ||||||||||||||||||||
| Whole loan sales representations and warranties | � | � | � | 24,950 | 24,950 | 79 | � | |||||||||||||||||||||
| Securitization representations and warranties | � | � | � | 70,904 | 70,904 | 35 | � | |||||||||||||||||||||
| General partner guarantees | 69 | 43 | � | 200 | 312 | 76 | � | |||||||||||||||||||||
| (1) | Carrying amounts of derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting. For further information on derivative contracts, see Note 12 to the consolidated financial statements. |
| (2) | Approximately $2.0�billion of standby letters of credit are also reflected in the �Commitments� table below in primary and secondary lending commitments. Standby letters of credit are recorded at fair value within Financial instruments owned or Financial instruments sold, not yet purchased in the consolidated statements of financial condition. |
| (3) | Amounts include guarantees issued by consolidated real estate funds sponsored by the Company of approximately $113�million. These guarantees relate to obligations of the fund�s investee entities, including guarantees related to capital expenditures and principal and interest debt payments. Accrued losses under these guarantees of approximately $4�million are reflected as a reduction of the carrying value of the related fund investments, which are reflected in Financial instruments owned�Investments on the consolidated statements of financial condition. |
Table of Contents Since commitments associated with these instruments may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements: | Years to Maturity | Total
at December�31, 2012 | |||||||||||||||||||
| Less than�1 | 1-3 | 3-5 | Over�5 | |||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Letters of credit and other financial guarantees obtained to satisfy collateral requirements | $ | 1,186 | $ | 1 | $ | 6 | $ | � | $ | 1,193 | ||||||||||
| Investment activities | 794 | 94 | 49 | 292 | 1,229 | |||||||||||||||
| Primary lending commitments�investment grade(1) | 7,734 | 11,583 | 34,743 | 171 | 54,231 | |||||||||||||||
| Primary lending commitments�non-investment grade(1) | 924 | 3,881 | 10,148 | 2,161 | 17,114 | |||||||||||||||
| Secondary lending commitments(2) | 116 | 103 | 53 | 50 | 322 | |||||||||||||||
| Commitments for secured lending transactions | 235 | � | � | � | 235 | |||||||||||||||
| Forward starting reverse repurchase agreements and securities borrowing agreements(3)(4) | 45,653 | � | � | � | 45,653 | |||||||||||||||
| Commercial and residential mortgage-related commitments | 778 | 16 | 183 | 207 | 1,184 | |||||||||||||||
| Other commitments | 1,534 | 157 | 93 | 95 | 1,879 | |||||||||||||||
| Total | $ | 58,954 | $ | 15,835 | $ | 45,275 | $ | 2,976 | $ | 123,040 | ||||||||||
| (1) | This amount includes $35.3 billion of investment grade and $8.4 billion of non-investment grade unfunded commitments accounted for as held for investment and $1.4 billion of investment grade and $2.3 billion of non-investment grade unfunded commitments accounted for as held for sale at December�31, 2012. The remainder of these lending commitments is carried at fair value. |
| (2) | These commitments are recorded at fair value within Financial instruments owned and Financial instruments sold, not yet purchased in the consolidated statements of financial condition (see Note 4 to the consolidated financial statements). |
| (3) | The Company enters into forward starting reverse repurchase and securities borrowing agreements (agreements that have a trade date at or prior to December�31, 2012 and settle subsequent to period-end) that are primarily secured by collateral from U.S. government agency securities and other sovereign government obligations. These agreements primarily settle within three business days and of the total amount at December�31, 2012, $40.0 billion settled within three business days. |
| (4) | The Company also has a contingent obligation to provide financing to a clearinghouse through which it clears certain transactions. The financing is required only upon the default of a clearinghouse member. The financing takes the form of a reverse repurchase facility, with a maximum amount of approximately $2.3 billion. |
Table of Contents contributions for pension and postretirement plans. The Company�s future cash payments associated with certain of its obligations at December�31, 2012 are summarized below: | Payments Due in: | ||||||||||||||||||||
| At December�31, 2012 | 2013 | 2014-2015 | 2016-2017 | Thereafter | Total | |||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Long-term borrowings(1) | $ | 25,303 | $ | 46,404 | $ | 48,121 | $ | 49,743 | $ | 169,571 | ||||||||||
| Other secured financings(1) | 8,528 | 3,828 | 610 | 1,465 | 14,431 | |||||||||||||||
| Contractual interest payments(2) | 5,982 | 10,119 | 7,027 | 21,127 | 44,255 | |||||||||||||||
| Time deposits(3) | 3,040 | 185 | � | � | 3,225 | |||||||||||||||
| Operating leases�office facilities(4) | 666 | 1,221 | 951 | 2,883 | 5,721 | |||||||||||||||
| Operating leases�equipment(4) | 324 | 253 | 128 | 134 | 839 | |||||||||||||||
| Purchase obligations(5) | 615 | 461 | 180 | 45 | 1,301 | |||||||||||||||
| Pension and postretirement plans�expected contribution(6) | 50 | � | � | � | 50 | |||||||||||||||
| Total(7) | $ | 44,508 | $ | 62,471 | $ | 57,017 | $ | 75,397 | $ | 239,393 | ||||||||||
| (1) | See Note 11 to the consolidated financial statements. Amounts presented for Other secured financings are financings with original maturities greater than one year. |
| (2) | Amounts represent estimated future contractual interest payments related to unsecured long-term borrowings based on applicable interest rates at December�31, 2012. Amounts include stated coupon rates, if any, on structured or index-linked notes. |
| (3) | Amounts represent contractual principal and interest payments related to time deposits primarily held at the Subsidiary Banks. |
| (4) | See Note 13 to the consolidated financial statements. |
| (5) | Purchase obligations for goods and services include payments for, among other things, consulting, outsourcing, printing, computer and telecommunications maintenance agreements, certain license agreements related to Wealth Management JV, and certain transmission, transportation and storage contracts related to the commodities business. Purchase obligations at December�31, 2012 reflect the minimum contractual obligation under legally enforceable contracts with contract terms that are both fixed and determinable. These amounts exclude obligations for goods and services that already have been incurred and are reflected on the Company�s consolidated statement of financial condition. |
| (6) | See Note 21 to the consolidated financial statements. |
| (7) | Amounts exclude unrecognized tax benefits, as the timing and amount of future cash payments are not determinable at this time (see Note 22 to the consolidated financial statements for further information). |
Table of Contents Item��7A.����Quantitative and Qualitative
Disclosures about Market Risk. Risk Management. Overview. Management believes effective risk management is vital to the success of the
Company�s business activities. Accordingly, the Company employs an enterprise risk management (�ERM�) framework to integrate the diverse roles of risk management into a holistic enterprise structure and to facilitate the incorporation
of risk evaluation into decision-making processes across the Company. The Company has policies and procedures in place to identify, assess, monitor and manage the significant risks involved in the activities of its Institutional Securities, Global
Wealth Management Group and Asset Management business segments as well as at the holding company level. Principal risks involved in the Company�s business activities include market, credit, capital and liquidity, operational, legal and
regulatory risk. The cornerstone of the Company�s risk
management philosophy is the execution of risk-adjusted returns through prudent risk taking that protects the Company�s capital base and franchise. Five key principles underlie this philosophy: comprehensiveness, independence, accountability,
defined risk tolerance and transparency. The fast-paced, complex, and constantly evolving nature of global financial markets requires that the Company maintain a risk management culture that is incisive, knowledgeable about specialized products and
markets, and subject to ongoing review and enhancement. To help ensure the efficacy of risk management, which is an essential component of the Company�s reputation, senior management requires thorough and frequent communication and the
appropriate escalation of risk matters. Risk Governance
Structure. Risk management at the Company requires
independent company-level oversight, accountability of the Company�s business segments, and effective communication of risk matters to senior management and across the Company. The nature of the Company�s risks, coupled with its risk
management philosophy, informs the Company�s risk governance structure. The Company�s risk governance structure is comprised of the Board of Directors; the Risk Committee of the Board (�BRC�), the Audit Committee of the Board
(�BAC�), and the Operations and Technology Committee of the Board (�BOTC�); the Firm Risk Committee (�FRC�); senior management oversight (including the Chief Executive Officer, Chief Risk Officer, Chief Financial
Officer, Chief Legal Officer and Chief Compliance Officer); the Internal Audit Department and risk managers, committees, and groups within and across the Company�s business segments. A risk governance structure composed of independent but
complementary entities facilitates efficient and comprehensive supervision of the Company�s risk exposures and processes. Morgan Stanley Board of Directors. The Board has oversight for the Company�s ERM framework and is responsible
for helping to ensure that the Company�s risks are managed in a sound manner. The Board has authorized the committees within the ERM framework to help facilitate its risk oversight responsibilities. Risk Committee of the Board. The BRC is
composed of non-management directors. The BRC is responsible for assisting the Board in the oversight of the Company�s risk governance structure; the Company�s risk management and risk assessment guidelines and policies regarding market,
credit, and liquidity and funding risk; the Company�s risk tolerance; and the performance of the Chief Risk Officer. The BRC reports to the full Board on a regular basis. Audit Committee of the Board. The BAC is
composed of independent directors. The BAC is responsible for oversight of the integrity of the Company�s consolidated financial statements, the Company�s compliance with legal and regulatory requirements, the Company�s system of
internal controls, the qualifications and independence of the Company�s independent auditor, and the performance of the Company�s internal and independent auditors. In addition, the BAC assists the Board in its oversight of certain aspects
of risk 111 Table of Contents management, including review of the major franchise, reputational, legal and compliance risk exposures of the Company and the steps management has taken to monitor and control such exposures, as
well as guidelines and policies that govern the process for risk assessment and risk management. The BAC reports to the full Board on a regular basis. Operations and Technology Committee of the Board. The BOTC is composed of non-management directors. The BOTC is
responsible for reviewing the major operational risk exposures of the Company and the steps management has taken to monitor and control such exposures. Additionally, the BOTC is responsible for assisting the Board in its oversight of the
Company�s operations and technology strategy, including significant investments in support of such strategy. The BOTC is also responsible for the review and approval of operations and technology policies, as well as the review of the
Company�s risk management and risk assessment guidelines and policies regarding operational risk. The BOTC reports to the full Board on a regular basis. Firm Risk Committee. The Board has also authorized the FRC, a management committee appointed and chaired by the Chief
Executive Officer, which includes the most senior officers of the Company, including the Chief Risk Officer, Chief Legal Officer and Chief Financial Officer, to oversee the Company�s global risk management structure. The FRC�s
responsibilities include oversight of the Company�s risk management principles, procedures and limits and the monitoring of capital levels and material market, credit, liquidity and funding, legal, compliance, operational, franchise and
regulatory risk matters, and other risks, as appropriate, and the steps management has taken to monitor and manage such risks. The FRC reports to the full Board, the BAC, the BOTC and the BRC through the Company�s Chief Risk Officer and Chief
Financial Officer. Chief Risk
Officer. The Chief Risk Officer, who is independent of business units, reports to the Chief Executive Officer and the BRC. The Chief Risk Officer oversees compliance with the Company�s risk limits; approves
exceptions to the Company�s risk limits; independently reviews material market, credit and operational risks; and reviews results of risk management processes with the Board, the BRC, the BAC, and the BOTC, as appropriate. The Chief Risk
Officer also coordinates with the Compensation, Management Development and Succession Committee of the Board to evaluate whether the Company�s compensation arrangements encourage unnecessary or excessive risk taking, and whether risks arising
from the Company�s compensation arrangements are reasonably likely to have a material adverse effect on the Company. Internal Audit Department. The Internal Audit Department provides independent risk and control assessment and reports
to the BAC and administratively to the Chief Legal Officer. The Internal Audit Department examines the Company�s operational and control environment and conducts audits designed to cover all major risk categories. Independent Risk Management
Functions. The independent risk management functions (Market Risk, Credit Risk Management, Operational Risk and Corporate Treasury departments) are independent of the Company�s business units. These groups assist
senior management and the FRC in monitoring and controlling the Company�s risk through a number of control processes. Each function maintains its own risk governance structure with specified individuals and committees responsible for aspects of
managing risk. Further discussion about the responsibilities of the risk management functions may be found below under �Market Risk�, �Credit Risk�, and �Operational Risk� and in �Management�s Discussion and
Analysis of Financial Condition and Results of Operations�Liquidity and Capital Resources� in Part II, Item�7 herein. Control Groups. The Company control groups include the Human Resources Department, the Legal and Compliance Division, the Operations Division, Global Technology and
Data, the Tax Department and Finance. The Company control groups coordinate with the business segment control groups to review the risk monitoring and risk management policies and procedures relating to, among other things, controls over financial
reporting and disclosure; the business segment�s market, credit and operational risk profile; sales practices; reputation; legal enforceability; compliance and regulatory risk; and operational and technological risks. Participation by the 112 Table of Contents senior officers of the Company and business segment control groups helps ensure that risk policies and procedures, exceptions to risk limits, new products and business ventures, and transactions
with risk elements undergo thorough review. Divisional Risk
Committees. Each business segment has a risk committee that is responsible for helping to ensure that the business segment, as applicable, adheres to established limits for market, credit, operational and other risks;
implements risk measurement, monitoring, and management policies and procedures that are consistent with the risk framework established by the FRC; and reviews, on a periodic basis, its aggregate risk exposures, risk exception experience, and the
efficacy of its risk identification, measurement, monitoring and management policies and procedures, and related controls. Stress Value-at-Risk. The Company frequently enhances its market and credit risk management framework to address severe stresses that are observed in global markets during
economic downturns. During 2012, the Company expanded and improved its risk measurement processes, including stress tests and scenario analysis, and further refined its market and credit risk limit framework. Stress Value-at-Risk
(�S-VaR�), a proprietary methodology that comprehensively measures the Company�s market and credit risks, was further refined and continues to be an important metric used in establishing the Company�s risk appetite and its
capital allocation framework. S-VaR simulates many stress scenarios based on more than 25 years of historical data and attempts to capture the different liquidities of various types of general and specific risks. Additionally, S-VaR captures event
and default risks that are particularly relevant for credit portfolios. Risk Management Process. The following is a discussion of the Company�s risk management policies and procedures for its principal risks (capital and liquidity risk is discussed in �Management�s Discussion and
Analysis of Financial Condition and Results of Operations�Liquidity and Capital Resources� in Part II, Item�7 herein). The discussion focuses on the Company�s securities activities (primarily its institutional trading activities)
and corporate lending and related activities. The Company believes that these activities generate a substantial portion of its principal risks. This discussion and the estimated amounts of the Company�s risk exposure generated by the
Company�s statistical analyses are forward-looking statements. However, the analyses used to assess such risks are not predictions of future events, and actual results may vary significantly from such analyses due to events in the markets in
which the Company operates and certain other factors described below. Market Risk. Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, implied volatilities (the price volatility of the
underlying instrument imputed from option prices), correlations or other market factors, such as market liquidity, will result in losses for a position or portfolio. Generally, the Company incurs market risk as a result of trading, investing and
client facilitation activities, principally within the Institutional Securities business segment where the substantial majority of the Company�s Value-at-Risk (�VaR�) for market risk exposures is generated. In addition, the Company
incurs trading-related market risk within the Global Wealth Management Group business segment. The Asset Management business segment incurs principally Non-trading market risk primarily from capital investments in real estate funds and investments
in private equity vehicles. Sound market risk management is an
integral part of the Company�s culture. The various business units and trading desks are responsible for ensuring that market risk exposures are well-managed and prudent. The control groups help ensure that these risks are measured and closely
monitored and are made transparent to senior management. The Market Risk Department is responsible for ensuring transparency of material market risks, monitoring compliance with established limits, and escalating risk concentrations to appropriate
senior management. To execute these responsibilities, the Market Risk Department monitors the Company�s risk 113 Table of Contents against limits on aggregate risk exposures, performs a variety of risk analyses, routinely reports risk summaries, and maintains the Company�s VaR and scenario analysis systems. These limits
are designed to control price and market liquidity risk. Market risk is also monitored through various measures: using statistics (including VaR and related analytical measures); by measures of position sensitivity; and through routine stress
testing, which measures the impact on the value of existing portfolios of specified changes in market factors, and scenario analyses conducted by the Market Risk Department in collaboration with the business units. The material risks identified by
these processes are summarized in reports produced by the Market Risk Department that are circulated to and discussed with senior management, the FRC, the BRC, and the Board of Directors. The Chief Risk Officer, who reports to the Chief Executive Officer and the BRC, among other things, monitors market risk
through the Market Risk Department, which reports to the Chief Risk Officer and is independent of the business units, and has close interactions with senior management and the risk management control groups in the business units.�The Chief Risk
Officer is a member of the FRC, chaired by the Chief Executive Officer, which includes the most senior officers of the Company, and regularly reports on market risk matters to this committee, as well as to the Board of Directors and the BRC. Sales and Trading and Related Activities. Primary Market Risk Exposures and Market Risk
Management. During 2012, the Company had exposures to a wide range of interest rates, equity prices, foreign exchange rates and commodity prices�and the associated implied volatilities and spreads�related to
the global markets in which it conducts its trading activities. The Company is exposed to interest rate and credit spread risk as a result of its market-making activities and other trading in interest rate-sensitive
financial instruments ( e.g ., risk arising from changes in the level or implied volatility of interest rates, the timing of mortgage prepayments, the shape of the yield curve and credit spreads). The activities from which those exposures arise
and the markets in which the Company is active include, but are not limited to, the following: corporate and government debt across both developed and emerging markets and asset-backed debt (including mortgage-related securities). The Company is exposed to equity price and implied volatility risk as a
result of making markets in equity securities and derivatives and maintaining other positions (including positions in non-public entities). Positions in non-public entities may include, but are not limited to, exposures to private equity, venture
capital, private partnerships, real estate funds and other funds. Such positions are less liquid, have longer investment horizons and are more difficult to hedge than listed equities. The Company is exposed to foreign exchange rate and implied volatility risk as a result of making markets in foreign currencies
and foreign currency derivatives, from maintaining foreign exchange positions and from holding non-U.S. dollar-denominated financial instruments. The Company is exposed to commodity price and implied volatility risk as a result of market-making activities and maintaining commodity positions in
physical commodities (such as crude and refined oil products, natural gas, electricity, and precious and base metals) and related derivatives. Commodity exposures are subject to periods of high price volatility as a result of changes in supply and
demand. These changes can be caused by weather conditions; physical production, transportation and storage issues; or geopolitical and other events that affect the available supply and level of demand for these commodities. The Company manages its trading positions by employing a variety of risk
mitigation strategies. These strategies include diversification of risk exposures and hedging. Hedging activities consist of the purchase or sale of positions in related securities and financial instruments, including a variety of derivative
products ( e.g ., futures, forwards, swaps and options). Hedging activities may not always provide effective mitigation against trading losses due to differences in the terms, specific characteristics or other basis risks that may exist between
the hedge instrument and the risk exposure that is being hedged. The Company manages the market risk associated with its trading activities on a Company-wide basis, on a worldwide trading division level and on an individual 114 Table of Contents product basis. The Company manages and monitors its market risk exposures in such a way as to maintain a portfolio that the Company believes is well-diversified in the aggregate with respect to
market risk factors and that reflects the Company�s aggregate risk tolerance as established by the Company�s senior management. Aggregate market risk limits have been approved for the Company across all divisions worldwide. Additional market risk limits are assigned to trading
desks and, as appropriate, products and regions. Trading division risk managers, desk risk managers, traders and the Market Risk Department monitor market risk measures against limits in accordance with policies set by senior management. VaR. The Company uses the statistical
technique known as VaR as one of the tools used to measure, monitor and review the market risk exposures of its trading portfolios. The Market Risk Department calculates and distributes daily VaR-based risk measures to various levels of management. VaR Methodology, Assumptions and
Limitations. The Company has enhanced its VaR model during 2012 to make it more responsive to current market conditions while maintaining a longer term perspective. This enhancement is consistent with regulatory
requirements. The current VaR model has been approved by the Company�s regulators for use in regulatory capital calculations. The Company estimates VaR using a model based on volatility adjusted historical simulation for general market risk factors and Monte Carlo simulation for
name-specific risk in corporate shares, bonds, loans and related derivatives. The model constructs a distribution of hypothetical daily changes in the value of trading portfolios based on the following: historical observation of daily changes in key
market indices or other market risk factors; and information on the sensitivity of the portfolio values to these market risk factor changes. The Company�s current VaR model uses four years of historical data with a volatility adjustment to
reflect current market conditions. The Company�s prior VaR model also uses four years of historical data but does not make any volatility adjustments and is therefore less responsive to current market conditions. To facilitate the transition to
the current VaR model, results using both the current and prior VaR models are included in the Trading Risks section below. The Company�s 95%/one-day VaR corresponds to the unrealized loss in portfolio value that, based on historically observed
market risk factor movements, would have been exceeded with a frequency of 5%, or five times in every 100 trading days, if the portfolio were held constant for one day. The Company�s VaR model generally takes into account linear and
non-linear exposures to equity and commodity price risk, interest rate risk, credit spread risk and foreign exchange rates. The model also takes into account linear exposures to implied volatility risks for all asset classes and non-linear exposures
to implied volatility risks for equity, commodity and foreign exchange referenced products. The VaR model also captures certain implied correlation risks associated with portfolio credit derivatives as well as certain basis risks ( e.g. ,
corporate debt and related credit derivatives). The Company uses
VaR as one of a range of risk management tools. Among their benefits, VaR models permit estimation of a portfolio�s aggregate market risk exposure, incorporating a range of varied market risks and portfolio assets. One key element of the VaR
model is that it reflects risk reduction due to portfolio diversification or hedging activities. However, VaR has various strengths and limitations, which include, but are not limited to: use of historical changes in market risk factors, which may
not be accurate predictors of future market conditions, and may not fully incorporate the risk of extreme market events that are outsized relative to observed historical market behavior or reflect the historical distribution of results beyond the
95% confidence interval; and reporting of losses in a single day, which does not reflect the risk of positions that cannot be liquidated or hedged in one day. A small proportion of market risk generated by trading positions is not included in VaR.
The modeling of the risk characteristics of some positions relies on approximations that, under certain circumstances, could produce significantly different results from those produced using more precise measures. VaR is most appropriate as a risk
measure for trading positions in liquid financial markets and will understate the risk associated with severe events, such as periods of extreme illiquidity. The Company is aware of these and 115 Table of Contents other limitations and, therefore, uses VaR as only one component in its risk management oversight process. As explained above, this process also incorporates stress testing and scenario analyses
and extensive risk monitoring, analysis, and control at the trading desk, division and Company levels. The Company�s VaR model evolves over time in response to changes in the composition of trading portfolios and to improvements in modeling techniques and systems capabilities. The Company is committed
to continuous review and enhancement of VaR methodologies and assumptions in order to capture evolving risks associated with changes in market structure and dynamics. As part of regular process improvement, additional systematic and name-specific
risk factors may be added to improve the VaR model�s ability to more accurately estimate risks to specific asset classes or industry sectors. Since the reported VaR statistics are estimates based on historical data, VaR should not be viewed as predictive of the Company�s future revenues or
financial performance or of its ability to monitor and manage risk. There can be no assurance that the Company�s actual losses on a particular day will not exceed the VaR amounts indicated below or that such losses will not occur more than five
times in 100 trading days for a 95%/one-day VaR. VaR does not predict the magnitude of losses which, should they occur, may be significantly greater than the VaR amount. VaR for 2012 .����The tables below present
VaR for the Company�s Trading portfolio on a year-end, annual average, and annual high and low basis under both the current model as well as the prior model (see Tables 1a and 1b below, respectively). The VaR that would result if the Company
were to adopt an alternative confidence level for the VaR statistic (99% rather than 95%) using the current model is also disclosed (see Table 2 below). The Credit Portfolio VaR is disclosed as a separate category from the Primary Risk Categories. The Credit Portfolio VaR includes the mark-to-market
lending exposures and associated hedges, as well as counterparty credit valuation adjustments and related hedges. Trading Risks. The tables below present the Company�s 95%/one-day Trading VaR using both the current model and the prior model: | Table 1a: 95% VaR�Current Model | 95%/One-Day VaR for 2012 | 95%/One-Day VaR for 2011 | ||||||||||||||||||||||||||||||
| Market Risk Category | Period End | Average | High | Low | Period End | Average | High | Low | ||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Interest rate and credit spread | $ | 56 | $ | 56 | $ | 87 | $ | 33 | $ | 62 | $ | 63 | $ | 99 | $ | 41 | ||||||||||||||||
| Equity price | 21 | 26 | 39 | 18 | 23 | 27 | 47 | 20 | ||||||||||||||||||||||||
| Foreign exchange rate | 10 | 13 | 23 | 7 | 18 | 16 | 27 | 8 | ||||||||||||||||||||||||
| Commodity price | 20 | 24 | 32 | 18 | 26 | 27 | 35 | 21 | ||||||||||||||||||||||||
| Less: Diversification benefit(1)(2) | (40 | ) | (55 | ) | N/A | N/A | (64 | ) | (55 | ) | N/A | N/A | ||||||||||||||||||||
| Primary Risk Categories | $ | 67 | $ | 64 | $ | 98 | $ | 52 | $ | 65 | $ | 78 | $ | 119 | $ | 55 | ||||||||||||||||
| Credit Portfolio | 19 | 26 | 50 | 18 | 50 | 61 | 97 | 37 | ||||||||||||||||||||||||
| Less: Diversification benefit(1)(2) | (11 | ) | (17 | ) | N/A | N/A | (34 | ) | (41 | ) | N/A | N/A | ||||||||||||||||||||
| Total Trading VaR | $ | 75 | $ | 73 | $ | 107 | $ | 57 | $ | 81 | $ | 98 | $ | 123 | $ | 72 | ||||||||||||||||
| (1) | Diversification benefit equals the difference between the total VaR and the sum of the component VaRs. This benefit arises because the simulated one-day losses for each of the components occur on different days; similar diversification benefits also are taken into account within each component. |
| (2) | N/A�Not Applicable. The minimum and maximum VaR values for the total VaR and each of the component VaRs might have occurred on different days during the year, and therefore the diversification benefit is not an applicable measure. |
Table of Contents The Company�s average VaR for the Primary Risk Categories for 2012 was $64�million compared with
$78�million for 2011. This decrease was primarily driven by reduced risk in interest rate and credit spread sensitive products. The average Credit Portfolio VaR for 2012 was $26 million compared with $61�million for 2011. This change was primarily driven by a significant
reduction in counterparty exposure to MBIA, which the Company settled in December 2011 (see �Management�s Discussion and Analysis of Financial Condition and Results of Operations�Executive Summary�Significant Items�Monoline
Insurers� in Part II, Item�7 herein for further information). Additionally, the transition of loans held at fair value to loans held for investment (net of allowance) also contributed to the reduction. The average Total Trading VaR for 2012 was $73 million compared with
$98�million for 2011. This decrease was driven by the aforementioned movements. To aid in the transition to the current VaR model in 2012, results using the prior model are being provided for comparative purposes. This dual presentation will be discontinued in 2013: | Table 1b: 95% VaR�Prior Model | 95%/One-Day VaR for 2012 | 95%/One-Day VaR for 2011 | ||||||||||||||||||||||||||||||
| Market Risk Category | Period End | Average | High | Low | Period End | Average | High | Low | ||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Interest rate and credit spread | $ | 84 | $ | 73 | $ | 98 | $ | 46 | $ | 66 | $ | 87 | $ | 137 | $ | 49 | ||||||||||||||||
| Equity price | 25 | 32 | 46 | 23 | 25 | 31 | 48 | 21 | ||||||||||||||||||||||||
| Foreign exchange rate | 14 | 16 | 25 | 9 | 18 | 17 | 27 | 8 | ||||||||||||||||||||||||
| Commodity price | 23 | 29 | 40 | 22 | 28 | 30 | 44 | 23 | ||||||||||||||||||||||||
| Less: Diversification benefit(1)(2) | (57 | ) | (70 | ) | N/A | N/A | (67 | ) | (63 | ) | N/A | N/A | ||||||||||||||||||||
| Primary Risk Categories | $ | 89 | $ | 80 | $ | 108 | $ | 65 | $ | 70 | $ | 102 | $ | 170 | $ | 60 | ||||||||||||||||
| Credit Portfolio | 23 | 31 | 52 | 21 | 52 | 97 | 124 | 49 | ||||||||||||||||||||||||
| Less: Diversification benefit(1)(2) | (17 | ) | (22 | ) | N/A | N/A | (35 | ) | (70 | ) | N/A | N/A | ||||||||||||||||||||
| Total Trading VaR | $ | 95 | $ | 89 | $ | 118 | $ | 74 | $ | 87 | $ | 129 | $ | 168 | $ | 83 | ||||||||||||||||
| (1) | Diversification benefit equals the difference between the total VaR and the sum of the component VaRs. This benefit arises because the simulated one-day losses for each of the components occur on different days; similar diversification benefits also are taken into account within each component. |
| (2) | N/A�Not Applicable. The minimum and maximum VaR values for the total VaR and each of the component VaRs might have occurred on different days during the year, and therefore the diversification benefit is not an applicable measure. |
Table of Contents Table 2 presents VaR statistics for the Company under an alternative confidence level (95% versus 99%). The
Company previously disclosed VaR using a One-Year Risk Factor History as well as a Four-Year Risk Factor History to aid comparison with other firms, many of which use relatively short risk factor histories in their VaR models.�The current
model, while maintaining a longer term perspective, responds to changes in risk at a rate comparable to a One-Year VaR or an exponentially weighted VaR, and thus the comparison is no longer necessary. | Table 2: 95% and 99% Average Trading VaR�Current Model | 95%�Average�One-Day | 99%�Average�One-Day | ||||||
| VaR for 2012 | VaR for 2012 | |||||||
| Market Risk Category | (dollars in millions) | |||||||
| Interest rate and credit spread | $ | 56 | $ | 90 | ||||
| Equity price | 26 | 38 | ||||||
| Foreign exchange rate | 13 | 20 | ||||||
| Commodity price | 24 | 38 | ||||||
| Less: Diversification benefit(1) | (55 | ) | (89 | ) | ||||
| Primary Risk Categories | $ | 64 | $ | 97 | ||||
| Credit Portfolio | 26 | 43 | ||||||
| Less: Diversification benefit(1) | (17 | ) | (28 | ) | ||||
| Total Trading VaR | $ | 73 | $ | 112 | ||||
| (1) | Diversification benefit equals the difference between the total VaR and the sum of the component VaRs. This benefit arises because the simulated one-day losses for each of the components occur on different days; similar diversification benefits also are taken into account within each component. |
Table of Contents Primary Risk Categories. As shown in Table 1a above, the Company�s average 95%/one-day Primary
Risk Categories VaR for 2012 was $64 million. The histogram below presents the distribution of the Company�s daily 95%/one-day Primary Risk Categories VaR for 2012, which was in a range between $55 million and $70 million for approximately 72%
of the trading days during the year. 
119 Table of Contents The histogram below shows the distribution of daily net trading revenues for the Company�s businesses
that comprise the Primary Risk Categories for 2012. This excludes non-trading revenues of these businesses and revenues associated with the Company�s own credit risk. During 2012, the Company�s businesses that comprise the Primary Risk
Categories experienced net trading losses on 39 days, of which no day was in excess of the 95%/one-day Primary Risk Categories VaR. 
120 Table of Contents Total Trading�including the Primary Risk Categories and the Credit Portfolio. As shown in Table 1a above, the Company�s average 95%/one-day Total
Trading VaR, which includes the Primary Risk Categories and the Credit Portfolio, for 2012 was $73 million. The histogram below presents the distribution of the Company�s daily 95%/one-day Total Trading VaR for 2012, which was in a range
between $60 million and $80 million for approximately 75% of trading days during the year. 
121 Table of Contents The histogram below shows the distribution of daily net trading revenues for the Company�s Trading
businesses for 2012. This excludes non-trading revenues of these businesses and revenues associated with the Company�s own credit risk. During 2012, the Company experienced net trading losses on 37 days, of which no day was in excess of the
95%/one-day Trading VaR. 
Non-Trading Risks. The Company believes that sensitivity analysis is an
appropriate representation of the Company�s non-trading risks. Reflected below is this analysis, which covers substantially all of the non-trading risk in the Company�s portfolio. Counterparty Exposure Related to the Company�s Own Spread. The credit spread risk relating to the Company�s own mark-to-market
derivative counterparty exposure is managed separately from VaR. The credit spread risk sensitivity of this exposure corresponds to an increase in value of approximately $6 million for each 1 basis point widening in the Company�s credit spread
level for both December�31, 2012 and December�31, 2011. Funding Liabilities. The credit spread risk sensitivity of the Company�s mark-to-market funding liabilities corresponded to an increase in value of approximately $13
million and $12 million for each 1 basis point widening in the Company�s credit spread level for December�31, 2012 and December�31, 2011, respectively. 122 Table of Contents Interest Rate Risk Sensitivity on Income from Continuing Operations. The Company measures the interest rate risk of certain assets and
liabilities by calculating the hypothetical sensitivity of net interest income to potential changes in the level of interest rates over the next twelve months. This sensitivity analysis includes positions that are mark-to-market, as well as
positions that are accounted for on an accrual basis. For interest rate derivatives that are perfect economic hedges to non-mark-to-market assets or liabilities, the disclosed sensitivities include only the impact of the coupon accrual mismatch.
This treatment mitigates the effects caused by the measurement basis differences between the economic hedge and the corresponding hedged instrument. Given the currently low interest rate environment, the Company uses the following two interest rate scenarios to quantify the Company�s sensitivity:
instantaneous parallel shocks of 100 and 200 basis point increases to all points on all yield curves simultaneously. The hypothetical model does not assume any growth, change in business focus, asset pricing philosophy or asset/liability funding mix and does not capture
how the Company would respond to significant changes in market conditions. Furthermore, the model does not reflect the Company�s expectations regarding the movement of interest rates in the near term, nor the actual effect on income from
continuing operations before income taxes if such changes were to occur. | December�31, 2012 | December�31, 2011 | |||||||||||||||
| +100�Basis Points | +200�Basis Points | +100�Basis Points | +200�Basis Points | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Impact on income from continuing operations before income taxes | $ | 749 | $ | 1,140 | $ | 600 | $ | 1,080 | ||||||||
| Impact on income from continuing operations before income taxes excluding Citi's share of the Wealth Management JV (1)(2) | 477 | 718 | 370 | 672 | ||||||||||||
| (1) | Amounts for December�31, 2012 exclude Citi�s portion of income from continuing operations before taxes associated with its redeemable noncontrolling interest in the Wealth Management Joint Venture. |
| (2) | Amounts for December�31, 2011 exclude Citi�s portion of income from continuing operations before taxes associated with its nonredeemable noncontrolling interest in the Wealth Management Joint Venture. |
| 10% Sensitivity | ||||||||
| Investments | December�31,�2012 | December�31,�2011 | ||||||
| (dollars in millions) | ||||||||
| Investments related to Asset Management activities: | ||||||||
| Hedge fund investments | $ | 120 | $ | 141 | ||||
| Private equity and infrastructure funds | 125 | 108 | ||||||
| Real estate funds | 138 | 133 | ||||||
| Other investments: | ||||||||
| Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. | 143 | 144 | ||||||
| Other Company investments | 292 | 297 | ||||||
Table of Contents Credit Risk. Credit risk refers to the risk of loss arising when a borrower, counterparty
or issuer does not meet its financial obligations. The Company primarily incurs credit risk exposure to institutions and individuals mainly through the Institutional Securities and Global Wealth Management Group business segments. The Company may incur credit risk in the Institutional Securities business
segment through a variety of activities, including, but not limited to, the following: | � | entering into swap or other derivative contracts under which counterparties have obligations to make payments to the Company; |
| � | extending credit to clients through various lending commitments; |
| � | providing short- or long-term funding that is secured by physical or financial collateral whose value may at times be insufficient to fully cover the loan repayment amount; |
| � | posting margin and/or collateral to clearinghouses, clearing agencies, exchanges, banks, securities firms and other financial counterparties; |
| � | investing or trading in securities and loan pools, whereby the value of these assets may fluctuate based on realized or expected defaults on the underlying obligations or loans. |
| � | margin loans collateralized by securities; |
| � | non-purpose loans predominantly collateralized by securities; |
| � | single-family residential prime mortgage loans in conforming, non-conforming or home equity lines of credit (�HELOC�) form. |
Table of Contents counterparties, countries and industries. Stress and scenario tests are conducted in accordance with established Company policies and procedures and comply with methodologies outlined in the
Basel regulatory framework. Credit
Evaluation .����The evaluation of corporate and commercial counterparties as well as certain high net worth borrowers includes assigning obligor credit ratings, which reflect an assessment of an obligor�s probability
of default. Credit evaluations typically involve the assessment of financial statements, leverage, liquidity, capital strength, asset composition and quality, market capitalization and access to capital markets, cash flow projections and debt
service requirements, and the adequacy of collateral, if applicable. The Credit Risk Management Department also evaluates strategy, market position, industry dynamics, obligor�s management and other factors that could affect the obligor�s
risk profile. Additionally, the Credit Risk Management Department evaluates the relative position of the Company�s particular obligation in the borrower�s capital structure and relative recovery prospects, as well as collateral (if
applicable) and other structural elements of the particular transaction. The evaluation of consumer borrowers is tailored to the specific type of lending. Margin and non-purpose securities-based loans are evaluated based on factors that include, but are not limited to, the
amount of the loan, the degree of leverage and the quality, diversification, price volatility and liquidity of the collateral. The underwriting of residential real estate loans includes, but is not limited to review of the obligor�s income, net
worth, liquidity, collateral, loan-to-value ratio and credit bureau information. Subsequent credit monitoring for residential real estate loans is performed at the portfolio level and for consumer loans, collateral values are monitored on an ongoing
basis. Credit risk metrics assigned to corporate, commercial and
consumer borrowers during the evaluation process are incorporated into the Credit Risk Management Department�s maintenance of the allowance for loan losses for the loans held for investment portfolio.�Such allowance serves as a safeguard
against probable inherent losses as well as probable losses related to loans identified for impairment.�For more information on the Company�s allowance for loan losses, see Notes 2 and 8 to the consolidated financial statements. Risk Mitigation. The Company
may seek to mitigate credit risk from its lending and trading activities in multiple ways, including collateral provisions, guarantees and hedges. At the transaction level, the Company seeks to mitigate risk through management of key risk elements
such as size, tenor, financial covenants, seniority and collateral. The Company actively hedges its lending and derivatives exposure through various financial instruments that may include single-name, portfolio and structured credit derivatives.
