UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017March 31, 2018
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number1-11758
(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) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒ | Accelerated Filer ☐ | |
Non-Accelerated Filer ☐ | Smaller reporting company ☐ | |
(Do not check if a smaller reporting company) | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2017,April 30, 2018, there were 1,836,580,6911,770,260,439 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.
QUARTERLY REPORT ON FORM10-Q
For the quarter ended June 30, 2017March 31, 2018
Table of Contents | Part | Item | Page | |||||||||
I | 1 | |||||||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 | 1 | ||||||||||
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1 | 43 | |||||||||||
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Consolidated Statements of Changes in Total Equity (Unaudited) | 46 | |||||||||||
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12. Variable Interest Entities and Securitization Activities | 82 | |||||||||||
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II | 96 | |||||||||||
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2 | 98 | |||||||||||
6 | 98 | |||||||||||
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E-1 |
Part | Item | Page | ||||||||||
Financial Information | I | 1 | ||||||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | I | 2 | 1 | |||||||||
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Quantitative and Qualitative Disclosures about Market Risk | I | 3 | 29 | |||||||||
Report of Independent Registered Public Accounting Firm | 39 | |||||||||||
Financial Statements | I | 1 | 40 | |||||||||
Consolidated Financial Statements and Notes | 40 | |||||||||||
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Consolidated Statements of Changes in Total Equity (Unaudited) | 43 | |||||||||||
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7. Loans, Lending Commitments and Allowance for Credit Losses | 65 | |||||||||||
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12. Variable Interest Entities and Securitization Activities | 72 | |||||||||||
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Financial Data Supplement (Unaudited) | 84 | |||||||||||
Glossary of Common Acronyms | 86 | |||||||||||
Other Information | II | 88 | ||||||||||
Legal Proceedings | II | 1 | 88 | |||||||||
Unregistered Sales of Equity Securities and Use of Proceeds | II | 2 | 89 | |||||||||
Controls and Procedures | I | 4 | 90 | |||||||||
Exhibits | II | 6 | 90 | |||||||||
Exhibit Index | E-1 | |||||||||||
Signatures | S-1 |
i |
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (the “SEC”).SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at1-800-SEC-0330 for information on the public reference room. The SEC maintains an internet site,www.sec.gov, that contains annual, quarterly and current reports, proxy and information statements and other information that issuers file electronically with the SEC. Our electronic SEC filings are available to the public at the SEC’s internet site.
Our internet site iswww.morganstanley.com. You can access our Investor Relations webpage atwww.morganstanley.com/about-us-ir. We make available free of charge, on or through our Investor Relations webpage, our Proxy Statements, Annual Reports on Form10-K, Quarterly Reports onForm 10-Q, Current Reports on Form8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange(“Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We also make available, through our Investor Relations webpage, via a link to the SEC’s internet site, statements of beneficial ownership of our equity securities filed by our directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.
You can access information about our corporate governance atwww.morganstanley.com/about-us-governance. Our Corporate Governance webpage includes:
Amended and Restated Certificate of Incorporation;
Amended and Restated Bylaws;
Charters for our Audit Committee, Compensation, Management Development and Succession Committee, Nominating and Governance Committee, Operations and Technology Committee, and Risk Committee;
Corporate Governance Policies;
Policy Regarding Communication with the Board of Directors;
Policy Regarding Director Candidates Recommended by Shareholders;
Policy Regarding Corporate Political Activities;
Policy Regarding Shareholder Rights Plan;
Equity Ownership Commitment;
Code of Ethics and Business Conduct;
Code of Conduct;
Integrity Hotline Information; and
Environmental and Social Policies.
Our Code of Ethics and Business Conduct applies to all directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer and Deputy Chief Financial Officer. We will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC (“NYSE”) on our internet site. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, 1585 Broadway, New York, NY 10036(212-761-4000). The information on our internet site is not incorporated by reference into this report.
ii |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Morgan Stanley a financial holding company, is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms “Morgan Stanley,” “Firm,” “us,” “we,”“we” or “our” mean Morgan Stanley (the “Parent Company”) together with its consolidated subsidiaries. We define the following as part of our consolidated financial statements (“financial statements”): consolidated income statements (“income statements”), consolidated balance sheets (“balance sheets”), and consolidated cash flow statements (“cash flow statements”). See the “Glossary of Common Acronyms” for definitions of certain acronyms used throughout thisForm 10-Q.
A description of the clients and principal products and services of each of our business segments is as follows:
Institutional Securitiesprovides investment banking, sales and trading, lending and other services to corporations, governments, financial institutions, and high to ultra-high net worth clients. Investment banking services consist of capital raising and financial advisory services, including services relating to the underwriting of debt, equity and other securities, as well as advice on mergers and acquisitions, restructurings, real estate and project finance. Sales and trading services include sales, financing, prime brokerage and market-making activities in equity and fixed income products, including prime brokerage services, global macro, creditforeign exchange and commodities products.commodities. Lending services include originating and/or purchasing corporate loans, commercial and residential mortgage lending, asset-backed lending, financing extended to equities and commodities customers, and loans to municipalities. Other servicesactivities include investmentinvestments and research activities.research.
Wealth Managementprovides a comprehensive array of financial services and solutions to individual investors and small tomedium-sized businesses/businesses and institutions covering
brokerage and investment advisory services, financial and wealth planning services, annuity and insurance products, credit and other lending products, banking and retirement plan services.
Investment Managementprovides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products include equity, fixed income, liquidity and alternative/other products. Institutional clients include defined benefit/defined contribution plans, foundations, endowments, government entities, sovereign wealth funds, insurance companies, third-party fund sponsors and corporations. Individual clients are serviced through intermediaries, including affiliated andnon-affiliated distributors.
The results of operations in the past have been, and in the future may continue to be, materially affected by competition; risk factors; and legislative, legal and regulatory developments; as well as other factors. These factors also may have an adverse impact on our ability to achieve our strategic objectives. Additionally, the discussion of our results of operations herein 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 our future results, see “Forward-Looking Statements” immediately preceding Part I, Item 1,Statements,” “Business—Competition” and “Business—Supervision and Regulation” in Part I, Item 1,Regulation,” “Risk Factors” in Part I, Item 1A of our Annual Report onthe 2017 Form10-K for the year ended December 31, 2016 (the “2016 Form10-K”) and “Liquidity and Capital Resources—Regulatory Requirements” herein.
1 |
Management’s Discussion and Analysis |
Overview of Financial Results
Consolidated Results
Net Revenues
($ in millions)
Net Income Applicable to Morgan Stanley
($ in millions)
Earnings per Common Share1
1. | For the calculation of basic and diluted |
We reported net revenues of $9,503$11,077 million in the three monthsquarter ended June 30, 2017March 31, 2018 (“current quarter,” or “2Q 2017”“1Q 2018”), compared with $8,909$9,745 million in the three monthsquarter ended June 30, 2016March 31, 2017 (“prior year quarter,” or “2Q 2016”“1Q 2017”). For the current quarter, net income applicable to Morgan Stanley was $1,757$2,668 million, or $0.87$1.45 per diluted common share, compared with $1,582$1,930 million, or $0.75$1.00 per diluted common share, in the prior year quarter.
We reported net revenues of $19,248 million in the six months ended June 30, 2017 (“current year period,” or “YTD 2017”), compared with $16,701 million in the six months ended June 30, 2016 (“prior year period,” or “YTD 2016”). For the current year period, net income applicable to Morgan Stanley was $3,687 million, or $1.87 per diluted common share, compared with income of $2,716 million, or $1.30 per diluted common share in the prior year period.
Non-interest Expenses
($ in millions)
Compensation and benefits expenses of $4,252$4,914 million in the current quarter and $8,718 million in the current year period increased 6% and 13%, respectively,10% from $4,015$4,466 million in the prior year quarter, and $7,698 million in the prior year period, primarily due to increases in discretionary incentive compensation driven mainly byacross segments, the formulaic payout to Wealth Management representatives linked to higher revenues and salaries, partially offset by a decrease in the fair value of investments to which certain deferred compensation plans are referenced.
• | Non-compensation expenses were $2,743 million in the current quarter compared with $2,471 million in the prior year quarter representing an 11% increase. This increase was primarily a result of higher volume-related expenses and the gross presentation of certain expenses due to the adoption of the accounting updateRevenue from Contracts with Customers (see Notes 2 and 20 to the financial statements for further information). These results were partially offset in the current quarter by the reversal of a portion of previously recorded provisions related to U.K. VAT matters. |
2 |
Management’s Discussion and Analysis |
|
Non-compensation expenses were $2,609 million in the current quarter and $5,080 million in the current year period compared with $2,411 million in the prior year quarter and $4,782 million in the prior year period, representing an 8% and a 6% increase, respectively. These increases were primarily as a result of higher Brokerage, clearing and exchange fees expense and other volume-driven expenses and a provision related to a United Kingdom (“U.K.”) indirect tax (i.e. value-added tax or “VAT”) matter. In addition to these drivers,non-compensation expenses increased in the current year period due to higher litigation costs. For further discussion of the U.K. VAT matter, see “Institutional Securities—Investments, Other Revenues,Non-interest Expenses and Other Items—Other Items” herein.
Expense Efficiency Ratio1
The expense efficiency ratio was 72.2% in the current quarter and 71.7% in the current year period. The expense efficiency ratio was 72.1% in the prior year quarter and 74.7% in the prior year period (see “SelectedNon-Generally Accepted Accounting Principles(“Non-GAAP”) Financial Information” herein).