Additionally, the Company may sell, assign or sub-participate funded loans and lending commitments to other financial institutions in the primary and secondary loan market. In connection with its derivatives trading activities, the Company generally
enters into master netting agreements and collateral arrangements with counterparties. These agreements provide the Company with the ability to demand collateral, as well as to liquidate collateral and offset receivables and payables covered under
the same master agreement in the event of counterparty default. Lending Activities. The Company provides loans to a variety of customers, from large corporate and institutional clients to high net worth individuals. The table below
summarizes the Company�s loans classified as Loans and Financial 125 Table of Contents instruments owned in the consolidated statements of financial condition at December�31, 2012. See Notes 4 and 8 to the consolidated financial statements for further information. | Institutional Securities Corporate Lending(1) | Institutional Securities Other(2) | Global Wealth Management Group(3) | Total | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Commercial and industrial | $ | 5,688 | $ | 755 | $ | 2,909 | $ | 9,352 | ||||||||
| Consumer loans | � | � | 7,615 | 7,615 | ||||||||||||
| Residential real estate loans | � | � | 6,625 | 6,625 | ||||||||||||
| Wholesale real estate loans | � | 318 | 7 | 325 | ||||||||||||
| Loans held for investment, net of allowance | 5,688 | 1,073 | 17,156 | 23,917 | ||||||||||||
| Loans held for sale | 4,964 | 23 | 142 | 5,129 | ||||||||||||
| Loans held at fair value | 7,682 | 9,629 | � | 17,311 | ||||||||||||
| Total loans | $ | 18,334 | $ | 10,725 | $ | 17,298 | $ | 46,357 | ||||||||
| (1) | In addition to loans, at December�31, 2012, $43.7 billion of unfunded lending commitments were accounted for as held for investment, $3.7 billion of unfunded lending commitments were accounted for as held for sale and $23.9 billion of unfunded lending commitments were accounted for at fair value. |
| (2) | In addition to loans, at December�31, 2012, $0.2 billion of unfunded lending commitments were�accounted for as held for investment and $0.8 billion of unfunded lending commitments were accounted for at fair value. |
| (3) | In addition to loans, at December�31, 2012, $2.4 billion of unfunded lending commitments were accounted for as held for investment and $0.3 billion of unfunded lending commitments were accounted for as held for sale. |
Table of Contents The tables below presents the Company�s credit exposure from its corporate lending positions and
lending commitments, which is measured in accordance with the Company�s internal risk management standards at December�31, 2012 and December�31, 2011. The �total corporate lending exposure� column includes funded and
unfunded loans and lending commitments. Lending commitments represent legally binding obligations to provide funding to clients at December�31, 2012 and December�31, 2011 for all lending transactions. Since commitments associated with
these business activities may expire unused or may not be utilized to full capacity, they do not necessarily reflect the actual future cash funding requirements. Corporate Lending Commitments and Funded Loans at
December�31, 2012 | Years to Maturity | Total Corporate Lending Exposure(2) | |||||||||||||||||||
| Credit Rating(1) | Less�than�1 | 1-3 | 3-5 | Over 5 | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| AAA | $ | 611 | $ | 107 | $ | 111 | $ | � | $ | 829 | ||||||||||
| AA | 3,028 | 798 | 5,664 | 68 | 9,558 | |||||||||||||||
| A | 2,656 | 5,279 | 11,108 | 185 | 19,228 | |||||||||||||||
| BBB | 2,420 | 10,274 | 19,560 | 736 | 32,990 | |||||||||||||||
| Investment grade | 8,715 | 16,458 | 36,443 | 989 | 62,605 | |||||||||||||||
| Non-investment�grade | 1,663 | 5,303 | 15,305 | 3,000 | 25,271 | |||||||||||||||
| Total | $ | 10,378 | $ | 21,761 | $ | 51,748 | $ | 3,989 | $ | 87,876 | ||||||||||
| (1) | Obligor credit ratings are determined by the Credit Risk Management Department. |
| (2) | Total corporate lending exposure represents the Company�s potential loss assuming the market price of funded loans and lending commitments was zero. |
| Years to Maturity | Total Corporate Lending Exposure�(2) | |||||||||||||||||||
| Credit Rating(1) | Less�than�1 | 1-3 | 3-5 | Over 5 | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| AAA | $ | 779 | $ | 385 | $ | 90 | $ | � | $ | 1,254 | ||||||||||
| AA | 3,878 | 1,660 | 4,433 | 65 | 10,036 | |||||||||||||||
| A | 5,234 | 5,378 | 8,463 | 215 | 19,290 | |||||||||||||||
| BBB | 4,532 | 6,538 | 17,539 | 226 | 28,835 | |||||||||||||||
| Investment grade | 14,423 | 13,961 | 30,525 | 506 | 59,415 | |||||||||||||||
| Non-investment grade | 2,451 | 5,276 | 13,272 | 2,460 | 23,459 | |||||||||||||||
| Total | $ | 16,874 | $ | 19,237 | $ | 43,797 | $ | 2,966 | $ | 82,874 | ||||||||||
| (1) | Obligor credit ratings are determined by the Credit Risk Management Department. |
| (2) | Total corporate lending exposure represents the Company�s potential loss assuming the market price of funded loans and lending commitments was zero. |
Table of Contents �Event-Driven� Loans and Lending Commitments at December�31, 2012 and December�31,
2011. Included in the total corporate lending exposure
amounts in the table above at December�31, 2012 were �event-driven� exposures of $5.6 billion composed of funded loans of $2.1 billion and lending commitments of $3.5�billion. Included in the �event-driven� exposure at
December�31, 2012 were $3.9 billion of loans and lending commitments to non-investment grade borrowers. The maturity profile of the �event-driven� loans and lending commitments at December�31, 2012 was as follows: 35% will mature
in less than 1 year, 12% will mature within 1 to 3 years, 18% will mature within 3 to 5 years and 35% will mature in over 5 years. Included in the total corporate lending exposure amounts in the table above at December�31, 2011 were �event-driven� exposure of $7.2
billion composed of funded loans of $3.0 billion and lending commitments of $4.2�billion. Included in the �event-driven� exposure at December�31, 2011 were $3.8 billion of loans and lending commitments to non-investment grade
borrowers. The maturity profile of the �event-driven� loans and lending commitments at December�31, 2011 was as follows: 55% will mature in less than 1 year, 9% will mature within 1 to 3 years, 13% will mature within 3 to 5 years and
23% will mature in over 5 years. At December�31, 2012 and
December�31, 2011, $554 million and $301 million of the Company�s �event-driven� loans were on a non-accrual basis, respectively; all other �event-driven� loans were current. These loans primarily are those the Company
originated prior to the financial crisis in 2008 and was unable to sell or syndicate. For loans carried at fair value that are on non-accrual status, interest income is recognized on a cash basis. Institutional Securities Other Lending
Activities. In addition to the primary corporate lending activity described above, the Institutional Securities business segment engages in other lending activity.�These loans include corporate loans purchased in
the secondary market, commercial and residential mortgage loans, asset-backed loans and financing extended to equities and commodities customers.�At December�31, 2012, approximately 98% of Institutional Securities Other lending activities
held for investment were current; less than 3% were on non-accrual status because the loans were past due for a period of 90 days or more or payment of principal or interest was in doubt. Global Wealth Management Group Lending Activities. The principal Global Wealth Management
Group activities that result in credit risk to the Company include purpose and non-purpose securities-based lending, structured credit facilities and residential mortgage lending. Margin or purpose lending allows clients to borrow money against the
value of qualifying securities for the purpose of purchasing, trading, or carrying margin stock or refinancing margin debt.�Non-purpose securities-based lending�allows�clients to borrow money against the value of qualifying
securities�for any suitable purpose other than purchasing, trading, or carrying margin stock or refinancing margin debt.�The Company�establishes�approved lines�and advance rates against qualifying securities and
monitors�limits daily and, pursuant to such guidelines, requires customers to deposit additional collateral or reduce�borrowings when necessary.�In certain instances, the Company enters into reverse repurchase agreements and
securities borrowed transactions to acquire securities to cover short positions, to settle other securities obligations and to accommodate customers� needs. The Global Wealth Management Group also provides�structured secured and
unsecured credit facilities to high net worth individuals and their�small and medium-sized domestic businesses, with a suite of products that includes working capital lines of credit, revolving lines of credit, standby letters of credit and
term loans. Decisions to extend credit are based on an analysis�of the borrower, the guarantor, the collateral, cash flow, liquidity, leverage and credit history. With respect to first and second lien mortgages, including HELOC loans, a
loan evaluation process is adopted within a framework of credit underwriting policies and collateral valuation.�The Company�s underwriting policy is designed to ensure that all borrowers pass an assessment of capacity and willingness to
pay, which includes an analysis of applicable industry standard credit scoring models ( e.g. , Fair Isaac Corporation (�FICO�) scores), debt ratios and reserves of the borrower. Loan-to-collateral value ratios are determined based on
independent 128 Table of Contents third-party property appraisal/valuations, and security lien position is established through title/ownership reports. Eligible conforming loans are currently�held for sale, while most
non-conforming and HELOC loans�are held for investment in the Company�s portfolio. In addition, the Global Wealth Management Group business segment has employee loans that are granted primarily in conjunction with a program established by the Company to retain and recruit certain
employees. These loans, recorded in Receivables�Fees, interest and other in the consolidated statements of financial condition, are full recourse, require periodic payments and have repayment terms ranging from four to 12 years. The Company
establishes a reserve for loan amounts it does not consider recoverable from terminated employees, which is recorded in Compensation and benefits expense. At December�31, 2012, approximately 99% of the Global Wealth Management Group business segment�s loans held for investment portfolio were
current. Credit Exposure�Derivatives. The Company incurs credit risk as a dealer
in OTC derivatives. Credit risk with respect to derivative instruments arises from the failure of a counterparty to perform according to the terms of the contract. In connection with its OTC derivative activities, the Company generally enters into
master netting agreements and collateral arrangements with counterparties. These agreements provide the Company with the ability to demand collateral as well as to liquidate collateral and offset receivables and payables covered under the same
master agreement in the event of counterparty default. The Company manages its trading positions by employing a variety of risk mitigation strategies. These strategies include diversification of risk exposures and hedging. Hedging activities consist
of the purchase or sale of positions in related securities and financial instruments, including a variety of derivative products ( e.g. , futures, forwards, swaps and options). For credit exposure information on the Company�s OTC
derivative products, see Note 12 to the consolidated financial statements. Credit Derivatives. A credit derivative is a contract between a seller (guarantor) and buyer (beneficiary) of protection against the risk of a credit event occurring
on a set of debt obligations issued by a specified reference entity. The beneficiary pays a periodic premium over the life of the contract and is protected for the period. If a credit event occurs, the guarantor is required to make payment to the
beneficiary based on the terms of the credit derivative contract. Credit events, as defined in the contract, may be one or more of the following defined events: bankruptcy, dissolution or insolvency of the referenced entity, failure to pay,
obligation acceleration, repudiation, payment moratorium and restructurings. The Company trades in a variety of credit derivatives and may either purchase or write protection on a single name or portfolio of referenced entities. In transactions referencing a portfolio of
referenced names or securities, protection may be limited to a tranche of exposure or a single name within the portfolio. The Company is an active market maker in the credit derivatives markets. As a market maker, the Company works to earn a
bid-offer spread on client flow business and manages any residual credit or correlation risk on a portfolio basis.�Further, the Company uses credit derivatives to manage its exposure to residential and commercial mortgage loans and corporate
lending exposures during the periods presented. The effectiveness of the Company�s CDS protection as a hedge of the Company�s exposures may vary depending upon a number of factors, including the contractual terms of the CDS. The Company actively monitors its counterparty credit risk related to credit
derivatives. A majority of the Company�s counterparties are banks, broker-dealers, insurance and other financial institutions. Contracts with these counterparties do not include ratings-based termination events but do include provisions related
to counterparty rating downgrades, which may result in additional collateral being required by the Company. As with all derivative contracts, the Company considers counterparty credit risk in the valuation of its positions and recognizes credit
valuation adjustments as appropriate within Principal transactions�Trading. 129 Table of Contents The following table summarizes the key characteristics of the Company�s credit derivative portfolio by
counterparty at December�31, 2012 and December�31, 2011. The fair values shown are before the application of any counterparty or cash collateral netting. For additional credit exposure information on the Company�s credit derivative
portfolio, see Note 12 to the consolidated financial statements. | At December�31, 2012 | ||||||||||||||||||||
| Fair Values(1) | Notionals | |||||||||||||||||||
| Receivable | Payable | Net | Beneficiary | Guarantor | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Banks and securities firms | $ | 60,728 | $ | 57,399 | $ | 3,329 | $ | 1,620,774 | $ | 1,573,217 | ||||||||||
| Insurance and other financial institutions | 7,313 | 6,908 | 405 | 278,705 | 313,897 | |||||||||||||||
| Non-financial entities | 226 | 187 | 39 | 7,922 | 6,078 | |||||||||||||||
| Total | $ | 68,267 | $ | 64,494 | $ | 3,773 | $ | 1,907,401 | $ | 1,893,192 | ||||||||||
| (1) | The Company�s CDS are classified in both Level 2 and Level 3 of the fair value hierarchy. Approximately 7% of receivable fair values and 5% of payable fair values represent Level 3 amounts (see Note 4 to the consolidated financial statements). |
| At December�31, 2011 | ||||||||||||||||||||
| Fair Values(1) | Notionals | |||||||||||||||||||
| Receivable | Payable | Net | Beneficiary | Guarantor | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Banks and securities firms | $ | 123,821 | $ | 117,125 | $ | 6,696 | $ | 2,099,438 | $ | 2,039,555 | ||||||||||
| Insurance and other financial institutions | 13,467 | 13,334 | 133 | 326,633 | 386,720 | |||||||||||||||
| Monolines(2) | 298 | 5 | 293 | 18,647 | � | |||||||||||||||
| Non-financial entities | 1,205 | 262 | 943 | 17,543 | 6,129 | |||||||||||||||
| Total | $ | 138,791 | $ | 130,726 | $ | 8,065 | $ | 2,462,261 | $ | 2,432,404 | ||||||||||
| (1) | The Company�s CDS are classified in both Level 2 and Level 3 of the fair value hierarchy. Approximately 11% of receivable fair values and 7% of payable fair values represent Level 3 amounts (see Note 4 to the consolidated financial statements). |
| (2) | Credit derivatives used to hedge the Company�s credit exposure to Monolines (including derivative counterparty exposure) are included in the table based on the counterparties writing such hedges. None of these hedges are written by other Monolines. |
Table of Contents country to honor their obligations to the Company.�Country risk exposure is measured in accordance with the Company�s internal risk management standards and includes obligations from
sovereign governments, corporations, clearinghouses and financial institutions. The Company actively manages country risk exposure through a comprehensive risk management framework that combines credit and market fundamentals and allows the Company
to effectively identify, monitor and limit country risk. Country risk exposure before and after hedges is monitored and managed. The Company�s obligor credit evaluation process may also identify indirect exposures whereby an obligor has vulnerability or exposure to another
country or jurisdiction.�Examples of indirect exposures include mutual funds that invest in a single country, offshore companies whose assets reside in another country to that of the offshore jurisdiction and finance company subsidiaries of
corporations. Indirect exposures identified through the credit evaluation process may result in a reclassification of country risk. The Company conducts periodic stress testing that seeks to measure the impact on the Company�s credit and market exposures of shocks stemming from
negative economic or political scenarios.�When deemed appropriate by the Company�s risk managers, the stress test scenarios include country exit from the Eurozone and possible contagion effects.�Second order risks such as the impact
for core European banks of their peripheral exposures may also be considered.�The Company also conducts legal and documentation analysis of its exposures to obligors in peripheral jurisdictions, which are defined as exposures in Greece,
Ireland, Italy, Portugal and Spain (the �European Peripherals�), to identify the risk that such exposures could be redenominated into new currencies or subject to capital controls in the case of country exit from the Eurozone.�This
analysis, and results of the stress tests, may result in the amendment of limits or exposure mitigation. In addition to the Company�s country risk exposure, the Company discloses its cross-border risk exposure in �Financial Statements and Supplementary Data�Financial Data Supplement
(Unaudited)� in Part II, Item�8 herein. It is based on the Federal Financial Institutions Examination Council�s (�FFIEC�) regulatory guidelines for reporting cross-border information and represents the amounts that the
Company may not be able to obtain from a foreign country due to country-specific events, including unfavorable economic and political conditions, economic and social instability, and changes in government policies. There can be substantial differences between the Company�s country risk
exposure and cross-border risk exposure. For instance, unlike the cross-border risk exposure, the Company�s country risk exposure includes the effect of certain risk mitigants such as obtaining collateral from counterparties. In addition, the
basis for determining the domicile of the country risk exposure is different from the basis for determining the cross-border risk exposure. Cross-border risk exposure is reported based on the country of jurisdiction for the obligor or guarantor.
Besides country of jurisdiction, the Company considers factors such as physical location of operations or assets, location and source of cash flows/revenues and location of collateral (if applicable) in order to determine the basis for country risk
exposure. Furthermore, cross-border risk exposure incorporates CDS only where protection is purchased while country risk exposure incorporates CDS where protection is both purchased and sold. The Company�s sovereign exposures consist of financial instruments entered into with sovereign and local governments. Its
non-sovereign exposures comprise exposures to corporations and financial institutions. The following table shows the Company�s significant non-U.S. country risk exposure except for select European countries (see the table in �Country Risk
Exposure�Select European Countries� herein) at December�31, 2012. Index credit derivatives are included in the Company�s country risk exposure tables. Each reference entity within an index is allocated to that reference
entity�s country of risk.�Index exposures are allocated to the underlying reference entities in proportion to the notional weighting of each reference entity in the index, adjusted for any fair value receivable/payable for that reference
entity. Where credit risk crosses multiple jurisdictions, for example, a CDS purchased from an issuer in a specific country which references bonds issued by an entity in a different country, the fair value of the CDS is reflected in the Net
Counterparty Exposure column based on the 131 Table of Contents country of the CDS issuer. Further, the notional amount of the CDS adjusted for the fair value of the receivable/payable is reflected in the Net Inventory column based on the country of the
underlying reference entity. | Country | Net Inventory(1) | Net Counterparty Exposure(2)(3) | Funded Lending | Unfunded Commitments | Exposure Before Hedges | Hedges(4) | Net Exposure(5) | |||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||
| United Kingdom: | ||||||||||||||||||||||||||||
| Sovereigns | $ | 1,831 | $ | 17 | $ | � | $ | � | $ | 1,848 | $ | (272 | ) | $ | 1,576 | |||||||||||||
| Non-sovereigns | 989 | 11,791 | 2,584 | 5,287 | 20,651 | (3,329 | ) | 17,322 | ||||||||||||||||||||
| Subtotal | $ | 2,820 | $ | 11,808 | $ | 2,584 | $ | 5,287 | $ | 22,499 | $ | (3,601 | ) | $ | 18,898 | |||||||||||||
| Germany: | ||||||||||||||||||||||||||||
| Sovereigns | $ | 11,249 | $ | 827 | $ | � | $ | � | $ | 12,076 | $ | (1,246 | ) | $ | 10,830 | |||||||||||||
| Non-sovereigns | (366 | ) | 3,070 | 597 | 3,856 | 7,157 | (2,531 | ) | 4,626 | |||||||||||||||||||
| Subtotal | $ | 10,883 | $ | 3,897 | $ | 597 | $ | 3,856 | $ | 19,233 | $ | (3,777 | ) | $ | 15,456 | |||||||||||||
| Brazil: | ||||||||||||||||||||||||||||
| Sovereigns | $ | 4,294 | $ | 3 | $ | � | $ | � | $ | 4,297 | $ | � | $ | 4,297 | ||||||||||||||
| Non-sovereigns | 192 | 242 | 759 | 213 | 1,406 | (79 | ) | 1,327 | ||||||||||||||||||||
| Subtotal | $ | 4,486 | $ | 245 | $ | 759 | $ | 213 | $ | 5,703 | $ | (79 | ) | $ | 5,624 | |||||||||||||
| Japan: | ||||||||||||||||||||||||||||
| Sovereigns | $ | 2,356 | $ | 302 | $ | � | $ | � | $ | 2,658 | $ | (113 | ) | $ | 2,545 | |||||||||||||
| Non-sovereigns | (291 | ) | 2,306 | 44 | � | 2,059 | (130 | ) | 1,929 | |||||||||||||||||||
| Subtotal | $ | 2,065 | $ | 2,608 | $ | 44 | $ | � | $ | 4,717 | $ | (243 | ) | $ | 4,474 | |||||||||||||
| Canada: | ||||||||||||||||||||||||||||
| Sovereigns | $ | 556 | $ | 9 | $ | � | $ | � | $ | 565 | $ | � | $ | 565 | ||||||||||||||
| Non-sovereigns | 756 | 991 | 161 | 1,550 | 3,458 | (375 | ) | 3,083 | ||||||||||||||||||||
| Subtotal | $ | 1,312 | $ | 1,000 | $ | 161 | $ | 1,550 | $ | 4,023 | $ | (375 | ) | $ | 3,648 | |||||||||||||
| (1) | Net inventory represents exposure to both long and short single-name and index positions ( i.e. , bonds and equities at fair value and CDS based on notional amount assuming zero recovery adjusted for any fair value receivable or payable). As a market maker, the Company transacts in these CDS positions to facilitate client trading. At December�31, 2012, net exposures related to purchased and sold single-name and index credit derivatives for these countries were $(1,078) million. For a further description of the triggers for purchased credit protection and whether those triggers may limit the effectiveness of the Company�s hedges, see �Credit Exposure�Derivatives� herein. |
| (2) | Net counterparty exposure ( i.e ., repurchase transactions, securities lending and OTC derivatives) takes into consideration legally enforceable master netting agreements and collateral. |
| (3) | At December�31, 2012, the benefit of collateral received against counterparty credit exposure was $15.3 billion in the U.K., with all the collateral consisting of cash and U.S. and U.K. government obligations, and $17.0 billion in Germany with 98% of collateral consisting of cash and government obligations of France, Belgium and the Netherlands. The benefit of collateral received against counterparty credit exposure in the three other countries totaled approximately $4.4 billion, with collateral primarily consisting of cash and U.S. and Japanese government obligations. These amounts do not include collateral received on secured financing transactions. |
| (4) | Represents CDS hedges (purchased and sold) on net counterparty exposure and funded lending executed by trading desks responsible for hedging counterparty and lending credit risk exposures for the Company. Based on the CDS notional amount assuming zero recovery adjusted for any fair value receivable or payable. |
| (5) | In addition, at December�31, 2012, the Company had exposure to these countries for overnight deposits with banks of approximately $9.2 billion. |
Table of Contents obligations from sovereign and non-sovereigns, which includes governments, corporations, clearinghouses and financial institutions. | Country | Net Inventory(1) | Net Counterparty Exposure(2)(3) | Funded Lending | Unfunded Commitments | CDS Adjustment(4) | Exposure Before Hedges | Hedges(5) | Net Exposure | ||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Greece: | ||||||||||||||||||||||||||||||||
| Sovereigns | $ | 6 | $ | 34 | $ | � | $ | � | $ | � | $ | 40 | $ | � | $ | 40 | ||||||||||||||||
| Non-sovereigns | 59 | 3 | 52 | � | � | 114 | (48 | ) | 66 | |||||||||||||||||||||||
| Subtotal | $ | 65 | $ | 37 | $ | 52 | $ | � | $ | � | $ | 154 | $ | (48 | ) | $ | 106 | |||||||||||||||
| Ireland: | ||||||||||||||||||||||||||||||||
| Sovereigns | $ | 90 | $ | 7 | $ | � | $ | � | $ | 5 | $ | 102 | $ | 2 | $ | 104 | ||||||||||||||||
| Non-sovereigns | 84 | 29 | 72 | 56 | 19 | 260 | (22 | ) | 238 | |||||||||||||||||||||||
| Subtotal | $ | 174 | $ | 36 | $ | 72 | $ | 56 | $ | 24 | $ | 362 | $ | (20 | ) | $ | 342 | |||||||||||||||
| Italy: | ||||||||||||||||||||||||||||||||
| Sovereigns | $ | 619 | $ | 287 | $ | � | $ | � | $ | 490 | $ | 1,396 | $ | (203 | ) | $ | 1,193 | |||||||||||||||
| Non-sovereigns | 448 | 774 | 384 | 727 | 153 | 2,486 | (496 | ) | 1,990 | |||||||||||||||||||||||
| Subtotal | $ | 1,067 | $ | 1,061 | $ | 384 | $ | 727 | $ | 643 | $ | 3,882 | $ | (699 | ) | $ | 3,183 | |||||||||||||||
| Spain: | ||||||||||||||||||||||||||||||||
| Sovereigns | $ | 691 | $ | 2 | $ | � | $ | � | $ | 468 | $ | 1,161 | $ | (6 | ) | $ | 1,155 | |||||||||||||||
| Non-sovereigns | 298 | 301 | 123 | 807 | 167 | 1,696 | (362 | ) | 1,334 | |||||||||||||||||||||||
| Subtotal | $ | 989 | $ | 303 | $ | 123 | $ | 807 | $ | 635 | $ | 2,857 | $ | (368 | ) | $ | 2,489 | |||||||||||||||
| Portugal: | ||||||||||||||||||||||||||||||||
| Sovereigns | $ | (31 | ) | $ | 32 | $ | � | $ | � | $ | 31 | $ | 32 | $ | (78 | ) | $ | (46 | ) | |||||||||||||
| Non-sovereigns | 113 | 32 | 98 | � | 60 | 303 | (31 | ) | 272 | |||||||||||||||||||||||
| Subtotal | $ | 82 | $ | 64 | $ | 98 | $ | � | $ | 91 | $ | 335 | $ | (109 | ) | $ | 226 | |||||||||||||||
| Sovereigns | $ | 1,375 | $ | 362 | $ | � | $ | � | $ | 994 | $ | 2,731 | $ | (285) | $ | 2,446 | ||||||||||||||||
| Non-sovereigns | 1,002 | 1,139 | 729 | 1,590 | 399 | 4,859 | (959 | ) | 3,900 | |||||||||||||||||||||||
| Total European Peripherals(6) | $ | 2,377 | $ | 1,501 | $ | 729 | $ | 1,590 | $ | 1,393 | $ | 7,590 | $ | (1,244 | ) | $ | 6,346 | |||||||||||||||
| France(6): | ||||||||||||||||||||||||||||||||
| Sovereigns | $ | (3,086 | ) | $ | 15 | $ | � | $ | � | $ | 32 | $ | (3,039 | ) | $ | (230 | ) | $ | (3,269 | ) | ||||||||||||
| Non-sovereigns | (870 | ) | 2,244 | 270 | 1,926 | 259 | 3,829 | (812 | ) | 3,017 | ||||||||||||||||||||||
| Total France(6) | $ | (3,956 | ) | $ | 2,259 | $ | 270 | $ | 1,926 | $ | 291 | $ | 790 | $ | (1,042 | ) | $ | (252 | ) | |||||||||||||
| (1) | Net inventory represents exposure to both long and short single-name and index positions ( i.e. , bonds and equities at fair value and CDS based on notional amount assuming zero recovery adjusted for any fair value receivable or payable). As a market maker, the Company transacts in these CDS positions to facilitate client trading. At December�31, 2012, net exposures related to purchased and sold single-name and index credit derivatives for the European Peripherals and France were $(408) million and $(1,462) million, respectively. For a further description of the triggers for purchased credit protection and whether those triggers may limit the effectiveness of the Company�s hedges, see �Credit Exposure�Derivatives� herein. |
| (2) | Net counterparty exposure ( i.e ., repurchase transactions, securities lending and OTC derivatives) takes into consideration legally enforceable master netting agreements and collateral. |
| (3) | At December�31, 2012, the benefit of collateral received against counterparty credit exposure was $5.0 billion in the European Peripherals, with 97% of such collateral consisting of cash and German government obligations and $7.5 billion in France with nearly all collateral consisting of cash and U.S. government obligations. These amounts do not include collateral received on secured financing transactions. |
| (4) | CDS adjustment represents credit protection purchased from European Peripherals� banks on European Peripherals� sovereign and financial institution risk or French banks on French sovereign and financial institution risk. Based on the CDS notional amount assuming zero recovery adjusted for any fair value receivable or payable. |
Table of Contents| (5) | Represents CDS hedges (purchased and sold) on net counterparty exposure and funded lending executed by trading desks responsible for hedging counterparty and lending credit risk exposures for the Company. Based on the CDS notional amount assuming zero recovery adjusted for any fair value receivable or payable. |
| (6) | In addition, at December�31, 2012, the Company had European Peripherals and French exposure for overnight deposits with banks of approximately $81 million and $27 million, respectively. |
| Industry | Corporate�Lending�Exposure | |||
| (dollars in millions) | ||||
| Energy | $ | 10,794 | ||
| Utilities | 9,813 | |||
| Funds, exchanges and other financial services(1) | 7,346 | |||
| Media-related entities | 5,263 | |||
| Chemicals, metals, mining and other materials | 5,148 | |||
| Telecommunications services | 4,832 | |||
| Capital goods | 4,353 | |||
| Pharmaceuticals | 3,830 | |||
| Food, beverage and tobacco | 3,803 | |||
| Technology software and services | 3,767 | |||
| Other | 28,927 | |||
| Total | $ | 87,876 | ||
| Industry | OTC�Derivative�Products(2) | |||
| (dollars in millions) | ||||
| Banks | $ | 4,193 | ||
| Utilities | 4,174 | |||
| Special purpose vehicles | 3,453 | |||
| Funds, exchanges and other financial services(1) | 2,607 | |||
| Regional governments | 1,534 | |||
| Healthcare | 1,445 | |||
| Sovereign governments | 771 | |||
| Other | 5,688 | |||
| Total | $ | 23,865 | ||
| (1) | Includes mutual funds, pension funds, private equity and real estate funds, exchanges and clearinghouses and diversified financial services. |
| (2) | For further information on derivative instruments and hedging activities, see Note 12 to the consolidated financial statements. |
Table of Contents The Company has established an operational risk framework to identify, measure, monitor and control risk
across the Company. Effective operational risk management is essential to reducing the impact of operational risk incidents and mitigating legal, regulatory and reputational risks. The framework is continually evolving to account for changes in the
Company and respond to the changing regulatory and business environment. The Company has implemented operational risk data and assessment systems to monitor and analyze internal and external operational risk events, business environment and internal
control factors and to perform scenario analysis. The collected data elements are incorporated in the operational risk capital model. The model encompasses both quantitative and qualitative elements. Internal loss data and scenario analysis results
are direct inputs to the capital model, while external operational incidents, business environment internal control factors and metrics are indirect inputs to the model. Primary responsibility for the management of operational risk is with the
business segments, the control groups and the business managers therein. The business managers generally maintain processes and controls designed to identify, assess, manage, mitigate and report operational risk. Each business segment has a
designated operational risk coordinator. The operational risk coordinator regularly reviews operational risk issues and reports to senior management within each business. Each control group also has a designated operational risk coordinator and a
forum for discussing operational risk matters with senior management. Oversight of operational risk is provided by regional risk committees and senior management. In the event of a merger; joint venture; divestiture; reorganization; or creation of a
new legal entity, a new product or a business activity, operational risks are considered, and any necessary changes in processes or controls are implemented. Enterprise Operational Risk and Control (�EORC�) and the independent Operational Risk Department (�ORD�) work with the business
segments and control groups to help ensure a transparent, consistent and comprehensive program for managing operational risk within each area and across the Company globally. ORD is responsible for the design, ownership and independent validation of
the operational risk framework (including operational risk policies), analysis of operational risk data and senior governance reporting. EORC is responsible for the execution of the operational risk framework, including, but not limited to,
facilitating, collecting and validating operational risk data. Business Continuity Management is responsible for identifying key risks and threats to the Company�s resiliency and planning to ensure that a
recovery strategy and required resources are in place for the resumption of critical business functions following a disaster or other business interruption. Disaster recovery plans are in place for critical facilities and resources on a company-wide
basis, and redundancies are built into the systems as deemed appropriate. The key components of the Company�s disaster recovery plans include: crisis management; business recovery plans; applications/data recovery; work area recovery; and other
elements addressing management, analysis, training and testing. The Company maintains an information security program that coordinates the management of information security risks and satisfies regulatory requirements.
Information security policies are designed to protect the Company�s information assets against unauthorized disclosure, modification or misuse. These policies cover a broad range of areas, including: application entitlements, data protection,
incident response, Internet and electronic communications, remote access and portable devices. The Company has also established policies, procedures and technologies to protect its computers and other assets from unauthorized access. The Company utilizes the services of external vendors in connection with the
Company�s ongoing operations. These may include, for example, outsourced processing and support functions and consulting and other professional services. The Company manages its exposures to the quality of these services through a variety of
means, including service level and other contractual agreements, and ongoing monitoring of the vendors� performance. It is anticipated that the use of these services will continue and possibly increase in the future. The Supplier Risk
Management program is responsible for the policies, procedures, organizations, governance and supporting technology to ensure adequate risk management controls between the Company and its third-party suppliers as it relates to information security,
disaster recoverability and other key areas. The program ensures Company compliance with regulatory requirements. 135 Table of Contents Legal, Regulatory and Compliance Risk. Legal risk includes the risk of exposure to fines, penalties, judgments, damages and/or settlements in connection with
regulatory or legal actions as a result of non-compliance with applicable legal and regulatory requirements and standards. Legal risk also includes contractual and commercial risk such as the risk that a counterparty�s performance obligations
will be unenforceable. The Company is generally subject to extensive regulation in the different jurisdictions in which it conducts its business (see also �Business�Supervision and Regulation� in Part I, Item�1 and �Risk
Factors� in Part I, Item�1A). The Company has established procedures based on legal and regulatory requirements on a worldwide basis that are designed to foster compliance with applicable statutory and regulatory requirements. The Company,
principally through the Legal and Compliance Division, also has established procedures that are designed to require that the Company�s policies relating to business conduct, ethics and practices are followed globally. In connection with its
businesses, the Company has and continuously develops various procedures addressing issues such as regulatory capital requirements, sales and trading practices, new products, information barriers, potential conflicts of interest, structured
transactions, use and safekeeping of customer funds and securities, lending and credit granting, anti-money laundering, privacy and recordkeeping. In addition, the Company has established procedures to mitigate the risk that a counterparty�s
performance obligations will be unenforceable, including consideration of counterparty legal authority and capacity, adequacy of legal documentation, the permissibility of a transaction under applicable law and whether applicable bankruptcy or
insolvency laws limit or alter contractual remedies. The legal and regulatory focus on the financial services industry presents a continuing business challenge for the Company. 136 Table of Contents| Item�8. | Financial Statements and Supplementary Data. |
| /s/ Deloitte & Touche LLP |
| New York, New York |
| February�26, 2013 |
| December�31, 2012 | December�31, 2011 | |||||||
| Assets | ||||||||
| Cash and due from banks ($526 and $511 at December�31, 2012 and December�31, 2011, respectively, related to consolidated variable interest entities generally not available to the Company) | $ | 20,878 | $ | 13,165 | ||||
| Interest bearing deposits with banks | 26,026 | 34,147 | ||||||
| Cash deposited with clearing organizations or segregated under federal and other regulations or requirements | 30,970 | 29,454 | ||||||
| Financial instruments owned, at fair value (approximately $147,348 and $140,749 were pledged to various parties at December 31, 2012 and December�31, 2011, respectively): | ||||||||
| U.S. government and agency securities | 54,015 | 63,449 | ||||||
| Other sovereign government obligations | 43,162 | 29,059 | ||||||
| Corporate and other debt ($1,602 and $3,007 at December 31, 2012 and December 31, 2011, respectively, related to consolidated variable interest entities, generally not available to the Company) | 49,157 | 68,923 | ||||||
| Corporate equities | 69,427 | 47,966 | ||||||
| Derivative and other contracts | 36,197 | 48,064 | ||||||
| Investments ($1,888 and $1,666 at December 31, 2012 and December 31, 2011, respectively, related to consolidated variable interest entities, generally not available to the Company) | 8,346 | 8,195 | ||||||
| Physical commodities | 7,299 | 9,697 | ||||||
| Total financial instruments owned, at fair value | 267,603 | 275,353 | ||||||
| Securities available for sale, at fair value | 39,869 | 30,495 | ||||||
| Securities received as collateral, at fair value | 14,278 | 11,651 | ||||||
| Federal funds sold and securities purchased under agreements to resell (includes $621 and $112 at fair value at December 31, 2012 and December 31, 2011, respectively) | 134,412 | 130,155 | ||||||
| Securities borrowed | 121,701 | 127,074 | ||||||
| Receivables: | ||||||||
| Customers | 46,197 | 33,977 | ||||||
| Brokers, dealers and clearing organizations | 7,335 | 5,248 | ||||||
| Fees, interest and other | 10,756 | 9,444 | ||||||
| Loans (net of allowances of $106 and $17 at December�31, 2012 and December�31, 2011, respectively) | 29,046 | 15,369 | ||||||
| Other investments | 4,999 | 4,832 | ||||||
| Premises, equipment and software costs (net of accumulated depreciation of $5,525 and $4,852 at December 31, 2012 and December�31, 2011, respectively) ($224 and $234 at December 31, 2012 and December�31, 2011, respectively, related to consolidated variable interest entities, generally not available to the Company) | 5,946 | 6,457 | ||||||
| Goodwill | 6,650 | 6,686 | ||||||
| Intangible assets (net of accumulated amortization of $1,250 and $910 at December�31, 2012 and December�31, 2011, respectively) (includes $7 and $133 at fair value at December 31, 2012 and December�31, 2011, respectively) | 3,783 | 4,285 | ||||||
| Other assets ($593 and $446 at December�31, 2012 and December�31, 2011, respectively, related to consolidated variable interest entities, generally not available to the Company) | 10,511 | 12,106 | ||||||
| Total assets | $ | 780,960 | $ | 749,898 | ||||
| | 138 |
| December�31, 2012 | December�31, 2011 | |||||||
| Liabilities | ||||||||
| Deposits (includes $1,485 and $2,101 at fair value at December�31, 2012 and December�31, 2011, respectively) | $ | 83,266 | $ | 65,662 | ||||
| Commercial paper and other short-term borrowings (includes $725 and $1,339 at fair value at December 31, 2012 and December 31, 2011, respectively) | 2,138 | 2,843 | ||||||
| Financial instruments sold, not yet purchased, at fair value: | ||||||||
| U.S. government and agency securities | 21,620 | 19,630 | ||||||
| Other sovereign government obligations | 29,614 | 17,141 | ||||||
| Corporate and other debt | 5,054 | 8,410 | ||||||
| Corporate equities | 26,876 | 24,497 | ||||||
| Derivative and other contracts | 36,958 | 46,453 | ||||||
| Physical commodities | � | 16 | ||||||
| Total financial instruments sold, not yet purchased, at fair value | 120,122 | 116,147 | ||||||
| Obligation to return securities received as collateral, at fair value | 18,226 | 15,394 | ||||||
| Securities sold under agreements to repurchase (includes $363 and $348 at fair value at December�31, 2012 and December 31, 2011, respectively ) | 122,674 | 104,800 | ||||||
| Securities loaned | 36,849 | 30,462 | ||||||