Return on Average Common Equity2
Return on Average Tangible Common Equity2
The annualized return on average common equity (“ROE”) was 9.1% in the current quarter and 9.9% in the current
1. |
|
2. | Represents anon-GAAP measure. See “Selected |
Business Segment Results
Net Revenues by Segment1, 2
($ in millions)
Net Income Applicable to Morgan Stanley by Segment2,1, 3
($ in millions)
1. | The |
|
2. | The total amount of Net Revenues by Segment also includes intersegment eliminations of $(115) million and $(74) million in the current quarter and prior year quarter, respectively. |
3. | The total amount of Net Income Applicable to Morgan Stanley by Segment also includes intersegment eliminations of $2 million in the |
Institutional Securities net revenues of $4,762$6,100 million in the current quarter and $9,914 million in the current year period increased 4%18% from the prior year quarter, and increased 20% from the prior year period. The current quarter results primarily reflectedreflecting higher revenues from underwriting and strength in equity sales and trading. The current year period results primarily reflected higher revenues from fixed income sales and trading and underwriting.Investment banking revenues across all regions.
Wealth Management net revenues of $4,151$4,374 million in the current quarter and $8,209 million in the current year period increased 9%8% from the prior year quarter, and increased 10% from the prior year period. The currentprimarily reflecting growth in Asset management revenues.
|
Investment Management net revenues of $665$718 million in the current quarter and $1,274 million in the current year period increased 14%18% from the prior year quarter, and increased 20%primarily reflecting higher revenues from the prior year period. The current quarter results primarily reflected higher investment gains and carried interest and growth in asset management fee revenues. Current year period results primarily reflected investment gains compared with losses in the prior year period and positive carried interest in the current year period.Asset management.
3 | March 2018 Form 10-Q |
Management’s Discussion and Analysis |
Net Revenues by Region1
($ in millions)
EMEA—Europe, Middle East and Africa
1. | For a discussion of how the geographic breakdown for net revenues is determined, see Note |
Selected Financial Information and Other Statistical Data
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | ||||||||||||||||||
Income from continuing operations applicable to Morgan Stanley | $ | 1,762 | $ | 1,586 | $ | 3,714 | $ | 2,723 | $ | 2,670 | $ | 1,952 | ||||||||||||
Income (loss) from discontinued operations applicable to Morgan Stanley | (5 | ) | (4 | ) | (27 | ) | (7 | ) | (2 | ) | (22 | ) | ||||||||||||
Net income applicable to Morgan Stanley | 1,757 | 1,582 | 3,687 | 2,716 | 2,668 | 1,930 | ||||||||||||||||||
Preferred stock dividends and other | 170 | 157 | 260 | 235 | 93 | 90 | ||||||||||||||||||
Earnings applicable to Morgan Stanley common shareholders | $ | 1,587 | $ | 1,425 | $ | 3,427 | $ | 2,481 | $ | 2,575 | $ | 1,840 | ||||||||||||
Effective income tax rate from continuing operations | 32.0 | % | 33.5 | % | 30.5 | % | 33.4 | % |
At June 30, 2017 | At December 31, 2016 | |||||||
Capital ratios (Transitional-Advanced)1 |
| |||||||
Common Equity Tier 1 capital ratio | 16.6 | % | 16.9 | % | ||||
Tier 1 capital ratio | 19.0 | % | 19.0 | % | ||||
Total capital ratio | 21.9 | % | 22.0 | % | ||||
Capital ratios (Transitional-Standardized)1 |
| |||||||
Tier 1 leverage ratio2 | 8.5 | % | 8.4 | % |
in millions, except per share and employee data | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Loans3 | $ | 97,639 | $ | 94,248 | ||||||||||||
GLR1 | $ | 206,463 | $ | 192,660 | ||||||||||||
Loans2 | $ | 109,135 | $ | 104,126 | ||||||||||||
Total assets | $ | 841,016 | $ | 814,949 | $ | 858,495 | $ | 851,733 | ||||||||
Global Liquidity Reserve4 | $ | 188,296 | $ | 202,297 | ||||||||||||
Deposits | $ | 144,913 | $ | 155,863 | $ | 160,424 | $ | 159,436 | ||||||||
Long-term borrowings | $ | 184,112 | $ | 164,775 | ||||||||||||
Borrowings | $ | 194,964 | $ | 192,582 | ||||||||||||
Common shareholders’ equity | $ | 70,306 | $ | 68,530 | $ | 69,514 | $ | 68,871 | ||||||||
Common shares outstanding | 1,840 | 1,852 | 1,774 | 1,788 | ||||||||||||
Book value per common share5 | $ | 38.22 | $ | 36.99 | ||||||||||||
Book value per common share3 | $ | 39.19 | $ | 38.52 | ||||||||||||
Worldwide employees | 56,187 | 55,311 | 57,810 | 57,633 |
in millions, except per share and employee data | At March 31, 2018 | At December 31, 2017 | ||||||
Capital ratios4 | ||||||||
Common Equity Tier 1 capital ratio | 15.5 | % | 16.5 | % | ||||
Tier 1 capital ratio | 17.7 | % | 18.9 | % | ||||
Total capital ratio | 20.3 | % | 21.7 | % | ||||
Tier 1 leverage ratio | 8.2 | % | 8.3 | % |
1. | For a discussion of |
2. |
|
Amounts include loans held for investment (net of allowance) and loans held for sale but exclude loans at fair value, which are included in Trading assets in the |
|
Book value per common share equals common shareholders’ equity divided by common shares outstanding. |
4. | Beginning in 2018, our capital ratios are based on the Standardized Approach fullyphased-in rules. At December 31, 2017, our capital ratios were based on the Standardized Approach transitional rules. For a discussion of our regulatory capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein. |
SelectedNon-Generally Accepted Accounting Principles(“Non-GAAP”)Non-GAAP Financial Information
We prepare our consolidated financial statements using accounting principles generally accepted in the United States of America (“U.S. GAAP”).GAAP. From time to time, we may disclose certain“non-GAAP financial measures” in this document or in the course of our earnings releases, earnings and other conference calls, financial presentations, Definitive Proxy Statement and otherwise. A“non-GAAP financial measure” excludes, or includes, amounts from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. We consider thenon-GAAP financial measures we disclose to be useful to us, investors and analysts by providing further transparency about, or an alternate means of assessing, our financial condition, operating results, prospective regulatory capital requirements or capital adequacy. These measures are not in accordance with, or a substitute for, U.S. GAAP and may be different from or inconsistent withnon-GAAP financial measures used by other companies. Whenever we refer to anon-GAAP financial measure, we will also generally define it or present the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, along with a reconciliation of the differences between the U.S. GAAP financial measure and thenon-GAAP financial measure.
The principalnon-GAAP financial measures presented in this document are set forth below.
Non-GAAP Financial Measures by Business Segment
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in billions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Pre-tax profit margin1 | ||||||||||||||||
Institutional Securities | 30 | % | 33 | % | 32 | % | 29 | % | ||||||||
Wealth Management | 25 | % | 23 | % | 25 | % | 22 | % | ||||||||
Investment Management | 21 | % | 20 | % | 19 | % | 15 | % | ||||||||
Consolidated | 28 | % | 28 | % | 28 | % | 25 | % | ||||||||
Average common equity2 |
| |||||||||||||||
Institutional Securities | $ | 40.2 | $ | 43.2 | $ | 40.2 | $ | 43.2 | ||||||||
Wealth Management | 17.2 | 15.3 | 17.2 | 15.3 | ||||||||||||
Investment Management | 2.4 | 2.8 | 2.4 | 2.8 | ||||||||||||
Parent Company | 10.1 | 7.7 | 9.7 | 7.3 | ||||||||||||
Consolidated average common equity | $ | 69.9 | $ | 69.0 | $ | 69.5 | $ | 68.6 | ||||||||
Return on average common equity2 |
| |||||||||||||||
Institutional Securities | 8.5 | % | 8.0 | % | 9.9 | % | 6.4 | % | ||||||||
Wealth Management | 14.6 | % | 12.9 | % | 14.6 | % | 12.7 | % | ||||||||
Investment Management | 16.3 | % | 10.6 | % | 13.7 | % | 8.8 | % | ||||||||
Consolidated | 9.1 | % | 8.3 | % | 9.9 | % | 7.2 | % |
March 2018 Form 10-Q |
Management’s Discussion and Analysis |
Reconciliations from U.S. GAAP toNon-GAAP Consolidated Financial Measures
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in millions, except per share data | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income applicable to Morgan Stanley
|
| |||||||||||||||
U.S. GAAP | $ | 1,757 | $ | 1,582 | $ | 3,687 | $ | 2,716 | ||||||||
Impact of discrete tax provision3 | 4 | — | 18 | — | ||||||||||||
Net income applicable to Morgan Stanley, excluding discrete taxprovision—non-GAAP | $ | 1,761 | $ | 1,582 | $ | 3,705 | $ | 2,716 | ||||||||
Earnings per diluted common share
|
| |||||||||||||||
U.S. GAAP | $ | 0.87 | $ | 0.75 | $ | 1.87 | $ | 1.30 | ||||||||
Impact of discrete tax provision3 | — | — | 0.01 | — | ||||||||||||
Earnings per diluted common share, excluding discrete taxprovision—non-GAAP | $ | 0.87 | $ | 0.75 | $ | 1.88 | $ | 1.30 | ||||||||
Effective income tax rate
| ||||||||||||||||
U.S. GAAP | 32.0 | % | 33.5 | % | 30.5 | % | 33.4 | % | ||||||||
Impact of discrete tax provision3 | (0.1 | )% | — | (0.4 | )% | — | ||||||||||
Effective income tax rate from continuing |