| Other secured financings (includes $9,466 and $14,594 at fair value at December�31, 2012 and December�31, 2011, respectively) ($976 and $2,316 at December 31, 2012 and December 31, 2011, respectively, related to consolidated variable interest entities and are non-recourse to the Company) | 15,727 | 20,719 | ||||||
| Payables: | ||||||||
| Customers | 122,540 | 117,241 | ||||||
| Brokers, dealers and clearing organizations | 2,497 | 4,082 | ||||||
| Interest and dividends | 2,685 | 2,292 | ||||||
| Other liabilities and accrued expenses ($117 and $121 at December�31, 2012 and December�31, 2011, respectively, related to consolidated variable interest entities and are non-recourse to the Company) | 14,928 | 15,944 | ||||||
| Long-term borrowings (includes $44,044 and $39,663 at fair value at December�31, 2012 and December�31, 2011, respectively) | 169,571 | 184,234 | ||||||
| 711,223 | 679,820 | |||||||
| Commitments and contingent liabilities (see Note 13) | ||||||||
| Redeemable noncontrolling interests (see Notes 2, 3 and 15) | 4,309 | � | ||||||
| Equity | ||||||||
| Morgan Stanley shareholders� equity: | ||||||||
| Preferred stock | 1,508 | 1,508 | ||||||
| Common stock, $0.01 par value: | ||||||||
| Shares authorized: 3,500,000,000 at December 31, 2012 and December�31, 2011; | ||||||||
| Shares issued: 2,038,893,979 at December 31, 2012 and 1,989,377,171 at December�31, 2011; Shares outstanding: 1,974,042,123 at December 31, 2012 and 1,926,986,130 at December 31, 2011 | 20 | 20 | ||||||
| Paid-in capital | 23,426 | 22,836 | ||||||
| Retained earnings | 39,912 | 40,341 | ||||||
| Employee stock trust | 2,932 | 3,166 | ||||||
| Accumulated other comprehensive loss | (516 | ) | (157 | ) | ||||
| Common stock held in treasury, at cost, $0.01 par value; 64,851,856 shares at December�31, 2012 and 62,391,041 shares at December�31, 2011 | (2,241 | ) | (2,499 | ) | ||||
| Common stock issued to employee trust | (2,932 | ) | (3,166 | ) | ||||
| Total Morgan Stanley shareholders� equity | 62,109 | 62,049 | ||||||
| Nonredeemable noncontrolling interests | 3,319 | 8,029 | ||||||
| Total equity | 65,428 | 70,078 | ||||||
| Total liabilities, redeemable noncontrolling interests and equity | $ | 780,960 | $ | 749,898 | ||||
| 139 | |
| 2012 | 2011 | 2010 | ||||||||||
| Revenues: | ||||||||||||
| Investment banking | $ | 4,758 | $ | 4,991 | $ | 5,122 | ||||||
| Principal transactions: | ||||||||||||
| Trading | 6,991 | 12,384 | 9,393 | |||||||||
| Investments | 742 | 573 | 1,825 | |||||||||
| Commissions and fees | 4,257 | 5,347 | 4,913 | |||||||||
| Asset management, distribution and administration fees | 9,008 | 8,410 | 7,843 | |||||||||
| Other | 555 | 175 | 1,236 | |||||||||
| Total non-interest revenues | 26,311 | 31,880 | 30,332 | |||||||||
| Interest income | 5,725 | 7,258 | 7,305 | |||||||||
| Interest expense | 5,924 | 6,902 | 6,407 | |||||||||
| Net interest | (199 | ) | 356 | 898 | ||||||||
| Net revenues | 26,112 | 32,236 | 31,230 | |||||||||
| Non-interest expenses: | ||||||||||||
| Compensation and benefits | 15,622 | 16,333 | 15,866 | |||||||||
| Occupancy and equipment | 1,546 | 1,548 | 1,544 | |||||||||
| Brokerage, clearing and exchange fees | 1,536 | 1,633 | 1,416 | |||||||||
| Information processing and communications | 1,913 | 1,811 | 1,645 | |||||||||
| Marketing and business development | 602 | 595 | 571 | |||||||||
| Professional services | 1,923 | 1,794 | 1,808 | |||||||||
| Other | 2,455 | 2,423 | 2,182 | |||||||||
| Total non-interest expenses | 25,597 | 26,137 | 25,032 | |||||||||
| Income from continuing operations before income taxes | 515 | 6,099 | 6,198 | |||||||||
| Provision for (benefit from) income taxes | (239 | ) | 1,410 | 743 | ||||||||
| Income from continuing operations | 754 | 4,689 | 5,455 | |||||||||
| Discontinued operations: | ||||||||||||
| Gain (loss) from discontinued operations | (43 | ) | (160 | ) | 610 | |||||||
| Provision for (benefit from) income taxes | (5 | ) | (116 | ) | 363 | |||||||
| Net gain (loss) from discontinued operations | (38 | ) | (44 | ) | 247 | |||||||
| Net income | $ | 716 | $ | 4,645 | $ | 5,702 | ||||||
| Net income applicable to redeemable noncontrolling interests | 124 | � | � | |||||||||
| Net income applicable to nonredeemable noncontrolling interests | 524 | 535 | 999 | |||||||||
| Net income applicable to Morgan Stanley | $ | 68 | $ | 4,110 | $ | 4,703 | ||||||
| Earnings (loss) applicable to Morgan Stanley common shareholders | $ | (30 | ) | $ | 2,067 | $ | 3,594 | |||||
| Amounts applicable to Morgan Stanley: | ||||||||||||
| Income from continuing operations | $ | 135 | $ | 4,161 | $ | 4,469 | ||||||
| Net gain (loss) from discontinued operations | (67 | ) | (51 | ) | 234 | |||||||
| Net income applicable to Morgan Stanley | $ | 68 | $ | 4,110 | $ | 4,703 | ||||||
| Earnings (loss) per basic common share: | ||||||||||||
| Income from continuing operations | $ | 0.02 | $ | 1.28 | $ | 2.48 | ||||||
| Net gain (loss) from discontinued operations | (0.04 | ) | (0.03 | ) | 0.16 | |||||||
| Earnings (loss) per basic common share | $ | (0.02 | ) | $ | 1.25 | $ | 2.64 | |||||
| Earnings (loss) per diluted common share: | ||||||||||||
| Income from continuing operations | $ | 0.02 | $ | 1.26 | $ | 2.45 | ||||||
| Net gain (loss) from discontinued operations | (0.04 | ) | (0.03 | ) | 0.18 | |||||||
| Earnings (loss) per diluted common share | $ | (0.02 | ) | $ | 1.23 | $ | 2.63 | |||||
| Dividends declared per common share | $ | 0.20 | $ | 0.20 | $ | 0.20 | ||||||
| Average common shares outstanding: | ||||||||||||
| Basic | 1,885,774,276 | 1,654,708,640 | 1,361,670,938 | |||||||||
| Diluted | 1,918,811,270 | 1,675,271,669 | 1,411,268,971 | |||||||||
Table of Contents MORGAN STANLEY Consolidated Statements of Comprehensive Income (dollars in millions) | 2012 | 2011 | 2010 | ||||||||||
| Net income | $ | 716 | $ | 4,645 | $ | 5,702 | ||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||
| Foreign currency translation adjustments(1) | $ | (255 | ) | $ | 35 | $ | 221 | |||||
| Amortization of cash flow hedges(2) | 6 | 7 | 9 | |||||||||
| Net unrealized gains on Securities available for sale(3) | 28 | 87 | 36 | |||||||||
| Pension, postretirement and other related adjustments(4) | (260 | ) | 251 | (20 | ) | |||||||
| Total other comprehensive income (loss) | $ | (481 | ) | $ | 380 | $ | 246 | |||||
| Comprehensive income | $ | 235 | $ | 5,025 | $ | 5,948 | ||||||
| Net income applicable to redeemable noncontrolling interests | 124 | � | � | |||||||||
| Net income applicable to nonredeemable noncontrolling interests | 524 | 535 | 999 | |||||||||
| Other comprehensive income (loss) applicable to redeemable noncontrolling interests | (2 | ) | � | � | ||||||||
| Other comprehensive income (loss) applicable to nonredeemable noncontrolling interests | (120 | ) | 70 | 153 | ||||||||
| Comprehensive income (loss) applicable to Morgan Stanley | $ | (291 | ) | $ | 4,420 | $ | 4,796 | |||||
| (1) | Amounts are net of provision for (benefit from) income taxes of $120 million, $86 million and $(222) million for 2012, 2011 and 2010, respectively. |
| (2) | Amounts are net of provision for income taxes of $3 million, $6 million and $6 million for 2012, 2011 and 2010, respectively. |
| (3) | Amounts are net of provision for income taxes of $16 million, $63 million and $25 million for 2012, 2011 and 2010, respectively. |
| (4) | Amounts are net of provision for (benefit from) income taxes of $(156) million, $153 million and $(10) million for 2012, 2011 and 2010, respectively. |
| 141 | |
| 2012 | 2011 | 2010 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 716 | $ | 4,645 | $ | 5,702 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Deferred income taxes | (639 | ) | 413 | (129 | ) | |||||||
| Loss on equity method investees | 23 | 995 | 37 | |||||||||
| Compensation payable in common stock and options | 891 | 1,300 | 1,260 | |||||||||
| Depreciation and amortization | 1,581 | 1,404 | 1,419 | |||||||||
| Gain on business dispositions | (156 | ) | (24 | ) | (570 | ) | ||||||
| Gain on sale of stake in China International Capital Corporation Limited | � | � | (668 | ) | ||||||||
| Gains on curtailments of pension and postretirement plans | � | � | (54 | ) | ||||||||
| Gain on sale of securities available for sale | (78 | ) | (143 | ) | (102 | ) | ||||||
| (Gain) loss on retirement of long-term debt | (29 | ) | (155 | ) | 27 | |||||||
| Insurance reimbursement | � | � | (76 | ) | ||||||||
| Loss on Revel | � | � | 1,190 | |||||||||
| Impairment charges and other-than-temporary impairment charges | 271 | 159 | 201 | |||||||||
| Provision for credit losses on lending activities | 155 | (113 | ) | � | ||||||||
| Changes in assets and liabilities: | ||||||||||||
| Cash deposited with clearing organizations or segregated under federal and other regulations or requirements | (1,516 | ) | (10,274 | ) | 4,532 | |||||||
| Financial instruments owned, net of financial instruments sold, not yet purchased | 6,389 | 29,913 | 16,400 | |||||||||
| Securities borrowed | 5,373 | 11,656 | 28,771 | |||||||||
| Securities loaned | 6,387 | 1,368 | 2,848 | |||||||||
| Receivables and other assets | (10,200 | ) | 6,433 | (6,492 | ) | |||||||
| Payables and other liabilities | (1,283 | ) | (6,985 | ) | 697 | |||||||
| Federal funds sold and securities purchased under agreements to resell | (4,257 | ) | 18,098 | (5,045 | ) | |||||||
| Securities sold under agreements to repurchase | 20,920 | (42,798 | ) | (9,334 | ) | |||||||
| Net cash provided by operating activities | 24,548 | 15,892 | 40,614 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Net proceeds from (payments for): | ||||||||||||
| Premises, equipment and software costs | (1,312 | ) | (1,304 | ) | (1,201 | ) | ||||||
| Business acquisitions, net of cash acquired | � | � | (1,042 | ) | ||||||||
| Business dispositions, net of cash disposed | 1,725 | � | 840 | |||||||||
| Sale of stake in China International Capital Corporation Limited | � | � | 989 | |||||||||
| Japanese securities joint venture with MUFG | � | (129 | ) | 247 | ||||||||
| Loans | (3,486 | ) | (9,208 | ) | (307 | ) | ||||||
| Purchases of securities available for sale | (24,477 | ) | (20,601 | ) | (29,989 | ) | ||||||
| Sales, maturities and redemptions of securities available for sale | 15,136 | 19,998 | 999 | |||||||||
| Net cash used for investing activities | (12,414 | ) | (11,244 | ) | (29,464 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Net proceeds from (payments for): | ||||||||||||
| Commercial paper and other short-term borrowings | (705 | ) | (413 | ) | 878 | |||||||
| Distributions related to noncontrolling interests | (296 | ) | (791 | ) | (332 | ) | ||||||
| Derivatives financing activities | 118 | (3 | ) | (85 | ) | |||||||
| Other secured financings | (6,628 | ) | 1,867 | (751 | ) | |||||||
| Deposits | 17,604 | 1,850 | 1,597 | |||||||||
| Net proceeds from: | ||||||||||||
| Excess tax benefits associated with stock-based awards | 42 | � | 5 | |||||||||
| Public offerings and other issuances of common stock | � | � | 5,581 | |||||||||
| Issuance of long-term borrowings | 23,646 | 32,725 | 32,523 | |||||||||
| Payments for: | ||||||||||||
| Long-term borrowings | (43,092 | ) | (39,232 | ) | (28,201 | ) | ||||||
| Redemption of junior subordinated debentures related to China Investment Corporation Limited | � | � | (5,579 | ) | ||||||||
| Repurchases of common stock for employee tax withholding | (227 | ) | (317 | ) | (317 | ) | ||||||
| Purchase of additional stake in the Wealth Management Joint Venture from Citi | (1,890 | ) | � | � | ||||||||
| Cash dividends | (469 | ) | (834 | ) | (1,156 | ) | ||||||
| Net cash provided by (used for) financing activities | (11,897 | ) | (5,148 | ) | 4,163 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | (119 | ) | (314 | ) | 14 | |||||||
| Effect of cash and cash equivalents related to variable interest entities | (526 | ) | 511 | 297 | ||||||||
| Net increase (decrease) in cash and cash equivalents | (408 | ) | (303 | ) | 15,624 | |||||||
| Cash and cash equivalents, at beginning of period | 47,312 | 47,615 | 31,991 | |||||||||
| Cash and cash equivalents, at end of period | $ | 46,904 | $ | 47,312 | $ | 47,615 | ||||||
| Cash and cash equivalents include: | ||||||||||||
| Cash and due from banks | $ | 20,878 | $ | 13,165 | $ | 7,341 | ||||||
| Interest bearing deposits with banks | 26,026 | 34,147 | 40,274 | |||||||||
| Cash and cash equivalents, at end of period | $ | 46,904 | $ | 47,312 | $ | 47,615 | ||||||
Table of Contents MORGAN STANLEY Consolidated Statements of Changes in Total Equity (dollars in millions) | Preferred Stock | Common Stock | Paid-in Capital | Retained Earnings | Employee Stock Trust | Accumulated Other Comprehensive Income (Loss) | Common Stock Held in Treasury at Cost | Common Stock Issued to Employee Trust | Non- redeemable Non- controlling Interests | Total Equity | |||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2009 | $ | 9,597 | $ | 15 | $ | 8,619 | $ | 35,056 | $ | 4,064 | $ | (560 | ) | $ | (6,039 | ) | $ | (4,064 | ) | $ | 6,092 | $ | 52,780 | |||||||||||||||||
| Net income applicable to Morgan Stanley | � | � | � | 4,703 | � | � | � | � | � | 4,703 | ||||||||||||||||||||||||||||||
| Net income applicable to nonredeemable noncontrolling interests | � | � | � | � | � | � | � | � | 999 | 999 | ||||||||||||||||||||||||||||||
| Dividends | � | � | � | (1,156 | ) | � | � | � | � | � | (1,156 | ) | ||||||||||||||||||||||||||||
| Shares issued under employee plans and related tax effects | � | � | (1,407 | ) | � | (599 | ) | � | 2,297 | 599 | � | 890 | ||||||||||||||||||||||||||||
| Repurchases of common stock | � | � | � | � | � | � | (317 | ) | � | � | (317 | ) | ||||||||||||||||||||||||||||
| Net change in cash flow hedges | � | � | � | � | � | 9 | � | � | � | 9 | ||||||||||||||||||||||||||||||
| Pension and postretirement adjustments | � | � | � | � | � | (18 | ) | � | � | (2 | ) | (20 | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustments | � | � | � | � | � | 66 | � | � | 155 | 221 | ||||||||||||||||||||||||||||||
| Gain on Japanese securities joint venture with MUFG | � | � | 731 | � | � | � | � | � | � | 731 | ||||||||||||||||||||||||||||||
| Change in net unrealized gains on securities available for sale | � | � | � | � | � | 36 | � | � | � | 36 | ||||||||||||||||||||||||||||||
| Redemption of CIC equity units and issuance of common stock | � | 1 | 5,578 | � | � | � | � | � | � | 5,579 | ||||||||||||||||||||||||||||||
| Increase in nonredeemable noncontrolling interests related to Japanese securities joint venture with MUFG | � | � | � | � | � | � | � | � | 1,130 | 1,130 | ||||||||||||||||||||||||||||||
| Other decreases in nonredeemable noncontrolling interests | � | � | � | � | � | � | � | � | (178 | ) | (178 | ) | ||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2010 | 9,597 | 16 | 13,521 | 38,603 | 3,465 | (467 | ) | (4,059 | ) | (3,465 | ) | 8,196 | 65,407 | |||||||||||||||||||||||||||
| Net income applicable to Morgan Stanley | � | � | � | 4,110 | � | � | � | � | � | 4,110 | ||||||||||||||||||||||||||||||
| Net income applicable to nonredeemable noncontrolling interests | � | � | � | � | � | � | � | � | 535 | 535 | ||||||||||||||||||||||||||||||
| Dividends | � | � | � | (646 | ) | � | � | � | � | � | (646 | ) | ||||||||||||||||||||||||||||
| Shares issued under employee plans and related tax effects | � | � | (642 | ) | � | (299 | ) | � | 1,877 | 299 | � | 1,235 | ||||||||||||||||||||||||||||
| Repurchases of common stock | � | � | � | � | � | � | (317 | ) | � | � | (317 | ) | ||||||||||||||||||||||||||||
| Net change in cash flow hedges | � | � | � | � | � | 7 | � | � | � | 7 | ||||||||||||||||||||||||||||||
| Pension and postretirement and other related adjustments | � | � | � | � | � | 251 | � | � | � | 251 | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | � | � | � | � | � | (35 | ) | � | � | 70 | 35 | |||||||||||||||||||||||||||||
| Change in net unrealized gains on securities available for sale | � | � | � | � | � | 87 | � | � | � | 87 | ||||||||||||||||||||||||||||||
| Other increase in equity method investments | � | � | 146 | � | � | � | � | � | � | 146 | ||||||||||||||||||||||||||||||
| MUFG stock conversion | (8,089 | ) | 4 | 9,811 | (1,726 | ) | � | � | � | � | � | � | ||||||||||||||||||||||||||||
| Other decreases in nonredeemable noncontrolling interests | � | � | � | � | � | � | � | � | (772 | ) | (772 | ) | ||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2011 | $ | 1,508 | $ | 20 | $ | 22,836 | $ | 40,341 | $ | 3,166 | $ | (157 | ) | $ | (2,499 | ) | $ | (3,166 | ) | $ | 8,029 | $ | 70,078 | |||||||||||||||||
| 143 | |
| Preferred Stock | Common Stock | Paid-in Capital | Retained Earnings | Employee Stock Trust | Accumulated Other Comprehensive Income (Loss) | Common Stock Held in Treasury at Cost | Common Stock Issued to Employee Trust | Non- redeemable Non- controlling Interests | Total Equity | |||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER�31, 2011 | $ | 1,508 | $ | 20 | $ | 22,836 | $ | 40,341 | $ | 3,166 | $ | (157 | ) | $ | (2,499 | ) | $ | (3,166 | ) | $ | 8,029 | $ | 70,078 | |||||||||||||||||
| Net income applicable to Morgan Stanley | � | � | � | 68 | � | � | � | � | � | 68 | ||||||||||||||||||||||||||||||
| Net income applicable to nonredeemable noncontrolling interests | � | � | � | � | � | � | � | � | 524 | 524 | ||||||||||||||||||||||||||||||
| Dividends | � | � | � | (497 | ) | � | � | � | � | � | (497 | ) | ||||||||||||||||||||||||||||
| Shares issued under employee plans and related tax effects | � | � | 662 | � | (234 | ) | � | 485 | 234 | � | 1,147 | |||||||||||||||||||||||||||||
| Repurchases of common stock | � | � | � | � | � | � | (227 | ) | � | � | (227 | ) | ||||||||||||||||||||||||||||
| Net change in cash flow hedges | � | � | � | � | � | 6 | � | � | � | 6 | ||||||||||||||||||||||||||||||
| Pension, postretirement and other related adjustments | � | � | � | � | � | (265 | ) | � | � | 5 | (260 | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustments | � | � | � | � | � | (128 | ) | � | � | (125 | ) | (253 | ) | |||||||||||||||||||||||||||
| Change in net unrealized gains on securities available for sale | � | � | � | � | � | 28 | � | � | � | 28 | ||||||||||||||||||||||||||||||
| Purchase of additional stake in the Wealth Management Joint Venture | � | � | (107 | ) | � | � | � | � | � | (1,718 | ) | (1,825 | ) | |||||||||||||||||||||||||||
| Reclassification to redeemable noncontrolling interests | � | � | � | � | � | � | � | � | (4,288 | ) | (4,288 | ) | ||||||||||||||||||||||||||||
| Other net increases | � | � | 35 | � | � | � | � | � | 892 | 927 | ||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2012 | $ | 1,508 | $ | 20 | $ | 23,426 | $ | 39,912 | $ | 2,932 | $ | (516 | ) | $ | (2,241 | ) | $ | (2,932 | ) | $ | 3,319 | $ | 65,428 | |||||||||||||||||
| | 144 |
Table of Contents MORGAN STANLEY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS�(Continued) 2010. Retail Asset Management Business. On June�1, 2010, the Company completed the sale of substantially all of its retail
asset management business (�Retail Asset Management�), including Van Kampen Investments, Inc., to Invesco Ltd. (�Invesco�). The Company received $800 million in cash and approximately 30.9�million shares of Invesco stock
upon the sale resulting in a cumulative after-tax gain of $718 million, of which $8 million, $28 million and $570 million was recorded in 2012, 2011 and 2010, respectively. The remaining gain, representing tax basis benefits, was recorded in the
quarter ended December�31, 2009. The results of Retail Asset Management are reported as discontinued operations within the Asset Management business segment for all periods presented through the date of sale. The Company recorded the
30.9�million shares as securities available for sale and subsequently sold the shares in the fourth quarter of 2010, resulting in a realized pre-tax gain of approximately $102 million reported within Other revenues in the consolidated statement
of income for 2010. Revel Entertainment Group,
LLC. On February 17, 2011, the Company completed the sale of Revel Entertainment Group, LLC (�Revel�), a development stage enterprise and subsidiary of the Company that was primarily associated with a development
property in Atlantic City, New Jersey. The sale price approximated the carrying value of Revel and, accordingly, the Company did not recognize any pre-tax gain or loss in 2011 on the sale. The results of Revel are reported as discontinued operations
within the Institutional Securities business segment for all periods presented through the date of sale. Amounts for 2010 included losses of $1.2 billion in connection with such disposition. See Note 22 for additional information about an income tax
benefit related to Revel. CityMortgage
Bank. In the third quarter of 2010, the Company completed the disposal of CityMortgage Bank (�CMB�), a Moscow-based mortgage bank. The results of CMB are reported as discontinued operations within the
Institutional Securities business segment for all periods presented through the date of sale. Discover. On June�30, 2007, the Company completed the spin-off of its business segment Discover Financial Services (�DFS�) to its shareholders. On
February�11, 2010, DFS paid the Company $775 million in complete satisfaction of its obligations to the Company regarding the sharing of proceeds from a lawsuit against Visa and MasterCard. The payment was recorded as a gain in discontinued
operations for 2010. Other. In the
third quarter of 2010, the Company completed the disposal of a real estate property within the Asset Management business segment. The results related to this property are reported as discontinued operations for all periods presented through the date
of sale. Prior period amounts have been recast for discontinued
operations. See Note 25 for additional information on discontinued operations. Basis of Financial Information. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of
America (�U.S.�), which require the Company to make estimates and assumptions regarding the valuations of certain financial instruments, the valuation of goodwill and intangible assets, compensation, deferred tax assets, the outcome of
litigation and tax matters, and other matters that affect the consolidated financial statements and related disclosures. The Company believes that the estimates utilized in the preparation of the consolidated financial statements are prudent and
reasonable. Actual results could differ materially from these estimates. Intercompany balances and transactions have been eliminated. Consolidation. The consolidated financial statements include the accounts of the Company, its wholly owned
subsidiaries and other entities in which the Company has a controlling financial interest, including certain | | 146 |
| 147 | |
| | 148 |
| � | Level 1�Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. |
| � | Level 2�Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. |
| � | Level 3�Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
| 149 | |
| | 150 |
| 151 | |
| | 152 |
| 153 | |
| | 154 |
| 155 | |
| | 156 |
| 157 | |
| | 158 |
| 159 | |
| | 160 |
| � | U.S. Treasury Securities .����U.S. Treasury securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. Treasury securities are generally categorized in Level�1 of the fair value hierarchy. |
| � | U.S. Agency Securities .����U.S. agency securities are composed of three main categories consisting of agency-issued debt, agency mortgage pass-through pool securities and collateralized mortgage obligations. Non-callable agency-issued debt securities are generally valued using quoted market prices. Callable agency-issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of agency�mortgage pass-through pool securities is model-driven based on spreads of the comparable To-be-announced (�TBA�) security. Collateralized mortgage obligations are valued using quoted market prices and trade data adjusted by subsequent changes in related indices for identical or comparable securities. Actively traded non-callable agency-issued debt securities are generally categorized in Level 1 of the fair value hierarchy. Callable agency-issued debt securities, agency mortgage pass-through pool securities and collateralized mortgage obligations are generally categorized in Level 2 of the fair value hierarchy. |
| � | Foreign sovereign government obligations are valued using quoted prices in active markets when available. These bonds are generally categorized in Level 1 of the fair value hierarchy. If the market is less active or prices are dispersed, these bonds are categorized in Level 2 of the fair value hierarchy. |
| � | State and Municipal Securities .����The fair value of state and municipal securities is determined using recently executed transactions, market price quotations and pricing models that factor in, where applicable, interest rates, bond or credit default swap spreads and volatility. These bonds are generally categorized in Level 2 of the fair value hierarchy. |
| � | Residential Mortgage-Backed Securities (�RMBS�), Commercial Mortgage-Backed Securities (�CMBS�) and other Asset-Backed Securities (�ABS�) .����RMBS, CMBS and other ABS may be valued based on price or spread data obtained from observed transactions or independent external parties such as vendors or brokers. When position-specific external price data are not observable, the fair value determination may require benchmarking to similar instruments and/or analyzing expected credit losses, default and recovery rates. In evaluating the fair value of each security, the Company considers security collateral-specific attributes, including payment priority, credit enhancement levels, type of collateral, delinquency rates and loss severity. In addition, for RMBS borrowers, Fair Isaac Corporation (�FICO�) scores and the level of documentation for the loan are also considered. Market standard models, such as Intex, Trepp or others, may be deployed to model the specific collateral composition and cash flow structure of each transaction. Key inputs to these models are market spreads, forecasted credit losses, default and prepayment rates for each asset category. Valuation levels of RMBS and CMBS indices are also used as an additional data point for benchmarking purposes or to price outright index positions. |
| 161 | |
| � | Corporate Bonds .�The fair value of corporate bonds is determined using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads obtained from independent external parties such as vendors and brokers adjusted for any basis difference between cash and derivative instruments. The spread data used are for the same maturity as the bond. If the spread data do not reference the issuer, then data that reference a comparable issuer are used. When position-specific external price data are not observable, fair value is determined based on either benchmarking to similar instruments or cash flow models with yield curves, bond or single-name credit default swap spreads and recovery rates as significant inputs. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy. |
| � | Collateralized Debt Obligations (�CDO�) .�The Company holds cash CDOs that typically reference a tranche of an underlying synthetic portfolio of single name credit default swaps collateralized by corporate bonds (�credit-linked notes�) or cash portfolio of asset-backed securities (�asset-backed CDOs�). Credit correlation, a primary input used to determine the fair value of credit-linked notes, is usually unobservable and derived using a benchmarking technique. The other credit-linked note model inputs such as credit spreads, including collateral spreads, and interest rates are typically observable. Asset-backed CDOs are valued based on an evaluation of the market and model input parameters sourced from similar positions as indicated by primary and secondary market activity. Each asset-backed CDO position is evaluated independently taking into consideration available comparable market levels, underlying collateral performance and pricing, and deal structures, as well as liquidity. Cash CDOs are categorized in Level 2 of the fair value hierarchy when either the credit correlation input is insignificant or comparable market transactions are observable. In instances where the credit correlation input is deemed to be significant or comparable market transactions are unobservable, cash CDOs are categorized in Level 3 of the fair value hierarchy. |
| � | Corporate Loans and Lending Commitments .����The fair value of corporate loans is determined using recently executed transactions, market price quotations (where observable), implied yields from comparable debt, and market observable credit default swap spread levels obtained from independent external parties such as vendors and brokers adjusted for any basis difference between cash and derivative instruments, along with proprietary valuation models and default recovery analysis where such transactions and quotations are unobservable. The fair value of�contingent corporate lending commitments is determined by using executed transactions on comparable loans and the anticipated market price based on pricing indications from syndicate banks and customers. The valuation of loans and lending commitments also takes into account fee income that is considered an attribute of the contract. Corporate loans and lending commitments are categorized in Level 2 of the fair value hierarchy except in instances where prices or significant spread inputs are unobservable, in which case they are categorized in Level 3 of the fair value hierarchy. |
| � | Mortgage Loans .����Mortgage loans are valued using observable prices based on transactional data or third-party pricing for identical or comparable instruments, when available. Where position-specific external prices are not observable, the Company estimates fair value based on benchmarking to prices and rates observed in the primary market for similar loan or borrower types or based on the present value of expected future cash flows using its best estimates of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved or a methodology that utilizes the capital structure and credit spreads of recent comparable securitization transactions. Mortgage loans valued based on observable market data for identical or comparable instruments are categorized in Level 2 of the fair value hierarchy. Where observable prices are not available, due to the subjectivity involved in the comparability assessment related to mortgage loan vintage, geographical concentration, prepayment speed and projected loss assumptions, mortgage loans are categorized in Level�3 of the fair value hierarchy. Mortgage loans are presented within Loans and lending commitments in the fair value hierarchy table. |
| | 162 |
| � | Auction Rate Securities (�ARS�) .����The Company primarily holds investments in�Student Loan Auction Rate Securities (�SLARS�)�and Municipal Auction Rate Securities (�MARS�)�with interest rates that are reset through periodic auctions. SLARS are�ABS backed by pools of student loans. MARS are municipal bonds often wrapped by municipal bond insurance. ARS were historically traded and valued as floating rate notes, priced at par due to the auction mechanism. Beginning in fiscal 2008, uncertainties in the credit markets have resulted in auctions failing for certain types of ARS. Once the auctions failed, ARS could no longer be valued using observations of auction market prices. Accordingly, the fair value of ARS is�determined using independent external market data where available and an internally developed methodology to discount for the lack of liquidity and non-performance risk. |
| � | Exchange-Traded Equity Securities .����Exchange-traded equity securities are generally valued based on quoted prices from the exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in Level 1 of the fair value hierarchy; otherwise, they are categorized in Level 2 or Level 3 of the fair value hierarchy. |
| � | Unlisted Equity Securities .����Unlisted equity securities are valued based on an assessment of each underlying security, considering rounds of financing and third-party transactions, discounted cash flow analyses and market-based information, including comparable company transactions, trading multiples and changes in market outlook, among other factors. These securities are generally categorized in Level 3 of the fair value hierarchy. |
| � | Fund Units .����Listed fund units are generally marked to the exchange-traded price or net asset value (�NAV�) and are categorized in Level 1 of the fair value hierarchy if actively traded on an exchange or in Level 2 of the fair value hierarchy if trading is not active. Unlisted fund units are generally marked to NAV and categorized as Level 2; however, positions which are not redeemable at the measurement date or in the near future are categorized in Level 3 of the fair value hierarchy. |
| � | Listed Derivative Contracts .����Listed derivatives that are actively traded are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. Listed derivatives that are not actively traded are valued using the same approaches as those applied to OTC derivatives; they are generally categorized in Level 2 of the fair value hierarchy. |
| � | OTC Derivative Contracts .����OTC derivative contracts include forward, swap and option contracts related to interest rates, foreign currencies, credit standing of reference entities, equity prices or commodity prices. |
| 163 | |
| � | Collateralized Derivative Contracts .�In the fourth quarter of 2010, the Company began using the overnight indexed swap (�OIS�) curve as an input to value its collateralized interest rate derivative contracts. During the fourth quarter of 2011, the Company recognized a pre-tax loss of approximately $108 million in Principal transactions�Trading upon application of the OIS curve to certain additional fixed income products within the Institutional Securities business segment. Previously, the Company discounted these contracts based on London Interbank Offered Rate (�LIBOR�). At December�31, 2012 and December�31, 2011, substantially all of the Company�s collateralized derivative contracts were valued using the OIS curve. |
| | 164 |
| � | The Company�s investments include direct investments in equity securities as well as investments in private equity funds, real estate funds and hedge funds, which include investments made in connection with certain employee deferred compensation plans. Direct investments are presented in the fair value hierarchy table as Principal investments and Other. Initially, the transaction price is generally considered by the Company as the exit price and is the Company�s best estimate of fair value. |
| � | The Company trades various physical commodities, including crude oil and refined products, natural gas, base and precious metals, and agricultural products. Fair value for physical commodities is determined using observable inputs, including broker quotations and published indices. Physical commodities are categorized in Level 2 of the fair value hierarchy; in instances where significant inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy. |
| � | Securities available for sale are composed of�U.S. government and agency securities ( e.g ., U.S. Treasury securities, agency-issued debt, agency mortgage pass-through securities and collateralized mortgage obligations), CMBS, Federal Family Education Loan Program (�FFELP�) student loan asset-backed securities, auto loan asset-backed securities, corporate bonds and equity securities. Actively traded U.S. Treasury securities, non-callable agency-issued debt securities and equity securities are generally categorized in Level 1 of the fair value hierarchy. Callable agency-issued debt securities, agency mortgage pass-through securities, collateralized mortgage obligations, CMBS, FFELP student loan asset-backed securities, auto loan asset-backed securities and corporate bonds are generally categorized in Level 2 of the fair value hierarchy. For further information on securities available for sale, see Note 5. |
| � | Time Deposits .����The fair value of certificates of deposit is determined using third-party quotations. These deposits are generally categorized in Level 2 of the fair value hierarchy. |
| 165 | |
| � | Structured Notes .����The Company issues structured notes that have coupon or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities. Fair value of structured notes is determined using valuation models for the derivative and debt portions of the notes. These models incorporate observable inputs referencing identical or comparable securities, including prices to which the notes are linked, interest rate yield curves, option volatility and currency, commodity or equity prices. Independent, external and traded prices for the notes are considered as well. The impact of the Company�s own credit spreads is also included based on the Company�s observed secondary bond market spreads. Most structured notes are categorized in Level 2 of the fair value hierarchy. |
| � | The fair value of a reverse repurchase agreement or repurchase agreement is computed using a�standard cash flow discounting methodology. The inputs to the valuation include�contractual cash flows and collateral funding spreads,�which are estimated using�various benchmarks,�interest rate yield curves and�option volatilities. In instances where the unobservable inputs are deemed significant, reverse repurchase agreements and repurchase agreements are categorized in Level 3 of the fair value hierarchy; otherwise, they are categorized in Level�2 of the fair value hierarchy. |
| | 166 |
| Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Counterparty and Cash Collateral Netting | Balance�at December�31, 2012 | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Assets at Fair Value | ||||||||||||||||||||
| Financial instruments owned: | ||||||||||||||||||||
| U.S. government and agency securities: | ||||||||||||||||||||
| U.S. Treasury securities | $ | 24,662 | $ | 14 | $ | � | $ | � | $ | 24,676 | ||||||||||
| U.S. agency securities | 1,451 | 27,888 | � | � | 29,339 | |||||||||||||||
| Total U.S. government and agency securities | 26,113 | 27,902 | � | � | 54,015 | |||||||||||||||
| Other sovereign government obligations | 37,669 | 5,487 | 6 | � | 43,162 | |||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||
| State and municipal securities | � | 1,558 | � | � | 1,558 | |||||||||||||||
| Residential mortgage-backed securities | � | 1,439 | 45 | � | 1,484 | |||||||||||||||
| Commercial mortgage-backed securities | � | 1,347 | 232 | � | 1,579 | |||||||||||||||
| Asset-backed securities | � | 915 | 109 | � | 1,024 | |||||||||||||||
| Corporate bonds | � | 18,403 | 660 | � | 19,063 | |||||||||||||||
| Collateralized debt obligations | � | 685 | 1,951 | � | 2,636 | |||||||||||||||
| Loans and lending commitments | � | 12,617 | 4,694 | � | 17,311 | |||||||||||||||
| Other debt | � | 4,457 | 45 | � | 4,502 | |||||||||||||||
| Total corporate and other debt | � | 41,421 | 7,736 | � | 49,157 | |||||||||||||||
| Corporate equities(1) | 68,072 | 1,067 | 288 | � | 69,427 | |||||||||||||||
| Derivative and other contracts: | ||||||||||||||||||||
| Interest rate contracts | 446 | 819,581 | 3,774 | � | 823,801 | |||||||||||||||
| Credit contracts | � | 63,234 | 5,033 | � | 68,267 | |||||||||||||||
| Foreign exchange contracts | 34 | 52,729 | 31 | � | 52,794 | |||||||||||||||
| Equity contracts | 760 | 37,074 | 766 | � | 38,600 | |||||||||||||||
| Commodity contracts | 4,082 | 14,256 | 2,308 | � | 20,646 | |||||||||||||||
| Other | � | 143 | � | � | 143 | |||||||||||||||
| Netting(2) | (4,740 | ) | (883,733 | ) | (6,947 | ) | (72,634 | ) | (968,054 | ) | ||||||||||
| Total derivative and other contracts | 582 | 103,284 | 4,965 | (72,634 | ) | 36,197 | ||||||||||||||
| Investments: | ||||||||||||||||||||
| Private equity funds | � | � | 2,179 | � | 2,179 | |||||||||||||||
| Real estate funds | � | 6 | 1,370 | � | 1,376 | |||||||||||||||
| Hedge funds | � | 382 | 552 | � | 934 | |||||||||||||||
| Principal investments | 185 | 83 | 2,833 | � | 3,101 | |||||||||||||||
| Other | 199 | 71 | 486 | � | 756 | |||||||||||||||
| Total investments | 384 | 542 | 7,420 | � | 8,346 | |||||||||||||||
| Physical commodities | � | 7,299 | � | � | 7,299 | |||||||||||||||
| Total financial instruments owned | 132,820 | 187,002 | 20,415 | (72,634 | ) | 267,603 | ||||||||||||||
| 167 | |
| Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Counterparty and Cash Collateral Netting | Balance�at December�31, 2012 | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Securities available for sale | 14,466 | 25,403 | � | � | 39,869 | |||||||||||||||
| Securities received as collateral | 14,232 | 46 | � | � | 14,278 | |||||||||||||||
| Federal funds sold and securities purchased under agreements to resell | � | 621 | � | � | 621 | |||||||||||||||
| Intangible assets(3) | � | � | 7 | � | 7 | |||||||||||||||
| Total assets measured at fair value | $ | 161,518 | $ | 213,072 | $ | 20,422 | $ | (72,634 | ) | $ | 322,378 | |||||||||
| Liabilities at Fair Value | ||||||||||||||||||||
| Deposits | $ | � | $ | 1,485 | $ | � | $ | � | $ | 1,485 | ||||||||||
| Commercial�paper and other short-term borrowings | � | 706 | 19 | � | 725 | |||||||||||||||
| Financial instruments sold, not yet purchased: | ||||||||||||||||||||
| U.S. government and agency securities: | ||||||||||||||||||||
| U.S. Treasury securities | 20,098 | 21 | � | � | 20,119 | |||||||||||||||
| U.S. agency securities | 1,394 | 107 | � | � | 1,501 | |||||||||||||||
| Total U.S. government and agency securities | 21,492 | 128 | � | � | 21,620 | |||||||||||||||
| Other sovereign government obligations | 27,583 | 2,031 | � | � | 29,614 | |||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||
| State and municipal securities | � | 47 | � | � | 47 | |||||||||||||||
| Residential mortgage-backed securities | � | � | 4 | � | 4 | |||||||||||||||
| Corporate bonds | � | 3,942 | 177 | � | 4,119 | |||||||||||||||
| Collateralized debt obligations | � | 328 | � | � | 328 | |||||||||||||||
| Unfunded lending commitments | � | 305 | 46 | � | 351 | |||||||||||||||
| Other debt | � | 156 | 49 | � | 205 | |||||||||||||||
| Total corporate and other debt | � | 4,778 | 276 | � | 5,054 | |||||||||||||||
| Corporate equities(1) | 25,216 | 1,655 | 5 | � | 26,876 | |||||||||||||||
| Derivative and other contracts: | ||||||||||||||||||||
| Interest rate contracts | 533 | 789,715 | 3,856 | � | 794,104 | |||||||||||||||
| Credit contracts | � | 61,283 | 3,211 | � | 64,494 | |||||||||||||||
| Foreign exchange contracts | 2 | 56,021 | 390 | � | 56,413 | |||||||||||||||
| Equity contracts | 748 | 39,212 | 1,910 | � | 41,870 | |||||||||||||||
| Commodity contracts | 4,530 | 15,702 | 1,599 | � | 21,831 | |||||||||||||||
| Other | � | 54 | 7 | � | 61 | |||||||||||||||
| Netting(2) | (4,740 | ) | (883,733 | ) | (6,947 | ) | (46,395 | ) | (941,815 | ) | ||||||||||
| Total derivative and other contracts | 1,073 | 78,254 | 4,026 | (46,395 | ) | 36,958 | ||||||||||||||
| Total financial instruments sold, not yet purchased | 75,364 | 86,846 | 4,307 | (46,395 | ) | 120,122 | ||||||||||||||
| Obligation to return securities received as collateral | 18,179 | 47 | � | � | 18,226 | |||||||||||||||
| Securities sold under agreements to repurchase | � | 212 | 151 | � | 363 | |||||||||||||||
| Other secured financings | � | 9,060 | 406 | � | 9,466 | |||||||||||||||
| Long-term borrowings | � | 41,255 | 2,789 | � | 44,044 | |||||||||||||||
| Total liabilities measured at fair value | $ | 93,543 | $ | 139,611 | $ | 7,672 | $ | (46,395 | ) | $ | 194,431 | |||||||||
| (1) | The Company holds or sells short for trading purposes equity securities issued by entities in diverse industries and of varying size. |
| | 168 |
| (2) | For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled �Counterparty and Cash Collateral Netting.� For contracts with the same counterparty, counterparty netting among positions classified within the same level is included within that level. For further information on derivative instruments and hedging activities, see Note 12. |
| (3) | Amount represents mortgage servicing rights (�MSR�) accounted for at fair value. See Note 7 for further information on MSRs. |
| Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Counterparty and Cash Collateral Netting | Balance�at December�31, 2011 | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Assets at Fair Value | ||||||||||||||||||||
| Financial instruments owned: | ||||||||||||||||||||
| U.S. government and agency securities: | ||||||||||||||||||||
| U.S. Treasury securities | $ | 38,769 | $ | 1 | $ | � | $ | � | $ | 38,770 | ||||||||||
| U.S. agency securities | 4,332 | 20,339 | 8 | � | 24,679 | |||||||||||||||
| Total U.S. government and agency securities | 43,101 | 20,340 | 8 | � | 63,449 | |||||||||||||||
| Other sovereign government obligations | 22,650 | 6,290 | 119 | � | 29,059 | |||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||
| State and municipal securities | � | 2,261 | � | � | 2,261 | |||||||||||||||
| Residential mortgage-backed securities | � | 1,304 | 494 | � | 1,798 | |||||||||||||||
| Commercial mortgage-backed securities | � | 1,686 | 134 | � | 1,820 | |||||||||||||||
| Asset-backed securities | � | 937 | 31 | � | 968 | |||||||||||||||
| Corporate bonds | � | 25,873 | 675 | � | 26,548 | |||||||||||||||
| Collateralized debt obligations | � | 1,711 | 980 | � | 2,691 | |||||||||||||||
| Loans and lending commitments | � | 14,854 | 9,590 | � | 24,444 | |||||||||||||||
| Other debt | � | 8,265 | 128 | � | 8,393 | |||||||||||||||
| Total corporate and other debt | � | 56,891 | 12,032 | � | 68,923 | |||||||||||||||
| Corporate equities(1) | 45,173 | 2,376 | 417 | � | 47,966 | |||||||||||||||
| Derivative and other contracts: | ||||||||||||||||||||
| Interest rate contracts | 1,493 | 906,082 | 5,301 | � | 912,876 | |||||||||||||||
| Credit contracts | � | 123,689 | 15,102 | � | 138,791 | |||||||||||||||
| Foreign exchange contracts | � | 61,770 | 573 | � | 62,343 | |||||||||||||||
| Equity contracts | 929 | 44,558 | 800 | � | 46,287 | |||||||||||||||
| Commodity contracts | 6,356 | 31,246 | 2,176 | � | 39,778 | |||||||||||||||
| Other | � | 292 | 306 | � | 598 | |||||||||||||||
| Netting(2) | (7,596 | ) | (1,045,912 | ) | (11,837 | ) | (87,264 | ) | (1,152,609 | ) | ||||||||||
| Total derivative and other contracts | 1,182 | 121,725 | 12,421 | (87,264 | ) | 48,064 | ||||||||||||||
| 169 | |
| Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Counterparty and Cash Collateral Netting | Balance�at December�31, 2011 | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Investments: | ||||||||||||||||||||
| Private equity funds | � | 7 | 1,936 | � | 1,943 | |||||||||||||||
| Real estate funds | � | 5 | 1,213 | � | 1,218 | |||||||||||||||
| Hedge funds | � | 473 | 696 | � | 1,169 | |||||||||||||||
| Principal investments | 161 | 104 | 2,937 | � | 3,202 | |||||||||||||||
| Other | 141 | 21 | 501 | � | 663 | |||||||||||||||
| Total investments | 302 | 610 | 7,283 | � | 8,195 | |||||||||||||||
| Physical commodities | � | 9,651 | 46 | � | 9,697 | |||||||||||||||
| Total financial instruments owned | 112,408 | 217,883 | 32,326 | (87,264 | ) | 275,353 | ||||||||||||||
| Securities available for sale | 13,437 | 17,058 | � | � | 30,495 | |||||||||||||||
| Securities received as collateral | 11,530 | 121 | � | � | 11,651 | |||||||||||||||
| Federal funds sold and securities purchased under agreements to resell | � | 112 | � | � | 112 | |||||||||||||||
| Intangible assets(3) | � | � | 133 | � | 133 | |||||||||||||||
| Total assets measured at fair value | $ | 137,375 | $ | 235,174 | $ | 32,459 | $ | (87,264 | ) | $ | 317,744 | |||||||||
| Liabilities at Fair Value | ||||||||||||||||||||
| Deposits | $ | � | $ | 2,101 | $ | � | $ | � | $ | 2,101 | ||||||||||
| Commercial�paper and other short-term borrowings | � | 1,337 | 2 | � | 1,339 | |||||||||||||||
| Financial instruments sold, not yet purchased: | ||||||||||||||||||||
| U.S. government and agency securities: | ||||||||||||||||||||
| U.S. Treasury securities | 17,776 | � | � | � | 17,776 | |||||||||||||||
| U.S. agency securities | 1,748 | 106 | � | � | 1,854 | |||||||||||||||
| Total U.S. government and agency securities | 19,524 | 106 | � | � | 19,630 | |||||||||||||||
| Other sovereign government obligations | 14,981 | 2,152 | 8 | � | 17,141 | |||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||
| State and municipal securities | � | 3 | � | � | 3 | |||||||||||||||
| Residential mortgage-backed securities | � | � | 355 | � | 355 | |||||||||||||||
| Commercial mortgage-backed securities | � | 14 | � | � | 14 | |||||||||||||||
| Corporate bonds | � | 6,217 | 219 | � | 6,436 | |||||||||||||||
| Collateralized debt obligations | � | 3 | � | � | 3 | |||||||||||||||
| Unfunded lending commitments | � | 1,284 | 85 | � | 1,369 | |||||||||||||||
| Other debt | � | 157 | 73 | � | 230 | |||||||||||||||
| Total corporate and other debt | � | 7,678 | 732 | � | 8,410 | |||||||||||||||
| Corporate equities(1) | 24,347 | 149 | 1 | � | 24,497 | |||||||||||||||
| Derivative and other contracts: | ||||||||||||||||||||
| Interest rate contracts | 1,680 | 873,466 | 4,881 | � | 880,027 | |||||||||||||||
| Credit contracts | � | 121,438 | 9,288 | � | 130,726 | |||||||||||||||
| Foreign exchange contracts | � | 64,218 | 530 | � | 64,748 | |||||||||||||||
| Equity contracts | 877 | 45,375 | 2,034 | � | 48,286 | |||||||||||||||
| Commodity contracts | 7,144 | 31,248 | 1,606 | � | 39,998 | |||||||||||||||
| Other | � | 879 | 1,396 | � | 2,275 | |||||||||||||||
| Netting(2) | (7,596 | ) | (1,045,912 | ) | (11,837 | ) | (54,262 | ) | (1,119,607 | ) | ||||||||||
| Total derivative and other contracts | 2,105 | 90,712 | 7,898 | (54,262 | ) | 46,453 | ||||||||||||||
| Physical commodities | � | 16 | � | � | 16 | |||||||||||||||
| Total financial instruments sold, not yet purchased | 60,957 | 100,813 | 8,639 | (54,262 | ) | 116,147 | ||||||||||||||
| Obligation to return securities received as collateral | 15,267 | 127 | � | � | 15,394 | |||||||||||||||
| | 170 |
| Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Counterparty and Cash Collateral Netting | Balance�at December�31, 2011 | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Securities sold under agreements to repurchase | � | 8 | 340 | � | 348 | |||||||||||||||
| Other secured financings | � | 14,024 | 570 | � | 14,594 | |||||||||||||||
| Long-term borrowings | 10 | 38,050 | 1,603 | � | 39,663 | |||||||||||||||
| Total liabilities measured at fair value | $ | 76,234 | $ | 156,460 | $ | 11,154 | $ | (54,262 | ) | $ | 189,586 | |||||||||
| (1) | The Company holds or sells short for trading purposes equity securities issued by entities in diverse industries and of varying size. |
| (2) | For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled �Counterparty and Cash Collateral Netting.� For contracts with the same counterparty, counterparty netting among positions classified within the same level is included within that level. For further information on derivative instruments and hedging activities, see Note 12. |
| (3) | Amount represents MSRs accounted for at fair value. See Note 7 for further information on MSRs. |
| 171 | |
| Beginning Balance at December�31, 2011 | Total�Realized and�Unrealized Gains�(Losses)(1) | Purchases | Sales | Issuances | Settlements | Net�Transfers | Ending Balance�at December�31, 2012 | Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding�at December�31, 2012(2) | ||||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||||||
| Assets at Fair Value | ||||||||||||||||||||||||||||||||||||
| Financial instruments owned: | ||||||||||||||||||||||||||||||||||||
| U.S. agency securities | $ | 8 | $ | � | $ | � | $ | (7 | ) | $ | � | $ | � | $ | (1 | ) | $ | � | $ | � | ||||||||||||||||
| Other sovereign government obligations | 119 | � | 12 | (125 | ) | � | � | � | 6 | (9 | ) | |||||||||||||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | 494 | (9 | ) | 32 | (285 | ) | � | � | (187 | ) | 45 | (26 | ) | |||||||||||||||||||||||
| Commercial mortgage-backed securities | 134 | 32 | 218 | (49 | ) | � | (100 | ) | (3 | ) | 232 | 28 | ||||||||||||||||||||||||
| Asset-backed securities | 31 | 1 | 109 | (32 | ) | � | � | � | 109 | (1 | ) | |||||||||||||||||||||||||
| Corporate bonds | 675 | 22 | 447 | (450 | ) | � | � | (34 | ) | 660 | (7 | ) | ||||||||||||||||||||||||
| Collateralized debt obligations | 980 | 216 | 1,178 | (384 | ) | � | � | (39 | ) | 1,951 | 142 | |||||||||||||||||||||||||
| Loans and lending commitments | 9,590 | 37 | 2,648 | (2,095 | ) | � | (4,316 | ) | (1,170 | ) | 4,694 | (91 | ) | |||||||||||||||||||||||
| Other debt | 128 | 2 | � | (95 | ) | � | � | 10 | 45 | (6 | ) | |||||||||||||||||||||||||
| Total corporate and other debt | 12,032 | 301 | 4,632 | (3,390 | ) | � | (4,416 | ) | (1,423 | ) | 7,736 | 39 | ||||||||||||||||||||||||
| Corporate equities | 417 | (59 | ) | 134 | (172 | ) | � | � | (32 | ) | 288 | (83 | ) | |||||||||||||||||||||||
| Net derivative and other contracts(3): | ||||||||||||||||||||||||||||||||||||
| Interest rate contracts | 420 | (275 | ) | 28 | � | (7 | ) | (217 | ) | (31 | ) | (82 | ) | 297 | ||||||||||||||||||||||
| Credit contracts | 5,814 | (2,799 | ) | 112 | � | (502 | ) | (961 | ) | 158 | 1,822 | (3,216 | ) | |||||||||||||||||||||||
| Foreign exchange contracts | 43 | (279 | ) | � | � | � | 19 | (142 | ) | (359 | ) | (225 | ) | |||||||||||||||||||||||
| Equity contracts | (1,234 | ) | 390 | 202 | (9 | ) | (112 | ) | (210 | ) | (171 | ) | (1,144 | ) | 241 | |||||||||||||||||||||
| Commodity contracts | 570 | 114 | 16 | � | (41 | ) | (20 | ) | 70 | 709 | 222 | |||||||||||||||||||||||||
| Other | (1,090 | ) | 57 | � | � | � | 236 | 790 | (7 | ) | 53 | |||||||||||||||||||||||||
| Total net derivative and other contracts | 4,523 | (2,792 | ) | 358 | (9 | ) | (662 | ) | (1,153 | ) | 674 | 939 | (2,628 | ) | ||||||||||||||||||||||
| Investments: | ||||||||||||||||||||||||||||||||||||
| Private equity funds | 1,936 | 228 | 308 | (294 | ) | � | � | 1 | 2,179 | 147 | ||||||||||||||||||||||||||
| Real estate funds | 1,213 | 149 | 143 | (136 | ) | � | � | 1 | 1,370 | 229 | ||||||||||||||||||||||||||
| Hedge funds | 696 | 61 | 81 | (151 | ) | � | � | (135 | ) | 552 | 51 | |||||||||||||||||||||||||
| Principal investments | 2,937 | 130 | 160 | (419 | ) | � | � | 25 | 2,833 | 93 | ||||||||||||||||||||||||||
| Other | 501 | (45 | ) | 158 | (70 | ) | � | � | (58 | ) | 486 | (48 | ) | |||||||||||||||||||||||
| Total investments | 7,283 | 523 | 850 | (1,070 | ) | � | � | (166 | ) | 7,420 | 472 | |||||||||||||||||||||||||
| Physical commodities | 46 | � | � | � | � | (46 | ) | � | � | � | ||||||||||||||||||||||||||
| Intangible assets | 133 | (39 | ) | � | (83 | ) | � | (4 | ) | � | 7 | (7 | ) | |||||||||||||||||||||||
| Liabilities at Fair Value | ||||||||||||||||||||||||||||||||||||
| Commercial paper and other short-term borrowings | $ | 2 | $ | (5 | ) | $ | � | $ | � | $ | 3 | $ | (3 | ) | $ | 12 | $ | 19 | $ | (4 | ) | |||||||||||||||
| Financial instruments sold, not yet purchased: | ||||||||||||||||||||||||||||||||||||
| Other sovereign government obligations | 8 | � | (8 | ) | � | � | � | � | � | � | ||||||||||||||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | 355 | (4 | ) | (355 | ) | � | � | � | � | 4 | (4 | ) | ||||||||||||||||||||||||
| Corporate bonds | 219 | (15 | ) | (129 | ) | 110 | � | � | (38 | ) | 177 | (23 | ) | |||||||||||||||||||||||
| Unfunded lending commitments | 85 | 39 | � | � | � | � | � | 46 | 39 | |||||||||||||||||||||||||||
| Other debt | 73 | 9 | (1 | ) | 36 | � | (55 | ) | 5 | 49 | 11 | |||||||||||||||||||||||||
| Total corporate and other debt | 732 | 29 | (485 | ) | 146 | � | (55 | ) | (33 | ) | 276 | 23 | ||||||||||||||||||||||||
| Corporate equities | 1 | (1 | ) | (21 | ) | 22 | � | � | 2 | 5 | (3 | ) | ||||||||||||||||||||||||
| Securities sold under agreements to repurchase | 340 | (14 | ) | � | � | � | � | (203 | ) | 151 | (14 | ) | ||||||||||||||||||||||||
| Other secured financings | 570 | (69 | ) | � | � | 21 | (232 | ) | (22 | ) | 406 | (67 | ) | |||||||||||||||||||||||
| Long-term borrowings | 1,603 | (651 | ) | � | � | 1,050 | (279 | ) | (236 | ) | 2,789 | (652 | ) | |||||||||||||||||||||||
| | 172 |
| (1) | Total realized and unrealized gains (losses) are primarily included in Principal transactions�Trading in the consolidated statements of income except for $523 million related to Financial instruments owned�Investments, which is included in Principal transactions�Investments. |
| (2) | Amounts represent unrealized gains (losses) for 2012 related to assets and liabilities still outstanding at December�31, 2012. |
| (3) | Net derivative and other contracts represent Financial instruments owned�Derivative and other contracts net of Financial instruments sold, not yet purchased�Derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 12. |
| 173 | |
| Beginning Balance at December�31, 2010 | Total�Realized and�Unrealized Gains�(Losses)(1) | Purchases | Sales | Issuances | Settlements | Net�Transfers | Ending Balance�at December�31, 2011 | Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding�at December�31, 2011(2) | ||||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||||||
| Assets at Fair Value | ||||||||||||||||||||||||||||||||||||
| Financial instruments owned: | ||||||||||||||||||||||||||||||||||||
| U.S. agency securities | $ | 13 | $ | � | $ | 66 | $ | (68 | ) | $ | � | $ | � | $ | (3 | ) | $ | 8 | $ | � | ||||||||||||||||
| Other sovereign government obligations | 73 | (4 | ) | 56 | (2 | ) | � | � | (4 | ) | 119 | (2 | ) | |||||||||||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||||||||||||||||||
| State and municipal securities | 110 | (1 | ) | � | (96 | ) | � | � | (13 | ) | � | � | ||||||||||||||||||||||||
| Residential mortgage-backed securities | 319 | (61 | ) | 382 | (221 | ) | � | (1 | ) | 76 | 494 | (59 | ) | |||||||||||||||||||||||
| Commercial mortgage-backed securities | 188 | 12 | 75 | (90 | ) | � | � | (51 | ) | 134 | (18 | ) | ||||||||||||||||||||||||
| Asset-backed securities | 13 | 4 | 13 | (19 | ) | � | � | 20 | 31 | 2 | ||||||||||||||||||||||||||
| Corporate bonds | 1,368 | (136 | ) | 467 | (661 | ) | � | � | (363 | ) | 675 | (20 | ) | |||||||||||||||||||||||
| Collateralized debt obligations | 1,659 | 109 | 613 | (1,296 | ) | � | (55 | ) | (50 | ) | 980 | (84 | ) | |||||||||||||||||||||||
| Loans and lending commitments | 11,666 | (251 | ) | 2,932 | (1,241 | ) | � | (2,900 | ) | (616 | ) | 9,590 | (431 | ) | ||||||||||||||||||||||
| Other debt | 193 | 42 | 14 | (76 | ) | � | (11 | ) | (34 | ) | 128 | � | ||||||||||||||||||||||||
| Total corporate and other debt | 15,516 | (282 | ) | 4,496 | (3,700 | ) | � | (2,967 | ) | (1,031 | ) | 12,032 | (610 | ) | ||||||||||||||||||||||
| Corporate equities | 484 | (46 | ) | 416 | (360 | ) | � | � | (77 | ) | 417 | 16 | ||||||||||||||||||||||||
| Net derivative and other contracts(3): | ||||||||||||||||||||||||||||||||||||
| Interest rate contracts | 424 | 628 | 45 | � | (714 | ) | (150 | ) | 187 | 420 | 522 | |||||||||||||||||||||||||
| Credit contracts | 6,594 | 319 | 1,199 | � | (277 | ) | (2,165 | ) | 144 | 5,814 | 1,818 | |||||||||||||||||||||||||
| Foreign exchange contracts | 46 | (35 | ) | 2 | � | � | 28 | 2 | 43 | (13 | ) | |||||||||||||||||||||||||
| Equity contracts | (762 | ) | 592 | 214 | (133 | ) | (1,329 | ) | 136 | 48 | (1,234 | ) | 564 | |||||||||||||||||||||||
| Commodity contracts | 188 | 708 | 52 | � | � | (433 | ) | 55 | 570 | 689 | ||||||||||||||||||||||||||
| Other | (913 | ) | (552 | ) | 1 | � | (118 | ) | 405 | 87 | (1,090 | ) | (536 | ) | ||||||||||||||||||||||
| Total net derivative and other contracts | 5,577 | 1,660 | 1,513 | (133 | ) | (2,438 | ) | (2,179 | ) | 523 | 4,523 | 3,044 | ||||||||||||||||||||||||
| Investments: | ||||||||||||||||||||||||||||||||||||
| Private equity funds | 1,986 | 159 | 245 | (513 | ) | � | � | 59 | 1,936 | 85 | ||||||||||||||||||||||||||
| Real estate funds | 1,176 | 21 | 196 | (171 | ) | � | � | (9 | ) | 1,213 | 251 | |||||||||||||||||||||||||
| Hedge funds | 901 | (20 | ) | 169 | (380 | ) | � | � | 26 | 696 | (31 | ) | ||||||||||||||||||||||||
| Principal investments | 3,131 | 288 | 368 | (819 | ) | � | � | (31 | ) | 2,937 | 87 | |||||||||||||||||||||||||
| Other | 560 | 38 | 8 | (34 | ) | � | � | (71 | ) | 501 | 23 | |||||||||||||||||||||||||
| Total investments | 7,754 | 486 | 986 | (1,917 | ) | � | � | (26 | ) | 7,283 | 415 | |||||||||||||||||||||||||
| Physical commodities | � | (47 | ) | 771 | � | � | (673 | ) | (5 | ) | 46 | 1 | ||||||||||||||||||||||||
| Securities received as collateral | 1 | � | � | (1 | ) | � | � | � | � | � | ||||||||||||||||||||||||||
| Intangible assets | 157 | (25 | ) | 6 | (1 | ) | � | (4 | ) | � | 133 | (27 | ) | |||||||||||||||||||||||
| Liabilities at Fair Value | ||||||||||||||||||||||||||||||||||||
| Deposits | $ | 16 | $ | 2 | $ | � | $ | � | $ | � | $ | (14 | ) | $ | � | $ | � | $ | � | |||||||||||||||||
| Commercial paper and other short-term borrowings | 2 | � | � | � | � | � | � | 2 | � | |||||||||||||||||||||||||||
| Financial instruments sold, not yet purchased: | ||||||||||||||||||||||||||||||||||||
| Other sovereign government obligations | � | 1 | � | 9 | � | � | � | 8 | � | |||||||||||||||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | � | (8 | ) | � | 347 | � | � | � | 355 | (8 | ) | |||||||||||||||||||||||||
| Corporate bonds | 44 | 37 | (407 | ) | 694 | � | � | (75 | ) | 219 | 51 | |||||||||||||||||||||||||
| Unfunded lending commitments | 263 | 178 | � | � | � | � | � | 85 | 178 | |||||||||||||||||||||||||||
| Other debt | 194 | 123 | (12 | ) | 22 | � | (2 | ) | (6 | ) | 73 | 12 | ||||||||||||||||||||||||
| Total corporate and other debt | 501 | 330 | (419 | ) | 1,063 | � | (2 | ) | (81 | ) | 732 | 233 | ||||||||||||||||||||||||
| Corporate equities | 15 | (1 | ) | (15 | ) | 5 | � | � | (5 | ) | 1 | � | ||||||||||||||||||||||||
| Obligation to return securities received as collateral | 1 | � | (1 | ) | � | � | � | � | � | � | ||||||||||||||||||||||||||
| Securities sold under agreements to repurchase | 351 | 11 | � | � | � | � | � | 340 | 11 | |||||||||||||||||||||||||||
| Other secured financings | 1,016 | 27 | � | � | 154 | (267 | ) | (306 | ) | 570 | 13 | |||||||||||||||||||||||||
| Long-term borrowings | 1,316 | 39 | � | � | 769 | (377 | ) | (66 | ) | 1,603 | 32 | |||||||||||||||||||||||||
| | 174 |
| (1) | Total realized and unrealized gains (losses) are primarily included in Principal transactions�Trading in the consolidated statements of income except for $486 million related to Financial instruments owned�Investments, which is included in Principal transactions�Investments. |
| (2) | Amounts represent unrealized gains (losses) for 2011 related to assets and liabilities still outstanding at December�31, 2011. |
| (3) | Net derivative and other contracts represent Financial instruments owned�Derivative and other contracts net of Financial instruments sold, not yet purchased�Derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 12. |
| 175 | |
| Beginning Balance at December�31, 2009 | Total�Realized and Unrealized Gains (Losses)(1) | Purchases, Sales,�Other Settlements and�Issuances, net | Net Transfers | Ending Balance�at December�31, 2010 | Unrealized Gains (Losses) for Level 3 Assets/Liabilities Outstanding�at December�31, 2010(2) | |||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
| Assets at Fair Value | ||||||||||||||||||||||||
| Financial instruments owned: | ||||||||||||||||||||||||
| U.S. agency securities | $ | 36 | $ | (1 | ) | $ | 13 | $ | (35 | ) | $ | 13 | $ | (1 | ) | |||||||||
| Other sovereign government obligations | 3 | 5 | 66 | (1 | ) | 73 | 5 | |||||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||||||
| State and municipal securities | 713 | (11 | ) | (533 | ) | (59 | ) | 110 | (12 | ) | ||||||||||||||
| Residential mortgage-backed securities | 818 | 12 | (607 | ) | 96 | 319 | (2 | ) | ||||||||||||||||
| Commercial mortgage-backed securities | 1,573 | 35 | (1,054 | ) | (366 | ) | 188 | (61 | ) | |||||||||||||||
| Asset-backed securities | 591 | 10 | (436 | ) | (152 | ) | 13 | 7 | ||||||||||||||||
| Corporate bonds | 1,038 | (84 | ) | 403 | 11 | 1,368 | 41 | |||||||||||||||||
| Collateralized debt obligations | 1,553 | 368 | (259 | ) | (3 | ) | 1,659 | 189 | ||||||||||||||||
| Loans and lending commitments | 12,506 | 203 | (376 | ) | (667 | ) | 11,666 | 214 | ||||||||||||||||
| Other debt | 1,662 | 44 | (92 | ) | (1,421 | ) | 193 | 49 | ||||||||||||||||
| Total corporate and other debt | 20,454 | 577 | (2,954 | ) | (2,561 | ) | 15,516 | 425 | ||||||||||||||||
| Corporate equities | 536 | 118 | (189 | ) | 19 | 484 | 59 | |||||||||||||||||
| Net derivative and other contracts(3): | ||||||||||||||||||||||||
| Interest rate contracts | 387 | 238 | (178 | ) | (23 | ) | 424 | 260 | ||||||||||||||||
| Credit contracts | 8,824 | (1,179 | ) | 128 | (1,179 | ) | 6,594 | 58 | ||||||||||||||||
| Foreign exchange contracts | 254 | (77 | ) | 33 | (164 | ) | 46 | (109 | ) | |||||||||||||||
| Equity contracts | (689 | ) | (131 | ) | (146 | ) | 204 | (762 | ) | (143 | ) | |||||||||||||
| Commodity contracts | 7 | 121 | 60 | � | 188 | 268 | ||||||||||||||||||
| Other | (437 | ) | (266 | ) | (220 | ) | 10 | (913 | ) | (284 | ) | |||||||||||||
| Total net derivative and other contracts | 8,346 | (1,294 | ) | (323 | ) | (1,152 | ) | 5,577 | 50 | |||||||||||||||
| Investments: | ||||||||||||||||||||||||
| Private equity funds | 1,296 | 496 | 202 | (8 | ) | 1,986 | 462 | |||||||||||||||||
| Real estate funds | 833 | 251 | 89 | 3 | 1,176 | 399 | ||||||||||||||||||
| Hedge funds | 1,708 | (161 | ) | (327 | ) | (319 | ) | 901 | (160 | ) | ||||||||||||||
| Principal investments | 3,195 | 470 | 229 | (763 | ) | 3,131 | 412 | |||||||||||||||||
| Other | 581 | 109 | (129 | ) | (1 | ) | 560 | 49 | ||||||||||||||||
| Total investments | 7,613 | 1,165 | 64 | (1,088 | ) | 7,754 | 1,162 | |||||||||||||||||
| Securities received as collateral | 23 | � | (22 | ) | � | 1 | � | |||||||||||||||||
| Intangible assets | 137 | 43 | (23 | ) | � | 157 | 23 | |||||||||||||||||
| Liabilities at Fair Value | ||||||||||||||||||||||||
| Deposits | $ | 24 | $ | � | $ | � | $ | (8 | ) | $ | 16 | $ | � | |||||||||||
| Commercial paper and other short-term borrowings | � | � | 2 | � | 2 | � | ||||||||||||||||||
| Financial instruments sold, not yet purchased: | ||||||||||||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||||||
| Asset-backed securities | 4 | � | (4 | ) | � | � | � | |||||||||||||||||
| Corporate bonds | 29 | (15 | ) | 13 | (13 | ) | 44 | (9 | ) | |||||||||||||||
| Collateralized debt obligations | 3 | � | (3 | ) | � | � | � | |||||||||||||||||
| Unfunded lending commitments | 252 | (4 | ) | 7 | � | 263 | (2 | ) | ||||||||||||||||
| Other debt | 431 | 65 | (161 | ) | (11 | ) | 194 | 62 | ||||||||||||||||
| Total corporate and other debt | 719 | 46 | (148 | ) | (24 | ) | 501 | 51 | ||||||||||||||||
| Corporate equities | 4 | 17 | 54 | (26 | ) | 15 | 9 | |||||||||||||||||
| Obligation to return securities received as collateral | 23 | � | (22 | ) | � | 1 | � | |||||||||||||||||
| Securities sold under agreements to repurchase | � | (1 | ) | 350 | � | 351 | (1 | ) | ||||||||||||||||
| Other secured financings | 1,532 | (44 | ) | (612 | ) | 52 | 1,016 | (44 | ) | |||||||||||||||
| Long-term borrowings | 6,865 | 66 | (5,175 | ) | (308 | ) | 1,316 | (84 | ) | |||||||||||||||
| | 176 |
| (1) | Total realized and unrealized gains (losses) are primarily included in Principal transactions�Trading in the consolidated statements of income except for $1,165 million related to Financial instruments owned�Investments, which is included in Principal transactions�Investments. |
| (2) | Amounts represent unrealized gains (losses) for 2010 related to assets and liabilities still outstanding at December�31, 2010. |
| (3) | Net derivative and other contracts represent Financial instruments owned�Derivative and other contracts net of Financial instruments sold, not yet purchased�Derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 12. |
| 177 | |
| Balance�at December�31, 2012 (dollars in millions) | Valuation Technique(s) | Significant�Unobservable�Input(s)�/ Sensitivity�of�the�Fair�Value�to�Changes in the Unobservable Inputs | Range(1) | Weighted Average | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||
| Financial instruments owned: | ||||||||||||||||||||||||||||
| Corporate�and other�debt: | ||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | $ | 232 | Comparable�pricing | Comparable bond price / (A) | 46 | to | 100 | points | 76 | points | ||||||||||||||||||
| Asset-backed securities | 109 | Discounted�cash�flow | Internal rate of return / (C) | 21 | % | 21 | % | |||||||||||||||||||||
| Corporate bonds | 660 | Comparable pricing | Comparable bond price / (A) | 0 | to | 143 | points | 24 | points | |||||||||||||||||||
| Collateralized debt obligations | 1,951 | Comparable pricing | Comparable bond price / (A) | 15 | to | 88 | points | 59 | points | |||||||||||||||||||
| Correlation model | Credit correlation / (B) | 15 | to | 45 | % | 40 | % | |||||||||||||||||||||
| Loans and lending commitments | 4,694 | Corporate�loan�model | Credit spread / (C) | 17 | to | 1,004 | basis�points | | 281 | | basis�points | |||||||||||||||||
| Comparable pricing | Comparable bond price / (A) | 80 | to | 120 | points | | 104 | | points | |||||||||||||||||||
| Comparable pricing | Comparable loan price / (A) | 55 | to | 100 | points | 88 | points | |||||||||||||||||||||
| Corporate equities(2) | 288 | Net asset value | Discount to net asset value / (C) | 0 | to | 37 | % | 8 | % | |||||||||||||||||||
| Comparable pricing | Discount�to�comparable�equity�price�/�(C) | 0 | to | 27 | points | 14 | points | |||||||||||||||||||||
| Market approach | Earnings before interest, taxes, depreciation and amortization (�EBITDA�) multiple / (A) | 6 | times | 6 | times | |||||||||||||||||||||||
| Net�derivative�and�other�contracts: | ||||||||||||||||||||||||||||
| Interest rate contracts | (82 | ) | Option model | Interest rate volatility concentration liquidity multiple / (C)(D) | 0 | to | 8 | times | See�(3) | |||||||||||||||||||
| Comparable bond price / (A)(D) | 5 | to | 98 | points | ||||||||||||||||||||||||
| Interest rate�Foreign exchange correlation / (A)(D) | 2 | to | 63 | % | ||||||||||||||||||||||||
| Interest rate volatility skew / (A)(D) | 9 | to | 95 | % | ||||||||||||||||||||||||
| Interest rate quanto correlation / (A)(D) | -53 | to | 33 | % | ||||||||||||||||||||||||
| Interest rate curve correlation / (A)(D) | 48 | to | 99 | % | ||||||||||||||||||||||||
| Inflation volatility / (A)(D) | 49 | to | 100 | % | ||||||||||||||||||||||||
| Discounted cash flow | Forward commercial paper rate-LIBOR basis / (A) | | -18 | | to | 95 | basis�points | |||||||||||||||||||||
| Credit contracts | 1,822 | Comparable pricing | Cash synthetic basis / (C) | 2 | to | 14 | points | See�(4) | ||||||||||||||||||||
| Comparable bond price / (C) | 0 | to | 80 | points | ||||||||||||||||||||||||
| Correlation model | Credit correlation / (B) | 14 | to | 94 | % | |||||||||||||||||||||||
| Foreign exchange contracts(5) | (359 | ) | Option model | Comparable bond price / (A)(D) | 5 | to | 98 | points | See�(6) | |||||||||||||||||||
| Interest rate quanto correlation�/(A)(D) | -53 | to | 33 | % | ||||||||||||||||||||||||
| Interest rate�Credit spread correlation�/ (A)(D) | | -59 | | to | 65 | % | ||||||||||||||||||||||
| Interest rate�Foreign exchange correlation / (A)(D) | 2 | to | 63 | % | ||||||||||||||||||||||||
| Interest rate volatility skew / (A)(D) | 9 | to | 95 | % | ||||||||||||||||||||||||
| Equity contracts(5) | (1,144 | ) | Option model | At the money volatility / (C)(D) | 7 | to | 24 | % | See�(7) | |||||||||||||||||||
| Volatility skew / (C)(D) | -2 | to | 0 | % | ||||||||||||||||||||||||
| Equity�Equity correlation / (C)(D) | 40 | to | 96 | % | ||||||||||||||||||||||||
| Equity�Foreign exchange correlation / (C)(D) | | -70 | | to | 38 | % | ||||||||||||||||||||||
| Equity�Interest rate correlation / (C)(D) | 18 | to | 65 | % | ||||||||||||||||||||||||
Table of Contents MORGAN STANLEY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS�(Continued) | Balance�at December�31, 2012 (dollars in millions) | Valuation Technique(s) | Significant�Unobservable�Input(s)�/ Sensitivity�of�the�Fair�Value�to�Changes in the Unobservable Inputs | Range(1) | Weighted Average | ||||||||||||||||||||||||
| Commodity contracts | 709 | Option model | Forward power price / (C)(D) | $28 | to | $84 | per | |||||||||||||||||||||
| Megawatt hour | ||||||||||||||||||||||||||||
| Commodity volatility / (A)(D) | 17 | to | 29 | % | ||||||||||||||||||||||||
| Cross commodity correlation / (C)(D) | 43 | to | 97 | % | ||||||||||||||||||||||||
| Investments(2): | ||||||||||||||||||||||||||||
| Principal investments | 2,833 | Discounted cash flow | Implied weighted average cost of capital / (C)(D) | 8 | to | 15 | % | 9 | % | |||||||||||||||||||
| Exit multiple / (A)(D) | 5 | to | 10 | times | 9 | times | ||||||||||||||||||||||
| Discounted cash flow | Capitalization rate / (C)(D) | 6 | to | 10 | % | 7 | % | |||||||||||||||||||||
| Equity discount rate / (C)(D) | 15 | to | 35 | % | 23 | % | ||||||||||||||||||||||
| Market�approach | EBITDA multiple / (A) | 3 | to | 17 | times | 10 | times | |||||||||||||||||||||
| Other | 486 | Discounted�cash�flow | Implied weighted average cost of capital / (C)(D) | 11 | % | 11 | % | |||||||||||||||||||||
| Exit multiple / (A)(D) | 6 | times | 6 | times | ||||||||||||||||||||||||
| Market approach | EBITDA multiple / (A) | 6 | to | 8 | times | 7 | times | |||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||
| Financial instruments sold, not yet purchased: | ||||||||||||||||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||||||||||
| Corporate bonds | $ | 177 | Comparable�pricing | Comparable bond price / (A) | 0 | to | 150 | points | 50 | points | ||||||||||||||||||
| Securities sold under agreements to repurchase | 151 | Discounted�cash�flow | Funding spread / (A) | | 110 | | to | 184 | basis�points | 166 | basis�points | |||||||||||||||||
| Other secured financings | 406 | Comparable pricing | Comparable bond price / (A) | 55 | to | 139 | points | 102 | points | |||||||||||||||||||
| Discounted cash flow | Funding spread / (A) | 183 | to | 186 | basis�points | 184 | basis points | |||||||||||||||||||||
| Long-term borrowings | 2,789 | Option model | At the money volatility / (A)(D) | 20 | to | 24 | % | 24 | % | |||||||||||||||||||
| Volatility skew / (A)(D) | -1 | to | 0 | % | 0 | % | ||||||||||||||||||||||
| Equity�Equity correlation / (C)(D) | 50 | to | 90 | % | 77 | % | ||||||||||||||||||||||
| Equity�Foreign exchange correlation / (A)(D) | | -70 | | to | 36 | % | -15 | % | ||||||||||||||||||||
| (1) | The ranges of significant unobservable inputs are represented in points, percentages, basis points, times or megawatt hours.�Points are a percentage of par; for example, 100 points would be 100% of par. A basis point equals 1/100th of 1%; for example, 1,004 basis points would equal 10.04%. |
| (2) | Investments in funds measured using an unadjusted net asset value are excluded. |
| (3) | See below for a qualitative discussion of the wide unobservable input ranges for comparable bond prices, interest rate volatility skew, interest rate quanto correlation and forward commercial paper rate�LIBOR basis. |
| (4) | See below for a qualitative discussion of the wide unobservable input ranges for comparable bond prices and credit correlation. |
| (5) | Includes derivative contracts with multiple risks ( i.e ., hybrid products). |
| (6) | See below for a qualitative discussion of the wide unobservable input ranges for comparable bond prices, interest rate quanto correlation, interest rate-credit spread correlation and interest rate volatility skew. |
| (7) | See below for a qualitative discussion of the wide unobservable input range for equity-foreign exchange correlation. |
| (A) | Significant increase (decrease) in the unobservable input in isolation would result in a significantly higher (lower) fair value measurement. |
| (B) | Significant changes in credit correlation may result in a significantly higher or lower fair value measurement. Increasing (decreasing) correlation drives a redistribution of risk within the capital structure such that junior tranches become less (more) risky and senior tranches become more (less) risky. |
| (C) | Significant increase (decrease) in the unobservable input in isolation would result in a significantly lower (higher) fair value measurement. |
| (D) | There are no predictable relationships between the significant unobservable inputs. |
| � | Comparable bond price � a pricing input used when prices for the identical instrument are not available. Significant subjectivity may be involved when fair value is determined using pricing data available for |
| 179 | |
| comparable instruments. Valuation using comparable instruments can be done by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparable bond, then adjusting that yield (or spread) to derive a value for the bond. The adjustment to yield (or spread) should account for relevant differences in the bonds such as maturity or credit quality. Alternatively, a price-to-price basis can be assumed between the comparable instrument and bond being valued in order to establish the value of the bond. Additionally, as the probability of default increases for a given bond ( i.e. , as the bond becomes more distressed), the valuation of that bond will increasingly reflect its expected recovery level assuming default. The decision to use price-to-price or yield/spread comparisons largely reflects trading market convention for the financial instruments in question. Price-to-price comparisons are primarily employed for CMBS, CDO, mortgage loans and distressed corporate bonds. Implied yield (or spread over a liquid benchmark) is utilized predominately for non-distressed corporate bonds, loans and credit contracts. |
| � | Internal rate of return � the discount factor required for the net present value of future cash flows to equal zero. The internal rate of return represents the minimum average annual return required for an investment. |
| � | Correlation � a pricing input where the payoff is driven by more than one underlying risk. Correlation is a measure of the relationship between the movements of two variables ( i.e ., how the change in one variable influences a change in the other variable). Credit correlation, for example, is the factor that describes the relationship between the probability of individual entities to default on obligations and the joint probability of multiple entities to default on obligations. The correlation ranges may be wide since any two underlying inputs may be highly correlated (either positively or negatively) or weakly correlated. |
| � | Credit spread � the difference in yield between different securities due to differences in credit quality. The credit spread reflects the additional net yield an investor can earn from a security with more credit risk relative to one with less credit risk. The credit spread of a particular security is often quoted in relation to the yield on a credit risk-free benchmark security or reference rate, typically either U.S. Treasury or LIBOR. |
| � | EBITDA multiple / Exit multiple � is the Enterprise Value to EBITDA ratio, where the Enterprise Value is the aggregate value of equity and debt minus cash and cash equivalents. The EBITDA multiple reflects the value of the company in terms of its full-year EBITDA, whereas the exit multiple reflects the value of the company in terms of its full year expected EBITDA at exit. Either multiple allows comparison between companies from an operational perspective as the effect of capital structure, taxation and depreciation/amortization is excluded. |
| | 180 |
| � | Volatility � the measure of the variability in possible returns for an instrument given how much that instrument changes in value over time. Volatility is a pricing input for options and, generally, the lower the volatility, the less risky the option. The level of volatility used in the valuation of a particular option depends on a number of factors, including the nature of the risk underlying that option ( e.g. , the volatility of a particular underlying equity security may be significantly different from that of a particular underlying commodity index), the tenor and the strike price of the option. |
| � | Volatility skew � the measure of the difference in implied volatility for options with identical underliers and expiry dates but with different strikes. The implied volatility for an option with a strike price that is above or below the current price of an underlying asset will typically deviate from the implied volatility for an option with a strike price equal to the current price of that same underlying asset. |
| � | Forward commercial paper rate�LIBOR basis � the basis added to the LIBOR rate when the commercial paper yield is expressed as a spread over the LIBOR rate. |
| � | Cash synthetic basis � the measure of the price differential between cash financial instruments (�cash instruments�) and their synthetic derivative-based equivalents (�synthetic instruments�). The range disclosed in the table above signifies the number of points by which the synthetic bond equivalent price is higher than the quoted price of the underlying cash bonds. |
| � | Implied WACC � the weighted average cost of capital (�WACC�) implied by the current value of equity in a discounted cash flow model. The model assumes that the cash flow assumptions, including projections, are fully reflected in the current equity value while the debt to equity ratio is held constant. The WACC theoretically represents the required rate of return to debt and equity investors, respectively. |
| � | Capitalization rate � the ratio between net operating income produced by an asset and its market value at the projected disposition date. |
| � | Funding spread � the difference between the general collateral rate (which refers to the rate applicable to a broad class of U.S. Treasury issuances) and the specific collateral rate (which refers to the rate applicable to a specific type of security pledged as collateral, such as a municipal bond). Repurchase agreements are discounted based on collateral curves. The curves are constructed as spreads over the corresponding OIS/LIBOR curves, with the short end of the curve representing spreads over the corresponding OIS curves and the long end of the curve representing spreads over LIBOR. |
| 181 | |
| At December�31, 2012 | At December�31, 2011 | |||||||||||||||
| Fair Value | Unfunded Commitment | Fair Value | Unfunded Commitment | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Private equity funds | $ | 2,179 | $ | 644 | $ | 1,906 | $ | 938 | ||||||||
| Real estate funds | 1,376 | 221 | 1,188 | 448 | ||||||||||||
| Hedge funds(1): | ||||||||||||||||
| Long-short equity hedge funds | 475 | � | 545 | 5 | ||||||||||||
| Fixed income/credit-related hedge funds | 86 | � | 124 | � | ||||||||||||
| Event-driven hedge funds | 52 | � | 163 | � | ||||||||||||
| Multi-strategy hedge funds | 321 | 3 | 335 | � | ||||||||||||
| Total | $ | 4,489 | $ | 868 | $ | 4,261 | $ | 1,391 | ||||||||
| (1) | Fixed income/credit-related hedge funds, event-driven hedge funds, and multi-strategy hedge funds are redeemable at least on a six-month period basis primarily with a notice period of 90 days or less. At December�31, 2012, approximately 36% of the fair value amount of long-short equity hedge funds is redeemable at least quarterly, 38% is redeemable every six months and 26% of these funds have a redemption frequency of greater than six months. The notice period for long-short equity hedge funds at December�31, 2012 is primarily greater than six months. At December�31, 2011, approximately 38% of the fair value amount of long-short equity hedge funds is redeemable at least quarterly, 32% is redeemable every six months and 30% of these funds have a redemption frequency of greater than six months. The notice period for long-short equity hedge funds at December�31, 2011 is primarily greater than six months. |
| � | Long-short Equity Hedge Funds. Amount includes investments in hedge funds that invest, long or short, in equities. Equity value and growth hedge funds purchase stocks perceived to be undervalued and sell |
| | 182 |
| stocks perceived to be overvalued. Investments representing approximately 7% of the fair value of the investments in this category cannot be redeemed currently because the investments include certain initial period lock-up restrictions. The remaining restriction period for these investments subject to lock-up restrictions was primarily two years or less at December�31, 2012. Investments representing approximately 7% of the fair value of the investments in long-short equity hedge funds cannot be redeemed currently because an exit restriction has been imposed by the hedge fund manager. The restriction period for these investments subject to an exit restriction was primarily one year or less at December�31, 2012. |
| � | Fixed Income/Credit-Related Hedge Funds. Amount includes investments in hedge funds that employ long-short, distressed or relative value strategies in order to benefit from investments in undervalued or overvalued securities that are primarily debt or credit related. At December�31, 2012, investments representing approximately 5% of the fair value of the investments in fixed income/credit-related hedge funds cannot be redeemed currently because the investments include certain initial period lock-up restrictions. The remaining restriction period for these investments subject to lock-up restrictions was primarily one year or less at December�31, 2012. |
| � | Event-Driven Hedge Funds. Amount includes investments in hedge funds that invest in event-driven situations such as mergers, hostile takeovers, reorganizations, or leveraged buyouts. This may involve the simultaneous purchase of stock in companies being acquired and the sale of stock in its acquirer, with the expectation to profit from the spread between the current market price and the ultimate purchase price of the target company. At December�31, 2012, there were no restrictions on redemptions. |