| |||||||||||||||
operations, excluding discrete taxprovision—non-GAAP | 31.9 | % | 33.5 | % | 30.1 | % | 33.4 | % |
Three Months Ended March 31, | ||||||||
$ in millions, except per share data | 2018 | 2017 | ||||||
Net income applicable to Morgan Stanley | $ | 2,668 | $ | 1,930 | ||||
Impact of adjustments | — | 14 | ||||||
Adjusted net income applicable to MorganStanley—non-GAAP1 | $ | 2,668 | 1,944 | |||||
Earnings per diluted common share | $ | 1.45 | $ | 1.00 | ||||
Impact of adjustments | — | 0.01 | ||||||
Adjusted earnings per diluted commonshare—non-GAAP1 | $ | 1.45 | $ | 1.01 | ||||
Effective income tax rate | 20.9% | 29.0% | ||||||
Impact of adjustments | —% | (0.5)% | ||||||
Adjusted effective income tax rate—non-GAAP1 | 20.9% | 28.5% |
Average Monthly Balance | ||||||||||||||||
At March 31, 2018 | At December 31, 2017 | Three Months Ended March 31, | ||||||||||||||
$ in millions | 2018 | 2017 | ||||||||||||||
Tangible Equity | ||||||||||||||||
U.S. GAAP | ||||||||||||||||
Morgan Stanley shareholders’ equity | $ | 78,034 | $ | 77,391 | $ | 77,507 | $ | 77,259 | ||||||||
Less: Goodwill and net intangible assets | (9,129 | ) | (9,042 | ) | (9,043 | ) | (9,262 | ) | ||||||||
Morgan Stanley tangible shareholders’equity—non-GAAP | $ | 68,905 | $ | 68,349 | $ | 68,464 | $ | 67,997 | ||||||||
U.S. GAAP | ||||||||||||||||
Common equity | $ | 69,514 | $ | 68,871 | $ | 68,987 | $ | 68,989 | ||||||||
Less: Goodwill and net intangible assets | (9,129 | ) | (9,042 | ) | (9,043 | ) | (9,262 | ) | ||||||||
Tangible commonequity—non-GAAP | $ | 60,385 | $ | 59,829 | $ | 59,944 | $ | 59,727 |
ConsolidatedNon-GAAP Financial Measures
Three Months Ended March 31, | ||||||||
$ in billions | 2018 | 2017 | ||||||
Average common equity | ||||||||
Unadjusted | $ | 69.0 | $ | 69.0 | ||||
Adjusted1 | 69.0 | 69.0 | ||||||
ROE2 |
| |||||||
Unadjusted | 14.9% | 10.7% | ||||||
Adjusted1, 3 | 14.9% | 10.7% | ||||||
Average tangible common equity |
| |||||||
Unadjusted | $ | 59.9 | $ | 59.7 | ||||
Adjusted1 | 59.9 | 59.7 | ||||||
ROTCE2 |
| |||||||
Unadjusted | 17.2% | 12.3% | ||||||
Adjusted1, 3 | 17.2% | 12.4% |
At March 31, 2018 | At December 31, 2017 | |||||||
Tangible book value per common share4 | $ | 34.04 | $ | 33.46 |
Non-GAAP Financial Measures by Business Segment
Three Months Ended March 31, | ||||||||
$ in billions | 2018 | 2017 | ||||||
Pre-tax profit margin5 | ||||||||
Institutional Securities | 35% | 34% | ||||||
Wealth Management | 27% | 24% | ||||||
Investment Management | 21% | 17% | ||||||
Consolidated | 31% | 29% | ||||||
Average common equity6 | ||||||||
Institutional Securities | $ | 40.8 | $ | 40.2 | ||||
Wealth Management | 16.8 | 17.2 | ||||||
Investment Management | 2.6 | 2.4 | ||||||
Parent Company | 8.8 | 9.2 | ||||||
Consolidated average | $ | 69.0 | $ | 69.0 | ||||
Average tangible common equity6 |
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Institutional Securities | $ | 40.1 | $ | 39.6 | ||||
Wealth Management | 9.2 | 9.3 | ||||||
Investment Management | 1.7 | 1.6 | ||||||
Parent Company | 8.9 | 9.2 | ||||||
Consolidated average | $ | 59.9 | $ | 59.7 | ||||
ROE2, 7 |
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Institutional Securities | 15.2% | 11.4% | ||||||
Wealth Management | 21.3% | 14.6% | ||||||
Investment Management | 19.3% | 11.1% | ||||||
Consolidated | 14.9% | 10.7% | ||||||
ROTCE2, 7 |
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Institutional Securities | 15.5% | 11.5% | ||||||
Wealth Management | 38.9% | 27.0% | ||||||
Investment Management | 30.3% | 16.3% | ||||||
Consolidated | 17.2% | 12.3% |
1. | Adjusted amounts exclude intermittent net discrete tax provisions (benefits). Income tax consequences associated with employee share-based awards are recognized in Provision for income taxes in the income statements but are excluded from the intermittent net discrete tax provisions (benefits) adjustment as we anticipate conversion activity each quarter. For further information on the net discrete tax provisions (benefits), see “Supplemental Financial Information and Disclosures—Income Tax Matters” herein. |
2. | ROE and ROTCE equal net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity and average tangible common equity, on a consolidated basis as indicated. When excluding intermittent net discrete tax provisions (benefits), both the numerator and denominator are adjusted. |
3. | The calculations used in determining the Firm’s “ROE and ROTCE Targets” referred to below are the Adjusted ROE and Adjusted ROTCE amounts shown in this table. |
4. | Tangible book value per common share equals tangible common equity divided by common shares outstanding. |
5. | Pre-tax profit margin represents income from continuing operations before income taxes as a percentage of net revenues. |
Average common equity and average tangible common equity for each business segment |
7. | The calculation of ROE and |
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ConsolidatedNon-GAAP Financial Measures
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in billions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Average common equity1, 2, 3
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Unadjusted | $ | 69.9 | $ | 69.0 | $ | 69.5 | $ | 68.6 | ||||||||
Excluding DVA | 70.5 | 69.1 | 70.1 | 68.7 | ||||||||||||
Excluding DVA and discrete tax provision (benefit) | 70.5 | 69.1 | 70.1 | 68.7 | ||||||||||||
Return on average common equity1, 2, 4, 5
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Unadjusted | 9.1 | % | 8.3 | % | 9.9 | % | 7.2 | % | ||||||||
Excluding DVA | 9.0 | % | 8.3 | % | 9.8 | % | 7.2 | % | ||||||||
Excluding DVA and discrete tax provision (benefit) | 9.0 | % | 8.3 | % | 9.8 | % | 7.2 | % | ||||||||
Average tangible common equity1, 2, 3, 6
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Unadjusted | $ | 60.7 | $ | 59.5 | $ | 60.2 | $ | 59.1 | ||||||||
Excluding DVA | 61.3 | 59.6 | 60.8 | 59.2 | ||||||||||||
Excluding DVA and discrete tax provision (benefit) | 61.3 | 59.6 | 60.8 | 59.2 | ||||||||||||
Return on average tangible common equity1, 2, 5
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Unadjusted | 10.4 | % | 9.6 | % | 11.4 | % | 8.4 | % | ||||||||
Excluding DVA | 10.3 | % | 9.6 | % | 11.3 | % | 8.4 | % | ||||||||
Excluding DVA and discrete tax provision (benefit) | 10.4 | % | 9.6 | % | 11.3 | % | 8.4 | % | ||||||||
Expense efficiency ratio7 | 72.2 | % | 72.1 | % | 71.7 | % | 74.7 | % |
At June 30, 2017 | At December 31, 2016 | |||||||
Tangible book value per common share6 | $ | 33.24 | $ | 31.98 |
DVA—Debt valuation adjustment represents the change in the fair value resulting from fluctuations in our credit spreads and other credit factors related to liabilities carried at fair value under the fair value option, primarily certain Long-term and Short-term borrowings.
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5 | March 2018 Form 10-Q |
Management’s Discussion and Analysis |
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Return on Equity Targetand Tangible Common Equity Targets
We haveIn January 2018, we established an ROE Target of 9%10% to 11%13% for the medium term, which is equivalent to be achieved by 2017. an ROTCE Target of 11.5% to 14.5%.
Our ROE Target and the related strategies and goalsROTCE Targets are forward-looking statements that may be materially affected by many factors, including, among other things: macroeconomic and market conditions; legislative and regulatory developments; industry trading and investment banking volumes; equity market levels; interest rate environment; outsize legal expenses or penalties and the ability to reduce expenses in general;maintain a reduced level of expenses; capital levels; and intermittent discrete tax items. For further information on our ROE Targetand ROTCE Targets and related assumptions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—Return on Equity Target”and Tangible Common Equity Targets” in Part II, Item 7 of the 20162017 Form10-K.
Substantially all of our operating revenues and operating expenses are directly attributable to the business segments. Certain revenues and expenses have been allocated to each business segment, generally in proportion to its respective net revenues,non-interest expenses or other relevant measures.
As a result of treating certain intersegment transactions as transactions with external parties, we include an Intersegment Eliminations category to reconcile the business segment results to our consolidated results.
Net Revenues, Compensation Expense and Income Taxes
For discussionsan overview of the components of our net revenues, compensation expense and income taxes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Net Revenues” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Net Revenues by Segment”Segments” in Part II, Item 7 of the 2016 Form10-K. For a discussion of our compensation expense, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Compensation Expense” in Part II, Item 7 of the 2016 Form10-K. For a discussion of our Income Tax expense, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Income Taxes” in Part II, Item 7 of the 20162017 Form10-K.