| � | Multi-strategy Hedge Funds. Amount includes investments in hedge funds that pursue multiple strategies to realize short- and long-term gains. Management of the hedge funds has the ability to overweight or underweight different strategies to best capitalize on current investment opportunities. At December�31, 2012, investments representing approximately 66% of the fair value of the investments in this category cannot be redeemed currently because the investments include certain initial period lock-up restrictions. The remaining restriction period for these investments subject to lock-up restrictions was primarily two years or less at December�31, 2012. Investments representing approximately 9% of the fair value of the investments in multi-strategy hedge funds cannot be redeemed currently because an exit restriction has been imposed by the hedge fund manager. The restriction period for these investments subject to an exit restriction was indefinite at December�31, 2012. |
| 183 | |
| Principal Transactions- Trading | Interest Income (Expense) | Gains�(Losses) Included�in Net Revenues | ||||||||||
| (dollars in millions) | ||||||||||||
| Year Ended December�31, 2012 | ||||||||||||
| Federal funds sold and securities purchased under agreements to resell | $ | 8 | $ | 5 | $ | 13 | ||||||
| Deposits | 57 | (86 | ) | (29 | ) | |||||||
| Commercial paper and other short-term borrowings(1) | (31 | ) | � | (31 | ) | |||||||
| Securities sold under agreements to repurchase | (15 | ) | (4 | ) | (19 | ) | ||||||
| Long-term borrowings(1) | (5,687 | ) | (1,321 | ) | (7,008 | ) | ||||||
| Year Ended December�31, 2011 | ||||||||||||
| Federal funds sold and securities purchased under agreements to resell | $ | 12 | $ | � | $ | 12 | ||||||
| Deposits | 66 | (117 | ) | (51 | ) | |||||||
| Commercial paper and other short-term borrowings(1) | 567 | � | 567 | |||||||||
| Securities sold under agreements to repurchase | 3 | (7 | ) | (4 | ) | |||||||
| Long-term borrowings(1) | 4,204 | (1,075 | ) | 3,129 | ||||||||
| Year Ended December�31, 2010 | ||||||||||||
| Deposits | $ | 2 | $ | (173 | ) | $ | (171 | ) | ||||
| Commercial paper and other short-term borrowings(1) | (8 | ) | � | (8 | ) | |||||||
| Securities sold under agreements to repurchase | 9 | (1 | ) | 8 | ||||||||
| Long-term borrowings(1) | (872 | ) | (849 | ) | (1,721 | ) | ||||||
| (1) | Of the total gains (losses) recorded in Principal transactions�Trading for short-term and long-term borrowings for 2012, 2011 and 2010, $(4,402) million, $3,681 million and $(873) million, respectively, are attributable to changes in the credit quality of the Company, and the respective remainder is attributable to changes in foreign currency rates or interest rates or movements in the reference price or index for structured notes before the impact of related hedges. |
| | 184 |
| Short-term and Long-term Borrowings | ||||||||
| Business Unit | At�December 31,�2012 | At�December 31,�2011 | ||||||
| (dollars in millions) | ||||||||
| Interest rates | $ | 23,330 | $ | 23,188 | ||||
| Equity | 17,326 | 13,926 | ||||||
| Credit and foreign exchange | 3,337 | 3,012 | ||||||
| Commodities | 776 | 876 | ||||||
| Total | $ | 44,769 | $ | 41,002 | ||||
| 2012 | 2011 | 2010 | ||||||||||
| (dollars in millions) | ||||||||||||
| Short-term and long-term borrowings(1) | $ | (4,402 | ) | $ | 3,681 | $ | (873 | ) | ||||
| Loans(2) | 340 | (585 | ) | 448 | ||||||||
| Unfunded lending commitments(3) | 1,026 | (787 | ) | (148 | ) | |||||||
| (1) | The change in the fair value of short-term and long-term borrowings (primarily structured notes) includes an adjustment to reflect the change in credit quality of the Company based upon observations of the Company�s secondary bond market spreads. |
| (2) | Instrument-specific credit gains (losses) were determined by excluding the non-credit components of gains and losses, such as those due to changes in interest rates. |
| (3) | Gains (losses) were generally determined based on the differential between estimated expected client yields and contractual yields at each respective period end. |
| Contractual�Principal�Amount Exceeds Fair Value | ||||||||
| At�December 31, 2012 | At�December 31, 2011 | |||||||
| (dollars in billions) | ||||||||
| Short-term and long-term borrowings(1) | $ | (0.4 | ) | $ | 2.5 | |||
| Loans(2) | 25.2 | 27.2 | ||||||
| Loans 90 or more days past due and/or on non-accrual status(2)(3) | 20.5 | 22.1 | ||||||
| (1) | These amounts do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in the reference price or index. |
| (2) | The majority of this difference between principal and fair value amounts emanates from the Company�s distressed debt trading business, which purchases distressed debt at amounts well below par. |
| (3) | The aggregate fair value of loans that were in non-accrual status, which includes all loans 90 or more days past due, was $1.4 billion and $2.0 billion at December�31, 2012 and December�31, 2011, respectively. The aggregate fair value of loans that were 90 or more days past due was $0.8 billion and $1.5 billion at December�31, 2012 and December�31, 2011, respectively. |
| 185 | |
| Fair Value Measurements Using: | ||||||||||||||||||||
| Carrying�Value At�December�31, 2012 | Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable�Inputs (Level 2) | Significant Unobservable Inputs (Level�3) | Total Gains (Losses)�for 2012(1) | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Loans(2) | $ | 1,821 | $ | � | $ | 277 | $ | 1,544 | $ | (60 | ) | |||||||||
| Other investments(3) | 90 | � | � | 90 | (37 | ) | ||||||||||||||
| Premises, equipment and software costs(4) | 33 | � | � | 33 | (170 | ) | ||||||||||||||
| Intangible assets(3) | � | � | � | � | (4 | ) | ||||||||||||||
| Total | $ | 1,944 | $ | � | $ | 277 | $ | 1,667 | $ | (271 | ) | |||||||||
| (1) | Losses are recorded within Other expenses in the consolidated statements of income except for fair value adjustments related to Loans and losses related to Other investments, which are included in Other revenues. |
| (2) | Non-recurring changes in fair value for loans held for investment were calculated based upon the fair value of the underlying collateral. The fair value of the collateral was determined using internal expected recovery models. The non-recurring change in fair value for mortgage loans held for sale is based upon a valuation model incorporating market observable inputs. |
| (3) | Losses recorded were determined primarily using discounted cash flow models. |
| (4) | Losses were determined using discounted cash flow models and primarily represented the write-off of the carrying value of certain premises and software that were abandoned during 2012 in association with the Morgan Stanley Wealth Management integration. |
| | 186 |
| Fair Value Measurements Using: | ||||||||||||||||||||
| Carrying Value At�December�31, 2011 | Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable�Inputs (Level 2) | Significant Unobservable Inputs (Level�3) | Total Gains (Losses)�for 2011(1) | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Loans(2) | $ | 70 | $ | � | $ | � | $ | 70 | $ | 5 | ||||||||||
| Other investments(3) | 71 | � | � | 71 | (52 | ) | ||||||||||||||
| Premises, equipment and software costs(3) | 4 | � | � | 4 | (7 | ) | ||||||||||||||
| Intangible assets(4) | � | � | � | � | (7 | ) | ||||||||||||||
| Total | $ | 145 | $ | � | $ | � | $ | 145 | $ | (61 | ) | |||||||||
| (1) | Losses are recorded within Other expenses in the consolidated statements of income except for fair value adjustments related to Loans and losses related to Other investments, which are included in Other revenues. |
| (2) | Non-recurring changes in fair value for loans held for investment were calculated based upon the fair value of the underlying collateral. The fair value of the collateral was determined using internal expected recovery models. The non-recurring change in fair value for mortgage loans held for sale is based upon a valuation model incorporating market observable inputs. |
| (3) | Losses recorded were determined primarily using discounted cash flow models. |
| (4) | Losses were determined primarily using discounted cash flow models or a valuation technique incorporating an observable market index. |
| Fair Value Measurements Using: | ||||||||||||||||||||
| Carrying Value At�December�31, 2010 | Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable�Inputs (Level 2) | Significant Unobservable Inputs (Level�3) | Total Gains (Losses)�for 2010(1) | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Loans(2) | $ | 680 | $ | � | $ | 151 | $ | 529 | $ | (12 | ) | |||||||||
| Other investments(3) | 88 | � | � | 88 | (19 | ) | ||||||||||||||
| Goodwill(4) | � | � | � | � | (27 | ) | ||||||||||||||
| Intangible assets(5) | 3 | � | � | 3 | (174 | ) | ||||||||||||||
| Total | $ | 771 | $ | � | $ | 151 | $ | 620 | $ | (232 | ) | |||||||||
| (1) | Losses related to Loans, impairments related to Other investments and losses related to Goodwill and certain Intangibles associated with the disposition of FrontPoint Partners LLC (�FrontPoint�) are included in Other revenues in the consolidated statements of income (see Notes 19 and 24 for further information on FrontPoint). Remaining losses were included in Other expenses in the consolidated statements of income. |
| (2) | Non-recurring changes in fair value for loans held for investment were calculated based upon the fair value of the underlying collateral. The fair value of the collateral was determined using internal expected recovery models. The non-recurring change in fair value for mortgage loans held for sale is based upon a valuation model incorporating market observable inputs. |
| (3) | Losses recorded were determined primarily using discounted cash flow models. |
| (4) | Loss relates to FrontPoint, determined primarily using discounted cash flow models (see Notes 19 and 24 for further information on FrontPoint). |
| (5) | Losses primarily related to investment management contracts, including contracts associated with FrontPoint, and were determined primarily using discounted cash flow models. |
| 187 | |
| | 188 |
| At December�31, 2012 | Fair Value Measurements Using: | |||||||||||||||||||
| Carrying�Value | Fair Value | Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level�3) | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||
| Cash and due from banks | $ | 20,878 | $ | 20,878 | $ | 20,878 | $ | � | $ | � | ||||||||||
| Interest bearing deposits with banks | 26,026 | 26,026 | 26,026 | � | � | |||||||||||||||
| Cash deposited with clearing organizations or segregated under federal and other regulations or requirements | 30,970 | 30,970 | 30,970 | � | � | |||||||||||||||
| Federal funds sold and securities purchased under agreements to resell | 133,791 | 133,792 | � | 133,035 | 757 | |||||||||||||||
| Securities borrowed | 121,701 | 121,705 | � | 121,691 | 14 | |||||||||||||||
| Receivables(1): | ||||||||||||||||||||
| Customers | 46,197 | 46,197 | � | 46,197 | � | |||||||||||||||
| Brokers, dealers and clearing organizations | 7,335 | 7,335 | � | 7,335 | � | |||||||||||||||
| Fees, interest and other | 6,170 | 6,102 | � | � | 6,102 | |||||||||||||||
| Loans(2) | 29,046 | 27,263 | � | 5,307 | 21,956 | |||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||
| Deposits | $ | 81,781 | $ | 81,781 | $ | � | $ | 81,781 | $ | � | ||||||||||
| Commercial paper and other short-term borrowings | 1,413 | 1,413 | � | 1,107 | 306 | |||||||||||||||
| Securities sold under agreements to repurchase | 122,311 | 122,389 | � | 111,722 | 10,667 | |||||||||||||||
| Securities loaned | 36,849 | 37,163 | � | 35,978 | 1,185 | |||||||||||||||
| Other secured financings | 6,261 | 6,276 | � | 3,649 | 2,627 | |||||||||||||||
| Payables(1): | ||||||||||||||||||||
| Customers | 122,540 | 122,540 | � | 122,540 | � | |||||||||||||||
| Brokers, dealers and clearing organizations | 2,497 | 2,497 | � | 2,497 | � | |||||||||||||||
| Long-term borrowings | 125,527 | 126,683 | � | 116,511 | 10,172 | |||||||||||||||
| (1) | Accrued interest, fees and dividend receivables and payables where carrying value approximates fair value have been excluded. |
| (2) | Includes all loans measured at fair value on a non-recurring basis. |
| 189 | |
| At December�31, 2012 | ||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Other-than- Temporary Impairment | Fair Value | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Debt securities available for sale: | ||||||||||||||||||||
| U.S. government and agency securities: | ||||||||||||||||||||
| U.S. Treasury securities | $ | 14,351 | $ | 109 | $ | 2 | $ | � | $ | 14,458 | ||||||||||
| U.S. agency securities | 15,330 | 122 | 3 | � | 15,449 | |||||||||||||||
| Total U.S. government and agency securities | 29,681 | 231 | 5 | � | 29,907 | |||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||
| Commercial mortgage-backed securities: | ||||||||||||||||||||
| Agency | 2,197 | 6 | 4 | � | 2,199 | |||||||||||||||
| Non-Agency | 160 | � | � | � | 160 | |||||||||||||||
| Auto loan asset-backed securities | 1,993 | 4 | 1 | � | 1,996 | |||||||||||||||
| Corporate bonds | 2,891 | 13 | 3 | � | 2,901 | |||||||||||||||
| FFELP student loan asset-backed securities(1) | 2,675 | 23 | � | � | 2,698 | |||||||||||||||
| Total Corporate and other debt | 9,916 | 46 | 8 | � | 9,954 | |||||||||||||||
| Total debt securities available for sale | 39,597 | 277 | 13 | � | 39,861 | |||||||||||||||
| Equity securities available for sale | 15 | � | 7 | � | 8 | |||||||||||||||
| Total | $ | 39,612 | $ | 277 | $ | 20 | $ | � | $ | 39,869 | ||||||||||
| (1) | Amounts are backed by a guarantee from the U.S. Department of Education of at least 95% of the principal balance and interest on such loans. |
| At December 31, 2011 | ||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Other-than- Temporary Impairment | Fair Value | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Debt securities available for sale: | ||||||||||||||||||||
| U.S. government and agency securities: | ||||||||||||||||||||
| U.S. Treasury securities | $ | 13,240 | $ | 182 | $ | � | $ | � | $ | 13,422 | ||||||||||
| U.S. agency securities | 16,083 | 54 | 20 | � | 16,117 | |||||||||||||||
| Corporate and other debt(1) | 944 | � | 3 | � | 941 | |||||||||||||||
| Total debt securities available for sale | 30,267 | 236 | 23 | � | 30,480 | |||||||||||||||
| Equity securities available for sale | 15 | � | � | � | 15 | |||||||||||||||
| Total | $ | 30,282 | $ | 236 | $ | 23 | $ | � | $ | 30,495 | ||||||||||
| (1) | Amounts represent FFELP student loan asset-backed securities, in which the loans are backed by a guarantee from the U.S. Department of Education of at least 95% of the principal balance and interest on such loans. |
| | 190 |
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
| At December�31, 2012 | Fair�Value | Gross Unrealized Losses | Fair�Value | Gross Unrealized Losses | Fair�Value | Gross Unrealized Losses | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
| Debt securities available for sale: | ||||||||||||||||||||||||
| U.S. government and agency securities: | ||||||||||||||||||||||||
| U.S. Treasury securities | $ | 1,012 | $ | 2 | $ | � | $ | � | $ | 1,012 | $ | 2 | ||||||||||||
| U.S. agency securities | 1,534 | 3 | 27 | � | 1,561 | 3 | ||||||||||||||||||
| Total U.S. government and agency securities | 2,546 | 5 | 27 | � | 2,573 | 5 | ||||||||||||||||||
| Corporate and other debt: | ||||||||||||||||||||||||
| Commercial mortgage-backed securities: | ||||||||||||||||||||||||
| Agency | 1,057 | 4 | � | � | 1,057 | 4 | ||||||||||||||||||
| Auto loan asset-backed securities | 710 | 1 | � | � | 710 | 1 | ||||||||||||||||||
| Corporate bonds | 934 | 3 | � | � | 934 | 3 | ||||||||||||||||||
| Total Corporate and other debt | 2,701 | 8 | � | � | 2,701 | 8 | ||||||||||||||||||
| Total debt securities available for sale | 5,247 | 13 | 27 | � | 5,274 | 13 | ||||||||||||||||||
| Equity securities available for sale | 8 | 7 | � | � | 8 | 7 | ||||||||||||||||||
| Total | $ | 5,255 | $ | 20 | $ | 27 | $ | � | $ | 5,282 | $ | 20 | ||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
| At December�31, 2011 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
| Debt securities available for sale: | ||||||||||||||||||||||||
| U.S. government and agency securities: | ||||||||||||||||||||||||
| U.S. agency securities | $ | 6,250 | $ | 15 | $ | 1,492 | $ | 5 | $ | 7,742 | $ | 20 | ||||||||||||
| Corporate and other debt | 679 | 3 | � | � | 679 | 3 | ||||||||||||||||||
| Total | $ | 6,929 | $ | 18 | $ | 1,492 | $ | 5 | $ | 8,421 | $ | 23 | ||||||||||||
| 191 | |
| At December�31, 2012 | Amortized�Cost | Fair�Value | Annualized Average�Yield | |||||||||
| (dollars in millions) | ||||||||||||
| U.S. government and agency securities: | ||||||||||||
| U.S. Treasury securities: | ||||||||||||
| Due within 1 year | $ | 753 | $ | 757 | 0.8 | % | ||||||
| After 1 year but through 5 years | 13,492 | 13,592 | 0.7 | % | ||||||||
| After 5 years | 106 | 109 | 1.5 | % | ||||||||
| Total | 14,351 | 14,458 | ||||||||||
| U.S. agency securities: | ||||||||||||
| After 5 years | 15,330 | 15,449 | 1.0 | % | ||||||||
| Total | 15,330 | 15,449 | ||||||||||
| Total U.S. government and agency securities | 29,681 | 29,907 | 0.9 | % | ||||||||
| Corporate and other debt: | ||||||||||||
| Commercial mortgage-backed securities: | ||||||||||||
| Agency: | ||||||||||||
| After 1 year but through 5 years | 353 | 354 | 1.0 | % | ||||||||
| After 5 years | 1,844 | 1,845 | 1.3 | % | ||||||||
| Total | 2,197 | 2,199 | ||||||||||
| Non-Agency: | ||||||||||||
| After 5 years | 160 | 160 | 0.7 | % | ||||||||
| Total | 160 | 160 | ||||||||||
| Auto loan asset-backed securities: | ||||||||||||
| After 1 year but through 5 years | 1,642 | 1,645 | 0.7 | % | ||||||||
| After 5 years | 351 | 351 | 0.7 | % | ||||||||
| Total | 1,993 | 1,996 | ||||||||||
| Corporate bonds: | ||||||||||||
| Due within 1 year | 153 | 153 | 0.7 | % | ||||||||
| After 1 year but through 5 years | 2,589 | 2,599 | 1.1 | % | ||||||||
| After 5 years | 149 | 149 | 1.2 | % | ||||||||
| Total | 2,891 | 2,901 | ||||||||||
| FFELP student loan asset-backed securities: | ||||||||||||
| After 1 year but through 5 years | 94 | 95 | 0.9 | % | ||||||||
| After 5 years | 2,581 | 2,603 | 1.1 | % | ||||||||
| Total | 2,675 | 2,698 | ||||||||||
| Total Corporate and other debt | 9,916 | 9,954 | 1.0 | % | ||||||||
| Total debt securities available for sale | $ | 39,597 | $ | 39,861 | 0.9 | % | ||||||
| | 192 |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars in millions) | ||||||||||||
| Gross realized gains | $ | 88 | $ | 145 | $ | 102 | ||||||
| Gross realized losses | $ | 10 | $ | 2 | $ | � | ||||||
| Proceeds of sales of securities available for sale | $ | 10,398 | $ | 17,085 | $ | 670 | ||||||
| 193 | |
| At December� 31, 2012 | At December� 31, 2011 | |||||||
| (dollars in millions) | ||||||||
| Financial instruments owned: | ||||||||
| U.S. government and agency securities | $ | 15,273 | $ | 9,263 | ||||
| Other sovereign government obligations | 3,278 | 4,047 | ||||||
| Corporate and other debt | 11,980 | 17,024 | ||||||
| Corporate equities | 26,377 | 21,664 | ||||||
| Total | $ | 56,908 | $ | 51,998 | ||||
| | 194 |
| At December�31, 2012 | At December�31, 2011 | |||||||
| (dollars in millions) | ||||||||
| Cash deposited with clearing organizations or segregated under federal and other regulations or requirements | $ | 30,970 | $ | 29,454 | ||||
| Securities(1) | 13,424 | 15,120 | ||||||
| Total | $ | 44,394 | $ | 44,574 | ||||
| (1) | Securities deposited with clearing organizations or segregated under federal and other regulations or requirements are sourced from Federal funds sold and securities purchased under agreements to resell and Financial instruments owned in the consolidated statements of financial condition. |
| � | Interests purchased in connection with market-making activities, securities held in its available for sale portfolio and retained interests held as a result of securitization activities, including re-securitization transactions. |
| � | Guarantees issued and residual interests retained in connection with municipal bond securitizations. |
| � | Servicing of residential and commercial mortgage loans held by VIEs. |
| � | Loans made to and investments in VIEs that hold debt, equity, real estate or other assets. |
| � | Derivatives entered into with VIEs. |
| � | Structuring of credit-linked notes (�CLN�) or other asset-repackaged notes designed to meet the investment objectives of clients. |
| � | Other structured transactions designed to provide tax-efficient yields to the Company or its clients. |
| 195 | |
| | 196 |
| At December�31, 2012 | ||||||||||||||||||||
| Mortgage and Asset-Backed Securitizations | Collateralized Debt Obligations | Managed Real�Estate Partnerships | Other Structured Financings | Other | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| VIE assets | $ | 978 | $ | 52 | $ | 2,394 | $ | 983 | $ | 1,676 | ||||||||||
| VIE liabilities | $ | 646 | $ | 16 | $ | 83 | $ | 65 | $ | 313 | ||||||||||
| At December�31, 2011 | ||||||||||||||||||||
| Mortgage and Asset-Backed Securitizations | Collateralized Debt Obligations | Managed Real Estate Partnerships | Other Structured Financings | Other | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| VIE assets | $ | 2,414 | $ | 102 | $ | 2,207 | $ | 918 | $ | 1,937 | ||||||||||
| VIE liabilities | $ | 1,699 | $ | 69 | $ | 102 | $ | 2,576 | $ | 556 | ||||||||||
| 197 | |
| At December�31, 2012 | ||||||||||||||||||||
| Mortgage and Asset-Backed Securitizations | Collateralized Debt Obligations | Municipal Tender Option Bonds | Other Structured Financings | Other | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| VIE assets that the Company does not consolidate (unpaid principal balance)(1) | $ | 251,689 | $ | 13,178 | $ | 3,390 | $ | 1,811 | $ | 14,029 | ||||||||||
| Maximum exposure to loss: | ||||||||||||||||||||
| Debt and equity interests(2) | $ | 22,280 | $ | 1,173 | $ | � | $ | 1,053 | $ | 3,387 | ||||||||||
| Derivative and other contracts | 154 | 51 | 2,158 | � | 562 | |||||||||||||||
| Commitments, guarantees and other | 66 | � | � | 679 | 384 | |||||||||||||||
| Total maximum exposure to loss | $ | 22,500 | $ | 1,224 | $ | 2,158 | $ | 1,732 | $ | 4,333 | ||||||||||
| Carrying value of exposure to loss�Assets: | ||||||||||||||||||||
| Debt and equity interests(2) | $ | 22,280 | $ | 1,173 | $ | � | $ | 663 | $ | 3,387 | ||||||||||
| Derivative and other contracts | 156 | 8 | 4 | � | 174 | |||||||||||||||
| Total carrying value of exposure to loss� Assets | $ | 22,436 | $ | 1,181 | $ | 4 | $ | 663 | $ | 3,561 | ||||||||||
| Carrying value of exposure to loss�Liabilities: | ||||||||||||||||||||
| Derivative and other contracts | $ | 11 | $ | 2 | $ | � | $ | � | $ | 172 | ||||||||||
| Commitments, guarantees and other | � | � | � | 12 | � | |||||||||||||||
| Total carrying value of exposure to loss� Liabilities | $ | 11 | $ | 2 | $ | � | $ | 12 | $ | 172 | ||||||||||
| (1) | Mortgage and asset-backed securitizations include VIE assets as follows: $18.3 billion of residential mortgages; $53.8 billion of commercial mortgages; $126.3 billion of U.S. agency collateralized mortgage obligations; and $53.3 billion of other consumer or commercial loans. |
| (2) | Mortgage and asset-backed securitizations include VIE debt and equity interests as follows: $1.0 billion of residential mortgages; $1.5 billion of commercial mortgages; $14.8 billion of U.S. agency collateralized mortgage obligations; and $5.0 billion of other consumer or commercial loans. |
| | 198 |
| At December�31, 2011 | ||||||||||||||||||||
| Mortgage and Asset-Backed Securitizations | Collateralized Debt Obligations | Municipal Tender Option Bonds | Other Structured Financings | Other | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| VIE assets that the Company does not consolidate (unpaid principal balance)(1) | $ | 231,110 | $ | 7,593 | $ | 6,833 | $ | 1,944 | $ | 20,997 | ||||||||||
| Maximum exposure to loss: | ||||||||||||||||||||
| Debt and equity interests(2) | $ | 16,469 | $ | 491 | $ | 201 | $ | 978 | $ | 2,413 | ||||||||||
| Derivative and other contracts | 103 | 843 | 4,141 | � | 1,209 | |||||||||||||||
| Commitments, guarantees and other | 208 | � | � | 804 | 561 | |||||||||||||||
| Total maximum exposure to loss | $ | 16,780 | $ | 1,334 | $ | 4,342 | $ | 1,782 | $ | 4,183 | ||||||||||
| Carrying value of exposure to loss�Assets: | ||||||||||||||||||||
| Debt and equity interests(2) | $ | 16,469 | $ | 491 | $ | 201 | $ | 640 | $ | 2,413 | ||||||||||
| Derivative and other contracts | 101 | 657 | 24 | � | 338 | |||||||||||||||
| Total carrying value of exposure to loss�Assets | $ | 16,570 | $ | 1,148 | $ | 225 | $ | 640 | $ | 2,751 | ||||||||||
| Carrying value of exposure to loss�Liabilities: | ||||||||||||||||||||
| Derivative and other contracts | $ | 13 | $ | 159 | $ | � | $ | � | $ | 114 | ||||||||||
| Commitments, guarantees and other | � | � | � | 14 | 176 | |||||||||||||||
| Total carrying value of exposure to loss� Liabilities | $ | 13 | $ | 159 | $ | � | $ | 14 | $ | 290 | ||||||||||
| (1) | Mortgage and asset-backed securitizations include VIE assets as follows: $9.1 billion of residential mortgages; $81.7 billion of commercial mortgages; $121.6 billion of U.S. agency collateralized mortgage obligations; and $18.7 billion of other consumer or commercial loans. Prior-period amounts were adjusted to conform to the current period�s presentation. |
| (2) | Mortgage and asset-backed securitizations include VIE debt and equity interests as follows: $0.6 billion of residential mortgages; $1.1 billion of commercial mortgages; $13.5 billion of U.S. agency collateralized mortgage obligations; and $1.3 billion of other consumer or commercial loans. Prior-period amounts were adjusted to conform to the current period�s presentation. |
| 199 | |
| | 200 |
| 201 | |
| At December�31, 2012 | ||||||||||||||||
| Residential Mortgage Loans | Commercial Mortgage Loans | U.S. Agency Collateralized Mortgage Obligations | Credit- Linked Notes and�Other | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| SPE assets (unpaid principal balance)(1) | $ | 36,750 | $ | 70,824 | $ | 17,787 | $ | 14,701 | ||||||||
| Retained interests (fair value): | ||||||||||||||||
| Investment grade | $ | 1 | $ | 77 | $ | 1,468 | $ | � | ||||||||
| Non-investment grade | 54 | 109 | � | 1,503 | ||||||||||||
| Total retained interests (fair value) | $ | 55 | $ | 186 | $ | 1,468 | $ | 1,503 | ||||||||
| Interests purchased in the secondary market (fair value): | ||||||||||||||||
| Investment grade | $ | 11 | $ | 124 | $ | 99 | $ | 389 | ||||||||
| Non-investment grade | 113 | 34 | � | 31 | ||||||||||||
| Total interests purchased in the secondary market (fair�value) | $ | 124 | $ | 158 | $ | 99 | $ | 420 | ||||||||
| Derivative assets (fair value) | $ | 2 | $ | 948 | $ | � | $ | 177 | ||||||||
| Derivative liabilities (fair value) | $ | 22 | $ | � | $ | � | $ | 303 | ||||||||
| (1) | Amounts include assets transferred by unrelated transferors. |
| | 202 |
| At December�31, 2012 | ||||||||||||||||
| Level�1 | Level�2 | Level�3 | Total | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Retained interests (fair value): | ||||||||||||||||
| Investment grade | $ | � | $ | 1,476 | $ | 70 | $ | 1,546 | ||||||||
| Non-investment grade | � | 84 | 1,582 | 1,666 | ||||||||||||
| Total retained interests (fair value) | $ | � | $ | 1,560 | $ | 1,652 | $ | 3,212 | ||||||||
| Interests purchased in the secondary market (fair value): | ||||||||||||||||
| Investment grade | $ | � | $ | 617 | $ | 6 | $ | 623 | ||||||||
| Non-investment grade | � | 139 | 39 | 178 | ||||||||||||
| Total interests purchased in the secondary market (fair value) | $ | � | $ | 756 | $ | 45 | $ | 801 | ||||||||
| Derivative assets (fair value) | $ | � | $ | 774 | $ | 353 | $ | 1,127 | ||||||||
| Derivative liabilities (fair value) | $ | � | $ | 295 | $ | 30 | $ | 325 | ||||||||
| At December�31, 2011 | ||||||||||||||||
| Residential Mortgage Loans | Commercial Mortgage Loans | U.S. Agency Collateralized Mortgage Obligations | Credit- Linked Notes and�Other | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| SPE assets (unpaid principal balance)(1) | $ | 41,977 | $ | 85,333 | $ | 33,728 | $ | 14,315 | ||||||||
| Retained interests (fair value): | ||||||||||||||||
| Investment grade | $ | 14 | $ | 22 | $ | 1,151 | $ | 2 | ||||||||
| Non-investment grade | 106 | 44 | � | 1,545 | ||||||||||||
| Total retained interests (fair value) | $ | 120 | $ | 66 | $ | 1,151 | $ | 1,547 | ||||||||
| Interests purchased in the secondary market (fair value): | ||||||||||||||||
| Investment grade | $ | 45 | $ | 164 | $ | 20 | $ | 411 | ||||||||
| Non-investment grade | 149 | 82 | � | 11 | ||||||||||||
| Total interests purchased in the secondary market (fair�value) | $ | 194 | $ | 246 | $ | 20 | $ | 422 | ||||||||
| Derivative assets (fair value) | $ | 18 | $ | 1,200 | $ | � | $ | 223 | ||||||||
| Derivative liabilities (fair value) | $ | 30 | $ | 31 | $ | � | $ | 510 | ||||||||
| (1) | Amounts include assets transferred by unrelated transferors. |
| 203 | |
| At December�31, 2011 | ||||||||||||||||
| Level�1 | Level�2 | Level�3 | Total | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Retained interests (fair value): | ||||||||||||||||
| Investment grade | $ | � | $ | 1,186 | $ | 3 | $ | 1,189 | ||||||||
| Non-investment grade | � | 74 | 1,621 | 1,695 | ||||||||||||
| Total retained interests (fair value) | $ | � | $ | 1,260 | $ | 1,624 | $ | 2,884 | ||||||||
| Interests purchased in the secondary market (fair value): | ||||||||||||||||
| Investment grade | $ | � | $ | 638 | $ | 2 | $ | 640 | ||||||||
| Non-investment grade | � | 126 | 116 | 242 | ||||||||||||
| Total interests purchased in the secondary market (fair value) | $ | � | $ | 764 | $ | 118 | $ | 882 | ||||||||
| Derivative assets (fair value) | $ | � | $ | 869 | $ | 572 | $ | 1,441 | ||||||||
| Derivative liabilities (fair value) | $ | � | $ | 541 | $ | 30 | $ | 571 | ||||||||
| | 204 |
| At�December�31,�2012 | At�December�31,�2011 | |||||||||||||||
| Carrying Value of | Carrying Value of | |||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Commercial mortgage loans | $ | � | $ | � | $ | 121 | $ | 121 | ||||||||
| Credit-linked notes | 283 | 222 | 383 | 339 | ||||||||||||
| Equity-linked transactions | 422 | 405 | 1,243 | 1,214 | ||||||||||||
| Other | 29 | 28 | 75 | 74 | ||||||||||||
| At December�31, 2012 | ||||||||||||||||
| Residential Mortgage Unconsolidated SPEs | Residential Mortgage Consolidated SPEs | Commercial Mortgage Unconsolidated SPEs | Commercial Mortgage Consolidated SPEs | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Assets serviced (unpaid principal balance) | $ | 821 | $ | 1,141 | $ | 4,760 | $ | � | ||||||||
| Amounts past due 90 days or greater (unpaid principal balance)(1) | $ | 86 | $ | 43 | $ | � | $ | � | ||||||||
| Percentage of amounts past due 90 days or greater(1) | 10.4 | % | 3.8 | % | � | � | ||||||||||
| Credit losses | $ | 3 | $ | 2 | $ | � | $ | � | ||||||||
| (1) | Amounts include loans that are at least 90 days contractually delinquent, loans for which the borrower has filed for bankruptcy, loans in foreclosure and real estate owned. |
| 205 | |
| At December�31, 2011 | ||||||||||||||||
| Residential Mortgage Unconsolidated SPEs | Residential Mortgage Consolidated SPEs | Commercial Mortgage Unconsolidated SPEs | Commercial Mortgage Consolidated SPEs | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Assets serviced (unpaid principal balance) | $ | 9,821 | $ | 2,180 | $ | 5,750 | $ | 1,596 | ||||||||
| Amounts past due 90 days or greater (unpaid principal balance)(1) | $ | 3,087 | $ | 354 | $ | � | $ | � | ||||||||
| Percentage of amounts past due 90 days or greater(1) | 31.4 | % | 16.2 | % | � | � | ||||||||||
| Credit losses | $ | 631 | $ | 81 | $ | � | $ | � | ||||||||
| (1) | Amounts include loans that are at least 90 days contractually delinquent, loans for which the borrower has filed for bankruptcy, loans in foreclosure and real estate owned. |
| � | Commercial and Industrial . Commercial and industrial loans include commercial lending, corporate lending and commercial asset-backed lending products. Risk factors considered in determining the allowance for commercial and industrial loans include the borrower�s financial strength, seniority of the loan, collateral type, volatility of collateral value, debt cushion, covenants and (for unsecured loans) counterparty type. |
| � | Consumer . Consumer loans include unsecured loans and non-purpose securities-based lending that allows clients to borrow money against the value of qualifying securities for any suitable purpose other than purchasing, trading, or carrying marketable securities or refinancing margin debt. The allowance methodology for unsecured loans considers the specific attributes of the loan as well as borrower�s source of repayment. The allowance methodology for non-purpose securities-based lending considers the collateral type underlying the loan ( e.g. , diversified securities, concentrated securities, or restricted stock). |
| � | Real Estate�Residential . Residential real estate loans include home equity lines of credit and non-conforming loans. The allowance methodology for nonconforming residential mortgage loans considers several factors, including but not limited to loan-to-value ratio, a FICO score, home price index, and delinquency status. The methodology for home equity loans considers credit limits and utilization rates in addition to the factors considered for non-conforming residential mortgages. |
| � | Real Estate�Wholesale . Wholesale real estate loans include owner-occupied loans and income-producing loans. The principal risk factor for determining the allowance for wholesale real estate loans is the underlying collateral type, which is affected by the time period to liquidate the collateral and the volatility in collateral values. |
| | 206 |
| At December�31, 2012 | At December�31, 2011 | |||||||
| (dollars in millions) | ||||||||
| Commercial and industrial | $ | 9,352 | $ | 5,083 | ||||
| Consumer loans | 7,615 | 5,170 | ||||||
| Residential real estate loans | 6,625 | 4,674 | ||||||
| Wholesale real estate loans | 325 | 328 | ||||||
| Total loans held for investment(1) | $ | 23,917 | $ | 15,255 | ||||
| (1) | Amounts are net of allowances of $106 million and $17 million at December�31, 2012 and December�31, 2011, respectively. The increase for the year ended December�31, 2012 was primarily driven by enhancements to the estimates for the inherent losses for and growth in the Company�s loans held for investment portfolio. |
| � | Pass . A credit exposure rated pass has a continued expectation of timely repayment, all obligations of the borrower are current, and the obligor complies with material terms and conditions of the lending agreement. |
| � | Special Mention . Extensions of credit that have potential weakness that deserve management�s close attention and if left uncorrected may, at some future date, result in the deterioration of the repayment prospects for the credit. These potential weaknesses may be due to circumstances such as the borrower experiencing negative operating trends, having an ill-proportioned balance sheet, experiencing problems with management or labor relations, experiencing pending litigation, or there are concerns about the condition or control over collateral. |
| � | Substandard . Obligor has a well-defined weakness that jeopardizes the repayment of the debt and has a high probability of payment default with the distinct possibility that the Company will sustain some loss if noted deficiencies are not corrected. Indicators of a substandard loan include that the obligor is experiencing current or anticipated unprofitable operations, inadequate fixed charge coverage, and inadequate liquidity to support operations or meet obligations when they come due or marginal capitalization. |
| 207 | |
| � | Doubtful . Inherent weakness in the exposure makes the collection or repayment in full, based on existing facts, conditions and circumstances, highly improbable, but the amount of loss is uncertain. The obligor may demonstrate inadequate liquidity, insufficient capital or lack of necessary resources to continue as a going concern or may be in default. |
| � | Loss . Extensions of credit classified as loss are considered uncollectible and are charged off. |
| | 208 |
| 209 | |
| Institutional Securities | Global Wealth Management Group | Asset Management | Total | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Goodwill at December�31, 2010 | $ | 383 | $ | 5,616 | $ | 740 | $ | 6,739 | ||||||||
| Foreign currency translation adjustments and other | (53 | ) | � | � | (53 | ) | ||||||||||
| Goodwill at December�31, 2011(1) | $ | 330 | $ | 5,616 | $ | 740 | $ | 6,686 | ||||||||
| Foreign currency translation adjustments and other | (6 | ) | 35 | � | 29 | |||||||||||
| Goodwill disposed of during the period(2) | � | (65 | ) | � | (65 | ) | ||||||||||
| Goodwill at December�31, 2012(1) | $ | 324 | $ | 5,586 | $ | 740 | $ | 6,650 | ||||||||
| (1) | The amount of the Company�s goodwill before accumulated impairments of $700 million, which included $673 million related to the Institutional Securities business segment and $27 million related to the Asset Management business segment, was $7,350 million and $7,386 million at December�31, 2012 and December�31, 2011, respectively. |
| (2) | The Global Wealth Management Group activity represents goodwill disposed of in connection with the sale of Quilter (see Notes 1 and 25). |
| | 210 |
| Institutional Securities | Global Wealth Management Group | Asset Management | Total | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Amortizable net intangible assets at December�31, 2010 | $ | 262 | $ | 3,963 | $ | 5 | $ | 4,230 | ||||||||
| Mortgage servicing rights (see Note 7) | 151 | 6 | � | 157 | ||||||||||||
| Indefinite-lived intangible assets (see Note 2) | � | 280 | � | 280 | ||||||||||||
| Net intangible assets at December�31, 2010 | $ | 413 | $ | 4,249 | $ | 5 | $ | 4,667 | ||||||||
| Amortizable net intangible assets at December�31, 2010 | $ | 262 | $ | 3,963 | $ | 5 | $ | 4,230 | ||||||||
| Foreign currency translation adjustments and other | (10 | ) | � | � | (10 | ) | ||||||||||
| Amortization expense | (23 | ) | (322 | ) | � | (345 | ) | |||||||||
| Impairment losses(1) | (4 | ) | � | (3 | ) | (7 | ) | |||||||||
| Intangible assets acquired during the period | 5 | � | � | 5 | ||||||||||||
| Intangible assets disposed of during the period | (1 | ) | � | � | (1 | ) | ||||||||||
| Amortizable net intangible assets at December�31, 2011 | $ | 229 | $ | 3,641 | $ | 2 | $ | 3,872 | ||||||||
| Mortgage servicing rights (see Note 7) | 122 | 11 | � | 133 | ||||||||||||
| Indefinite-lived intangible assets (see Note 2) | � | 280 | � | 280 | ||||||||||||
| Net intangible assets at December�31, 2011 | $ | 351 | $ | 3,932 | $ | 2 | $ | 4,285 | ||||||||
| Amortizable net intangible assets at December�31, 2011 | $ | 229 | $ | 3,641 | $ | 2 | $ | 3,872 | ||||||||
| Foreign currency translation adjustments and other | 5 | 1 | � | 6 | ||||||||||||
| Amortization expense | (17 | ) | (322 | ) | (1 | ) | (340 | ) | ||||||||
| Impairment losses(1) | (4 | ) | � | � | (4 | ) | ||||||||||
| Increase due to Smith Barney tradename(2) | � | 280 | � | 280 | ||||||||||||
| Intangible assets acquired during the period | 4 | � | � | 4 | ||||||||||||
| Intangible assets disposed of during the period(3) | (42 | ) | � | � | (42 | ) | ||||||||||
| Amortizable net intangible assets at December�31, 2012 | 175 | 3,600 | 1 | 3,776 | ||||||||||||
| Mortgage servicing rights (see Note 7) | � | 7 | � | 7 | ||||||||||||
| Net intangible assets at December�31, 2012 | $ | 175 | $ | 3,607 | $ | 1 | $ | 3,783 | ||||||||
| (1) | Impairment losses are recorded within Other expenses in the consolidated statements of income. |
| (2) | The Global Wealth Management Group business segment activity represents the reclassification of $280 million from an indefinite-lived to a finite-lived intangible asset (see Note 2). |
| (3) | The Institutional Securities business segment activity represents intangible assets disposed of in connection with the sale of a principal investment. |
| 211 | |
| At December�31, 2012 | At December�31, 2011 | |||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Amortizable intangible assets: | ||||||||||||||||
| Trademarks | $ | 7 | $ | 3 | $ | 59 | $ | 13 | ||||||||
| Tradename | 280 | 2 | � | � | ||||||||||||
| Customer relationships | 4,058 | 923 | 4,063 | 673 | ||||||||||||
| Management contracts | 313 | 116 | 313 | 80 | ||||||||||||
| Research | 176 | 126 | 176 | 91 | ||||||||||||
| Other | 192 | 80 | 171 | 53 | ||||||||||||
| Total amortizable intangible assets | $ | 5,026 | $ | 1,250 | $ | 4,782 | $ | 910 | ||||||||
| At December�31, 2012(1) | At December�31, 2011(1) | |||||||
| (dollars in millions) | ||||||||
| Savings and demand deposits(2) | $ | 80,058 | $ | 63,029 | ||||
| Time deposits(3) | 3,208 | 2,633 | ||||||
| Total | $ | 83,266 | $ | 65,662 | ||||
| (1) | Total deposits subject to Federal Deposit Insurance Corporation (the �FDIC�) at December�31, 2012 and December�31, 2011 were $62 billion and $52 billion, respectively. |
| (2) | Amounts include non-interest bearing deposits of $1,037 million and $1,270 million at December�31, 2012 and December�31, 2011, respectively. |
| (3) | Certain time deposit accounts are carried at fair value under the fair value option (see Note 4). |
| Year | ||||
| 2013(1) | $ | 82,044 | ||
| 2014 | 185 | |||
| 2015 | � | |||
| 2016 | � | |||
| 2017 | � | |||
| (1) | Amount includes approximately $79 billion of savings deposits, which have no stated maturity, and approximately $3 billion of time deposits. |
| | 212 |
| December�31, 2012 | December�31, 2011 | |||||||
| (dollars in millions) | ||||||||
| Commercial Paper(1): | ||||||||
| Balance at period-end | $ | 306 | $ | 978 | ||||
| Average balance(2) | $ | 479 | $ | 899 | ||||
| Weighted average interest rate on period-end balance(3) | 10.1 | % | 2.7 | % | ||||
| Other Short-Term Borrowings(4)(5): | ||||||||
| Balance at period-end | $ | 1,832 | $ | 1,865 | ||||
| Average balance(2) | $ | 1,461 | $ | 2,276 | ||||
| (1) | At December�31, 2011, the majority of the commercial paper balance was issued as part of client transactions and was not used for the Company�s general funding purposes. During 2012, the client transactions matured, and the remaining balance at December�31, 2012 was used for the Company�s general funding purposes. |
| (2) | Average balances are calculated based upon weekly balances. |
| (3) | The weighted average interest rate at December�31, 2012 is driven primarily by commercial paper issued in a foreign country in which typical funding rates are significantly higher than in the U.S. |
| (4) | These borrowings included bank loans, bank notes and structured notes with original maturities of 12 months or less. |
| (5) | Certain structured short-term borrowings are carried at fair value under the fair value option. See Note 4 for additional information. |
| Parent Company | Subsidiaries | At December� 31, 2012(3)(4) | At December� 31, 2011(5) | |||||||||||||||||||||
| Fixed Rate | Variable Rate (1)(2) | Fixed Rate | Variable Rate (1)(2) | |||||||||||||||||||||
| Due in 2012 | $ | � | $ | � | $ | � | $ | � | $ | � | $ | 35,082 | ||||||||||||
| Due in 2013 | 5,867 | 17,938 | 17 | 1,481 | 25,303 | 25,018 | ||||||||||||||||||
| Due in 2014 | 11,988 | 8,782 | 17 | 964 | 21,751 | 21,484 | ||||||||||||||||||
| Due in 2015 | 14,262 | 5,938 | 17 | 4,436 | 24,653 | 21,888 | ||||||||||||||||||
| Due in 2016 | 9,902 | 8,308 | 74 | 1,700 | 19,984 | 19,027 | ||||||||||||||||||
| Due in 2017 | 16,859 | 9,432 | 17 | 1,829 | 28,137 | 17,501 | ||||||||||||||||||
| Thereafter | 36,916 | 11,081 | 295 | 1,451 | 49,743 | 44,234 | ||||||||||||||||||
| Total | $ | 95,794 | $ | 61,479 | $ | 437 | $ | 11,861 | $ | 169,571 | $ | 184,234 | ||||||||||||
| Weighted average coupon at period-end(6) | 5.3 | % | 1.1 | % | 6.5 | % | 4.5 | % | 4.4 | % | 4.0 | % | ||||||||||||
| (1) | Variable rate borrowings bear interest based on a variety of money market indices, including LIBOR and Federal Funds rates. |
| (2) | Amounts include borrowings that are equity-linked, credit-linked, commodity-linked or linked to some other index. |
| (3) | Amounts include an increase of approximately $6.4 billion at December�31, 2012, to the carrying amount of certain of the Company�s long-term borrowings associated with fair value hedges. The increase to the carrying value associated with fair value hedges by year due was approximately less than $0.1 billion due in 2013, $0.3 billion due in 2014, $0.8 billion due in 2015, $0.8 billion due in 2016, $1.5 billion due in 2017 and $2.9 billion due thereafter. |
| (4) | Amounts include an increase of approximately $0.4 billion at December�31, 2012 to the carrying amounts of certain of the Company�s long-term borrowings for which the fair value option was elected (see Note 4). |
| 213 | |
| (5) | Amounts include long-term borrowings issued under the Temporary Liquidity Guarantee Program (�TLGP�). |
| (6) | Weighted average coupon was calculated utilizing U.S. and non-U.S. dollar interest rates and excludes financial instruments for which the fair value option was elected. |
| At�December�31, 2012 | At�December�31, 2011 | |||||||
| (dollars in millions) | ||||||||
| Senior debt | $ | 158,899 | $ | 175,471 | ||||
| Subordinated debt | 5,845 | 3,910 | ||||||
| Junior subordinated debentures | 4,827 | 4,853 | ||||||
| Total | $ | 169,571 | $ | 184,234 | ||||
| | 214 |
| 2012 | 2011 | 2010 | ||||||||||
| Weighted average coupon of long-term borrowings at period-end(1) | 4.4 | % | 4.0 | % | 3.6 | % | ||||||
| Effective average borrowing rate for long-term borrowings after swaps at period-end(1) | 2.3 | % | 1.9 | % | 2.4 | % | ||||||
| (1) | Included in the weighted average and effective average calculations are non-U.S. dollar interest rates. |
| At December�31, 2012 | At December�31, 2011 | |||||||
| (dollars in millions) | ||||||||
| Secured financings with original maturities greater than one year | $ | 14,431 | $ | 18,696 | ||||
| Secured financings with original maturities one year or less(1) | 641 | 275 | ||||||
| Failed sales(2) | 655 | 1,748 | ||||||
| Total(3) | $ | 15,727 | $ | 20,719 | ||||
| 215 | |
| (1) | At December�31, 2012, amount included approximately $10 million of variable rate financings and approximately $631 million of fixed rate financings. |
| (2) | For more information on failed sales, see Note 7. |
| (3) | Amounts include $9,466 million at fair value at December�31, 2012 and $14,594 million at fair value at December�31, 2011. |
| Fixed Rate | Variable Rate(1)(2) | At December�31, 2012 | At December�31, 2011 | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Due in 2012 | $ | � | $ | � | $ | � | $ | 7,861 | ||||||||
| Due in 2013 | 2,768 | 5,760 | 8,528 | 4,849 | ||||||||||||
| Due in 2014 | 189 | 2,679 | 2,868 | 1,765 | ||||||||||||
| Due in 2015 | � | 960 | 960 | 1,094 | ||||||||||||
| Due in 2016 | � | 429 | 429 | 384 | ||||||||||||
| Due in 2017 | � | 181 | 181 | 559 | ||||||||||||
| Thereafter | 949 | 516 | 1,465 | 2,184 | ||||||||||||
| Total | $ | 3,906 | $ | 10,525 | $ | 14,431 | $ | 18,696 | ||||||||
| Weighted average coupon rate at period-end(3) | 1.1 | % | 1.6 | % | 1.4 | % | 1.7 | % | ||||||||
| (1) | Variable rate borrowings bear interest based on a variety of indices including LIBOR. |
| (2) | Amounts include borrowings that are equity-linked, credit-linked, commodity-linked or linked to some other index. |
| (3) | Weighted average coupon was calculated utilizing U.S. and non-U.S. dollar interest rates and excludes secured financings that are linked to non-interest indices. |
| At December�31, 2012 | At December�31, 2011 | |||||||
| (dollars in millions) | ||||||||
| Due in 2012 | $ | � | $ | 784 | ||||
| Due in 2013 | 479 | 785 | ||||||
| Due in 2014 | 17 | 5 | ||||||
| Due in 2015 | 7 | 29 | ||||||
| Due in 2016 | 136 | 127 | ||||||
| Due in 2017 | 14 | 14 | ||||||
| Thereafter | 2 | 4 | ||||||
| Total | $ | 655 | $ | 1,748 | ||||
| | 216 |
| At December�31, 2012 | At December�31, 2011 | |||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Exchange traded derivative products | $ | 4,641 | $ | 6,131 | $ | 4,103 | $ | 4,969 | ||||||||
| OTC derivative products | 31,556 | 30,827 | 43,961 | 41,484 | ||||||||||||
| Total | $ | 36,197 | $ | 36,958 | $ | 48,064 | $ | 46,453 | ||||||||
| 217 | |
| Cross- Maturity and Cash Collateral Netting(3) | Net Exposure Post- Cash Collateral | Net Exposure Post- Collateral | ||||||||||||||||||||||||||
| Years to Maturity | ||||||||||||||||||||||||||||
| Credit Rating(2) | Less�than�1 | 1-3 | 3-5 | Over 5 | ||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||
| AAA | $ | 353 | $ | 551 | $ | 1,299 | $ | 6,121 | $ | (4,851 | ) | $ | 3,473 | $ | 3,088 | |||||||||||||
| AA | 2,125 | 3,635 | 2,958 | 10,270 | (12,761 | ) | 6,227 | 4,428 | ||||||||||||||||||||
| A | 6,643 | 9,596 | 14,228 | 29,729 | (50,721 | ) | 9,475 | 7,638 | ||||||||||||||||||||
| BBB | 2,673 | 3,970 | 3,704 | 18,586 | (21,704 | ) | 7,229 | 5,764 | ||||||||||||||||||||
| Non-investment grade | 2,091 | 2,855 | 2,142 | 4,538 | (6,474 | ) | 5,152 | 2,947 | ||||||||||||||||||||
| Total | $ | 13,885 | $ | 20,607 | $ | 24,331 | $ | 69,244 | $ | (96,511 | ) | $ | 31,556 | $ | 23,865 | |||||||||||||
| (1) | Fair values shown represent the Company�s net exposure to counterparties related to the Company�s OTC derivative products. Amounts include centrally cleared derivatives. The table does not include listed derivatives and the effect of any related hedges utilized by the Company. |
| (2) | Obligor credit ratings are determined by the Company�s Credit Risk Management Department. |
| (3) | Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within such maturity category, where appropriate. Cash collateral received is netted on a counterparty basis, provided legal right of offset exists. |
| Years to Maturity | Cross-Maturity and Cash�Collateral Netting(3) | Net�Exposure Post-Cash Collateral | Net�Exposure Post- Collateral | |||||||||||||||||||||||||
| Credit Rating(2) | Less�than�1 | 1-3 | 3-5 | Over 5 | ||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||
| AAA | $ | 621 | $ | 1,615 | $ | 1,586 | $ | 10,375 | $ | (7,513 | ) | $ | 6,684 | $ | 6,389 | |||||||||||||
| AA | 5,578 | 7,547 | 5,972 | 21,068 | (31,074 | ) | 9,091 | 7,048 | ||||||||||||||||||||
| A | 7,576 | 5,538 | 10,224 | 27,417 | (41,608 | ) | 9,147 | 7,117 | ||||||||||||||||||||
| BBB | 4,437 | 4,448 | 3,231 | 17,758 | (17,932 | ) | 11,942 | 10,337 | ||||||||||||||||||||
| Non-investment grade | 2,819 | 2,949 | 2,703 | 5,084 | (6,458 | ) | 7,097 | 4,158 | ||||||||||||||||||||
| Total | $ | 21,031 | $ | 22,097 | $ | 23,716 | $ | 81,702 | $ | (104,585 | ) | $ | 43,961 | $ | 35,049 | |||||||||||||
| (1) | Fair values shown represent the Company�s net exposure to counterparties related to the Company�s OTC derivative products. Amounts include centrally cleared derivatives. The table does not include listed derivatives and the effect of any related hedges utilized by the Company. |
| (2) | Obligor credit ratings are determined by the Company�s Credit Risk Management Department. |
| (3) | Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within such maturity category, where appropriate. Cash collateral received is netted on a counterparty basis, provided legal right of offset exists. |
| | 218 |
| 219 | |
| Assets at | Liabilities�at | |||||||||||||||
| December�31, 2012 | December�31, 2012 | |||||||||||||||
| Fair�Value | Notional | Fair�Value | Notional | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Derivatives designated as accounting hedges: | ||||||||||||||||
| Interest rate contracts | $ | 8,347 | $ | 75,115 | $ | 168 | $ | 2,660 | ||||||||
| Foreign exchange contracts | 367 | 10,291 | 319 | 17,156 | ||||||||||||
| Total derivatives designated as accounting hedges | 8,714 | 85,406 | 487 | 19,816 | ||||||||||||
| Derivatives not designated as accounting hedges(1): | ||||||||||||||||
| Interest rate contracts | 815,454 | 18,130,030 | 793,936 | 17,682,566 | ||||||||||||
| Credit contracts | 68,267 | 1,932,786 | 64,494 | 1,867,807 | ||||||||||||
| Foreign exchange contracts | 52,427 | 1,841,186 | 56,094 | 1,886,073 | ||||||||||||
| Equity contracts | 38,600 | 587,700 | 41,870 | 587,199 | ||||||||||||
| Commodity contracts | 20,646 | 341,556 | 21,831 | 325,101 | ||||||||||||
| Other | 143 | 4,908 | 61 | 5,161 | ||||||||||||
| Total derivatives not designated as accounting hedges | 995,537 | 22,838,166 | 978,286 | 22,353,907 | ||||||||||||
| Total derivatives | $ | 1,004,251 | $ | 22,923,572 | $ | 978,773 | $ | 22,373,723 | ||||||||
| Cash collateral netting | (69,248 | ) | � | (43,009 | ) | � | ||||||||||
| Counterparty netting | (898,806 | ) | � | (898,806 | ) | � | ||||||||||
| Total derivatives | $ | 36,197 | $ | 22,923,572 | $ | 36,958 | $ | 22,373,723 | ||||||||
| (1) | Notional amounts include gross notionals related to open long and short futures contracts of $73 billion and $68 billion, respectively. The unsettled fair value on these futures contracts (excluded from the table above) of $1,073 million and $24 million is included in Receivables�Brokers, dealers and clearing organizations and Payables�Brokers, dealers and clearing organizations, respectively, on the consolidated statements of financial condition. |
| | 220 |
| Assets at | Liabilities�at | |||||||||||||||
| December�31, 2011 | December�31, 2011 | |||||||||||||||
| Fair�Value | Notional | Fair�Value | Notional | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Derivatives designated as accounting hedges: | ||||||||||||||||
| Interest rate contracts | $ | 8,151 | $ | 71,706 | $ | � | $ | � | ||||||||
| Foreign exchange contracts | 348 | 12,222 | 57 | 7,111 | ||||||||||||
| Total derivatives designated as accounting hedges | 8,499 | 83,928 | 57 | 7,111 | ||||||||||||
| Derivatives not designated as accounting hedges(1): | ||||||||||||||||
| Interest rate contracts | 904,725 | 21,099,876 | 880,027 | 21,005,733 | ||||||||||||
| Credit contracts | 138,791 | 2,466,623 | 130,726 | 2,428,042 | ||||||||||||
| Foreign exchange contracts | 61,995 | 1,582,364 | 64,691 | 1,604,493 | ||||||||||||
| Equity contracts | 46,287 | 603,290 | 48,286 | 595,146 | ||||||||||||
| Commodity contracts | 39,778 | 411,661 | 39,998 | 374,594 | ||||||||||||
| Other | 598 | 11,662 | 2,275 | 24,905 | ||||||||||||
| Total derivatives not designated as accounting hedges | 1,192,174 | 26,175,476 | 1,166,003 | 26,032,913 | ||||||||||||
| Total derivatives | $ | 1,200,673 | $ | 26,259,404 | $ | 1,166,060 | $ | 26,040,024 | ||||||||
| Cash collateral netting | (77,938 | ) | � | (44,936 | ) | � | ||||||||||
| Counterparty netting | (1,074,671 | ) | � | (1,074,671 | ) | � | ||||||||||
| Total derivatives | $ | 48,064 | $ | 26,259,404 | $ | 46,453 | $ | 26,040,024 | ||||||||
| (1) | Notional amounts include gross notionals related to open long and short futures contracts of $77 billion and $66 billion, respectively. The unsettled fair value on these futures contracts (excluded from the table above) of $605 million and $37 million is included in Receivables�Brokers, dealers and clearing organizations and Payables�Brokers, dealers and clearing organizations, respectively, on the consolidated statements of financial condition. |
| Gains (Losses) Recognized | ||||||||||||
| Product Type | 2012 | 2011 | 2010 | |||||||||
| (dollars�in�millions) | ||||||||||||
| Derivatives | $ | 29 | $ | 3,415 | $ | 1,257 | ||||||
| Borrowings | 703 | (2,549 | ) | (604 | ) | |||||||
| Total | $ | 732 | $ | 866 | $ | 653 | ||||||
| 221 | |
| Gains�(Losses) Recognized�in OCI�(effective�portion) | ||||||||||||
| Product Type | 2012(1) | 2011 | 2010 | |||||||||
| (dollars�in�millions) | ||||||||||||
| Foreign exchange contracts(2) | $ | 102 | $ | 180 | $ | (285 | ) | |||||
| Total | $ | 102 | $ | 180 | $ | (285 | ) | |||||
| (1) | A gain of $77 million, net of tax, related to net investment hedges was reclassified from other comprehensive income into income during 2012. The amount primarily related to the reversal of amounts recorded in cumulative other comprehensive income due to the incorrect application�of hedge accounting on certain derivative contracts (see above for further information). |
| (2) | Losses of $235 million, $220 million and $147 million were recognized in income related to amounts excluded from hedge effectiveness testing during 2012, 2011 and 2010, respectively. |
| Gains (Losses) Recognized in Income(1)(2) | ||||||||||||
| Product Type | 2012 | 2011 | 2010 | |||||||||
| (dollars in millions) | ||||||||||||
| Interest rate contracts | $ | 2,930 | $ | 5,538 | $ | 544 | ||||||
| Credit contracts | (722 | ) | 38 | (533 | ) | |||||||
| Foreign exchange contracts | (340 | ) | (2,982 | ) | 146 | |||||||
| Equity contracts | (1,794 | ) | 3,880 | (2,772 | ) | |||||||
| Commodity contracts | 387 | 500 | 597 | |||||||||
| Other contracts | 1 | (51 | ) | (160 | ) | |||||||
| Total derivative instruments | $ | 462 | $ | 6,923 | $ | (2,178 | ) | |||||
| (1) | Gains (losses) on derivative contracts not designated as hedges are primarily included in Principal transactions�Trading. |
| (2) | Gains (losses) associated with certain derivative contracts that have physically settled are excluded from the table above. Gains (losses) on these contracts are reflected with the associated cash instruments, which are also included in Principal transactions�Trading. |
| | 222 |
| At December�31, 2012 | ||||||||||||||||
| Maximum Potential Payout/Notional | ||||||||||||||||
| Protection Sold | Protection Purchased | |||||||||||||||
| Notional | Fair�Value (Asset)/Liability | Notional | Fair�Value (Asset)/Liability | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Single name credit default swaps | $ | 1,069,474 | $ | 2,889 | $ | 1,029,543 | $ | (2,456 | ) | |||||||
| Index and basket credit default swaps | 551,630 | 5,664 | 454,800 | (5,124 | ) | |||||||||||
| Tranched index and basket credit default swaps | 272,088 | 2,330 | 423,058 | (7,076 | ) | |||||||||||
| Total | $ | 1,893,192 | $ | 10,883 | $ | 1,907,401 | $ | (14,656 | ) | |||||||
| At December 31, 2011 | ||||||||||||||||
| Maximum Potential Payout/Notional | ||||||||||||||||
| Protection Sold | Protection Purchased | |||||||||||||||
| Notional | Fair�Value (Asset)/Liability | Notional | Fair Value (Asset)/Liability | |||||||||||||
| (dollars in millions) | ||||||||||||||||
| Single name credit default swaps | $ | 1,325,045 | $ | 47,045 | $ | 1,315,333 | $ | (45,345 | ) | |||||||
| Index and basket credit default swaps | 787,228 | 29,475 | 601,452 | (24,373 | ) | |||||||||||
| Tranched index and basket credit default swaps | 320,131 | 17,109 | 545,476 | (31,976 | ) | |||||||||||
| Total | $ | 2,432,404 | $ | 93,629 | $ | 2,462,261 | $ | (101,694 | ) | |||||||
| 223 | |
| Protection Sold | ||||||||||||||||||||||||
| Maximum Potential Payout/Notional | Fair
Value (Asset)/ Liability(1)(2) | |||||||||||||||||||||||
| Years to Maturity | ||||||||||||||||||||||||
| Credit Ratings of the Reference Obligation | Less�than�1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
| Single name credit default swaps: | ||||||||||||||||||||||||
| AAA | $ | 2,368 | $ | 6,592 | $ | 19,848 | $ | 5,767 | $ | 34,575 | $ | (204 | ) | |||||||||||
| AA | 10,984 | 16,804 | 34,280 | 7,193 | 69,261 | (325 | ) | |||||||||||||||||
| A | 66,635 | 72,796 | 67,285 | 10,760 | 217,476 | (2,740 | ) | |||||||||||||||||
| BBB | 124,662 | 145,462 | 142,714 | 34,396 | 447,234 | (492 | ) | |||||||||||||||||
| Non-investment grade | 91,743 | 98,515 | 92,143 | 18,527 | 300,928 | 6,650 | ||||||||||||||||||
| Total | 296,392 | 340,169 | 356,270 | 76,643 | 1,069,474 | 2,889 | ||||||||||||||||||
| Index and basket credit default swaps(3): | ||||||||||||||||||||||||
| AAA | 18,652 | 36,005 | 45,789 | 3,240 | 103,686 | (1,377 | ) | |||||||||||||||||
| AA | 1,255 | 9,479 | 12,026 | 8,343 | 31,103 | (55 | ) | |||||||||||||||||
| A | 2,684 | 5,423 | 5,440 | 125 | 13,672 | (155 | ) | |||||||||||||||||
| BBB | 27,720 | 105,870 | 143,562 | 29,101 | 306,253 | (862 | ) | |||||||||||||||||
| Non-investment grade | 97,389 | 86,703 | 153,858 | 31,054 | 369,004 | 10,443 | ||||||||||||||||||
| Total | 147,700 | 243,480 | 360,675 | 71,863 | 823,718 | 7,994 | ||||||||||||||||||
| Total credit default swaps sold | $ | 444,092 | $ | 583,649 | $ | 716,945 | $ | 148,506 | $ | 1,893,192 | $ | 10,883 | ||||||||||||
| Other credit contracts(4)(5) | $ | 796 | $ | 125 | $ | 155 | $ | 1,323 | $ | 2,399 | $ | (745 | ) | |||||||||||
| Total credit derivatives and other credit contracts | $ | 444,888 | $ | 583,774 | $ | 717,100 | $ | 149,829 | $ | 1,895,591 | $ | 10,138 | ||||||||||||
| (1) | Fair value amounts are shown on a gross basis prior to cash collateral or counterparty netting. |
| (2) | Fair value amounts of certain credit default swaps where the Company sold protection have an asset carrying value because credit spreads of the underlying reference entity or entities tightened during the terms of the contracts. |
| (3) | Credit ratings are calculated internally. |
| (4) | Other credit contracts include CLNs, CDOs and credit default swaps that are considered hybrid instruments. |
| (5) | Fair value amount shown represents the fair value of the hybrid instruments. |
| | 224 |
| Protection Sold | ||||||||||||||||||||||||
| Maximum Potential Payout/Notional | Fair
Value (Asset)/ Liability(1)(2) | |||||||||||||||||||||||
| Years to Maturity | ||||||||||||||||||||||||
| Credit Ratings of the Reference Obligation | Less�than�1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
| Single name credit default swaps: | ||||||||||||||||||||||||
| AAA | $ | 1,290 | $ | 5,681 | $ | 24,087 | $ | 12,942 | $ | 44,000 | $ | 1,536 | ||||||||||||
| AA | 12,416 | 22,043 | 23,341 | 10,986 | 68,786 | 1,597 | ||||||||||||||||||
| A | 67,344 | 124,445 | 85,543 | 47,640 | 324,972 | 8,683 | ||||||||||||||||||
| BBB | 131,588 | 218,262 | 115,320 | 64,347 | 529,517 | 4,789 | ||||||||||||||||||
| Non-investment grade | 94,105 | 133,867 | 82,163 | 47,635 | 357,770 | 30,440 | ||||||||||||||||||
| Total | 306,743 | 504,298 | 330,454 | 183,550 | 1,325,045 | 47,045 | ||||||||||||||||||
| Index and basket credit default swaps(3): | ||||||||||||||||||||||||
| AAA | 48,115 | 49,997 | 33,584 | 19,110 | 150,806 | (907 | ) | |||||||||||||||||
| AA | 6,584 | 15,349 | 9,498 | 15,745 | 47,176 | 1,053 | ||||||||||||||||||
| A | 5,202 | 18,996 | 17,396 | 12,286 | 53,880 | 2,470 | ||||||||||||||||||
| BBB | 8,525 | 99,004 | 235,888 | 32,057 | 375,474 | 8,365 | ||||||||||||||||||
| Non-investment grade | 112,451 | 141,042 | 160,537 | 65,993 | 480,023 | 35,603 | ||||||||||||||||||
| Total | 180,877 | 324,388 | 456,903 | 145,191 | 1,107,359 | 46,584 | ||||||||||||||||||
| Total credit default swaps sold | $ | 487,620 | $ | 828,686 | $ | 787,357 | $ | 328,741 | $ | 2,432,404 | $ | 93,629 | ||||||||||||
| Other credit contracts(4)(5) | $ | 65 | $ | 2,356 | $ | 717 | $ | 2,469 | $ | 5,607 | $ | (1,146 | ) | |||||||||||
| Total credit derivatives and other credit contracts | $ | 487,685 | $ | 831,042 | $ | 788,074 | $ | 331,210 | $ | 2,438,011 | $ | 92,483 | ||||||||||||
| (1) | Fair value amounts are shown on a gross basis prior to cash collateral or counterparty netting. |
| (2) | Fair value amounts of certain credit default swaps where the Company sold protection have an asset carrying value because credit spreads of the underlying reference entity or entities tightened during the terms of the contracts. |
| (3) | Credit ratings are calculated internally. |
| (4) | Other credit contracts include CLNs, CDOs and credit default swaps that are considered hybrid instruments. |
| (5) | Fair value amount shown represents the fair value of the hybrid instruments. |
| 225 | |
| | 226 |
| Years to Maturity | ||||||||||||||||||||
| Less than�1 | 1-3 | 3-5 | Over�5 | Total at December�31, 2012 | ||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Letters of credit and other financial guarantees obtained to satisfy collateral requirements | $ | 1,186 | $ | 1 | $ | 6 | $ | � | $ | 1,193 | ||||||||||
| Investment activities | 794 | 94 | 49 | 292 | 1,229 | |||||||||||||||
| Primary lending commitments�investment grade(1) | 7,734 | 11,583 | 34,743 | 171 | 54,231 | |||||||||||||||
| Primary lending commitments�non-investment grade(1) | 924 | 3,881 | 10,148 | 2,161 | 17,114 | |||||||||||||||
| Secondary lending commitments(2) | 116 | 103 | 53 | 50 | 322 | |||||||||||||||
| Commitments for secured lending transactions | 235 | � | � | � | 235 | |||||||||||||||
| Forward starting reverse repurchase agreements and securities borrowing agreements(3)(4) | 45,653 | � | � | � | 45,653 | |||||||||||||||
| Commercial and residential mortgage-related commitments | 778 | 16 | 183 | 207 | 1,184 | |||||||||||||||
| Other commitments | 1,534 | 157 | 93 | 95 | 1,879 | |||||||||||||||
| Total | $ | 58,954 | $ | 15,835 | $ | 45,275 | $ | 2,976 | $ | 123,040 | ||||||||||
| (1) | This amount includes $35.3 billion of investment grade and $8.4 billion of non-investment grade unfunded commitments accounted for as held for investment and $1.4 billion of investment grade and $2.3 billion of non-investment grade unfunded commitments accounted for as held for sale at December�31, 2012. The remainder of these lending commitments is carried at fair value. |
| (2) | These commitments are recorded at fair value within Financial instruments owned and Financial instruments sold, not yet purchased in the consolidated statements of financial condition (see Note 4). |
| (3) | The Company enters into forward starting reverse repurchase and securities borrowing agreements (agreements that have a trade date at or prior to December�31, 2012 and settle subsequent to period-end) that are primarily secured by collateral from U.S. government agency securities and other sovereign government obligations. These agreements primarily settle within three business days and of the total amount at December�31, 2012, $40.0�billion settled within three business days. |
| (4) | The Company also has a contingent obligation to provide financing to a clearinghouse through which it clears certain transactions. The financing is required only upon the default of a clearinghouse member. The financing takes the form of a reverse repurchase facility, with a maximum amount of approximately $2.3 billion. |
| 227 | |
| | 228 |
| Year Ended | Operating Premises Leases | |||
| 2013 | $ | 666 | ||
| 2014 | 658 | |||
| 2015 | 563 | |||
| 2016 | 509 | |||
| 2017 | 442 | |||
| Thereafter | 2,883 | |||
| Year Ended | Operating Equipment Leases | |||
| 2013 | $ | 324 | ||
| 2014 | 148 | |||
| 2015 | 105 | |||
| 2016 | 67 | |||
| 2017 | 61 | |||
| Thereafter | 134 | |||
| 229 | |
| Maximum Potential Payout/Notional | Carrying Amount (Asset)/ Liability | Collateral/ Recourse | ||||||||||||||||||||||||||
| Years to Maturity | ||||||||||||||||||||||||||||
| Type of Guarantee | Less�than�1 | 1-3 | 3-5 | Over�5 | Total | |||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||
| Credit derivative contracts(1) | $ | 444,092 | $ | 583,649 | $ | 716,945 | $ | 148,506 | $ | 1,893,192 | $ | 10,883 | $ | � | ||||||||||||||
| Other credit contracts | 796 | 125 | 155 | 1,323 | 2,399 | (745 | ) | � | ||||||||||||||||||||
| Non-credit derivative contracts(1) | 943,448 | 798,348 | 281,877 | 411,271 | 2,434,944 | 76,880 | � | |||||||||||||||||||||
| Standby letters of credit and other financial guarantees issued(2)(3) | 796 | 1,253 | 1,269 | 5,742 | 9,060 | (189 | ) | 7,086 | ||||||||||||||||||||
| Market value guarantees | � | 93 | 108 | 531 | 732 | 10 | 101 | |||||||||||||||||||||
| Liquidity facilities | 2,403 | 148 | � | � | 2,551 | (4 | ) | 3,764 | ||||||||||||||||||||
| Whole loan sales representations and warranties | � | � | � | 24,950 | 24,950 | 79 | � | |||||||||||||||||||||
| Securitization representations and warranties | � | � | � | 70,904 | 70,904 | 35 | � | |||||||||||||||||||||
| General partner guarantees | 69 | 43 | � | 200 | 312 | 76 | � | |||||||||||||||||||||
| (1) | Carrying amounts of derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting. For further information on derivative contracts, see Note 12. |
| (2) | Approximately $2.0�billion of standby letters of credit are also reflected in the �Commitments� table above in primary and secondary lending commitments. Standby letters of credit are recorded at fair value within Financial instruments owned or Financial instruments sold, not yet purchased in the consolidated statements of financial condition. |
| (3) | Amounts include guarantees issued by consolidated real estate funds sponsored by the Company of approximately $113 million. These guarantees relate to obligations of the fund�s investee entities, including guarantees related to capital expenditures and principal and interest debt payments. Accrued losses under these guarantees of approximately $4 million are reflected as a reduction of the carrying value of the related fund investments, which are reflected in Financial instruments owned�Investments on the consolidated statement of financial condition. |
| | 230 |
| 231 | |
| � | Trust Preferred Securities .����The Company has established�Morgan Stanley Capital Trusts for the limited purpose of issuing�trust preferred securities to third parties and lending the proceeds to the Company in exchange for junior subordinated debentures. The Company has directly guaranteed the repayment of the trust preferred securities to the holders thereof to the extent that the Company has made payments to a Morgan Stanley Capital Trust on the junior subordinated debentures. In the event that the Company does |
| | 232 |
| not make payments to a Morgan Stanley Capital Trust, holders of such series of trust preferred securities would not be able to rely upon the guarantee for payment of those amounts. The Company has not recorded any liability in the consolidated financial statements for these guarantees and believes that the occurrence of any events ( i.e. , non-performance on the part of the paying agent) that would trigger payments under these contracts is remote. See Note 15 for details on the Company�s junior subordinated debentures. |
| � | Indemnities .����The Company provides standard indemnities to counterparties for certain contingent exposures and taxes, including U.S. and foreign withholding taxes, on interest and other payments made on derivatives, securities and stock lending transactions, certain annuity products and other financial arrangements. These indemnity payments could be required based on a change in the tax laws or change in interpretation of applicable tax rulings or a change in factual circumstances. Certain contracts contain provisions that enable the Company to terminate the agreement upon the occurrence of such events. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. |
| � | Exchange/Clearinghouse Member Guarantees .����The Company is a member of various U.S. and non-U.S. exchanges and clearinghouses that trade and clear securities and/or derivative contracts. Associated with its membership, the Company may be required to pay a proportionate share of the financial obligations of another member who may default on its obligations to the exchange or the clearinghouse. While the rules governing different exchange or clearinghouse memberships vary, in general the Company�s guarantee obligations would arise only if the exchange or clearinghouse had previously exhausted its resources. The maximum potential payout under these membership agreements cannot be estimated. The Company has not recorded any contingent liability in the consolidated financial statements for these agreements and believes that any potential requirement to make payments under these agreements is remote. |
| � | Merger and Acquisition Guarantees .����The Company may, from time to time, in its role as investment banking advisor be required to provide guarantees in connection with certain European merger and acquisition transactions. If required by the regulating authorities, the Company provides a guarantee that the acquirer in the merger and acquisition transaction has or will have sufficient funds to complete the transaction and would then be required to make the acquisition payments in the event the acquirer�s funds are insufficient at the completion date of the transaction. These arrangements generally cover the time frame from the transaction offer date to its closing date and, therefore, are generally short term in nature. The maximum potential amount of future payments that the Company could be required to make cannot be estimated. The Company believes the likelihood of any payment by the Company under these arrangements is remote given the level of the Company�s due diligence associated with its role as investment banking advisor. |
| 233 | |
| | 234 |
| 235 | |
| | 236 |
| 237 | |
| December�31, 2012 | December�31, 2011 | |||||||||||||||
| Balance | Ratio | Balance | Ratio | |||||||||||||
| (dollars�in�millions) | ||||||||||||||||
| Tier 1 common capital(1)(2) | $ | 44,794 | 14.6 | % | $ | 39,785 | 12.6 | % | ||||||||
| Tier 1 capital(1) | 54,360 | 17.7 | % | 51,114 | 16.2 | % | ||||||||||
| Total capital(1) | 56,626 | 18.5 | % | 54,956 | 17.5 | % | ||||||||||
| RWAs(1) | 306,746 | � | 314,817 | � | ||||||||||||
| Adjusted average assets(1) | 769,495 | � | 769,578 | � | ||||||||||||
| Tier 1 leverage(1) | � | 7.1 | % | � | 6.6 | % | ||||||||||
| (1) | The Company�s December�31, 2011 Tier 1 common capital ratio, Tier 1 capital ratio and Total capital ratio were each reduced by approximately 30 basis points and Tier 1 leverage ratio was reduced by approximately 20 basis points due to an approximate $1.2 billion deferred tax asset disallowance adjustment, which resulted in a reduction to the Company�s Tier 1 common capital, Tier 1 capital, Total capital, RWAs and adjusted average assets by such amount. |
| (2) | Tier 1 common capital ratio equals Tier 1 common capital divided by RWAs. On December�30, 2011, the Federal Reserve formalized regulatory definitions for Tier 1 common capital and Tier 1 common capital ratio.�The Federal Reserve defined Tier 1 common capital as Tier 1 capital less non-common elements in Tier 1 capital, including perpetual preferred stock and related surplus, minority interest in subsidiaries, trust preferred securities and mandatory convertible preferred securities. Previously, the Company�s definition of Tier 1 common capital included all of the items noted in the Federal Reserve�s definition, but it also included an adjustment for the portion of goodwill and non-servicing intangible assets associated with the Wealth Management JV�s noncontrolling interests ( i.e. , Citi�s share of the Wealth Management JV�s goodwill and intangibles). The Company�s conformance to the Federal Reserve�s definition under the final rule reduced�its Tier 1 common capital and Tier 1 common ratio by approximately $4.2 billion and 132 basis points, respectively, at December�31, 2011. |
| | 238 |
| December�31,�2012 | December�31,�2011 | |||||||||||||||
| Amount | Ratio | Amount | Ratio | |||||||||||||
| (dollars�in�millions) | ||||||||||||||||
| Total capital (to RWAs) : | ||||||||||||||||
| Morgan Stanley Bank, N.A. | $ | 11,509 | 17.2 | % | $ | 10,222 | 17.8 | % | ||||||||
| Morgan Stanley Private Bank, National Association | $ | 1,673 | 28.8 | % | $ | 1,278 | 31.9 | % | ||||||||
| Tier I capital (to RWAs): | ||||||||||||||||
| Morgan Stanley Bank, N.A. | $ | 9,918 | 14.9 | % | $ | 8,703 | 15.1 | % | ||||||||
| Morgan Stanley Private Bank, National Association | $ | 1,665 | 28.7 | % | $ | 1,275 | 31.8 | % | ||||||||
| Leverage ratio: | ||||||||||||||||
| Morgan Stanley Bank, N.A. | $ | 9,918 | 13.3 | % | $ | 8,703 | 13.2 | % | ||||||||
| Morgan Stanley Private Bank, National Association | $ | 1,665 | 10.6 | % | $ | 1,275 | 10.2 | % | ||||||||
| 239 | |
| Beginning balance at January�1, 2012 | $ | � | ||
| Reclassification from nonredeemable noncontrolling interests | 4,288 | |||
| Net income applicable to redeemable noncontrolling interests | 124 | |||
| Foreign currency translation adjustments | (2 | ) | ||
| Distributions | (97 | ) | ||
| Other | (4 | ) | ||
| Ending balance at December�31, 2012 | $ | 4,309 | ||
| 2012 | 2011 | 2010 | ||||||||||
| Shares outstanding at beginning of period | 1,927 | 1,512 | 1,361 | |||||||||
| Public offerings and other issuances of common stock | � | 385 | 116 | |||||||||
| Net impact of stock option exercises and other share issuances | 60 | 41 | 46 | |||||||||
| Treasury stock purchases(1) | (13 | ) | (11 | ) | (11 | ) | ||||||
| Shares outstanding at end of period | 1,974 | 1,927 | 1,512 | |||||||||
| (1) | Treasury stock purchases include repurchases of common stock for employee tax withholding. |
| | 240 |
| 241 | |
| Dividend Rate (Annual) | Shares Outstanding at�December 31, 2012 | Liquidation Preference per Share | Carrying Value | |||||||||||||||||
| Series | At December�31, 2012 | At December�31, 2011 | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| A | N/A | 44,000 | $ | 25,000 | $ | 1,100 | $ | 1,100 | ||||||||||||
| C | 10.0 | % | 519,882 | 1,000 | 408 | 408 | ||||||||||||||
| Total | $ | 1,508 | $ | 1,508 | ||||||||||||||||
| | 242 |
| 243 | |
| At | At | |||||||
| December�31, | December�31, | |||||||
| 2012 | 2011 | |||||||
| (dollars in millions) | ||||||||
| Foreign currency translation adjustments, net of tax | $ | (123 | ) | $ | 5 | |||
| Amortization expense related to terminated cash flow hedges, net of tax | (5 | ) | (11 | ) | ||||
| Pension, postretirement and other related adjustments, net of tax | (539 | ) | (274 | ) | ||||
| Net unrealized gain on securities available for sale, net of tax | 151 | 123 | ||||||
| Accumulated other comprehensive loss, net of tax | $ | (516 | ) | $ | (157 | ) | ||
| At | At | |||||||
| December�31, | December�31, | |||||||
| 2012 | 2011 | |||||||
| (dollars in millions) | ||||||||
| Net investments in non-U.S. dollar functional currency subsidiaries subject to hedges | $ | 13,811 | $ | 12,325 | ||||
| Cumulative foreign currency translation adjustments resulting from net investments in subsidiaries with a non-U.S. dollar functional currency | $ | 348 | $ | 581 | ||||
| Cumulative foreign currency translation adjustments resulting from realized or unrealized losses on hedges, net of tax(1) | (471 | ) | (576 | ) | ||||
| Total cumulative foreign currency translation adjustments, net of tax | $ | (123 | ) | $ | 5 | |||
| (1) | A gain of $77 million, net of tax, related to net investment hedges was reclassified from other comprehensive income into income during 2012. The amount primarily related to the reversal of amounts recorded in cumulative other comprehensive income due to the incorrect application�of hedge accounting on certain derivative contracts (see Note 12 for further information). |
| | 244 |
| 2012 | 2011 | 2010 | ||||||||||
| Basic EPS: | ||||||||||||
| Income from continuing operations | $ | 754 | $ | 4,689 | $ | 5,455 | ||||||
| Net gain (loss) from discontinued operations | (38 | ) | (44 | ) | 247 | |||||||
| Net income | 716 | 4,645 | 5,702 | |||||||||
| Net income applicable to redeemable noncontrolling interests | 124 | � | � | |||||||||
| Net income applicable to nonredeemable noncontrolling interests | 524 | 535 | 999 | |||||||||
| Net income applicable to Morgan Stanley | 68 | 4,110 | 4,703 | |||||||||
| Less: Preferred dividends (Series A Preferred Stock) | (44 | ) | (44 | ) | (45 | ) | ||||||
| Less: Preferred dividends (Series B Preferred Stock) | � | (196 | ) | (784 | ) | |||||||
| Less: MUFG stock conversion | � | (1,726 | ) | � | ||||||||
| Less: Preferred dividends (Series C Preferred Stock) | (52 | ) | (52 | ) | (52 | ) | ||||||
| Less: Allocation of (earnings) loss to participating RSUs(2): | ||||||||||||
| From continuing operations | (2 | ) | (26 | ) | (108 | ) | ||||||
| From discontinued operations | � | 1 | (7 | ) | ||||||||
| Less: Allocation of undistributed (earnings) to Equity Units(1): | ||||||||||||
| From continuing operations | � | � | (102 | ) | ||||||||
| From discontinued operations | � | � | (11 | ) | ||||||||
| Earnings (loss) applicable to Morgan Stanley common shareholders | $ | (30 | ) | $ | 2,067 | $ | 3,594 | |||||
| Weighted average common shares outstanding | 1,886 | 1,655 | 1,362 | |||||||||
| Earnings (loss) per basic common share: | ||||||||||||
| Income from continuing operations | $ | 0.02 | $ | 1.28 | $ | 2.48 | ||||||
| Net gain (loss) from discontinued operations | (0.04 | ) | (0.03 | ) | 0.16 | |||||||
| Earnings (loss) per basic common share | $ | (0.02 | ) | $ | 1.25 | $ | 2.64 | |||||
| 245 | |
| 2012 | 2011 | 2010 | ||||||||||
| Diluted EPS: | ||||||||||||
| Earnings (loss) applicable to Morgan Stanley common shareholders | $ | (30 | ) | $ | 2,067 | $ | 3,594 | |||||
| Impact on income of assumed conversions: | ||||||||||||
| Assumed conversion of Equity Units(1): | ||||||||||||
| From continuing operations | � | � | 76 | |||||||||
| From discontinued operations | � | � | 40 | |||||||||
| Earnings (loss) applicable to common shareholders plus assumed conversions | $ | (30 | ) | $ | 2,067 | $ | 3,710 | |||||
| Weighted average common shares outstanding | 1,886 | 1,655 | 1,362 | |||||||||
| Effect of dilutive securities: | ||||||||||||
| Stock options and RSUs(2) | 33 | 20 | 5 | |||||||||
| Equity Units(1) | � | � | 44 | |||||||||
| Weighted average common shares outstanding and common stock equivalents | 1,919 | 1,675 | 1,411 | |||||||||
| Earnings (loss) per diluted common share: | ||||||||||||
| Income from continuing operations | $ | 0.02 | $ | 1.26 | $ | 2.45 | ||||||
| Net income (loss) from discontinued operations | (0.04 | ) | (0.03 | ) | 0.18 | |||||||
| Earnings (loss) per diluted common share | $ | (0.02 | ) | $ | 1.23 | $ | 2.63 | |||||
| (1) | See Note 15 for further information on Equity Units. |
| (2) | RSUs that are considered participating securities participate in all of the earnings of the Company in the computation of basic EPS, and, therefore, such RSUs are not included as incremental shares in the diluted calculation. |
| Number of Antidilutive Securities Outstanding at End of Period: | 2012 | 2011 | 2010 | |||||||||
| (shares in millions) | ||||||||||||
| RSUs and performance-based stock units | 8 | 21 | 38 | |||||||||
| Stock options | 42 | 57 | 67 | |||||||||
| Series B Preferred Stock | � | � | 311 | |||||||||
| Total | 50 | 78 | 416 | |||||||||
| | 246 |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Interest income(1): | ||||||||||||
| Financial instruments owned(2) | $ | 2,736 | $ | 3,593 | $ | 3,931 | ||||||
| Securities available for sale | 343 | 348 | 215 | |||||||||
| Loans | 643 | 356 | 315 | |||||||||
| Interest bearing deposits with banks | 124 | 186 | 155 | |||||||||
| Federal funds sold and securities purchased under agreements to resell and Securities borrowed | 364 | 886 | 769 | |||||||||
| Other | 1,515 | 1,889 | 1,920 | |||||||||
| Total interest income | $ | 5,725 | $ | 7,258 | $ | 7,305 | ||||||
| Interest expense(1): | ||||||||||||
| Deposits | $ | 181 | $ | 236 | $ | 310 | ||||||
| Commercial paper and other short-term borrowings | 38 | 41 | 28 | |||||||||
| Long-term debt | 4,622 | 4,912 | 4,592 | |||||||||
| Securities sold under agreements to repurchase and Securities loaned | 1,805 | 1,925 | 1,591 | |||||||||
| Other | (722 | ) | (212 | ) | (114 | ) | ||||||
| Total interest expense | $ | 5,924 | $ | 6,902 | $ | 6,407 | ||||||
| Net interest | $ | (199 | ) | $ | 356 | $ | 898 | |||||
| (1) | Interest income and expense are recorded within the consolidated statements of income depending on the nature of the instrument and related market conventions. When interest is included as a component of the instrument�s fair value, interest is included within Principal transactions�Trading revenues or Principal transactions�Investments revenues. Otherwise, it is included within Interest income or Interest expense. |
| (2) | Interest expense on Financial instruments sold, not yet purchased is reported as a reduction to Interest income on Financial instruments owned. |
| 247 | |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars in millions) | ||||||||||||
| Gain on China International Capital Corporation Limited (see Note 24) | $ | � | $ | � | $ | 668 | ||||||
| Gain on sale of Invesco shares (see Note 1) | � | � | 102 | |||||||||
| FrontPoint impairment charges (see Note 24) | � | (30 | ) | (126 | ) | |||||||
| Gain (loss) on retirement of long-term debt (see Note 11) | 29 | 155 | (27 | ) | ||||||||
| Income (loss) from Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (see Note 24) | 152 | (783 | ) | (62 | ) | |||||||
| Other | 374 | 833 | 681 | |||||||||
| Total | $ | 555 | $ | 175 | $ | 1,236 | ||||||
| 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Deferred restricted stock units | $ | 864 | $ | 1,057 | $ | 1,075 | ||||||
| Stock options | 4 | 24 | 1 | |||||||||
| Performance-based stock units | 29 | 32 | 39 | |||||||||
| Total(1) | $ | 897 | $ | 1,113 | $ | 1,115 | ||||||
| (1) | Amounts for 2012, 2011 and 2010 include $31 million, $186 million and $222 million, respectively, related to equity awards that were granted in 2013, 2012 and 2011, respectively, to employees who satisfied retirement-eligible requirements under the award terms that do not contain a future service period. The decrease in 2012 is due to the introduction of a new vesting requirement in certain 2012 performance year award terms for employees who satisfied the existing retirement eligible provisions to provide a one-year advance notice of their intention to retire from the Company. As such, these awards will begin to be expensed in 2013 after the grant date over the appropriate service period (see Note 2). |
| | 248 |
| 2012 | ||||||||
| Number�of Shares | Weighted�Average Grant Date Fair Value | |||||||
| RSUs at beginning of period | 111 | $ | 28.82 | |||||
| Granted | 54 | 18.09 | ||||||
| Conversions to common stock | (38 | ) | 28.69 | |||||
| Canceled | (5 | ) | 24.77 | |||||
| RSUs at end of period(1) | 122 | $ | 24.29 | |||||
| (1) | At December�31, 2012, approximately 112�million RSUs with a weighted average grant date fair value of $24.44 were vested or expected to vest. |
| 249 | |
| 2012 | ||||||||
| Number�of Shares | Weighted�Average Grant Date Fair Value | |||||||
| Unvested RSUs at beginning of period | 78 | $ | 28.32 | |||||
| Granted | 54 | 18.09 | ||||||
| Vested | (44 | ) | 24.64 | |||||
| Canceled | (5 | ) | 24.74 | |||||
| Unvested RSUs at end of period(1) | 83 | $ | 23.83 | |||||