March 2018 Form 10-Q |
Management’s Discussion and Analysis |
Institutional Securities
Income Statement Information
Three Months Ended June 30, | ||||||||||||
$ in millions | 2017 | 2016 | % Change | |||||||||
Revenues | ||||||||||||
Investment banking | $ | 1,413 | $ | 1,108 | 28% | |||||||
Trading | 2,725 | 2,498 | 9% | |||||||||
Investments | 37 | 76 | (51)% | |||||||||
Commissions and fees | 630 | 607 | 4% | |||||||||
Asset management, distribution and administration fees | 89 | 69 | 29% | |||||||||
Other | 126 | 138 | (9)% | |||||||||
Totalnon-interest revenues | 5,020 | 4,496 | 12% | |||||||||
Interest income | 1,243 | 966 | 29% | |||||||||
Interest expense | 1,501 | 884 | 70% | |||||||||
Net interest | (258 | ) | 82 | N/M | ||||||||
Net revenues | 4,762 | 4,578 | 4% | |||||||||
Compensation and benefits | 1,667 | 1,625 | 3% | |||||||||
Non-compensation expenses | 1,652 | 1,447 | 14% | |||||||||
Totalnon-interest expenses | 3,319 | 3,072 | 8% | |||||||||
Income from continuing operations before income taxes | 1,443 | 1,506 | (4)% | |||||||||
Provision for income taxes | 413 | 453 | (9)% | |||||||||
Income from continuing operations | 1,030 | 1,053 | (2)% | |||||||||
Income (loss) from discontinued operations, net of income taxes | (5 | ) | (4 | ) | (25)% | |||||||
Net income | 1,025 | 1,049 | (2)% | |||||||||
Net income applicable to noncontrolling interests | 33 | 61 | (46)% | |||||||||
Net income applicable to Morgan Stanley | $ | 992 | 988 | —% |
Six Months Ended June 30, | ||||||||||||
$ in millions | 2017 | 2016 | % Change | |||||||||
Revenues | ||||||||||||
Investment banking | $ | 2,830 | $ | 2,098 | 35% | |||||||
Trading | 5,737 | 4,389 | 31% | |||||||||
Investments | 103 | 108 | (5)% | |||||||||
Commissions and fees | 1,250 | 1,262 | (1)% | |||||||||
Asset management, distribution and administration fees | 180 | 142 | 27% | |||||||||
Other | 299 | 142 | 111% | |||||||||
Totalnon-interest revenues | 10,399 | 8,141 | 28% | |||||||||
Interest income | 2,367 | 2,019 | 17% | |||||||||
Interest expense | 2,852 | 1,868 | 53% | |||||||||
Net interest | (485 | ) | 151 | N/M | ||||||||
Net revenues | 9,914 | 8,292 | 20% | |||||||||
Compensation and benefits | 3,537 | 3,007 | 18% | |||||||||
Non-compensation expenses | 3,204 | 2,871 | 12% | |||||||||
Totalnon-interest expenses | 6,741 | 5,878 | 15% | |||||||||
Income from continuing operations before income taxes | 3,173 | 2,414 | 31% | |||||||||
Provision for income taxes | 872 | 728 | 20% | |||||||||
Income from continuing operations | 2,301 | 1,686 | 36% | |||||||||
Income (loss) from discontinued operations, net of income taxes | (27 | ) | (7 | ) | N/M | |||||||
Net income | 2,274 | 1,679 | 35% | |||||||||
Net income applicable to noncontrolling interests | 68 | 100 | (32)% | |||||||||
Net income applicable to Morgan Stanley | $ | 2,206 | $ | 1,579 | 40% |
N/M—Not Meaningful
Three Months Ended March 31, | ||||||||||||
$ in millions | 2018 | 2017 | % Change | |||||||||
Revenues | ||||||||||||
Investment banking | $ | 1,513 | $ | 1,417 | 7% | |||||||
Trading | 3,643 | 3,012 | 21% | |||||||||
Investments | 49 | 66 | (26)% | |||||||||
Commissions and fees | 744 | 620 | 20% | |||||||||
Asset management | 110 | 91 | 21% | |||||||||
Other | 136 | 173 | (21)% | |||||||||
Totalnon-interest revenues | 6,195 | 5,379 | 15% | |||||||||
Interest income | 1,804 | 1,124 | 60% | |||||||||
Interest expense | 1,899 | 1,351 | 41% | |||||||||
Net interest | (95) | (227) | 58% | |||||||||
Net revenues | 6,100 | 5,152 | 18% | |||||||||
Compensation and benefits | 2,160 | 1,870 | 16% | |||||||||
Non-compensation expenses | 1,828 | 1,552 | 18% | |||||||||
Totalnon-interest expenses | 3,988 | 3,422 | 17% | |||||||||
Income from continuing operations before income taxes | 2,112 | 1,730 | 22% | |||||||||
Provision for income taxes | 449 | 459 | (2)% | |||||||||
Income from continuing operations | 1,663 | 1,271 | 31% | |||||||||
Income (loss) from discontinued operations, net of income taxes | (2) | (22) | 91% | |||||||||
Net income | 1,661 | 1,249 | 33% | |||||||||
Net income applicable to | 34 | 35 | (3)% | |||||||||
Net income applicable to | $ | 1,627 | $ | 1,214 | 34% |
Investment Banking
Investment Banking Revenues
Three Months Ended June 30, | ||||||||||||
$ in millions | 2017 | 2016 | % Change | |||||||||
Advisory | $ | 504 | $ | 497 | 1% | |||||||
Underwriting revenues: | ||||||||||||
Equity | 405 | 266 | 52% | |||||||||
Fixed income | 504 | 345 | 46% | |||||||||
Total underwriting | 909 | 611 | 49% | |||||||||
Total investment banking | $ | 1,413 | $ | 1,108 | 28% |
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||||||||||
$ in millions | 2017 | 2016 | % Change | 2018 | 2017 | % Change | ||||||||||||||||||
Advisory | $ | 1,000 | $ | 1,088 | (8)% | $ | 574 | $ | 496 | 16% | ||||||||||||||
Underwriting revenues: | ||||||||||||||||||||||||
Underwriting: | ||||||||||||||||||||||||
Equity | 795 | 426 | 87% | 421 | 390 | 8% | ||||||||||||||||||
Fixed income | 1,035 | 584 | 77% | 518 | 531 | (2)% | ||||||||||||||||||
Total underwriting | 1,830 | 1,010 | 81% | 939 | 921 | 2% | ||||||||||||||||||
Total investment banking | $ | 2,830 | $ | 2,098 | 35% | $ | 1,513 | $ | 1,417 | 7% |
Investment Banking Volumes
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in billions | 20171 | 20161 | 20171 | 20161 | ||||||||||||
Completed mergers and acquisitions2 | $ | 205 | $ | 241 | $ | 356 | $ | 538 | ||||||||
Equity and equity-related offerings3 | 20 | 14 | 30 | 21 | ||||||||||||
Fixed income offerings4 | 67 | 62 | 142 | 113 |
Three Months Ended March 31, | ||||||||
$ in billions | 2018 | 2017 | ||||||
Completed mergers and acquisitions1 | $ | 145 | $ | 163 | ||||
Equity and equity-related offerings2, 3 | 21 | 10 | ||||||
Fixed income offerings2, 4 | 54 | 75 |
Source: Thomson Reuters, data as of April 2, 2018. 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.
1. |
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2. | 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. |
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3. | Amounts include Rule 144A issuances and registered public offerings of common stock and convertible securities and rights offerings. |
4. | Amounts includenon-convertible preferred stock, mortgage-backed and asset-backed securities, and taxable municipal debt. Amounts include publicly registered and Rule 144A issuances. Amounts exclude leveraged loans andself-led issuances. |
Investment banking revenues are composed of fees from advisory services and revenues from the underwriting of securities offerings and syndication of loans, net of syndication expenses.
Investment banking revenues of $1,413$1,513 million in the current quarter and $2,830 million in the current year period increased 28% and 35%7% from the comparable prior year periods.quarter. The adoption of the accounting updateRevenue from Contracts with Customers had the effect of increasing the revenues reported in investment banking by approximately $60 million compared with the prior year quarter (see Notes 2 and 20 to the financial statements for further information). The drivers of the increase in our Investment banking revenues, other than the effect of the above accounting update, were:
Advisory revenues increased in the current quarter primarily reflectedreflecting higher underwriting revenues. The increase in the current year period was due to higher underwriting revenues, partially offset by lower advisory revenues.
Advisory revenues were relatively unchanged in the current quarter and decreased in the current year period reflecting the lower volumes of completed merger, acquisition and restructuring transactions (see Investment Banking Volumes table), offset by the positive impact of higherM&A fee realizations.realizations on larger transactions.
Equity underwriting revenues increased in the current quarter and current year periodprimarily as a result of higher global market volumes in bothfollow-on and initial public offerings (see Investment Banking Volumes table). In, partially offset by the current year period, equity underwriting revenues also increased as a resulteffect of higherlower fee realizations.
Fixed income underwriting revenues increaseddecreased in the current quarter and current year period primarily due to lower market volumes, which resulted in lower bond fees, partially offset by highernon-investment grade loan fees and bond fees.
7 | March 2018 Form 10-Q |
Management’s Discussion and Analysis |
Sales and Trading Net Revenues
By Income Statement Line Item
Three Months Ended June 30, | ||||||||||
$ in millions | 2017 | 2016 | % Change | |||||||
Trading | $ | 2,725 | $ | 2,498 | 9% | |||||
Commissions and fees | 630 | 607 | 4% | |||||||
Asset management, distribution and administration fees | 89 | 69 | 29% | |||||||
Net interest | (258 | ) | 82 | N/M | ||||||
Total | $ | 3,186 | $ | 3,256 | (2)% |
Six Months Ended June 30, | ||||||||||
$ in millions | 2017 | 2016 | % Change | |||||||
Trading | $ | 5,737 | $ | 4,389 | 31% | |||||
Commissions and fees | 1,250 | 1,262 | (1)% | |||||||
Asset management, distribution and administration fees | 180 | 142 | 27% | |||||||
Net interest | (485 | ) | 151 | N/M | ||||||
Total | $ | 6,682 | $ | 5,944 | 12% |
N/M—Not Meaningful
Three Months Ended March 31, | ||||||||||||
$ in millions | 2018 | 2017 | % Change | |||||||||
Trading | $ | 3,643 | $ | 3,012 | 21% | |||||||
Commissions and fees | 744 | 620 | 20% | |||||||||
Asset management | 110 | 91 | 21% | |||||||||
Net interest | (95) | (227) | 58% | |||||||||
Total | $ | 4,402 | $ | 3,496 | 26% |
By Business
Three Months Ended June 30, | ||||||||||
$ in millions | 2017 | 2016 | % Change | |||||||
Equity | $ | 2,155 | $ | 2,145 | —% | |||||
Fixed income | 1,239 | 1,297 | (4)% | |||||||
Other | (208 | ) | (186 | ) | (12)% | |||||
Total | $ | 3,186 | $ | 3,256 | (2)% |
Six Months Ended June 30, | ||||||||||
$ in millions | 2017 | 2016 | % Change | |||||||
Equity | $ | 4,171 | $ | 4,201 | (1)% | |||||
Fixed income | 2,953 | 2,170 | 36% | |||||||
Other | (442 | ) | (427 | ) | (4)% | |||||
Total | $ | 6,682 | $ | 5,944 | 12% |
Sales and Trading Activities—Equity and Fixed Income
Following is a description of the sales and trading activities within our equities and fixed income businesses as well as how their results impact the income statement line items, followed by a presentation and explanation of results.