| (1) | Unvested RSUs represent awards where recipients have yet to satisfy either the explicit vesting terms or retirement-eligible requirements. At December�31, 2012, approximately 73�million unvested RSUs with a weighted average grant date fair value of $24.00 were expected to vest. |
| Grant Year | Risk-Free�Interest Rate | Expected�Life | Expected�Stock Price Volatility | Expected�Dividend Yield | ||||||||||||
| 2011 | 2.1 | % | 5.0�years | 32.7 | % | 1.5 | % | |||||||||
| 2012 | ||||||||
| Number�of Options | Weighted Average Exercise� Price | |||||||
| Options outstanding at beginning of period | 57 | $ | 48.15 | |||||
| Canceled | (15 | ) | 47.49 | |||||
| Options outstanding at end of period(1) | 42 | 48.37 | ||||||
| Options exercisable at end of period | 39 | 49.93 | ||||||
| (1) | At December�31, 2012, approximately 42�million options with a weighted average exercise price of $48.58 were vested. |
| | 250 |
| At�December�31,�2012 | Options Outstanding | Options Exercisable | ||||||||||||||||||||||
| Range�of�Exercise�Prices | Number Outstanding | Weighted�Average Exercise Price | Average Remaining�Life (Years) | Number Exercisable | Weighted�Average Exercise Price | Average Remaining�Life (Years) | ||||||||||||||||||
| $28.00���$39.99 | 12 | $ | 34.50 | 1.4 | 9 | $ | 36.15 | 0.1 | ||||||||||||||||
| $40.00���$49.99 | 18 | 46.57 | 1.1 | 18 | 46.57 | 1.1 | ||||||||||||||||||
| $50.00���$59.99 | 1 | 52.05 | 3.0 | 1 | 52.05 | 3.0 | ||||||||||||||||||
| $60.00���$76.99 | 11 | 66.75 | 3.9 | 11 | 66.75 | 3.9 | ||||||||||||||||||
| Total | 42 | 39 | ||||||||||||||||||||||
| Minimum | Maximum | |||||||||||||
| Year | Average ROE | Multiplier | Average ROE | Multiplier | ||||||||||
| 2012 | Less�than�6% | 0.0 | 12%�or�more | 1.5 | ||||||||||
| 2011 | Less�than�7.5% | 0.0 | 18% or more | 2.0 | ||||||||||
| 2010 | Less�than�7.5% | 0.0 | 18% or more | 2.0 | ||||||||||
| 251 | |
| Minimum | Maximum | |||||||||||||
| Year | Metrics | TSR | Multiplier | TSR | Multiplier | |||||||||
| 2012 | Comparison of TSR | Below | Down�to�0.0 | Above | Up�to�1.5 | |||||||||
| 2011 | Ranking within the comparison group | Rank�9�or�10 | 0.0 | Rank�1 | 2.0 | |||||||||
| 2010 | Ranking within the comparison group | Rank 9 or 10 | 0.0 | Rank 1 | 2.0 | |||||||||
| Grant Year | Risk-Free�Interest Rate | Expected�Stock Price Volatility | Expected�Dividend Yield | |||||||||
| 2012 | 0.4 | % | 56.0 | % | 1.1 | % | ||||||
| 2011 | 1.0 | % | 89.0 | % | 1.5 | % | ||||||
| 2010 | 1.5 | % | 89.9 | % | 0.7 | % | ||||||
| 2012 | ||||
| Number�of�Shares | ||||
| (in millions) | ||||
| PSUs at beginning of period | 4 | |||
| Granted | 1 | |||
| PSUs at end of period | 5 | |||
| | 252 |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Deferred cash-based awards(1) | $ | 1,815 | $ | 1,809 | $ | 771 | ||||||
| Return on referenced investments | 435 | 132 | 465 | |||||||||
| Total | $ | 2,250 | $ | 1,941 | $ | 1,236 | ||||||
| (1) | Amounts for 2012, 2011 and 2010 include $93 million, $113 million and $80 million, respectively, related to deferred awards that were granted in 2013, 2012 and 2011, respectively, to employees who satisfied retirement-eligible requirements under the award terms that do not contain a service period. |
| 253 | |
| Pension | Postretirement | |||||||||||||||||||||||
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||
| (dollars�in�millions) | ||||||||||||||||||||||||
| Service cost, benefits earned during the period | $ | 26 | $ | 27 | $ | 99 | $ | 4 | $ | 4 | $ | 7 | ||||||||||||
| Interest cost on projected benefit obligation | 156 | 158 | 152 | 7 | 8 | 11 | ||||||||||||||||||
| Expected return on plan assets | (110 | ) | (131 | ) | (128 | ) | � | � | � | |||||||||||||||
| Net amortization of prior service costs | � | � | (4 | ) | (14 | ) | (14 | ) | (3 | ) | ||||||||||||||
| Net amortization of actuarial loss | 27 | 17 | 24 | 2 | 2 | 1 | ||||||||||||||||||
| Curtailment gain | � | � | (50 | ) | � | � | (4 | ) | ||||||||||||||||
| Settlement loss | � | 1 | 3 | � | � | � | ||||||||||||||||||
| Net periodic benefit expense | $ | 99 | $ | 72 | $ | 96 | $ | (1 | ) | $ | � | $ | 12 | |||||||||||
| Pension | Postretirement | |||||||||||||||||||||||
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||
| (dollars�in�millions) | ||||||||||||||||||||||||
| Net loss (gain) | $ | 416 | $ | (401 | ) | $ | 34 | $ | 16 | $ | (5 | ) | $ | 2 | ||||||||||
| Prior service cost (credit) | 3 | 2 | � | � | � | (54 | ) | |||||||||||||||||
| Amortization of prior service credit | � | � | 54 | 14 | 14 | 7 | ||||||||||||||||||
| Amortization of net loss | (27 | ) | (18 | ) | (27 | ) | (2 | ) | (2 | ) | (1 | ) | ||||||||||||
| Total recognized in other comprehensive loss (income) | $ | 392 | $ | (417 | ) | $ | 61 | $ | 28 | $ | 7 | $ | (46 | ) | ||||||||||
| | 254 |
| Pension | Postretirement | |||||||||||||||||||||||
| 2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||
| Discount rate | 4.57 | % | 5.44 | % | 5.91 | % | 4.56 | % | 5.41 | % | 6.00�/�5.35 | % | ||||||||||||
| Expected long-term rate of return on plan assets | 3.78 | 4.78 | 4.78 | N/A | N/A | N/A | ||||||||||||||||||
| Rate of future compensation increases | 2.14 | 2.28 | 5.13 | N/A | N/A | N/A | ||||||||||||||||||
| 255 | |
| Pension | Postretirement | |||||||
| (dollars�in�millions) | ||||||||
| Reconciliation of benefit obligation: | ||||||||
| Benefit obligation at December�31, 2010 | $ | 2,953 | $ | 155 | ||||
| Service cost | 27 | 4 | ||||||
| Interest cost | 158 | 8 | ||||||
| Actuarial loss (gain) | 490 | (4 | ) | |||||
| Plan amendments | 4 | � | ||||||
| Plan settlements | (16 | ) | � | |||||
| Benefits paid | (98 | ) | (9 | ) | ||||
| Other, including foreign currency exchange rate changes | (1 | ) | � | |||||
| Benefit obligation at December�31, 2011 | $ | 3,517 | $ | 154 | ||||
| Service cost | 26 | 4 | ||||||
| Interest cost | 156 | 7 | ||||||
| Actuarial loss | 405 | 15 | ||||||
| Plan settlements | (2 | ) | � | |||||
| Benefits paid | (147 | ) | (6 | ) | ||||
| Other, including foreign currency exchange rate changes | (72 | ) | � | |||||
| Benefit obligation at December�31, 2012 | $ | 3,883 | $ | 174 | ||||
| Reconciliation of fair value of plan assets: | ||||||||
| Fair value of plan assets at December�31, 2010 | $ | 2,642 | $ | � | ||||
| Actual return on plan assets | 1,024 | � | ||||||
| Employer contributions | 57 | 9 | ||||||
| Benefits paid | (98 | ) | (9 | ) | ||||
| Plan settlements | (16 | ) | � | |||||
| Other, including foreign currency exchange rate changes | (5 | ) | � | |||||
| Fair value of plan assets at December�31, 2011 | $ | 3,604 | $ | � | ||||
| Actual return on plan assets | 83 | � | ||||||
| Employer contributions | 42 | 6 | ||||||
| Benefits paid | (147 | ) | (6 | ) | ||||
| Plan settlements | (2 | ) | � | |||||
| Other, including foreign currency exchange rate changes | (61 | ) | � | |||||
| Fair value of plan assets at December�31, 2012 | $ | 3,519 | $ | � | ||||
| | 256 |
| Pension | Postretirement | |||||||||||||||
| December�31, 2012 | December�31, 2011 | December�31, 2012 | December�31, 2011 | |||||||||||||
| (dollars�in�millions) | ||||||||||||||||
| Funded (unfunded) status | $ | (364 | ) | $ | 87 | $ | (174 | ) | $ | (154 | ) | |||||
| Amounts recognized in the consolidated statements of financial condition consist of: | ||||||||||||||||
| Assets | $ | 97 | $ | 495 | $ | � | $ | � | ||||||||
| Liabilities | (461 | ) | (408 | ) | (174 | ) | (154 | ) | ||||||||
| Net amount recognized | $ | (364 | ) | $ | 87 | $ | (174 | ) | $ | (154 | ) | |||||
| Amounts recognized in accumulated other comprehensive loss consist of: | ||||||||||||||||
| Prior service credit | $ | (2 | ) | $ | (5 | ) | $ | (24 | ) | $ | (38 | ) | ||||
| Net loss | 821 | 432 | 41 | 27 | ||||||||||||
| Net loss (gain) recognized | $ | 819 | $ | 427 | $ | 17 | $ | (11 | ) | |||||||
| December�31, 2012 | December�31, 2011 | |||||||
| (dollars�in�millions) | ||||||||
| Projected benefit obligation | $ | 552 | $ | 567 | ||||
| Fair value of plan assets | 90 | 159 | ||||||
| December�31, 2012 | December�31, 2011 | |||||||
| (dollars�in�millions) | ||||||||
| Accumulated benefit obligation | $ | 527 | $ | 450 | ||||
| Fair value of plan assets | 90 | 85 | ||||||
| 257 | |
| Pension | Postretirement | |||||||||||||||
| December�31, 2012 | December�31, 2011 | December�31, 2012 | December�31, 2011 | |||||||||||||
| Discount rate | 3.95 | % | 4.57 | % | 3.88 | % | 4.56 | % | ||||||||
| Rate of future compensation increase | 0.98 | 2.14 | N/A | N/A | ||||||||||||
| December�31, 2012 | December�31, 2011 | |||||||
| Health care cost trend rate assumed for next year: | ||||||||
| Medical | 6.93-7.53% | 6.95-7.68% | ||||||
| Prescription | 8.66% | 9.08% | ||||||
| Rate to which the cost trend rate is assumed to decline (ultimate trend rate) | 4.50% | 4.50% | ||||||
| Year that the rate reaches the ultimate trend rate | 2029 | 2029 | ||||||
| One-Percentage Point Increase | One-Percentage Point�(Decrease) | |||||||
| (dollars�in�millions) | ||||||||
| Effect on total postretirement service and interest cost | $ | 2 | $ | (2 | ) | |||
| Effect on postretirement benefit obligation | 26 | (21 | ) | |||||
| | 258 |
| � | Derivatives may be used only if they are deemed by the investment manager to be more attractive than a similar direct investment in the underlying cash market or if the vehicle is being used to manage risk of the portfolio. |
| � | Derivatives may not be used in a speculative manner or to leverage the portfolio under any circumstances. |
| � | Derivatives may not be used as short-term trading vehicles. The investment philosophy of the U.S. Qualified Plan is that investment activity is undertaken for long-term investment rather than short-term trading. |
| � | Derivatives may only be used in the management of the U.S. Qualified Plan�s portfolio when their possible effects can be quantified, shown to enhance the risk-return profile of the portfolio, and reported in a meaningful and understandable manner. |
| 259 | |
| Quoted�Prices�in Active�Markets�for Identical Assets (Level 1) | Significant Observable�Inputs (Level�2) | Significant Unobservable Inputs�(Level�3) | Total | |||||||||||||
| (dollars�in�millions) | ||||||||||||||||
| Assets: | ||||||||||||||||
| Investments: | ||||||||||||||||
| Cash and cash equivalents(1) | $ | 80 | $ | � | $ | � | $ | 80 | ||||||||
| U.S. government and agency securities: | ||||||||||||||||
| U.S. Treasury securities | 1,354 | � | � | 1,354 | ||||||||||||
| U.S. agency securities | � | 241 | � | 241 | ||||||||||||
| Total U.S. government and agency securities | 1,354 | 241 | � | 1,595 | ||||||||||||
| Corporate and other debt: | ||||||||||||||||
| State and municipal securities | � | 2 | � | 2 | ||||||||||||
| Collateralized debt obligations | � | 71 | � | 71 | ||||||||||||
| Total corporate and other debt | � | 73 | � | 73 | ||||||||||||
| Corporate equities | 20 | � | � | 20 | ||||||||||||
| Derivative contracts(2) | � | 224 | � | 224 | ||||||||||||
| Derivative-related cash collateral receivable | � | 3 | � | 3 | ||||||||||||
| Commingled trust funds(3) | � | 1,275 | � | 1,275 | ||||||||||||
| Foreign funds(4) | � | 282 | � | 282 | ||||||||||||
| Other investments | � | 11 | 30 | 41 | ||||||||||||
| Total investments | 1,454 | 2,109 | 30 | 3,593 | ||||||||||||
| Receivables: | ||||||||||||||||
| Other receivables(1) | � | 71 | � | 71 | ||||||||||||
| Total receivables | � | 71 | � | 71 | ||||||||||||
| Total assets | $ | 1,454 | $ | 2,180 | $ | 30 | $ | 3,664 | ||||||||
| Liabilities: | ||||||||||||||||
| Derivative contracts(5) | $ | � | $ | 57 | $ | � | $ | 57 | ||||||||
| Derivative-related cash collateral payable | � | 28 | � | 28 | ||||||||||||
| Other liabilities(1) | � | 60 | � | 60 | ||||||||||||
| Total liabilities | � | 145 | � | 145 | ||||||||||||
| Net pension assets | $ | 1,454 | $ | 2,035 | $ | 30 | $ | 3,519 | ||||||||
| | 260 |
| (1) | Cash and cash equivalents, other receivables and other liabilities are valued at cost, which approximates fair value. |
| (2) | Derivative contracts in an asset position include investments in interest rate swaps of $224 million. |
| (3) | Commingled trust funds include investments in fixed income funds of $1,275 million. |
| (4) | Foreign funds include investments in bond funds, targeted cash flow funds, liquidity funds and diversified funds of $141 million, $85 million, $55 million and $1 million, respectively. |
| (5) | Derivative contracts in a liability position include investments in interest rate swaps of $57 million. |
| Quoted�Prices in�Active�Markets for Identical Assets (Level 1) | Significant Observable�Inputs (Level 2) | Significant Unobservable Inputs�(Level�3) | Total | |||||||||||||
| (dollars�in�millions) | ||||||||||||||||
| Assets: | ||||||||||||||||
| Investments: | ||||||||||||||||
| Cash and cash equivalents(1) | $ | 11 | $ | � | $ | � | $ | 11 | ||||||||
| U.S. government and agency securities: | ||||||||||||||||
| U.S. Treasury securities | 1,295 | � | � | 1,295 | ||||||||||||
| U.S. agency securities | � | 245 | � | 245 | ||||||||||||
| Total U.S. government and agency securities | 1,295 | 245 | � | 1,540 | ||||||||||||
| Other sovereign government obligations | 16 | 48 | � | 64 | ||||||||||||
| Corporate and other debt: | ||||||||||||||||
| State and municipal securities | � | 2 | � | 2 | ||||||||||||
| Corporate bonds | � | 142 | � | 142 | ||||||||||||
| Collateralized debt obligations | � | 88 | � | 88 | ||||||||||||
| Total corporate and other debt | � | 232 | � | 232 | ||||||||||||
| Corporate equities | 6 | � | � | 6 | ||||||||||||
| Derivative contracts(2) | � | 230 | � | 230 | ||||||||||||
| Derivative-related cash collateral receivable | � | 1 | � | 1 | ||||||||||||
| Commingled trust funds(3) | � | 1,339 | � | 1,339 | ||||||||||||
| Foreign funds(4) | � | 273 | � | 273 | ||||||||||||
| Other investments | � | 13 | 26 | 39 | ||||||||||||
| Total investments | 1,328 | 2,381 | 26 | 3,735 | ||||||||||||
| Receivables: | ||||||||||||||||
| Other receivables(1) | � | 14 | � | 14 | ||||||||||||
| Total receivables | � | 14 | � | 14 | ||||||||||||
| Total assets | $ | 1,328 | $ | 2,395 | $ | 26 | $ | 3,749 | ||||||||
| Liabilities: | ||||||||||||||||
| Derivative contracts(5) | $ | � | $ | 105 | $ | � | $ | 105 | ||||||||
| Derivative-related cash collateral payable | � | 25 | � | 25 | ||||||||||||
| Other liabilities(1) | � | 15 | � | 15 | ||||||||||||
| Total liabilities | � | 145 | � | 145 | ||||||||||||
| Net pension assets | $ | 1,328 | $ | 2,250 | $ | 26 | $ | 3,604 | ||||||||
| (1) | Cash and cash equivalents, other receivables and other liabilities are valued at cost, which approximates fair value. |
| (2) | Derivative and other contracts in an asset position include investments in interest rate swaps of $230 million. |
| (3) | Commingled trust funds include investments in cash funds and fixed income funds of $39 million and $1,300 million, respectively. |
| 261 | |
| (4) | Foreign funds include investments in equity funds, bond funds, targeted cash flow funds and diversified funds of $17 million, $124 million, $131 million and $1 million, respectively. |
| (5) | Derivative and other contracts in a liability position include investments in inflation swaps and interest rate swaps of $9 million and $96 million, respectively. |
| Beginning Balance at January�1, 2012 | Actual Return�on Plan�Assets Related to Assets Still Held at December�31, 2012 | Actual Return on�Plan Assets�Related to Assets Sold during 2012 | Purchases, Sales, Other Settlements and Issuances, net | Net�Transfers In�and/or�(Out) of�Level 3 | Ending Balance at�December� 31, 2012 | |||||||||||||||||||
| (dollars�in�millions) | ||||||||||||||||||||||||
| Investments | ||||||||||||||||||||||||
| Other investments | $ | 26 | $ | � | $ | � | $ | 4 | $ | � | $ | 30 | ||||||||||||
| Total investments | $ | 26 | $ | � | $ | � | $ | 4 | $ | � | $ | 30 | ||||||||||||
| Beginning Balance at January�1, 2011 | Actual Return�on Plan�Assets Related to Assets Still Held at December�31, 2011 | Actual Return on�Plan Assets�Related to Assets Sold during 2011 | Purchases, Sales, Other Settlements and Issuances, net | Net�Transfers In�and/or�(Out) of Level 3 | Ending Balance at�December�31, 2011 | |||||||||||||||||||
| (dollars�in�millions) | ||||||||||||||||||||||||
| Investments | ||||||||||||||||||||||||
| Other investments | $ | 23 | $ | (1 | ) | $ | � | $ | 4 | $ | � | $ | 26 | |||||||||||
| Total investments | $ | 23 | $ | (1 | ) | $ | � | $ | 4 | $ | � | $ | 26 | |||||||||||
| Pension | Postretirement | |||||||
| (dollars�in�millions) | ||||||||
| 2013 | $ | 136 | $ | 6 | ||||
| 2014 | 137 | 6 | ||||||
| 2015 | 134 | 7 | ||||||
| 2016 | 137 | 7 | ||||||
| 2017 | 142 | 8 | ||||||
| 2018-2022 | 773 | 47 | ||||||
| | 262 |
| 263 | |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Current: | ||||||||||||
| U.S. federal | $ | (178 | ) | $ | 35 | $ | 213 | |||||
| U.S. state and local | 140 | 276 | 162 | |||||||||
| Non-U.S.: | ||||||||||||
| United Kingdom | (16 | ) | 169 | 457 | ||||||||
| Japan | 90 | 19 | (31 | ) | ||||||||
| Hong Kong | 16 | (3 | ) | (7 | ) | |||||||
| Other(1) | 355 | 378 | 423 | |||||||||
| $ | 407 | $ | 874 | $ | 1,217 | |||||||
| Deferred: | ||||||||||||
| U.S. federal | $ | (748 | ) | $ | 508 | $ | (861 | ) | ||||
| U.S. state and local | (64 | ) | (49 | ) | 349 | |||||||
| Non-U.S.: | ||||||||||||
| United Kingdom | 77 | 32 | 9 | |||||||||
| Japan | 170 | 41 | 23 | |||||||||
| Hong Kong | 35 | 27 | 28 | |||||||||
| Other(1) | (116 | ) | (23 | ) | (22 | ) | ||||||
| $ | (646 | ) | $ | 536 | $ | (474 | ) | |||||
| Provision for (benefit from) income taxes from continuing operations | $ | (239 | ) | $ | 1,410 | $ | 743 | |||||
| Provision for (benefit from) income taxes from discontinuing operations | $ | (5 | ) | $ | (116 | ) | $ | 363 | ||||
| (1) | Results for 2012 Non-U.S. Other jurisdictions included significant total tax provisions (benefits) of $41 million, $36 million, $36 million, $33 million, $32 million, and $(31) million from India, Brazil, Spain, Canada, Singapore, and Netherlands, respectively. Results for 2011 Non-U.S. Other jurisdictions included significant total tax provisions of $98 million, $78 million, $68 million, and $23 million from Brazil, Netherlands, Spain, and India, respectively. Results for 2010 Non-U.S. Other jurisdictions included significant total tax provisions of $102 million, $71 million, $45 million, and $34 million from China, Brazil, Netherlands, and Spain, respectively. |
| 2012(1) | 2011 | 2010 | ||||||||||
| U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| U.S. state and local income taxes, net of U.S. federal income tax benefits | 8.7 | 2.6 | 6.3 | |||||||||
| Domestic tax credits | (43.1 | ) | (3.9 | ) | (3.7 | ) | ||||||
| Tax exempt income | (30.1 | ) | (0.3 | ) | (1.8 | ) | ||||||
| Non-U.S. earnings: | ||||||||||||
| Foreign Tax Rate Differential | (14.0 | ) | 0.7 | (13.6 | ) | |||||||
| Change in Reinvestment Assertion | 4.8 | (2.2 | ) | (6.1 | ) | |||||||
| Change in Foreign Tax Rates | (0.3 | ) | 1.6 | � | ||||||||
| Valuation allowance | � | (7.3 | ) | � | ||||||||
| Other | (7.4 | ) | (3.1 | ) | (4.1 | ) | ||||||
| Effective income tax rate | (46.4 | )% | 23.1 | % | 12.0 | % | ||||||
| | 264 |
| (1) | 2012 percentages are reflective of the lower level of income from continuing operations before income taxes on a comparative basis due to the change in the fair value of certain of the Company�s long-term and short-term borrowings resulting from fluctuations in its credit spreads and other credit factors. |
| 265 | |
| December�31, | December�31, | |||||||
| 2012 | 2011(2) | |||||||
| (dollars�in�millions) | ||||||||
| Gross deferred tax assets: | ||||||||
| Tax credits and loss carryforwards | $ | 6,193 | $ | 6,757 | ||||
| Employee compensation and benefit plans | 2,173 | 2,425 | ||||||
| Valuation and liability allowances | 529 | 437 | ||||||
| Deferred expenses | 75 | 65 | ||||||
| Other | 83 | � | ||||||
| Total deferred tax assets | 9,053 | 9,684 | ||||||
| Valuation allowance(1) | 48 | 60 | ||||||
| Deferred tax assets after valuation allowance | $ | 9,005 | $ | 9,624 | ||||
| Gross deferred tax liabilities: | ||||||||
| Non-U.S. operations | $ | 1,253 | $ | 1,204 | ||||
| Fixed assets | 115 | 97 | ||||||
| Valuation of inventory, investments and receivables | 351 | 1,052 | ||||||
| Other | � | 360 | ||||||
| Total deferred tax liabilities | $ | 1,719 | $ | 2,713 | ||||
| Net deferred tax assets | $ | 7,286 | $ | 6,911 | ||||
| (1) | The valuation allowance reduces the benefit of certain separate Company federal and state net operating loss carryforwards to the amount that will more likely than not be realized. |
| (2) | Certain adjustments have been made to prior period amounts to reflect the completion of the comprehensive review of the Company�s deferred tax accounts, resulting in an increase in total deferred tax assets and deferred tax assets after valuation allowance, and a corresponding decrease in total deferred tax liabilities of $482 million. |
| | 266 |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars in millions) | ||||||||||||
| U.S. | $ | (1,241 | ) | $ | 3,250 | $ | 3,580 | |||||
| Non-U.S.(1) | 1,756 | 2,849 | 2,618 | |||||||||
| $ | 515 | $ | 6,099 | $ | 6,198 | |||||||
| (1) | Non-U.S. income is defined as income generated from operations located outside the U.S. |
| 267 | |
| Unrecognized Tax Benefits | ||||
| Balance at December�31, 2009 | $ | 4,052 | ||
| Increase based on tax positions related to the current period | 478 | |||
| Increase based on tax positions related to prior periods | 479 | |||
| Decreases based on tax positions related to prior periods | (881 | ) | ||
| Decreases related to settlements with taxing authorities | (356 | ) | ||
| Decreases related to a lapse of applicable statute of limitations | (61 | ) | ||
| Balance at December�31, 2010 | $ | 3,711 | ||
| Increase based on tax positions related to the current period | $ | 412 | ||
| Increase based on tax positions related to prior periods | 70 | |||
| Decreases based on tax positions related to prior periods | (79 | ) | ||
| Decreases related to settlements with taxing authorities | (56 | ) | ||
| Decreases related to a lapse of applicable statute of limitations | (13 | ) | ||
| Balance at December�31, 2011 | $ | 4,045 | ||
| Increase based on tax positions related to the current period | $ | 299 | ||
| Increase based on tax positions related to prior periods | 127 | |||
| Decreases based on tax positions related to prior periods | (21 | ) | ||
| Decreases related to settlements with taxing authorities | (260 | ) | ||
| Decreases related to a lapse of applicable statute of limitations | (125 | ) | ||
| Balance at December�31, 2012 | $ | 4,065 | ||
| | 268 |
| Jurisdiction | Tax�Year | |||
| United States | 1999 | |||
| New York State and City | 2007 | |||
| Hong Kong | 2006 | |||
| United Kingdom | 2010 | |||
| Japan | 2011 | |||
| 269 | |
| 2012 | Institutional Securities | Global�Wealth Management Group | Asset Management | Intersegment Eliminations | Total | |||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Total non-interest revenues | $ | 12,339 | $ | 11,904 | $ | 2,243 | $ | (175 | ) | $ | 26,311 | |||||||||
| Net interest | (1,786 | ) | 1,612 | (24 | ) | (1 | ) | (199 | ) | |||||||||||
| Net revenues | $ | 10,553 | $ | 13,516 | $ | 2,219 | $ | (176 | ) | $ | 26,112 | |||||||||
| Income (loss) from continuing operations before income taxes | $ | (1,671 | ) | $ | 1,600 | $ | 590 | $ | (4 | ) | $ | 515 | ||||||||
| Provision for (benefit from) income taxes(1) | (1,065 | ) | 559 | 267 | � | (239 | ) | |||||||||||||
| Income (loss) from continuing operations | (606 | ) | 1,041 | 323 | (4 | ) | 754 | |||||||||||||
| Discontinued operations(2): | ||||||||||||||||||||
| Gain (loss) from discontinued operations | (154 | ) | 94 | 13 | 4 | (43 | ) | |||||||||||||
| Provision for (benefit from) income taxes | (35 | ) | 26 | 4 | � | (5 | ) | |||||||||||||
| Net gain (loss) on discontinued operations | (119 | ) | 68 | 9 | 4 | (38 | ) | |||||||||||||
| Net income (loss) | (725 | ) | 1,109 | 332 | � | 716 | ||||||||||||||
| Net income applicable to redeemable noncontrolling interests | � | 124 | � | � | 124 | |||||||||||||||
| Net income applicable to nonredeemable noncontrolling interests | 194 | 143 | 187 | � | 524 | |||||||||||||||
| Net income (loss) applicable to Morgan Stanley | $ | (919 | ) | $ | 842 | $ | 145 | $ | � | $ | 68 | |||||||||
| 2011 | Institutional Securities | Global�Wealth Management Group | Asset Management | Intersegment Eliminations | Total | |||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| Total non-interest revenues(3) | $ | 18,255 | $ | 11,812 | $ | 1,928 | $ | (115 | ) | $ | 31,880 | |||||||||
| Net interest | (1,080 | ) | 1,477 | (41 | ) | � | 356 | |||||||||||||
| Net revenues | $ | 17,175 | $ | 13,289 | $ | 1,887 | $ | (115 | ) | $ | 32,236 | |||||||||
| Income from continuing operations before income taxes | $ | 4,591 | $ | 1,255 | $ | 253 | $ | � | $ | 6,099 | ||||||||||
| Provision for income taxes | 879 | 458 | 73 | � | 1,410 | |||||||||||||||
| Income from continuing operations | 3,712 | 797 | 180 | � | 4,689 | |||||||||||||||
| Discontinued operations(2): | ||||||||||||||||||||
| Gain (loss) from discontinued operations | (205 | ) | 21 | 24 | � | (160 | ) | |||||||||||||
| Provision for (benefit from) income taxes | (106 | ) | 7 | (17 | ) | � | (116 | ) | ||||||||||||
| Net gain (loss) on discontinued operations | (99 | ) | 14 | 41 | � | (44 | ) | |||||||||||||
| Net income | 3,613 | 811 | 221 | � | 4,645 | |||||||||||||||
| Net income applicable to nonredeemable noncontrolling interests | 244 | 146 | 145 | � | 535 | |||||||||||||||
| Net income applicable to Morgan Stanley | $ | 3,369 | $ | 665 | $ | 76 | $ | � | $ | 4,110 | ||||||||||
| | 270 |
| 2010 | Institutional Securities | Global�Wealth Management Group | Asset Management | Discover | Intersegment Eliminations | Total | ||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
| Total non-interest revenues(3) | $ | 16,355 | $ | 11,403 | $ | 2,761 | $ | � | $ | (187 | ) | $ | 30,332 | |||||||||||
| Net interest | (226 | ) | 1,116 | (76 | ) | � | 84 | 898 | ||||||||||||||||
| Net revenues | $ | 16,129 | $ | 12,519 | $ | 2,685 | $ | � | $ | (103 | ) | $ | 31,230 | |||||||||||
| Income (loss) from continuing operations before�income taxes | $ | 4,365 | $ | 1,130 | $ | 718 | $ | � | $ | (15 | ) | $ | 6,198 | |||||||||||
| Provision for (benefit from) income taxes | 313 | 328 | 105 | � | (3 | ) | 743 | |||||||||||||||||
| Income (loss) from continuing operations | 4,052 | 802 | 613 | � | (12 | ) | 5,455 | |||||||||||||||||
| Discontinued operations(2): | ||||||||||||||||||||||||
| Gain (loss) from discontinued operations | (1,203 | ) | 26 | 999 | 775 | 13 | 610 | |||||||||||||||||
| Provision for income taxes | 13 | 8 | 335 | � | 7 | 363 | ||||||||||||||||||
| Net gain (loss) from discontinued operations(4) | (1,216 | ) | 18 | 664 | 775 | 6 | 247 | |||||||||||||||||
| Net income (loss) | 2,836 | 820 | 1,277 | 775 | (6 | ) | 5,702 | |||||||||||||||||
| Net income applicable to nonredeemable noncontrolling interests | 290 | 301 | 408 | � | � | 999 | ||||||||||||||||||
| Net income (loss) applicable to Morgan Stanley | $ | 2,546 | $ | 519 | $ | 869 | $ | 775 | $ | (6 | ) | $ | 4,703 | |||||||||||
| (1) | Results for 2012 included an out-of-period net tax provision of approximately $107 million, attributable to the Asset Management business segment, related to the overstatement of deferred tax assets associated with partnership investments in prior years and an out-of-period net tax provision of approximately $50 million, attributable to the Institutional Securities business segment, related to the overstatement of deferred tax assets associated with repatriated earnings of a foreign subsidiary recorded in prior years (see Note 22). |
| (2) | See Notes 1 and 25 for discussion of discontinued operations. |
| (3) | In the fourth quarter of 2011 and 2010, the Company recognized a pre-tax loss of approximately $108 million and a pre-tax gain of approximately $176 million, respectively, in net revenues upon application of the OIS curve within the Institutional Securities business segment (see Note 4). |
| (4) | Amounts for 2010 included a loss of $1.2 billion related to the disposition of Revel included within the Institutional Securities business segment, a gain of approximately $570 million related to the Company�s sale of Retail Asset Management within the Asset Management business segment and a gain of $775 million related to the legal settlement with DFS. |
| 271 | |
| Net Interest | Institutional Securities | Global�Wealth Management Group | Asset Management | Intersegment Eliminations | Total | |||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| 2012 | ||||||||||||||||||||
| Interest income | $ | 4,128 | $ | 2,015 | $ | 10 | $ | (428 | ) | $ | 5,725 | |||||||||
| Interest expense | 5,914 | 403 | 34 | (427 | ) | 5,924 | ||||||||||||||
| Net interest | $ | (1,786 | ) | $ | 1,612 | $ | (24 | ) | $ | (1 | ) | $ | (199 | ) | ||||||
| 2011 | ||||||||||||||||||||
| Interest income | $ | 5,740 | $ | 1,863 | $ | 10 | $ | (355 | ) | $ | 7,258 | |||||||||
| Interest expense | 6,820 | 386 | 51 | (355 | ) | 6,902 | ||||||||||||||
| Net interest | $ | (1,080 | ) | $ | 1,477 | $ | (41 | ) | $ | � | $ | 356 | ||||||||
| 2010 | ||||||||||||||||||||
| Interest income | $ | 5,910 | $ | 1,581 | $ | 22 | $ | (208 | ) | $ | 7,305 | |||||||||
| Interest expense | 6,136 | 465 | 98 | (292 | ) | 6,407 | ||||||||||||||
| Net interest | $ | (226 | ) | $ | 1,116 | $ | (76 | ) | $ | 84 | $ | 898 | ||||||||
| Total Assets(1) | Institutional Securities | Global�Wealth Management Group | Asset Management | Total | ||||||||||||
| (dollars in millions) | ||||||||||||||||
| At December�31, 2012 | $ | 638,852 | $ | 134,762 | $ | 7,346 | $ | 780,960 | ||||||||
| At December�31, 2011 | $ | 641,456 | $ | 101,427 | $ | 7,015 | $ | 749,898 | ||||||||
| (1) | Corporate assets have been fully allocated to the Company�s business segments. |
| � | Institutional Securities: advisory and equity underwriting�client location, debt underwriting�revenue recording location, sales�and trading�trading desk location. |
| � | Global Wealth Management Group: global representative coverage location. |
| � | Asset Management: client location, except for Merchant Banking and Real Estate Investing businesses, which are based on asset location. |
| Net Revenues | 2012 | 2011 | 2010 | |||||||||
| (dollars�in�millions) | ||||||||||||
| Americas | $ | 20,200 | $ | 22,306 | $ | 21,452 | ||||||
| Europe, Middle East and Africa | 3,078 | 6,619 | 5,458 | |||||||||
| Asia | 2,834 | 3,311 | 4,320 | |||||||||
| Net revenues | $ | 26,112 | $ | 32,236 | $ | 31,230 | ||||||
| | 272 |
| Total Assets | At�December�31, 2012 | At�December�31, 2011 | ||||||
| (dollars�in�millions) | ||||||||
| Americas | $ | 587,993 | $ | 558,765 | ||||
| Europe, Middle East and Africa | 122,152 | 134,190 | ||||||
| Asia | 70,815 | 56,943 | ||||||
| Total | $ | 780,960 | $ | 749,898 | ||||
| Book Value(1) | ||||||||||||
| Percent Ownership | December�31, 2012 | December�31, 2011 | ||||||||||
| (dollars in millions) | ||||||||||||
| Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. | 40 | % | $ | 1,428 | $ | 1,444 | ||||||
| Lansdowne Partners(2) | 19.8 | % | 221 | 276 | ||||||||
| Avenue Capital Group(2)(3) | � | 224 | 237 | |||||||||
| (1) | Book value of these investees exceeds the Company�s share of net assets, reflecting equity method intangible assets and equity method goodwill. |
| (2) | The Company�s ownership interest represents limited partnership interests. The Company is deemed to have significant influence in these limited partnerships, as the Company�s limited partnership interests were above the 3% to 5% threshold for interests that should be accounted for under the equity method. |
| (3) | The Company�s ownership interest represents limited partnership interests in a number of different entities within the Avenue Capital Group. |
| 273 | |
| At December�31, | ||||||||
| 2012 | 2011 | |||||||
| (dollars in millions) | ||||||||
| Total assets | $ | 141,635 | $ | 158,363 | ||||
| Total liabilities | 138,742 | 155,555 | ||||||
| Noncontrolling interests | 41 | 22 | ||||||
| At December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| (dollars in millions) | ||||||||||||
| Net revenues | $ | 2,365 | $ | 735 | $ | 1,073 | ||||||
| Income (loss) from continuing operations before income taxes | 333 | (1,746 | ) | (253 | ) | |||||||
| Net income (loss) | 405 | (1,976 | ) | (156 | ) | |||||||
| Net income (loss) applicable to MUMSS | 397 | (1,976 | ) | (144 | ) | |||||||
| | 274 |
| 275 | |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars�in�millions) | ||||||||||||
| Net revenues(1): | ||||||||||||
| Retail Asset Management(2) | $ | 12 | $ | 11 | $ | 1,221 | ||||||
| Saxon(3) | 79 | 28 | 197 | |||||||||
| Quilter(4) | 148 | 134 | 117 | |||||||||
| Other(5) | 80 | 61 | 141 | |||||||||
| $ | 319 | $ | 234 | $ | 1,676 | |||||||
| Pre-tax gain (loss) on discontinued operations(1): | ||||||||||||
| Revel(6) | $ | � | $ | (10 | ) | $ | (1,208 | ) | ||||
| Retail Asset Management(2) | 12 | 14 | 994 | |||||||||
| DFS(7) | � | � | 775 | |||||||||
| Saxon(3) | (187 | ) | (194 | ) | (34 | ) | ||||||
| Quilter(4) | 97 | 21 | 27 | |||||||||
| Other(5) | 35 | 9 | 56 | |||||||||
| $ | (43 | ) | $ | (160 | ) | $ | 610 | |||||
| (1) | Amounts included eliminations of intersegment activity. |
| (2) | Included a pre-tax gain of approximately $853 million in 2010 in connection with the sale of Retail Asset Management. |
| (3) | Revenues included a pre-tax gain of approximately $51 million in 2012, primarily resulting from the subsequent increase in fair value of Saxon, which had incurred impairment losses of $98 million in the quarter ended December�31, 2011. Pre-tax gain (loss) in 2012 included a provision of approximately $115 million related to a settlement with the Federal Reserve concerning the independent foreclosure review related to Saxon. |
| (4) | Included a pre-tax gain of approximately $108 million in 2012 in connection with the sale of Quilter. |
| (5) | Included in Other are related to the sale of CMB and the sale of a principal investment. |
| (6) | Included a loss of approximately $1.2 billion in 2010 in connection with the disposition of Revel. |
| (7) | Relates to the legal settlement with DFS in 2010. |
| | 276 |
| December�31, | December�31, | |||||||
| 2012 | 2011 | |||||||
| Assets: | ||||||||
| Cash and due from banks | $ | 9,564 | $ | 11,935 | ||||
| Interest bearing deposits with banks | 4,165 | 3,385 | ||||||
| Financial instruments owned, at fair value | 2,930 | 12,747 | ||||||
| Securities purchased under agreement to resell with affiliate | 48,493 | 50,356 | ||||||
| Advances to subsidiaries: | ||||||||
| Bank and bank holding company | 16,731 | 18,325 | ||||||
| Non-bank | 115,949 | 129,751 | ||||||
| Equity investments in subsidiaries: | ||||||||
| Bank and bank holding company | 23,511 | 19,899 | ||||||
| Non-bank | 32,591 | 26,201 | ||||||
| Other assets | 7,201 | 6,845 | ||||||
| Total assets | $ | 261,135 | $ | 279,444 | ||||
| Liabilities and Shareholders� Equity: | ||||||||
| Commercial paper and other short-term borrowings | $ | 228 | $ | 1,100 | ||||
| Financial instruments sold, not yet purchased, at fair value | 1,117 | 1,861 | ||||||
| Payables to subsidiaries | 36,733 | 35,159 | ||||||
| Other liabilities and accrued expenses | 3,132 | 4,123 | ||||||
| Long-term borrowings | 157,816 | 175,152 | ||||||
| 199,026 | 217,395 | |||||||
| Commitments and contingent liabilities | ||||||||
| Shareholders� equity: | ||||||||
| Preferred stock | 1,508 | 1,508 | ||||||
| Common stock, $0.01 par value: | ||||||||
| Shares authorized: 3,500,000,000 in 2012 and 2011; | ||||||||
| Shares issued: 2,038,893,979 in 2012 and 1,989,377,171 in 2011; | ||||||||
| Shares outstanding: 1,974,042,123 in 2012 and 1,926,986,130 in 2011 | 20 | 20 | ||||||
| Paid-in capital | 23,426 | 22,836 | ||||||
| Retained earnings | 39,912 | 40,341 | ||||||
| Employee stock trust | 2,932 | 3,166 | ||||||
| Accumulated other comprehensive loss | (516 | ) | (157 | ) | ||||
| Common stock held in treasury, at cost, $0.01 par value; 64,851,856 shares in 2012 and 62,391,041 shares in 2011 | (2,241 | ) | (2,499 | ) | ||||
| Common stock issued to employee trust | (2,932 | ) | (3,166 | ) | ||||
| Total shareholders� equity | 62,109 | 62,049 | ||||||
| Total liabilities and shareholders� equity | $ | 261,135 | $ | 279,444 | ||||
| 277 | |
| 2012 | 2011 | 2010 | ||||||||||
| Revenues: | ||||||||||||
| Dividends from non-bank subsidiary | $ | 545 | $ | 7,153 | $ | 2,537 | ||||||
| Principal transactions | (3,398 | ) | 4,772 | 628 | ||||||||
| Other | 36 | (241 | ) | (307 | ) | |||||||
| Total non-interest revenues | (2,817 | ) | 11,684 | 2,858 | ||||||||
| Interest income | 3,316 | 3,251 | 3,305 | |||||||||
| Interest expense | 5,190 | 5,600 | 5,351 | |||||||||
| Net interest | (1,874 | ) | (2,349 | ) | (2,046 | ) | ||||||
| Net revenues | (4,691 | ) | 9,335 | 812 | ||||||||
| Non-interest expenses: | ||||||||||||
| Non-interest expenses | 114 | 120 | 230 | |||||||||
| Income (loss) before provision for (benefit from) income taxes | (4,805 | ) | 9,215 | 582 | ||||||||
| Provision for (benefit from) income taxes | (1,088 | ) | 1,825 | 1,587 | ||||||||
| Net income (loss) before undistributed gain (loss) subsidiaries | (3,717 | ) | 7,390 | (1,005 | ) | |||||||
| Undistributed gain (loss) of subsidiaries | 3,785 | (3,280 | ) | 5,708 | ||||||||
| Net income | 68 | 4,110 | 4,703 | |||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||
| Foreign currency translation adjustments | (128 | ) | (35 | ) | 66 | |||||||
| Amortization of cash flow hedges | 6 | 7 | 9 | |||||||||
| Net unrealized gain on Securities available for sale | 28 | 87 | 36 | |||||||||
| Pension, postretirement and other related adjustments | (265 | ) | 251 | (18 | ) | |||||||
| Comprehensive income (loss) | $ | (291 | ) | $ | 4,420 | $ | 4,796 | |||||
| Net income | $ | 68 | $ | 4,110 | $ | 4,703 | ||||||
| Earnings (loss) applicable to Morgan Stanley common shareholders | $ | (30 | ) | $ | 2,067 | $ | 3,594 | |||||
| | 278 |
| 2012 | 2011 | 2010 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 68 | $ | 4,110 | $ | 4,703 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Compensation payable in common stock and stock options | 891 | 1,300 | 1,260 | |||||||||
| Undistributed (gain) loss of subsidiaries | (3,785 | ) | 3,280 | (5,708 | ) | |||||||
| (Gain) loss on retirement of long-term debt | (29 | ) | (155 | ) | 27 | |||||||
| Change in assets and liabilities: | ||||||||||||
| Financial instruments owned, net of financial instruments sold, not yet purchased | 9,610 | 103 | (11,848 | ) | ||||||||
| Other assets | (418 | ) | 960 | 929 | ||||||||
| Other liabilities and accrued expenses | 6,637 | (4,242 | ) | 15,072 | ||||||||
| Net cash provided by operating activities | 12,974 | 5,356 | 4,435 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Advances to and investments in subsidiaries | 6,461 | 10,290 | (9,552 | ) | ||||||||
| Securities purchased under agreement to resell with affiliate | 1,864 | (726 | ) | (1,545 | ) | |||||||
| Net cash provided by (used for) investing activities | 8,325 | 9,564 | (11,097 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Net proceeds from (payments for) short-term borrowings | (872 | ) | (253 | ) | 202 | |||||||
| Excess tax benefits associated with stock-based awards | 42 | � | 5 | |||||||||
| Net proceeds from: | ||||||||||||
| Public offerings and other issuances of common stock | � | � | 5,581 | |||||||||
| Issuance of long-term borrowings | 20,582 | 28,106 | 26,683 | |||||||||
| Payments for: | ||||||||||||
| Redemption of junior subordinated debentures related to China Investment Corporation, Ltd. | � | � | (5,579 | ) | ||||||||
| Repurchases of common stock for employee tax withholding | (227 | ) | (317 | ) | (317 | ) | ||||||
| Long-term borrowings | (41,914 | ) | (35,805 | ) | (25,349 | ) | ||||||
| Cash dividends | (469 | ) | (834 | ) | (1,156 | ) | ||||||
| Net cash provided by (used for) financing activities | (22,858 | ) | (9,103 | ) | 70 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | (32 | ) | 113 | (817 | ) | |||||||
| Net increase (decrease) in cash and cash equivalents | (1,591 | ) | 5,930 | (7,409 | ) | |||||||
| Cash and cash equivalents, at beginning of period | 15,320 | 9,390 | 16,799 | |||||||||
| Cash and cash equivalents, at end of period | $ | 13,729 | $ | 15,320 | $ | 9,390 | ||||||
| Cash and cash equivalents include: | ||||||||||||
| Cash and due from banks | $ | 9,564 | $ | 11,935 | $ | 5,672 | ||||||
| Interest bearing deposits with banks | 4,165 | 3,385 | 3,718 | |||||||||
| Cash and cash equivalents, at end of period | $ | 13,729 | $ | 15,320 | $ | 9,390 | ||||||
| 279 | |
| | 280 |
| 2012 Quarter | 2011 Quarter | |||||||||||||||||||||||||||||||
| First | Second(1) | Third(2) | Fourth(2) | First | Second | Third | Fourth | |||||||||||||||||||||||||
| (dollars in millions, except per share data) | ||||||||||||||||||||||||||||||||
| Total non-interest revenues | $ | 6,983 | $ | 7,102 | $ | 5,435 | $ | 6,791 | $ | 7,551 | $ | 9,266 | $ | 9,658 | $ | 5,405 | ||||||||||||||||
| Net interest | (59 | ) | (160 | ) | (155 | ) | 175 | 7 | (66 | ) | 145 | 270 | ||||||||||||||||||||
| Net revenues | 6,924 | 6,942 | 5,280 | 6,966 | 7,558 | 9,200 | 9,803 | 5,675 | ||||||||||||||||||||||||
| Total non-interest expenses | 6,722 | 6,005 | 6,763 | 6,107 | 6,662 | 7,229 | 6,115 | 6,131 | ||||||||||||||||||||||||
| Income (loss) from continuing operations before income taxes | 202 | 937 | (1,483 | ) | 859 | 896 | 1,971 | 3,688 | (456 | ) | ||||||||||||||||||||||
| Provision for (benefit from) income taxes | 54 | 224 | (525 | ) | 8 | (246 | ) | 539 | 1,415 | (298 | ) | |||||||||||||||||||||
| Income (loss) from continuing operations | 148 | 713 | (958 | ) | 851 | 1,142 | 1,432 | 2,273 | (158 | ) | ||||||||||||||||||||||
| Discontinued operations(3): | ||||||||||||||||||||||||||||||||
| Gain (loss) from discontinued operations | 28 | 52 | (11 | ) | (112 | ) | (24 | ) | (22 | ) | (8 | ) | (106 | ) | ||||||||||||||||||
| Provision for (benefit from) income taxes | 42 | 15 | (13 | ) | (49 | ) | (12 | ) | 4 | (28 | ) | (80 | ) | |||||||||||||||||||
| Net gain (loss) from discontinued operations | (14 | ) | 37 | 2 | (63 | ) | (12 | ) | (26 | ) | 20 | (26 | ) | |||||||||||||||||||
| Net income (loss) | 134 | 750 | (956 | ) | 788 | 1,130 | 1,406 | 2,293 | (184 | ) | ||||||||||||||||||||||
| Net income applicable to redeemable noncontrolling interests | � | � | 8 | 116 | � | � | � | � | ||||||||||||||||||||||||
| Net income applicable to nonredeemable noncontrolling interests | 228 | 159 | 59 | 78 | 162 | 213 | 94 | 66 | ||||||||||||||||||||||||
| Net income (loss) applicable to Morgan Stanley | $ | (94 | ) | $ | 591 | $ | (1,023 | ) | $ | 594 | $ | 968 | $ | 1,193 | $ | 2,199 | $ | (250 | ) | |||||||||||||
| Earnings (loss) applicable to Morgan Stanley common shareholders | $ | (119 | ) | $ | 564 | $ | (1,047 | ) | $ | 568 | $ | 736 | $ | (558 | ) | $ | 2,153 | $ | (275 | ) | ||||||||||||
| Earnings (loss) per basic common share(4): | ||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.05 | ) | $ | 0.28 | $ | (0.55 | ) | $ | 0.33 | $ | 0.51 | $ | (0.36 | ) | $ | 1.16 | $ | (0.13 | ) | ||||||||||||
| Net gain (loss) from discontinued operations | (0.01 | ) | 0.02 | � | (0.03 | ) | � | (0.02 | ) | � | (0.02 | ) | ||||||||||||||||||||
| Earnings (loss) per basic common share | $ | (0.06 | ) | $ | 0.30 | $ | (0.55 | ) | $ | 0.30 | $ | 0.51 | $ | (0.38 | ) | $ | 1.16 | $ | (0.15 | ) | ||||||||||||
| Earnings (loss) per diluted common share(4): | ||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.05 | ) | $ | 0.28 | $ | (0.55 | ) | $ | 0.33 | $ | 0.51 | $ | (0.36 | ) | $ | 1.14 | $ | (0.13 | ) | ||||||||||||
| Net gain (loss) from discontinued operations | (0.01 | ) | 0.01 | � | (0.04 | ) | (0.01 | ) | (0.02 | ) | 0.01 | (0.02 | ) | |||||||||||||||||||
| Earnings (loss) per diluted common share | $ | (0.06 | ) | $ | 0.29 | $ | (0.55 | ) | $ | 0.29 | $ | 0.50 | $ | (0.38 | ) | $ | 1.15 | $ | (0.15 | ) | ||||||||||||
| Dividends declared per common share | $ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | $ | 0.05 | ||||||||||||||||
| Book value per common share | $ | 30.74 | $ | 31.02 | $ | 30.53 | $ | 30.70 | $ | 31.45 | $ | 30.17 | $ | 31.29 | $ | 31.42 | ||||||||||||||||
| (1) | The second quarter of 2012 included an out-of-period pre-tax gain of approximately $300 million related to the reversal of amounts recorded in cumulative other comprehensive income due to the incorrect application of hedge accounting on certain derivative contracts previously designated as net investment hedges of certain foreign, non-U.S. dollar denominated subsidiaries. This amount included a pre-tax gain of approximately $191 million related to the first quarter of 2012, with the remainder impacting prior periods (see Note 12). |
| (2) | The third quarter of 2012 included an out-of-period net tax provision of approximately $82 million primarily related to the overstatement of tax benefits associated with repatriated earnings of a foreign subsidiary in prior periods, while the fourth quarter of 2012 included an out-of-period net tax provision of approximately $75 million primarily related to the overstatement of deferred tax assets associated with partnership investments in prior periods (see Note 22). |
| 281 | |
| (3) | See Notes 1 and 25 for more information on discontinued operations. |
| (4) | Summation of the quarters� earnings per common share may not equal the annual amounts due to the averaging effect of the number of shares and share equivalents throughout the year. |
| | 282 |
| 2012 | ||||||||||||
| Average Weekly Balance | Interest | Average Rate | ||||||||||
| (dollars in millions) | ||||||||||||
| Assets | ||||||||||||
| Interest earning assets: | ||||||||||||
| Financial instruments owned(1): | ||||||||||||
| U.S. | $ | 133,615 | $ | 2,247 | 1.7 | % | ||||||
| Non-U.S. | 82,019 | 489 | 0.6 | |||||||||
| Securities available for sale: | ||||||||||||
| U.S. | 35,141 | 343 | 1.0 | |||||||||
| Loans: | ||||||||||||
| U.S. | 20,996 | 597 | 2.8 | |||||||||
| Non-U.S. | 363 | 46 | 12.7 | |||||||||
| Interest bearing deposits with banks: | ||||||||||||
| U.S. | 25,905 | 58 | 0.2 | |||||||||
| Non-U.S. | 10,612 | 66 | 0.6 | |||||||||
| Federal funds sold and securities purchased under agreements to resell and Securities borrowed: | ||||||||||||
| U.S. | 189,186 | (315 | ) | (0.2 | ) | |||||||
| Non-U.S. | 91,851 | 679 | 0.7 | |||||||||
| Other: | ||||||||||||
| U.S. | 54,651 | 471 | 0.9 | |||||||||
| Non-U.S. | 15,404 | 1,044 | 6.8 | |||||||||
| Total | $ | 659,743 | $ | 5,725 | 0.9 | % | ||||||
| Non-interest earning assets | 122,428 | |||||||||||
| Total assets | $ | 782,171 | ||||||||||
| Liabilities and Equity | ||||||||||||
| Interest bearing liabilities: | ||||||||||||
| Deposits: | ||||||||||||
| U.S. | $ | 69,265 | $ | 181 | 0.3 | % | ||||||
| Non-U.S. | 165 | � | � | |||||||||
| Commercial paper and other short-term borrowings: | ||||||||||||
| U.S. | 557 | 5 | 0.9 | |||||||||
| Non-U.S. | 1,383 | 33 | 2.4 | |||||||||
| Long-term debt: | ||||||||||||
| U.S. | 163,961 | 4,544 | 2.8 | |||||||||
| Non-U.S. | 7,552 | 78 | 1.0 | |||||||||
| Financial instruments sold, not yet purchased(1): | ||||||||||||
| U.S. | 38,125 | � | � | |||||||||
| Non-U.S. | 51,834 | � | � | |||||||||
| Securities sold under agreements to repurchase and Securities loaned: | ||||||||||||
| U.S. | 101,210 | 522 | 0.5 | |||||||||
| Non-U.S. | 59,932 | 1,283 | 2.1 | |||||||||
| Other: | ||||||||||||
| U.S. | 82,881 | (1,475 | ) | (1.8 | ) | |||||||
| Non-U.S. | 33,992 | 753 | 2.2 | |||||||||
| Total | $ | 610,857 | $ | 5,924 | 1.0 | |||||||
| Non-interest bearing liabilities and equity | 171,314 | |||||||||||
| Total liabilities and equity | $ | 782,171 | ||||||||||
| Net interest income and net interest rate spread | $ | (199 | ) | (0.1 | )% | |||||||
| (1) | Interest expense on Financial instruments sold, not yet purchased is reported as a reduction of Interest income on Financial instruments owned. |
| 283 | |
| 2011 | ||||||||||||
| Average Weekly Balance | Interest | Average Rate | ||||||||||
| (dollars in millions) | ||||||||||||
| Assets | ||||||||||||
| Interest earning assets: | ||||||||||||
| Financial instruments owned(1): | ||||||||||||
| U.S. | $ | 122,704 | $ | 2,636 | 2.1 | % | ||||||
| Non-U.S. | 114,445 | 957 | 0.8 | |||||||||
| Securities available for sale: | ||||||||||||
| U.S. | 27,712 | 348 | 1.3 | |||||||||
| Loans: | ||||||||||||
| U.S. | 12,294 | 326 | 2.7 | |||||||||
| Non-U.S. | 420 | 30 | 7.1 | |||||||||
| Interest bearing deposits with banks: | ||||||||||||
| U.S. | 41,256 | 49 | 0.1 | |||||||||
| Non-U.S. | 16,558 | 137 | 0.8 | |||||||||
| Federal funds sold and securities purchased under agreements to resell and Securities borrowed: | ||||||||||||
| U.S. | 191,843 | (79 | ) | � | ||||||||
| Non-U.S. | 110,682 | 965 | 0.9 | |||||||||
| Other: | ||||||||||||
| U.S. | 45,336 | 1,335 | 2.9 | |||||||||
| Non-U.S. | 15,454 | 554 | 3.6 | |||||||||
| Total | $ | 698,704 | $ | 7,258 | 1.0 | % | ||||||
| Non-interest earning assets | 140,131 | |||||||||||
| Total assets | $ | 838,835 | ||||||||||
| Liabilities and Equity | ||||||||||||
| Interest bearing liabilities: | ||||||||||||
| Deposits: | ||||||||||||
| U.S. | $ | 64,559 | $ | 236 | 0.4 | % | ||||||
| Non-U.S. | 91 | � | � | |||||||||
| Commercial paper and other short-term borrowings: | ||||||||||||
| U.S. | 874 | 7 | 0.8 | |||||||||
| Non-U.S. | 2,163 | 34 | 1.6 | |||||||||
| Long-term debt: | ||||||||||||
| U.S. | 184,623 | 4,880 | 2.6 | |||||||||
| Non-U.S. | 7,701 | 32 | 0.4 | |||||||||
| Financial instruments sold, not yet purchased(1): | ||||||||||||
| U.S. | 30,070 | � | � | |||||||||
| Non-U.S. | 61,313 | � | � | |||||||||
| Securities sold under agreements to repurchase and Securities loaned: | ||||||||||||
| U.S. | 110,270 | 649 | 0.6 | |||||||||
| Non-U.S. | 69,276 | 1,276 | 1.8 | |||||||||
| Other: | ||||||||||||
| U.S. | 90,193 | (1,094 | ) | (1.2 | ) | |||||||
| Non-U.S. | 38,139 | 882 | 2.3 | |||||||||
| Total | $ | 659,272 | $ | 6,902 | 1.0 | |||||||
| Non-interest bearing liabilities and equity | 179,563 | |||||||||||
| Total liabilities and equity | $ | 838,835 | ||||||||||
| Net interest income and net interest rate spread | $ | 356 | � | % | ||||||||
| (1) | Interest expense on Financial instruments sold, not yet purchased is reported as a reduction of Interest income on Financial instruments owned. |
| | 284 |
| 2010 | ||||||||||||
| Average Weekly Balance | Interest | Average Rate | ||||||||||
| (dollars in millions) | ||||||||||||
| Assets | ||||||||||||
| Interest earning assets: | ||||||||||||
| Financial instruments owned(1): | ||||||||||||
| U.S. | $ | 145,449 | $ | 3,124 | 2.1 | % | ||||||
| Non-U.S. | 105,385 | 807 | 0.8 | |||||||||
| Securities available for sale: | ||||||||||||
| U.S. | 18,290 | 215 | 1.2 | |||||||||
| Loans: | ||||||||||||
| U.S. | 7,993 | 293 | 3.7 | |||||||||
| Non-U.S. | 219 | 22 | 10.0 | |||||||||
| Interest bearing deposits with banks: | ||||||||||||
| U.S. | 33,807 | 67 | 0.2 | |||||||||
| Non-U.S. | 20,897 | 88 | 0.4 | |||||||||
| Federal funds sold and securities purchased under agreements to resell and Securities borrowed: | ||||||||||||
| U.S. | 193,796 | 236 | 0.1 | |||||||||
| Non-U.S. | 111,982 | 533 | 0.5 | |||||||||
| Other: | ||||||||||||
| U.S. | 32,400 | 1,565 | 4.8 | |||||||||
| Non-U.S. | 18,091 | 355 | 2.0 | |||||||||
| Total | $ | 688,309 | $ | 7,305 | 1.1 | % | ||||||
| Non-interest earning assets | 142,761 | |||||||||||
| Total assets | $ | 831,070 | ||||||||||
| Liabilities and Equity | ||||||||||||
| Interest bearing liabilities: | ||||||||||||
| Deposits: | ||||||||||||
| U.S. | $ | 62,759 | $ | 310 | 0.5 | % | ||||||
| Non-U.S. | 70 | � | � | |||||||||
| Commercial paper and other short-term borrowings: | ||||||||||||
| U.S. | 1,599 | 11 | 0.7 | |||||||||
| Non-U.S. | 1,772 | 17 | 1.0 | |||||||||
| Long-term debt: | ||||||||||||
| U.S. | 186,374 | 4,586 | 2.5 | |||||||||
| Non-U.S. | 5,170 | 6 | 0.1 | |||||||||
| Financial instruments sold, not yet purchased(1): | ||||||||||||
| U.S. | 22,947 | � | � | |||||||||
| Non-U.S. | 58,741 | � | � | |||||||||
| Securities sold under agreements to repurchase and Securities loaned: | ||||||||||||
| U.S. | 116,090 | 725 | 0.6 | |||||||||
| Non-U.S. | 94,498 | 866 | 0.9 | |||||||||
| Other: | ||||||||||||
| U.S. | 97,585 | (504 | ) | (0.5 | ) | |||||||
| Non-U.S. | 23,852 | 390 | 1.6 | |||||||||
| Total | $ | 671,457 | $ | 6,407 | 1.0 | |||||||
| Non-interest bearing liabilities and equity | 159,613 | |||||||||||
| Total liabilities and equity | $ | 831,070 | ||||||||||
| Net interest income and net interest rate spread | $ | 898 | 0.1 | % | ||||||||
| (1) | Interest expense on Financial instruments sold, not yet purchased is reported as a reduction of Interest income on Financial instruments owned. |
| 285 | |
| 2012�versus�2011 | ||||||||||||
| Increase�(decrease)�due�to�change�in: | ||||||||||||
| Volume | Rate | Net�Change | ||||||||||
| (dollars in millions) | ||||||||||||
| Interest earning assets | ||||||||||||
| Financial instruments owned: | ||||||||||||
| U.S. | $ | 234 | $ | (623 | ) | $ | (389 | ) | ||||
| Non-U.S. | (271 | ) | (197 | ) | (468 | ) | ||||||
| Securities available for sale: | ||||||||||||
| U.S. | 93 | (98 | ) | (5 | ) | |||||||
| Loans: | ||||||||||||
| U.S. | 231 | 40 | 271 | |||||||||
| Non-U.S. | (4 | ) | 20 | 16 | ||||||||
| Interest bearing deposits with banks: | ||||||||||||
| U.S. | (18 | ) | 27 | 9 | ||||||||
| Non-U.S. | (49 | ) | (22 | ) | (71 | ) | ||||||
| Federal funds sold and securities purchased under agreements to resell and Securities borrowed: | ||||||||||||
| U.S. | 1 | (237 | ) | (236 | ) | |||||||
| Non-U.S. | (164 | ) | (122 | ) | (286 | ) | ||||||
| Other: | ||||||||||||
| U.S. | 274 | (1,138 | ) | (864 | ) | |||||||
| Non-U.S. | (2 | ) | 492 | 490 | ||||||||
| Change in interest income | $ | 325 | $ | (1,858 | ) | $ | (1,533 | ) | ||||
| Interest bearing liabilities | ||||||||||||
| Deposits: | ||||||||||||
| U.S. | $ | 17 | $ | (72 | ) | $ | (55 | ) | ||||
| Non-U.S. | � | � | � | |||||||||
| Commercial paper and other short-term borrowings: | ||||||||||||
| U.S. | (3 | ) | 1 | (2 | ) | |||||||
| Non-U.S. | (12 | ) | 11 | (1 | ) | |||||||
| Long-term debt: | ||||||||||||
| U.S. | (546 | ) | 210 | (336 | ) | |||||||
| Non-U.S. | (1 | ) | 47 | 46 | ||||||||
| Securities sold under agreements to repurchase and Securities loaned: | ||||||||||||
| U.S. | (53 | ) | (74 | ) | (127 | ) | ||||||
| Non-U.S. | (172 | ) | 179 | 7 | ||||||||
| Other: | ||||||||||||
| U.S. | 89 | (470 | ) | (381 | ) | |||||||
| Non-U.S. | (96 | ) | (33 | ) | (129 | ) | ||||||
| Change in interest expense | $ | (777 | ) | $ | (201 | ) | $ | (978 | ) | |||
| Change in net interest income | $ | 1,102 | $ | (1,657 | ) | $ | (555 | ) | ||||
| | 286 |
| 2011�versus�2010 | ||||||||||||
| Increase�(decrease)�due�to�change�in: | ||||||||||||
| Volume | Rate | Net�Change | ||||||||||
| (dollars in millions) | ||||||||||||
| Interest earning assets | ||||||||||||
| Financial instruments owned: | ||||||||||||
| U.S. | $ | (489 | ) | $ | 1 | $ | (488 | ) | ||||
| Non-U.S. | 69 | 81 | 150 | |||||||||
| Securities available for sale: | ||||||||||||
| U.S. | 111 | 22 | 133 | |||||||||
| Loans: | ||||||||||||
| U.S. | 158 | (125 | ) | 33 | ||||||||
| Non-U.S. | 20 | (12 | ) | 8 | ||||||||
| Interest bearing deposits with banks: | ||||||||||||
| U.S. | 15 | (33 | ) | (18 | ) | |||||||
| Non-U.S. | (18 | ) | 67 | 49 | ||||||||
| Federal funds sold and securities purchased under agreements to resell and Securities borrowed: | ||||||||||||
| U.S. | (2 | ) | (313 | ) | (315 | ) | ||||||
| Non-U.S. | (6 | ) | 438 | 432 | ||||||||
| Other: | ||||||||||||
| U.S. | 624 | (854 | ) | (230 | ) | |||||||
| Non-U.S. | (52 | ) | 251 | 199 | ||||||||
| Change in interest income | $ | 430 | $ | (477 | ) | $ | (47 | ) | ||||
| Interest bearing liabilities | ||||||||||||
| Deposits: | ||||||||||||
| U.S. | $ | 9 | $ | (83 | ) | $ | (74 | ) | ||||
| Non-U.S. | � | � | � | |||||||||
| Commercial paper and other short-term borrowings: | ||||||||||||
| U.S. | (5 | ) | 1 | (4 | ) | |||||||
| Non-U.S. | 4 | 13 | 17 | |||||||||
| Long-term debt: | ||||||||||||
| U.S. | (43 | ) | 337 | 294 | ||||||||
| Non-U.S. | 3 | 23 | 26 | |||||||||
| Securities sold under agreements to repurchase and Securities loaned: | ||||||||||||
| U.S. | (36 | ) | (40 | ) | (76 | ) | ||||||
| Non-U.S. | (231 | ) | 641 | 410 | ||||||||
| Other: | ||||||||||||
| U.S. | 36 | (626 | ) | (590 | ) | |||||||
| Non-U.S. | 234 | 258 | 492 | |||||||||
| Change in interest expense | $ | (29 | ) | $ | 524 | $ | 495 | |||||
| Change in net interest income | $ | 459 | $ | (1,001 | ) | $ | (542 | ) | ||||
| 287 | |
| Average Deposits(1) | ||||||||||||||||||||||||
| 2012 | 2011 | 2010 | ||||||||||||||||||||||
| Average Amount(1) | Average Rate | Average Amount(1) | Average Rate | Average Amount(1) | Average Rate | |||||||||||||||||||
| (dollars in�millions) | ||||||||||||||||||||||||
| Deposits(2): | ||||||||||||||||||||||||
| Savings deposits | $ | 66,073 | 0.1 | % | $ | 61,258 | 0.2 | % | $ | 58,053 | 0.2 | % | ||||||||||||
| Time deposits | 3,357 | 2.6 | % | 3,392 | 3.5 | % | 4,776 | 3.7 | % | |||||||||||||||
| Total | $ | 69,430 | 0.3 | % | $ | 64,650 | 0.4 | % | $ | 62,829 | 0.5 | % | ||||||||||||
| (1) | The Company calculates its average balances based upon weekly amounts, except where weekly balances are unavailable, month-end balances are used. |
| (2) | Deposits are primarily located in U.S. offices. |
| 2012 | 2011 | 2010 | ||||||||||
| Net income to average assets | N/M | 0.5 | % | 0.6 | % | |||||||
| Return on average common equity(1) | N/M | 3.8 | % | 9.0 | % | |||||||
| Return on total equity(2) | 0.1 | % | 6.9 | % | 9.0 | % | ||||||
| Dividend payout ratio(3) | N/M | 16.3 | % | 7.6 | % | |||||||
| Total average common equity to average assets | 7.8 | % | 6.5 | % | 5.1 | % | ||||||
| Total average equity to average assets | 8.0 | % | 7.1 | % | 6.3 | % | ||||||
| (1) | Based on net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity. |
| (2) | Based on net income as a percentage of average total equity. |
| (3) | Dividends declared per common share as a percentage of net income per diluted share. |
| 2012 | 2011 | 2010 | ||||||||||
| (dollars in millions) | ||||||||||||
| Securities sold under repurchase agreements: | ||||||||||||
| Period-end balance | $ | 122,674 | $ | 104,800 | $ | 147,598 | ||||||
| Average balance(1)(2) | 125,465 | 142,784 | 178,673 | |||||||||
| Maximum balance at any month-end | 139,962 | 164,511 | 216,130 | |||||||||
| Weighted average interest rate during the period(3) | 0.9 | % | 0.9 | % | 0.7 | % | ||||||
| Weighted average interest rate on period-end balance(4) | 0.8 | % | 0.8 | % | 0.8 | % | ||||||
| Securities loaned: | ||||||||||||
| Period-end balance | $ | 36,849 | $ | 30,462 | $ | 29,094 | ||||||
| Average balance(1) | 35,677 | 36,762 | 31,915 | |||||||||
| Maximum balance at any month-end | 39,881 | 50,709 | 33,454 | |||||||||
| Weighted average interest rate during the period(3) | 1.9 | % | 1.9 | % | 1.3 | % | ||||||
| Weighted average interest rate on period-end balance(4) | 1.5 | % | 1.8 | % | 1.6 | % | ||||||
| (1) | The Company calculates its average balances based upon weekly amounts, except where weekly balances are unavailable, month-end balances are used. |
| (2) | In 2011, the period-end balance was lower than the annual average primarily due to a decrease in the overall balance sheet during the year. In 2010, period-end balance was lower than the annual average primarily due to the seasonal maturity of client financing activity. |
| (3) | The approximated weighted average interest rate was calculated using (a)�interest expense incurred on all securities sold under repurchase agreements and securities loaned transactions, whether or not such transactions were reported on the consolidated statements of financial condition and (b)�average balances that were reported on a net basis where certain criteria were met in accordance with |
| | 288 |
| applicable offsetting guidance. In addition, securities-for-securities transactions in which the Company was the borrower were not included in the average balances since they were not reported on the consolidated statements of financial condition. |
| (4) | The approximated weighted average interest rate was calculated using (a)�interest expense for all securities sold under repurchase agreements and securities loaned transactions, whether or not such transactions were reported on the consolidated statements of financial condition and (b)�period-end balances that were reported on a net basis where certain criteria were met in accordance with applicable offsetting guidance. In addition, securities-for-securities transactions in which the Company was the borrower were not included in the period-end balances since they were not reported on the consolidated statements of financial condition. |
| At December�31, 2012 | ||||||||||||||||
| Country | Banks | Governments | Other | Total | ||||||||||||
| United Kingdom | $ | 17,504 | $ | 6 | $ | 100,090 | $ | 117,600 | ||||||||
| Cayman Islands | 5 | 10 | 41,628 | 41,643 | ||||||||||||
| France | 28,699 | 149 | 3,915 | 32,763 | ||||||||||||
| Japan | 24,935 | 148 | 2,967 | 28,050 | ||||||||||||
| Germany | 15,084 | 3,014 | 4,192 | 22,290 | ||||||||||||
| Netherlands | 1,700 | � | 10,920 | 12,620 | ||||||||||||
| Canada | 6,651 | 1,310 | 2,893 | 10,854 | ||||||||||||
| Korea | 32 | 6,812 | 2,311 | 9,155 | ||||||||||||
| Switzerland | 3,319 | 242 | 5,483 | 9,044 | ||||||||||||
| Luxembourg | 221 | 223 | 7,952 | 8,396 | ||||||||||||
| Brazil | 221 | 260 | 1,578 | 2,059 | ||||||||||||
| At December 31, 2011 | ||||||||||||||||
| Country | Banks | Governments | Other | Total | ||||||||||||
| United Kingdom | $ | 13,852 | $ | 2 | $ | 89,585 | $ | 103,439 | ||||||||
| Cayman Islands | 766 | � | 31,169 | 31,935 | ||||||||||||
| France | 23,561 | 1,096 | 4,196 | 28,853 | ||||||||||||
| Japan | 23,542 | 436 | 2,821 | 26,799 | ||||||||||||
| Germany | 18,674 | 3,485 | 1,859 | 24,018 | ||||||||||||
| Netherlands | 3,508 | 23 | 8,826 | 12,357 | ||||||||||||
| Luxembourg | 1,619 | 94 | 6,137 | 7,850 | ||||||||||||
| Brazil | 149 | 3,398 | 2,165 | 5,712 | ||||||||||||
| Australia | 2,008 | 557 | 1,414 | 3,979 | ||||||||||||
| Italy | 881 | 1,463 | 539 | 2,883 | ||||||||||||
| 289 | |
| Item�9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
| Item�9A. | Controls and Procedures. |
| � | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| � | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Company�s management and directors; and |
| � | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
| | 290 |
| 291 | |
| Item�9B. | Other Information. |
| | 292 |
| Item�10. | Directors, Executive Officers and Corporate Governance. |
| � | �Item 1�Election of Directors�Director Nominees� |
| � | �Item 1�Election of Directors�Corporate Governance�Board Meetings and Committees� |
| � | �Item 1�Election of Directors�Beneficial Ownership of Company Common Stock�Section 16(a) Beneficial Ownership Reporting Compliance� |
| Item�11. | Executive Compensation. |
| � | �Item 1�Election of Directors�Executive Compensation� |
| � | �Item 1�Election of Directors�Corporate Governance�Director Compensation� |
| 293 | |
| Item�12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
| Item�13. | Certain Relationships and Related Transactions, and Director Independence. |
| � | �Item 1�Election of Directors�Corporate Governance�Related Person Transactions Policy� |
| � | �Item 1�Election of Directors�Corporate Governance�Certain Transactions� |
| � | �Item 1�Election of Directors�Corporate Governance�Director Independence� |
| Item�14. | Principal Accountant Fees and Services. |
| � | �Item 2�Ratification of Appointment of Morgan Stanley�s Independent Auditor� (excluding the information under the subheading �Audit Committee Report�) |
| | 294 |
| Item�15. | Exhibits and Financial Statement Schedules. |
| � | The consolidated financial statements required to be filed in this Annual Report on Form 10-K are included in Part II, Item�8 hereof. |
| � | An exhibit index has been filed as part of this report beginning on page E-1 and is incorporated herein by reference. |
| 295 | |
| M ORGAN S TANLEY ( REGISTRANT ) | ||
| By: | / S /����J AMES P. G ORMAN | |
| (James P. Gorman) | ||
| Chairman of the Board and Chief Executive Officer | ||
| Signature | Title | |
| / S /����J AMES P. G ORMAN (James P. Gorman) | Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | |
| / S /����R UTH P ORAT (Ruth Porat) | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |
| / S /����P AUL C. W IRTH (Paul C. Wirth) | Deputy Chief Financial Officer (Principal Accounting Officer) | |
| / S /����R OY J. B OSTOCK (Roy J. Bostock) | Director | |
| / S /����E RSKINE B. B OWLES (Erskine B. Bowles) | Director | |
| / S /����H OWARD J. D AVIES (Howard J. Davies) | Director | |
| / S /����R OBERT H. H ERZ (Robert H. Herz) | Director | |
| / S /����C. R OBERT K IDDER (C. Robert Kidder) | Director | |
| / S /����K LAUS K LEINFELD (Klaus Kleinfeld) | Director | |
| S-1 |
Table of Contents| Signature | Title | |
| / S /����D ONALD T. N ICOLAISEN (Donald T. Nicolaisen) | Director | |
| / S /����H UTHAM S. O LAYAN (Hutham S. Olayan) | Director | |
| / S /����J AMES W. O WENS (James W. Owens) | Director | |
| / S /����O. G RIFFITH S EXTON (O. Griffith Sexton) | Director | |
| / S /����R YOSUKE T AMAKOSHI (Ryosuke Tamakoshi) | Director | |
| / S /����M ASAAKI T ANAKA (Masaaki Tanaka) | Director | |
| / S /����L AURA D� ANDREA T YSON (Laura D�Andrea Tyson) | Director | |
| | S-2 |
Table of Contents Exhibit Index Certain of the following exhibits, as indicated
parenthetically, were previously filed as exhibits to registration statements filed by Morgan Stanley or its predecessor companies under the Securities Act or to reports or registration statements filed by Morgan Stanley or its predecessor companies
under the Exchange Act and are hereby incorporated by reference to such statements or reports. Morgan Stanley�s Exchange Act file number is 1-11758. The Exchange Act file number of Morgan Stanley Group Inc., a predecessor company
(�MSG�), was 1-9085. 1 | Exhibit No. | Description | |
| 2.1 | Amended and Restated Joint Venture Contribution and Formation Agreement dated as of May 29, 2009 by and among Citigroup Inc. and Morgan Stanley and Morgan Stanley Smith Barney Holdings LLC (Exhibit 10.1 to Morgan Stanley�s Current Report on Form 8-K dated May 29, 2009). | |
| 2.2 | Integration and Investment Agreement dated as of March 30, 2010 by and between Mitsubishi UFJ Financial Group, Inc. and Morgan Stanley (Exhibit 2.2 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011). | |
| 3.1 | Amended and Restated Certificate of Incorporation of Morgan Stanley, as amended to date (Exhibit 3 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009). | |
| 3.2 | Certificate of Elimination of Series B Non-Cumulative Non-Voting Perpetual Convertible Preferred Stock (Exhibit 3.1 Morgan Stanley�s Current Report on Form 8-K dated July 20, 2011). | |
| 3.3* | Certificate of Merger of Domestic Corporations dated December 29, 2011. | |
| 3.4 | Amended and Restated Bylaws of Morgan Stanley, as amended to date (Exhibit 3.1 to Morgan Stanley�s Current Report on Form 8-K dated March 9, 2010). | |
| 4.1 | Indenture dated as of February�24, 1993 between Morgan Stanley and The Bank of New York, as trustee (Exhibit 4 to Morgan Stanley�s Registration Statement on Form S-3 (No. 33-57202)). | |
| 4.2 | Amended and Restated Senior Indenture dated as of May�1, 1999 between Morgan Stanley and The Bank of New York, as trustee (Exhibit 4-e to Morgan Stanley�s Registration Statement on Form S-3/A (No. 333-75289) as amended by Fourth Supplemental Senior Indenture dated as of October 8, 2007 (Exhibit 4.3 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2007). | |
| 4.3 | Senior Indenture dated as of November�1, 2004 between Morgan Stanley and The Bank of New York, as trustee (Exhibit 4-f to Morgan Stanley�s Registration Statement on Form
S-3/A (No.�333-117752), as amended by First Supplemental Senior Indenture dated as of September 4, 2007 (Exhibit 4.5 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2007), Second Supplemental Senior
Indenture dated as of January 4, 2008 (Exhibit 4.1 to Morgan Stanley�s Current Report on Form 8-K dated January 4, 2008), Third Supplemental Senior Indenture dated as of September 10, 2008 (Exhibit 4 to Morgan Stanley�s Quarterly Report on
Form 10-Q for the quarter ended August 31, 2008), Fourth Supplemental Senior Indenture dated as of December 1, 2008 (Exhibit 4.1 to Morgan Stanley�s Current Report on Form 8-K dated December 1, 2008), Fifth Supplemental Senior Indenture dated
as of April 1, 2009 (Exhibit 4 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009), Sixth Supplemental Senior Indenture | |
| (1) | For purposes of this Exhibit Index, references to �The Bank of New York� mean in some instances the entity successor to JPMorgan Chase Bank, N.A. or J.P. Morgan Trust Company, National Association; references to �JPMorgan Chase Bank, N.A.� mean the entity formerly known as The Chase Manhattan Bank, in some instances as the successor to Chemical Bank; references to �J.P. Morgan Trust Company, N.A.� mean the entity formerly known as Bank One Trust Company, N.A., as successor to The First National Bank of Chicago. |
| E-1 | |
| Exhibit No. | Description | |||
| dated as of September 16, 2011 (Exhibit 4.1 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011), Seventh Supplemental Senior Indenture dated as of November 21, 2011 (Exhibit 4.4 to Morgan Stanley�s Annual Report on Form 10-K for the year ended December 31, 2011) and Eighth Supplemental Senior Indenture dated as of May 4, 2012 (Exhibit 4.1 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012). | ||||
| 4.4 | The Unit Agreement Without Holders� Obligations, dated as of August 29, 2008, between Morgan Stanley and The Bank of New York Mellon, as Unit Agent, as Trustee and Paying Agent under the Senior Indenture referred to therein and as Warrant Agent under the Warrant Agreement referred to therein (Exhibit 4.1 to Morgan Stanley�s Current Report on Form 8-K dated August 29, 2008). | |||
| 4.5 | Amended and Restated Subordinated Indenture dated as of May�1, 1999 between Morgan Stanley and The Bank of New York, as trustee (Exhibit 4-f to Morgan Stanley�s Registration Statement on Form S-3/A (No. 333-75289)). | |||
| 4.6 | Subordinated Indenture dated as of October�1, 2004 between Morgan Stanley and The Bank of New York, as trustee (Exhibit 4-g to Morgan Stanley�s Registration Statement on Form S-3/A (No.�333-117752)). | |||
| 4.7 | Junior Subordinated Indenture dated as of March�1, 1998 between Morgan Stanley and The Bank of New York, as trustee (Exhibit 4.1 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended February�28, 1998). | |||
| 4.8 | Junior Subordinated Indenture dated as of October�1, 2004 between Morgan Stanley and The Bank of New York, as trustee (Exhibit 4-ww to Morgan Stanley�s Registration Statement on Form S-3/A (No.�333-117752)). | |||
| 4.9 | Junior Subordinated Indenture dated as of October�12, 2006 between Morgan Stanley and The Bank of New York, as trustee (Exhibit 4.1 to Morgan Stanley�s Current Report on Form 8-K dated October�12, 2006). | |||
| 4.10 | Deposit Agreement dated as of July�6, 2006 among Morgan Stanley, JPMorgan Chase Bank, N.A. and the holders from time to time of the depositary receipts described therein (Exhibit 4.3 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended May�31, 2006). | |||
| 4.11 | Depositary Receipt for Depositary Shares, representing Floating Rate Non-Cumulative Preferred Stock, Series A (included in Exhibit 4.10 hereto). | |||
| 4.12 | Amended and Restated Trust Agreement of Morgan Stanley Capital Trust III dated as of February 27, 2003 among Morgan Stanley, as depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as Delaware trustee, and the administrators named therein (Exhibit 4 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003). | |||
| 4.13 | Amended and Restated Trust Agreement of Morgan Stanley Capital Trust IV dated as of April 21, 2003 among Morgan Stanley, as depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as Delaware Trustee and the administrators named therein (Exhibit 4 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended May 31, 2003). | |||
| 4.14 | Amended and Restated Trust Agreement of Morgan Stanley Capital Trust V dated as of July 16, 2003 among Morgan Stanley, as depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as Delaware trustee and the administrators named therein (Exhibit 4 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended August 31, 2003). | |||
| 4.15 | Amended and Restated Trust Agreement of Morgan Stanley Capital Trust VI dated as of January 26, 2006 among Morgan Stanley, as depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as Delaware trustee and the administrators named therein (Exhibit 4 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended February 28, 2006). | |||
| | E-2 |
| Exhibit No. | Description | |||
| 4.16 | Amended and Restated Trust Agreement of Morgan Stanley Capital Trust VII dated as of October 12, 2006 among Morgan Stanley, as depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as Delaware trustee and the administrators named therein (Exhibit 4.3 to Morgan Stanley�s Current Report on Form 8-K dated October 12, 2006). | |||
| 4.17 | Amended and Restated Trust Agreement of Morgan Stanley Capital Trust VIII dated as of April 26, 2007 among Morgan Stanley, as depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as Delaware trustee and the administrators named therein (Exhibit 4.3 to Morgan Stanley�s Current Report on Form 8-K dated April 26, 2007). | |||
| 4.18 | Instruments defining the Rights of Security Holders, Including Indentures�Except as set forth in Exhibits 4.1 through 4.17 above, the instruments defining the rights of holders of long-term debt securities of Morgan Stanley and its subsidiaries are omitted pursuant to Section (b)(4)(iii) of Item�601 of Regulation S-K. Morgan Stanley hereby agrees to furnish copies of these instruments to the SEC upon request. | |||
| 10.1 | Amended and Restated Trust Agreement dated as of October 18, 2011 by and between Morgan Stanley and State Street Bank and Trust Company (Exhibit 10.1 to Morgan Stanley�s Annual Report on Form 10-K for the year ended December 31, 2011). | |||
| 10.2 | Transaction Agreement dated as of October 19, 2009 between Morgan Stanley and Invesco Ltd. (Exhibit 10 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009). | |||
| 10.3 | Letter Agreement dated as of May 28, 2010 between Morgan Stanley and Invesco Ltd. (Exhibit 2.1 to Morgan Stanley�s Current Report on Form 8-K dated May�28, 2010). | |||
| 10.4 | Transaction Agreement dated as of April 21, 2011 between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc. (Exhibit 10.1 to Morgan Stanley�s Current Report on Form 8-K dated April 21, 2011). | |||
| 10.5 | Amended and Restated Investor Agreement dated as of June 30, 2011 by and between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc. (Exhibit 10.1 to Morgan Stanley�s Current Report on Form 8-K dated June 30, 2011). | |||
| 10.6� | * | Morgan Stanley 401(k) Plan, amended and restated as of January 1, 2013. | ||
| 10.7� | 1994 Omnibus Equity Plan as amended and restated (Exhibit 10.23 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2003) as amended by Amendment (Exhibit 10.11 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2006). | |||
| 10.8� | Tax Deferred Equity Participation Plan as amended and restated as of November 26, 2007 (Exhibit 10.9 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2007). | |||
| 10.9� | Directors� Equity Capital Accumulation Plan as amended and restated as of March 22, 2012 (Exhibit 10.2 to Morgan Stanley�s Current Report on Form 8-K dated May 15, 2012). | |||
| 10.10� | Select Employees� Capital Accumulation Program as amended and restated as of May 7, 2008 (Exhibit 10.1 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended May 31, 2008). | |||
| 10.11� | Form of Term Sheet under the Select Employees� Capital Accumulation Program (Exhibit 10.9 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended February�29, 2008). | |||
| 10.12� | Employees� Equity Accumulation Plan as amended and restated as of November 26, 2007 (Exhibit�10.12 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2007). | |||
| E-3 | |
| Exhibit No. | Description | |||
| 10.13� | Employee Stock Purchase Plan as amended and restated as of February�1, 2009 (Exhibit 10.20 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November�30, 2008). | |||
| 10.14� | Morgan Stanley Supplemental Executive Retirement and Excess Plan, amended and restated effective December 31, 2008 (Exhibit 10.2 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009) as amended by Amendment (Exhibit 10.5 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009), Amendment (Exhibit 10.19 to Morgan Stanley�s Annual Report on Form 10-K for the year ended December 31, 2010) and Amendment (Exhibit 10.3 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended June�30, 2011). | |||
| 10.15� | 1995 Equity Incentive Compensation Plan (Annex A to MSG�s Proxy Statement for its 1996 Annual Meeting of Stockholders) as amended by Amendment (Exhibit 10.39 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2000), Amendment (Exhibit 10.5 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended August 31, 2005), Amendment (Exhibit 10.3 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended February 28, 2006), Amendment (Exhibit 10.24 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2006) and Amendment (Exhibit 10.22 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2007). | |||
| 10.16� | Form of Equity Incentive Compensation Plan Award Certificate (Exhibit 10.1 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended August�31, 2004). | |||
| 10.17� | Form of Management Committee Equity Award Certificate for Discretionary Retention Award of Stock Units and Stock Options (Exhibit 10.30 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2006). | |||
| 10.18� | Form of Deferred Compensation Agreement under the Pre-Tax Incentive Program (Exhibit 10.12 to MSG�s Annual Report on Form 10-K for the fiscal year ended January 31, 1994). | |||
| 10.19� | Form of Deferred Compensation Agreement under the Pre-Tax Incentive Program 2 (Exhibit 10.12 to MSG�s Annual Report for the fiscal year ended November 30, 1996). | |||
| 10.20� | Key Employee Private Equity Recognition Plan (Exhibit 10.43 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2000). | |||
| 10.21� | Morgan Stanley Financial Advisor and Investment Representative Compensation Plan as amended and restated as of November 26, 2007 (Exhibit 10.34 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2007). | |||
| 10.22� | Morgan Stanley UK Share Ownership Plan (Exhibit 4.1 to Morgan Stanley�s Registration Statement on Form S-8 (No. 333-146954)). | |||
| 10.23� | Supplementary Deed of Participation for the Morgan Stanley UK Share Ownership Plan, dated as of November 5, 2009 (Exhibit 10.36 to Morgan Stanley�s Annual Report on Form 10-K for the year ended December 31, 2009). | |||
| 10.24� | Aircraft Time Sharing Agreement, dated as of January 1, 2010, by and between�Corporate Services�Support Corp.�and James P. Gorman (Exhibit 10.1 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010). | |||
| 10.25� | Agreement between Morgan Stanley and James P. Gorman, dated August 16, 2005, and amendment dated December 17, 2008 (Exhibit 10.2 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010). | |||
| 10.26� | Agreement between Morgan Stanley and Gregory J. Fleming, dated February 3, 2010 (Exhibit 10.5 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011). | |||
| 10.27� | Form of Restrictive Covenant Agreement (Exhibit 10 to Morgan Stanley�s Current Report on Form�8-K dated November�22, 2005). | |||
| | E-4 |
| Exhibit No. | Description | |||
| 10.28� | Morgan Stanley Performance Formula and Provisions (Exhibit 10.3 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended May 31, 2006). | |||
| 10.29� | 2007 Equity Incentive Compensation Plan, as amended and restated as of March 22, 2012 (Exhibit 10.1 to Morgan Stanley�s Current Report on Form 8-K dated May 15, 2012). | |||
| 10.30� | Morgan Stanley 2006 Notional Leveraged Co-Investment Plan, as amended and restated as of November 28, 2008 (Exhibit 10.47 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2008). | |||
| 10.31� | Form of Award Certificate under the 2006 Notional Leveraged Co-Investment Plan (Exhibit 10.7 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended February�29, 2008). | |||
| 10.32� | Morgan Stanley 2007 Notional Leveraged Co-Investment Plan, amended as of June 4, 2009 (Exhibit 10.6 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009). | |||
| 10.33� | Form of Award Certificate under the 2007 Notional Leveraged Co-Investment Plan for Certain Management Committee Members (Exhibit 10.8 to Morgan Stanley�s Quarterly Report on Form�10-Q for the quarter ended February�29, 2008). | |||
| 10.34� | Form of Award Certificate for Discretionary Retention Awards of Stock Units (Exhibit 10.4 to Morgan Stanley�s Quarterly Report on Form�10-Q for the quarter ended March�31, 2010). | |||
| 10.35� | Governmental Service Amendment to Outstanding Stock Option and Stock Unit Awards (replacing and superseding in its entirety Exhibit 10.3 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended May�31, 2007) (Exhibit 10.41 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November�30, 2007). | |||
| 10.36� | Amendment to Outstanding Stock Option and Stock Unit Awards (Exhibit 10.53 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2008). | |||
| 10.37� | Morgan Stanley Compensation Incentive Plan (Exhibit 10.54 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2008). | |||
| 10.38� | Form of Award Certificate under the Morgan Stanley Compensation Incentive Plan (Exhibit 10.5 to Morgan Stanley�s Quarterly Report on Form�10-Q for the quarter ended March 31, 2010). | |||
| 10.39� | Form of Executive Waiver (Exhibit 10.55 to Morgan Stanley�s Annual Report on Form 10-K for the fiscal year ended November 30, 2008). | |||
| 10.40� | Form of Executive Letter Agreement (Exhibit 10.56 to Morgan Stanley�s Annual Report on Form�10-K for the fiscal year ended November 30, 2008). | |||
| 10.41� | Morgan Stanley 2009 Replacement Equity Incentive Compensation Plan for Morgan Stanley Smith Barney Employees (Exhibit 4.2 to Morgan Stanley�s Registration Statement on Form S-8 (No.�333-159504)). | |||
| 10.42� | Form of Award Certificate for Performance Stock Units (Exhibit 10.6 to Morgan Stanley�s Quarterly Report on Form�10-Q for the quarter ended March 31, 2010). | |||
| 10.43� | Form of Award Certificate for Discretionary Retention Awards of Stock Units (Exhibit 10.1 to Morgan Stanley�s Quarterly Report on Form�10-Q for the quarter ended March 31, 2011). | |||
| 10.44� | Form of Award Certificate for Awards under the Deferred Bonus Program of the Morgan Stanley Compensation Incentive Plan. (Exhibit 10.2 to Morgan Stanley�s Quarterly Report on Form�10-Q for the quarter ended March 31, 2011). | |||
| 10.45� | Form of Award Certificate for Performance Stock Units (Exhibit 10.3 to Morgan Stanley�s Quarterly Report on Form�10-Q for the quarter ended March 31, 2011). | |||
| 10.46� | Form of Award Certificate for Special Discretionary Retention Awards of Stock Options (Exhibit 10.4 to Morgan Stanley�s Quarterly Report on Form�10-Q for the quarter ended March 31, 2011). | |||
| E-5 | |
| Exhibit No. | Description | |||
| 10.47� | Morgan Stanley Schedule of Non-Employee Directors Annual Compensation, effective as of May 17, 2011 (Exhibit 10.59 to Morgan Stanley�s Annual Report on Form 10-K for the year ended December 31, 2011). | |||
| 10.48� | Strategic Equity Investment Plan, amended and restated as of January 1, 2009 (Exhibit 10.60 to Morgan Stanley�s Annual Report on Form 10-K for the year ended December 31, 2011). | |||
| 10.49� | Form of Award Certificate for Discretionary Retention Awards of Stock Units (Exhibit 10.1 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012). | |||
| 10.50� | Form of Award Certificate for Discretionary Retention Awards under the Morgan Stanley Compensation Incentive Plan Deferred Bonus Program (Exhibit 10.2 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012). | |||
| 10.51� | Form of Award Certificate for Performance Stock Units (Exhibit 10.3 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012). | |||
| 10.52� | Memorandum to Colm Kelleher Regarding Repatriation to London (Exhibit 10.4 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012). | |||
| 10.53� | Morgan Stanley U.S. Tax Equalization Program (Exhibit 10.5 to Morgan Stanley�s Quarterly Report on Form 10-Q for the quarter ended March�31, 2012). | |||
| 12 | * | Statement Re: Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. | ||
| 21 | * | Subsidiaries of Morgan Stanley. | ||
| 23.1 | * | Consent of Deloitte & Touche LLP. | ||
| 24 | Powers of Attorney (included on signature page). | |||
| 31.1 | * | Rule 13a-14(a) Certification of Chief Executive Officer. | ||
| 31.2 | * | Rule 13a-14(a) Certification of Chief Financial Officer. | ||
| 32.1 | ** | Section 1350 Certification of Chief Executive Officer. | ||
| 32.2 | ** | Section 1350 Certification of Chief Financial Officer. | ||
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i)�the Consolidated Statements of Financial Condition�December 31, 2012 and December 31, 2011, (ii)�the Consolidated Statements of Income�Twelve Months Ended December 31, 2012, December 31, 2011 and December 31, 2010, (iii)�the Consolidated Statements of Comprehensive Income�Twelve Months Ended December 31, 2012, December 31, 2011 and December 31, 2010, (iv)�the Consolidated Statements of Cash Flows�Twelve Months Ended December 31, 2012, December 31, 2011 and December 31, 2010, (v)�the Consolidated Statements of Changes in Total Equity�Twelve Months Ended December 31, 2012, December 31, 2011, and December 31, 2010, and (vi)�Notes to Consolidated Financial Statements. | |||
| * | Filed herewith. |
| ** | Furnished herewith. |
| � | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item�15(b). |
| | E-6 |