Equities—Financing.We provide financing and prime brokerage services to our clients active in the equity markets through a variety of products including margin lending, securities lending and swaps. Results from this business are largely driven by the difference between financing income earned and financing costs incurred, which are reflected in Net interest for securities and equity lending products and in Trading revenues for derivative products.
Equities—Execution services. We make markets for our clients in equity-related securities and derivative products, including providing liquidity and hedging products. A significant portion of the results for this business is generated by commissions and fees from executing and clearing client transactions on major stock and derivative exchanges as well as fromover-the-counter (“OTC”) transactions. Market-making also generates gains and losses on inventory, which are reflected in Trading revenues.
Fixed income—Within fixed income we make markets in order to facilitate client activity as part of the following products and services.
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Three Months Ended March 31, | ||||||||||||
$ in millions | 2018 | 2017 | % Change | |||||||||
Equity | $ | 2,558 | $ | 2,016 | 27% | |||||||
Fixed income | 1,873 | 1,714 | 9% | |||||||||
Other | (29) | (234) | 88% | |||||||||
Total | $ | 4,402 | $ | 3,496 | 26% |
Sales and Trading Net Revenues—Equity and Fixed Income
Three Months Ended June 30, 2017 | Three Months Ended March 31, 2018 | |||||||||||||||||||||||||||||||
$ in millions | Trading | Fees1 | Net Interest2 | Total | Trading | Fees1 | Net Interest2 | Total | ||||||||||||||||||||||||
Financing | $ | 1,166 | $ | 88 | $ | (227 | ) | $ | 1,027 | $ | 1,234 | $ | 107 | $ | (146 | ) | $ | 1,195 | ||||||||||||||
Execution services | 601 | 580 | (53 | ) | 1,128 | 791 | 664 | (92 | ) | 1,363 | ||||||||||||||||||||||
Total Equity | $ | 1,767 | $ | 668 | $ | (280 | ) | $ | 2,155 | $ | 2,025 | $ | 771 | $ | (238 | ) | $ | 2,558 | ||||||||||||||
Total Fixed Income | $ | 1,114 | $ | 48 | $ | 77 | $ | 1,239 | ||||||||||||||||||||||||
Total Fixed income | $ | 1,715 | $ | 83 | $ | 75 | $ | 1,873 |
Three Months Ended June 30, 2016 | ||||||||||||||||
$ in millions | Trading | Fees1 | Net Interest2 | Total | ||||||||||||
Financing | $ | 1,039 | $ | 90 | $ | (82 | ) | $ | 1,047 | |||||||
Execution services | 576 | 549 | (27 | ) | 1,098 | |||||||||||
Total Equity | $ | 1,615 | $ | 639 | $ | (109 | ) | $ | 2,145 | |||||||
Total Fixed Income | $ | 1,018 | $ | 37 | $ | 242 | $ | 1,297 |
Six Months Ended June 30, 2017 | ||||||||||||||||
$ in millions | Trading | Fees1 | Net Interest2 | Total | ||||||||||||
Financing | $ | 2,097 | $ | 177 | $ | (415 | ) | $ | 1,859 | |||||||
Execution services | 1,265 | 1,148 | (101 | ) | 2,312 | |||||||||||
Total Equity | $ | 3,362 | $ | 1,325 | $ | (516 | ) | $ | 4,171 | |||||||
Total Fixed Income | $ | 2,712 | $ | 102 | $ | 139 | $ | 2,953 |
Six Months Ended June 30, 2016 | Three Months Ended March 31, 2017 | |||||||||||||||||||||||||||||||
$ in millions | Trading | Fees1 | Net Interest2 | Total | Trading | Fees1 | Net Interest2 | Total | ||||||||||||||||||||||||
Financing | $ | 1,925 | $ | 176 | $ | (42 | ) | $ | 2,059 | $ | 931 | $ | 89 | $ | (188 | ) | $ | 832 | ||||||||||||||
Execution services | 1,085 | 1,149 | (92 | ) | 2,142 | 664 | 568 | (48 | ) | 1,184 | ||||||||||||||||||||||
Total Equity | $ | 3,010 | $ | 1,325 | $ | (134 | ) | $ | 4,201 | $ | 1,595 | $ | 657 | $ | (236 | ) | $ | 2,016 | ||||||||||||||
Total Fixed Income | $ | 1,573 | $ | 77 | $ | 520 | $ | 2,170 | ||||||||||||||||||||||||
Total Fixed income | $ | 1,598 | $ | 54 | $ | 62 | $ | 1,714 |
1. | Includes Commissions and fees and Asset management |
2. | Funding costs are allocated to the businesses based on funding usage and are included in Net interest. |
WeAs discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Net Revenues by Segment” in the 2017Form 10-K, we manage each of the sales and trading businesses based on its aggregate net revenues, which are comprised of the consolidated income statement line items quantified in the previous table. Trading revenues are affected by a variety of market dynamics, including volumes,bid-offer spreads, and inventory prices, as well as impacts from hedging activity, which are interrelated.revenues. We provide qualitative commentary in the discussion of results that follow on the key drivers of period over period variances, as the quantitative impact of the various market dynamics typically cannot be disaggregated.
For additional information on total Trading revenues, see the table “Trading Revenues by Product Type” in Note 4 to the consolidated financial statements.
Sales and Trading Net Revenues during the Current Quarter
Equity
Equity sales and trading net revenues of $2,155$2,558 million in the current quarter were relatively unchangedincreased 27% from the prior year quarter, reflecting higher results in execution services, offset by lower results inboth our financing business.businesses and execution services.
Financing revenues decreased 2% from the prior year quarter as Net interest revenues declined from higher net interest costs, reflecting increased liquidity requirements and an increased proportion of lower spread transactions, partially offset by higher client activity in equity swaps reflected in Trading.
Execution services increased 3% from the prior year quarter, primarily reflecting higher client activity across all products as reflected in Trading revenues.
Execution services increased from the prior year quarter, primarily reflecting higher Trading revenues from derivative products and improved commissionsdriven by higher client activity in derivatives products. In addition, Commissions and fees driven by increased from higher client activity partially offset by higher net interest costs.in cash equities products.
Fixed Income
Fixed income net revenues of $1,239$1,873 million in the current quarter were 4% lower9% higher than in the prior year quarter, driven by a decreasehigher results in Net interest revenues across all three product areas,global macro products and commodities products and other, partially offset by an increase in Trading revenues.
Credit products decreased due to a lower level of interest realized in securitized products and tighterbid-offer spreads in the current quarter.
Global macro products decreased due to higher interest costs in the current quarter which resulted from interest rate products inventory management. This was partially offset by improved performance in foreign exchange and emerging markets trading activity principally due to specific market events.
Commodities products and Other increased due to the absence of losses from counterparty risk management incurred in the prior year quarter, partially offset by a decrease in Commodities structured transactions.
Sales and Trading Net Revenues during the Current Year Period
Equity
Equity sales and trading net revenues of $4,171 million in the current year period were relatively unchanged from the prior year period, reflecting lower results in our financing business, offset by higher results in execution services.credit products.
Financing revenues decreased 10% from the prior year period as Net interest revenues declined from higher net interest costs, reflecting increased liquidity requirements and an increased proportion of lower spread transactions, partially offset by higher client activity in equity swaps reflected in Trading.
Execution services increased 8% from the prior year period primarily reflecting improved results in Trading revenues compared with the prior year period when increased volatility resulted in inventory losses.
Fixed Income
Fixed income net revenues of $2,953 million in the current year period were 36% higher than the prior year period, driven by an increase in Trading revenues, partially offset by a decline in Net interest revenues.
Credit products increased due to the absence of inventory losses driven by a widening spread environment in the prior year period. This was partially offset by a lower level of interest realized in securitized products in the current year period.
Global macro products increased due to a more favorable environment across products compared with the prior year period when results were impactedhigher Trading revenues in foreign exchange driven by inventory losses. This wasmanagement and client activity, partially offset by higher interest costslower client activity in structured rates.
Credit products Trading revenues decreased primarily due to the current year period which resulted from interest rate productseffect of the widening of corporate credit spreads on inventory management.prices.
Commodities products and Otherother increased primarily due to improved energyhigher Trading revenues from hedging counterparty risk and increased Commodities structured transactions and customer flow in power and natural gas products.
Other
Other sales and trading net losses of $29 million in the current quarter decreased from the prior year quarter, primarily reflecting higher revenues on economic hedges related to our long-term debt and lower losses associated with corporate loan hedging activity.
March 2018 Form 10-Q | 8 |
Management’s Discussion and Analysis |
Investments, Other Revenues andNon-interest Expenses
Investments
Net investment gains of $49 million in the absencecurrent quarter decreased from the prior year quarter as a result of losses from counterparty risk management incurredon investments to which certain deferred compensation plans are referenced in the current quarter compared with gains in the prior year period.quarter.
Other Revenues
Other revenues of $136 million in the current quarter decreased from the prior year quarter, primarily reflecting lower gains associated withheld-for-sale corporate loans.
Non-interest Expenses
Non-interest expenses of $3,988 million in the current quarter increased from the prior year quarter, primarily reflecting a 16% increase in Compensation and benefits expenses and an 18% increase inNon-compensation expenses in the current quarter.
Compensation and benefits expenses increased in the current quarter, primarily due to increases in discretionary incentive compensation driven by higher revenues and salaries.
• | Non-compensation expenses increased in the current quarter, primarily as a result of higher volume-related expenses and the gross presentation of certain expenses due to the adoption of the accounting updateRevenue from Contracts with Customers (see Notes 2 and 20 to the financial statements for further information). These results were partially offset in the current quarter by the reversal of a portion of previously recorded provisions related to U.K. VAT matters. |
Management’s Discussion and Analysis |
Investments, Other Revenues,Non-interest Expenses and Other Items
Investments
Net investment gains of $37 million in the current quarter decreased from the prior year quarter primarily as a result of lower gains on equities business related investments.
Net investment gains of $103 million in the current year period decreased from the prior year period primarily reflecting lower gains on business related investments, partially offset by gains on investments associated with our compensation plans compared with losses in the prior year period.
Other
Other revenues of $126 million in the current quarter were relatively unchanged from the prior year quarter. Other revenues of $299 million in the current year period increased from the prior year period primarily reflectingmark-to-market gains on loans held for sale in the current year period compared withmark-to-market losses in the prior year period and a decrease in the provision on loans held for investment.
Non-interest Expenses
Non-interest expenses of $3,319 million in the current quarter increased from the comparable prior year period primarily reflecting a 3% increase in Compensation and benefits expenses and a 14% increase inNon-compensation expenses.Non-interest expenses of $6,741 million in the current year period reflect an 18% increase in Compensation and benefits expenses and a 12% increase inNon-compensation expenses.
Compensation and benefits expenses increased in the current quarter and current year period primarily due to increases in discretionary incentive compensation driven mainly by higher revenues and the fair value of investments to which certain deferred compensation plans are referenced.
Non-compensation expenses increased in the current quarter and current year period primarily due to higher Brokerage, clearing and exchange fees expense and other volume-driven expenses and a provision related to the U.K. VAT matter (see Other Items below). In addition to these drivers,non-compensation expenses increased in the current year period due to higher litigation costs.
Other Items
The Firm self-identified an issue regarding VAT on intercompany services provided by certain overseas affiliates to our U.K. Group. The Firm is reviewing the reporting of U.K. VAT as additional support service centers were added to our operations over the years, and the focus and nature of their intended services shifted among geographic locations. During the current quarter, we have recorded a provision of $86 million that incorporates potential additional VAT, interest and penalties for this exposure. We are actively working with Her Majesty’s Revenue and Customs to resolve this matter. The provision reflected is based on currently available information and analyses, and our review of this matter is continuing.
Wealth Management
Income Statement Information
Three Months Ended June 30, | % Change | |||||||||||
$ in millions | 2017 | 20161 | ||||||||||
Revenues | ||||||||||||
Investment banking | $ | 135 | $ | 123 | 10% | |||||||
Trading | 207 | 252 | (18)% | |||||||||
Investments | 1 | — | N/M | |||||||||
Commissions and fees | 424 | 423 | —% | |||||||||
Asset management, distribution and administration fees | 2,302 | 2,082 | 11% | |||||||||
Other | 73 | 102 | (28)% | |||||||||
Totalnon-interest revenues | 3,142 | 2,982 | 5% | |||||||||
Interest income | 1,114 | 920 | 21% | |||||||||
Interest expense | 105 | 91 | 15% | |||||||||
Net interest | 1,009 | 829 | 22% | |||||||||
Net revenues | 4,151 | 3,811 | 9% | |||||||||
Compensation and benefits | 2,297 | 2,152 | 7% | |||||||||
Non-compensation expenses | 797 | 800 | —% | |||||||||
Totalnon-interest expenses | 3,094 | 2,952 | 5% | |||||||||
Income from continuing operations before income taxes | 1,057 | 859 | 23% | |||||||||
Provision for income taxes | 392 | 343 | 14% | |||||||||
Net income applicable to Morgan Stanley | $ | 665 | $ | 516 | 29% | |||||||
Six Months Ended June 30, | % Change | |||||||||||
$ in millions | 2017 | 20161 | ||||||||||
Revenues | ||||||||||||
Investment banking | $ | 280 | $ | 244 | 15% | |||||||
Trading | 445 | 446 | —% | |||||||||
Investments | 2 | (2 | ) | 200% | ||||||||
Commissions and fees | 864 | 835 | 3% | |||||||||
Asset management, distribution and administration fees | 4,486 | 4,136 | 8% | |||||||||
Other | 129 | 160 | (19)% | |||||||||
Totalnon-interest revenues | 6,206 | 5,819 | 7% | |||||||||
Interest income | 2,193 | 1,834 | 20% | |||||||||
Interest expense | 190 | 174 | 9% | |||||||||
Net interest | 2,003 | 1,660 | 21% | |||||||||
Net revenues | 8,209 | 7,479 | 10% | |||||||||
Compensation and benefits | 4,614 | 4,240 | 9% | |||||||||
Non-compensation expenses | 1,565 | 1,594 | (2)% | |||||||||
Totalnon-interest expenses | 6,179 | 5,834 | 6% | |||||||||
Income from continuing operations before income taxes | 2,030 | 1,645 | 23% | |||||||||
Provision for income taxes | 718 | 636 | 13% | |||||||||
Net income applicable to Morgan Stanley | $ | 1,312 | $ | 1,009 | 30% |
N/M – Not Meaningful
|
Statistical Data
Three Months Ended March 31, | ||||||||||||
$ in millions | 2018 | 2017 | % Change | |||||||||
Revenues | ||||||||||||
Investment banking | $ | 140 | $ | 145 | (3)% | |||||||
Trading | 109 | 238 | (54)% | |||||||||
Investments | — | 1 | N/M | |||||||||
Commissions and fees | 498 | 440 | 13% | |||||||||
Asset management | 2,495 | 2,184 | 14% | |||||||||
Other | 63 | 56 | 13% | |||||||||
Totalnon-interest revenues | 3,305 | 3,064 | 8% | |||||||||
Interest income | 1,280 | 1,079 | 19% | |||||||||
Interest expense | 211 | 85 | 148% | |||||||||
Net interest | 1,069 | 994 | 8% | |||||||||
Net revenues | 4,374 | 4,058 | 8% | |||||||||
Compensation and benefits | 2,450 | 2,317 | 6% | |||||||||
Non-compensation expenses | 764 | 768 | (1)% | |||||||||
Totalnon-interest expenses | 3,214 | 3,085 | 4% | |||||||||
Income from continuing operations before income taxes | 1,160 | 973 | 19% | |||||||||
Provision for income taxes | 246 | 326 | (25)% | |||||||||
Net income applicable to Morgan Stanley | $ | 914 | $ | 647 | 41% |
Financial Information and Statistical Data
$ in billions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Client assets | $ | 2,239 | $ | 2,103 | $ | 2,371 | $ | 2,373 | ||||||||
Fee-based client assets1 | $ | 962 | $ | 877 | $ | 1,058 | $ | 1,045 | ||||||||
Fee-based client assets as a percentage of total client assets | 43% | 42% | 45% | 44% | ||||||||||||
Client liabilities2 | $ | 77 | $ | 73 | $ | 80 | $ | 80 | ||||||||
Bank deposit program | $ | 139 | $ | 153 | ||||||||||||
Investment securities portfolio | $ | 53.5 | $ | 63.9 | $ | 60.7 | $ | 59.2 | ||||||||
Loans and lending commitments | $ | 74.2 | $ | 68.7 | $ | 78.7 | $ | 77.3 | ||||||||
Wealth Management representatives | 15,777 | 15,763 | 15,682 | 15,712 |
Three Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
Annualized revenues per representative | ||||||||
(dollars in thousands)3 | $ | 1,052 | $ | 959 | ||||
Client assets per representative | ||||||||
(dollars in millions)4 | $ | 142 | $ | 128 | ||||
Fee-based asset flows5 | ||||||||
(dollars in billions) | $ | 19.9 | $ | 12.0 | ||||
Six Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
Annualized revenues per representative | ||||||||
(dollars in thousands)3 | $ | 1,041 | $ | 941 | ||||
Client assets per representative | ||||||||
(dollars in millions)4 | $ | 142 | $ | 128 | ||||
Fee-based asset flows5 | ||||||||
(dollars in billions) | $ | 38.7 | $ | 17.9 |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Per representative: | ||||||||
Annualized revenues ($ in thousands)3 | $ | 1,115 | $ | 1,029 | ||||
Client assets ($ in millions)4 | $ | 151 | $ | 139 | ||||
Fee-based asset flows ($ in billions)5 | $ | 18.2 | $ | 18.8 |
1. | 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. |
2. | Client liabilities include securities-based and tailored lending, residential real estate loans and margin lending. |
3. | Annualized revenues per representative equal Wealth Management’s annualized revenues divided by the average representative headcount. |
4. | Client assets per representative equal totalperiod-end client assets divided byperiod-end representative headcount. |
5. | Fee-based asset flows include net newfee-based assets, net account transfers, dividends, interest and client fees and exclude institutional cash management-related activity. |
Transactional Revenues
Three Months Ended March 31, | ||||||||||||
$ in millions | 2018 | 2017 | % Change | |||||||||
Investment banking | $ | 140 | $ | 145 | (3)% | |||||||
Trading | 109 | 238 | (54)% | |||||||||
Commissions and fees | 498 | 440 | 13% | |||||||||
Total | $ | 747 | $ | 823 | (9)% | |||||||
Transactional revenues as a % of Net revenues | 17% | 20% |
Net Revenues
Transactional Revenues
Transactional revenues of $747 million in the current quarter decreased 9% from the prior year quarter primarily as a result of decreased Trading revenues, partially offset by increased Commissions and fees.
Investment banking revenues were relatively unchanged in the current quarter compared with prior year quarter.
Trading revenues decreased in the current quarter primarily as a result of losses related to investments associated with certain employee deferred compensation plans and lower client activity in fixed income products.
Commissions and fees increased in the current quarter primarily as a result of higher client trading activity in equities.
March 2018 Form 10-Q |
Management’s Discussion and Analysis |
Transactional Revenues
Three Months Ended June 30, | % Change | |||||||||||
$ in millions | 2017 | 2016 | ||||||||||
Investment banking | $ | 135 | $ | 123 | 10% | |||||||
Trading | 207 | 252 | (18)% | |||||||||
Commissions and fees | 424 | 423 | —% | |||||||||
Total | $ | 766 | $ | 798 | (4)% | |||||||
Six Months Ended June 30, | % Change | |||||||||||
$ in millions | 2017 | 2016 | ||||||||||
Investment banking | $ | 280 | $ | 244 | 15% | |||||||
Trading | 445 | 446 | —% | |||||||||
Commissions and fees | 864 | 835 | 3% | |||||||||
Total | $ | 1,589 | $ | 1,525 | 4% |
Net Revenues
Transactional RevenuesAsset Management
TransactionalAsset management revenues of $766$2,495 million in the current quarter decreased 4%increased 14% from the prior year quarter primarily reflecting lower Trading revenues, partially offset by higher Investment banking revenues.
Transactional revenues of $1,589 million in the current year period increased 4% from the prior year period primarily reflecting higher revenues in Investment banking and Commissions and fees.
Investment banking revenues increased in the current quarter primarily due to higher revenues from structured products and equity syndicate activities, partially offset by lower fixed income revenues as a result of the Fixed Income Integration and lower preferred stock underwriting activity. The increase in the current year period was due to higher revenues from structured products and equity syndicate activities, partially offset by lower preferred stock underwriting activity.
Trading revenues decreased in the current quarter primarily due to the Fixed Income Integration, partially offset by gains related to investments associated with certain employee deferred compensation plans. Trading revenues in the current year period were relatively unchanged as lower revenues related to the Fixed Income Integration were largely offset by gains related to investments associated with certain employee deferred compensation plans.
Commissions and fees were relatively unchanged in the current quarter. Commissions and fees increased in the current year period primarily due to the Fixed Income Integration and to higher equities activity, partially offset by lower annuity product revenues.
Asset Management
Asset management, distribution and administration feeseffect of $2,302 million in the current quarter and $4,486 million in the current year period increased 11% from the prior year quarter and increased 8% from the prior year period. The increase in each respective period is primarily due to market appreciation and net positive flows partially offset by loweron averagefee-based client fee rates. assets.
See“Fee-Based Client Assets Activity and Average Fee Rate by Account Type”Rollforwards” herein.
Net Interest
Net interest of $1,009$1,069 million in the current quarter and $2,003 million in the current year period increased 22% and 21%, respectively,8% from the comparable prior year periodsquarter primarily due toas a result of higher interest rates and higher loan balances, partially offset by lower investment portfolio balances.
Other
Other revenues of $73 million in the current quarter and $129 million in the current year period decreased 28% and 19%, respectively, from the comparable prior year periods, due to lower realized gains from the available for sale (“AFS”) securities portfolio.
Non-interest Expenses
Non-interest expenses of $3,094$3,214 million in the current quarter and $6,179 million in the current year period increased 5% and 6%, respectively,4% from the comparable prior year periods.quarter.
Compensation and benefits expenses increased in the current quarter and current year period increased primarily due to the formulaic payout to Wealth Management representatives linked to higher revenues and increases in salaries, partially offset by decreases in the fair value of investments to which certain deferred compensation plans are referenced.
Non-compensation expenses were relatively unchanged in the current quarter.Non-compensation expenses decreased in the currentquarter compared with prior year period primarily due to lower litigation and information processing costs, partially offset by higher deposit insurance expenses.quarter.
Fee-Based Client Assets Activity and Average Fee Rate by Account Type
For a description offee-based client assets, including descriptions forof the fee based client asset types and rollforward items in the following tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—WealthManagement—Fee-Based Client Assets Activity and Average Fee Rate by Account Type”Assets” in Part II, Item 7 of the 20162017 Form10-K.
Fee-Based Client Assets Rollforwards
At 2017 | Inflows | Outflows | Market Impact | At 2017 | Average for the Three Months Ended June 30, 2017 | |||||||||||||||||
$ in billions, Fee Rate in bps | Fee Rate1 | |||||||||||||||||||||
Separately managed accounts2, 3 | $ | 230 | $ | 8 | $ | (7 | ) | $ | 6 | $ | 237 | 17 | ||||||||||
Unified managed accounts3 | 217 | 13 | (7 | ) | 5 | 228 | 98 | |||||||||||||||
Mutual fund advisory | 21 | — | (1 | ) | 1 | 21 | 118 | |||||||||||||||
Representative as advisor | 133 | 10 | (8 | ) | 3 | 138 | 84 | |||||||||||||||
Representative as portfolio manager | 305 | 23 | (11 | ) | 4 | 321 | 96 | |||||||||||||||
Subtotal | $ | 906 | $ | 54 | $ | (34 | ) | $ | 19 | $ | 945 | 77 | ||||||||||
Cash management | 21 | 2 | (6 | ) | — | 17 | 6 | |||||||||||||||
Totalfee-based client assets | $ | 927 | $ | 56 | $ | (40 | ) | $ | 19 | $ | 962 | 75 | ||||||||||
At 2016 | Inflows | Outflows | Market Impact | At 2016 | Average for the Three Months Ended June 30, 2016 | |||||||||||||||||
$ in billions, Fee Rate in bps | Fee Rate1 | |||||||||||||||||||||
Separately managed accounts2 | $ | 278 | $ | 9 | $ | (7 | ) | $ | (1 | ) | $ | 279 | 37 | |||||||||
Unified managed accounts | 112 | 11 | (5 | ) | 2 | 120 | 106 | |||||||||||||||
Mutual fund advisory | 24 | — | (1 | ) | — | 23 | 119 | |||||||||||||||
Representative as advisor | 114 | 8 | (8 | ) | 3 | 117 | 85 | |||||||||||||||
Representative as portfolio manager | 255 | 17 | (12 | ) | 5 | 265 | 99 | |||||||||||||||
Subtotal | $ | 783 | $ | 45 | $ | (33 | ) | $ | 9 | $ | 804 | 78 | ||||||||||
Cash management | 15 | 4 | (3 | ) | — | 16 | 6 | |||||||||||||||
Totalfee-based client assets | $ | 798 | $ | 49 | $ | (36 | ) | $ | 9 | $ | 820 | 76 | ||||||||||
At 2016 | Inflows | Outflows | Market Impact | At 2017 | Average for the Six Months Ended June 30, 2017 | |||||||||||||||||
$ in billions, fee rate in bps | Fee Rate1 | |||||||||||||||||||||
Separately managed accounts2, 3 | $ | 222 | $ | 16 | $ | (11 | ) | $ | 10 | $ | 237 | 16 | ||||||||||
Unified managed accounts3 | 204 | 25 | (15 | ) | 14 | 228 | 98 | |||||||||||||||
Mutual fund advisory | 21 | 1 | (3 | ) | 2 | 21 | 118 | |||||||||||||||
Representative as advisor | 125 | 19 | (14 | ) | 8 | 138 | 85 | |||||||||||||||
Representative as portfolio manager | 285 | 42 | (21 | ) | 15 | 321 | 97 | |||||||||||||||
Subtotal | $ | 857 | $ | 103 | $ | (64 | ) | $ | 49 | $ | 945 | 76 | ||||||||||
Cash management | 20 | 5 | (8 | ) | — | 17 | 6 | |||||||||||||||
Totalfee-based client assets | $ | 877 | $ | 108 | $ | (72 | ) | $ | 49 | $ | 962 | 75 | ||||||||||
At 2015 | Inflows | Outflows | Market Impact | At 2016 | Average for the Six Months Ended June 30, 2016 | |||||||||||||||||
$ in billions, Fee Rate in bps | Fee Rate1 | |||||||||||||||||||||
Separately managed accounts2 | $ | 283 | $ | 17 | $ | (17 | ) | $ | (4 | ) | $ | 279 | 37 | |||||||||
Unified managed accounts | 105 | 21 | (9 | ) | 3 | 120 | 107 | |||||||||||||||
Mutual fund advisory | 25 | 1 | (3 | ) | — | 23 | 119 | |||||||||||||||
Representative as advisor | 115 | 13 | (14 | ) | 3 | 117 | 86 | |||||||||||||||
Representative as portfolio manager | 252 | 31 | (22 | ) | 4 | 265 | 100 | |||||||||||||||
Subtotal | $ | 780 | $ | 83 | $ | (65 | ) | $ | 6 | $ | 804 | 77 | ||||||||||
Cash management | 15 | 7 | (6 | ) | — | 16 | 6 | |||||||||||||||
Totalfee-based client assets | $ | 795 | $ | 90 | $ | (71 | ) | $ | 6 | $ | 820 | 76 |
$ in billions | At December 31, | Inflows | Outflows | Market Impact | At March 31, | |||||||||||||||
Separately managed1 | $ | 252 | $ | 10 | $ | (6 | ) | $ | 4 | $ | 260 | |||||||||
Unified managed | 250 | 14 | (8 | ) | (2 | ) | 254 | |||||||||||||
Mutual fund advisory | 21 | — | (1 | ) | — | 20 | ||||||||||||||
Advisor | 149 | 9 | (9 | ) | (2 | ) | 147 | |||||||||||||
Portfolio manager | 353 | 21 | (12 | ) | (6 | ) | 356 | |||||||||||||
Subtotal | $ | 1,025 | $ | 54 | $ | (36 | ) | $ | (6 | ) | $ | 1,037 | ||||||||
Cash management | 20 | 4 | (3 | ) | — | 21 | ||||||||||||||
Totalfee-based client assets | $ | 1,045 | $ | 58 | $ | (39 | ) | $ | (6 | ) | $ | 1,058 |
bps—Basis points
$ in billions | At December 31, | Inflows | Outflows | Market Impact | At March 31, | |||||||||||||||
Separately managed1 | $ | 222 | $ | 9 | $ | (5) | $ | 4 | $ | 230 | ||||||||||
Unified managed | 204 | 13 | (9) | 9 | 217 | |||||||||||||||
Mutual fund advisory | 21 | — | (1) | 1 | 21 | |||||||||||||||
Advisor | 125 | 10 | (7) | 5 | 133 | |||||||||||||||
Portfolio manager | 285 | 20 | (11) | 11 | 305 | |||||||||||||||
Subtotal | $ | 857 | $ | 52 | $ | (33) | $ | 30 | $ | 906 | ||||||||||
Cash management | 20 | 3 | (2) | — | 21 | |||||||||||||||
Totalfee-based client assets | $ | 877 | $ | 55 | $ | (35) | $ | 30 | $ | 927 |
Average Fee Rates
Three Months Ended March 31, | ||||||||
Fee rate in bps | 2018 | 2017 | ||||||
Separately managed | 16 | 16 | ||||||
Unified managed | 98 | 100 | ||||||
Mutual fund advisory | 119 | 120 | ||||||
Advisor | 85 | 86 | ||||||
Portfolio manager | 96 | 98 | ||||||
Subtotal | 76 | 77 | ||||||
Cash management | 6 | 6 | ||||||
Totalfee-based client assets | 75 | 75 |
1. |
|
Includesnon-custody account values reflecting priorquarter-end balances due to a lag in the reporting of asset values by third-party custodians. |
|
Management’s Discussion and Analysis |
Investment Management
Income Statement Information
Three Months Ended June 30, | ||||||||||||
$ in millions | 2017 | 2016 | % Change | |||||||||
Revenues | ||||||||||||
Trading | $ | (3 | ) | $ | 5 | (160 | )% | |||||
Investments | 125 | 50 | 150 | % | ||||||||
Asset management, distribution and administration fees | 539 | 517 | 4 | % | ||||||||
Other | 4 | 9 | (56 | )% | ||||||||
Totalnon-interest revenues | 665 | 581 | 14 | % | ||||||||
Interest income | 1 | 3 | (67 | )% | ||||||||
Interest expense | 1 | 1 | — | % | ||||||||
Net interest | — | 2 | (100 | )% | ||||||||
Net revenues | 665 | 583 | 14 | % | ||||||||
Compensation and benefits | 288 | 238 | 21 | % | ||||||||
Non-compensation expenses | 235 | 227 | 4 | % | ||||||||
Totalnon-interest expenses | 523 | 465 | 12 | % | ||||||||
Income from continuing operations before income taxes | 142 | 118 | 20 | % | ||||||||
Provision for income taxes | 41 | 37 | 11 | % | ||||||||
Net income | 101 | 81 | 25 | % | ||||||||
Net income applicable to noncontrolling interests | 1 | 3 | (67 | )% | ||||||||
Net income applicable to Morgan Stanley | $ | 100 | $ | 78 | 28 | % | ||||||
Six Months Ended June 30, | ||||||||||||
$ in millions | 2017 | 2016 | % Change | |||||||||
Revenues | ||||||||||||
Investment banking | $ | — | $ | 1 | (100 | )% | ||||||
Trading | (14 | ) | (5 | ) | (180 | )% | ||||||
Investments | 223 | (14 | ) | N/M | ||||||||
Commissions and fees | — | 3 | (100 | )% | ||||||||
Asset management, distribution and administration fees | 1,056 | 1,043 | 1 | % | ||||||||
Other | 8 | 31 | (74 | )% | ||||||||
Totalnon-interest revenues | 1,273 | 1,059 | 20 | % | ||||||||
Interest income | 2 | 4 | (50 | )% | ||||||||
Interest expense | 1 | 3 | (67 | )% | ||||||||
Net interest | 1 | 1 | — | % | ||||||||
Net revenues | 1,274 | 1,060 | 20 | % | ||||||||
Compensation and benefits | 567 | 451 | 26 | % | ||||||||
Non-compensation expenses | 462 | 447 | 3 | % | ||||||||
Totalnon-interest expenses | 1,029 | 898 | 15 | % | ||||||||
Income from continuing operations before income taxes | 245 | 162 | 51 | % | ||||||||
Provision for income taxes | 71 | 47 | 51 | % | ||||||||
Net income | 174 | 115 | 51 | % | ||||||||
Net income (loss) applicable to noncontrolling interests | 7 | (13 | ) | (154 | )% | |||||||
Net income applicable to Morgan Stanley | $ | 167 | $ | 128 | 30 | % |
N/M – Not Meaningful
Three Months Ended March 31, | ||||||||||||
$ in millions | 2018 | 2017 | % Change | |||||||||
Revenues | ||||||||||||
Trading | $ | 5 | $ | (11 | ) | 145% | ||||||
Investments | 77 | 98 | (21)% | |||||||||
Asset management | 626 | 517 | 21% | |||||||||
Other | 10 | 4 | 150% | |||||||||
Totalnon-interest revenues | 718 | 608 | 18% | |||||||||
Interest income | 1 | 1 | —% | |||||||||
Interest expense | 1 | — | N/M | |||||||||
Net interest | — | 1 | N/M | |||||||||
Net revenues | 718 | 609 | 18% | |||||||||
Compensation and benefits | 304 | 279 | 9% | |||||||||
Non-compensation expenses | 266 | 227 | 17% | |||||||||
Totalnon-interest expenses | 570 | 506 | 13% | |||||||||
Income from continuing operations before income taxes | 148 | 103 | 44% | |||||||||
Provision for income taxes | 19 | 30 | (37)% | |||||||||
Net income | 129 | 73 | 77% | |||||||||
Net income (loss) applicable to noncontrolling interests | 2 | 6 | (67)% | |||||||||
Net income applicable to | $ | 127 | $ | 67 | 90% |
Net Revenues
Investments
Investments gains of $125$77 million in the current quarter compared with Investment gains of $50 million indecreased 21% from the prior year quarter reflected higher realized gains and higherprimarily as a result of lower carried interest in Infrastructure and Private Equity investments.certain private equity funds.
Asset Management
Investments gainsAsset management revenues of $223$626 million in the current year period reflected gains and positive carried interest in all Alternative/Other products. Investments losses in the prior year period reflected losses and the reversal of previously accrued carried interest in certain Private Equity and Real Estate investments.
Asset Management, Distribution and Administration Fees
Asset management, distribution and administration fees of $539 millionquarter increased 4% in the current quarter compared to21% from the prior year quarter primarily as a result of higher average assets underAUM across all asset classes. In addition, Asset management or supervision (“AUM”) in Equityrevenues increased as a result of the gross presentation of distribution fees due to the adoption of the accounting updateRevenue from Contracts with Customers (see Notes 2 and Fixed income products, with higher20 to the financial statements for further details).
In addition to the gross presentation described above, the timing of the recognition of certain performance fees partially offset by lower fee rates in Liquidity products and Alternative/Other products.
Asset management, distribution and administration fees of $1,056 million were relatively unchangednot in the form of carried interest is generally expected to be deferred within a fiscal year until the fees are no longer probable of being reversed. Thus, the recognition of a greater portion of such revenues is expected to be recognized in the second half of each fiscal year based on current year period, reflecting higher average AUM in Equity and Fixed income products, essentially offset by lower fee rates in Alternative/Other products.arrangements.
See “AUM and Average Fee Rate by Asset Class”“Assets Under Management or Supervision” herein.
Non-interest Expenses
Non-interest expenses of $523$570 million in the current quarter and $1,029 million in the current year period increased 12% and 15%13% from the comparable periodsprior year quarter primarily due to higheras a result of increases in both Compensation and benefitbenefits expenses andNon-compensation expenses.
Compensation and benefits expenses increased in the current quarter primarily as a result of increases in discretionary incentive compensation driven mainly by higher revenues, increases in salaries, and current year period principally due to an increase in deferred compensation associated with carried interest.
Non-compensation expenses increased in the current quarter and current year period primarily due to higher brokerage, clearing and exchange fees, partially offset by lower professional service fees.
Non-compensation expenses increased in the current quarter primarily as a result of the gross presentation of distribution fees due to adoption of the accounting updateRevenue from Contracts with Customers along with higher fee sharing on increased AUM balances. See Asset Management above. |
Assets Under Management or Supervision
AUM and Average Fee Rate by Asset Class
For a description of the asset classes and rollforward items in the following tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Investment Management—Assets Under Management or Supervision” in Part II, Item 7 of the 20162017 Form10-K.
AUM Rollforwards
At March 31, | Inflows | Outflows | Market Impact | Other1 | At June 30, | Average for the Three Months Ended June 30, 2017 | ||||||||||||||||||||||||||
$ in billions, Fee Rate in bps | Total AUM | Fee Rate | ||||||||||||||||||||||||||||||
Equity | $ | 87 | $ | 6 | $ | (5 | ) | $ | 5 | $ | 1 | $ | 94 | $ | 91 | 73 | ||||||||||||||||
Fixed income | 62 | 8 | (6 | ) | 1 | 1 | 66 | 64 | 33 | |||||||||||||||||||||||
Liquidity | 153 | 308 | (308 | ) | — | 1 | 154 | 153 | 17 | |||||||||||||||||||||||
Alternative / Other products | 119 | 6 | (6 | ) | 3 | (1 | ) | 121 | 120 | 70 | ||||||||||||||||||||||
Total assets under management or supervision | $ | 421 | $ | 328 | $ | (325 | ) | $ | 9 | $ | 2 | $ | 435 | $ | 428 | 46 | ||||||||||||||||
Shares of minority stake assets | 7 | 8 | 8 | |||||||||||||||||||||||||||||
At March 31, 2016 | Inflows | Outflows | Market Impact | Other1 | At June 30, | Average for the Three Months Ended June 30, 2016 | ||||||||||||||||||||||||||
$ in billions, Fee Rate in bps | Total AUM | Fee Rate | ||||||||||||||||||||||||||||||
Equity | $ | 81 | $ | 5 | $ | (6 | ) | $ | 1 | $ | — | $ | 81 | $ | 81 | 74 | ||||||||||||||||
Fixed income | 62 | 7 | (8 | ) | — | — | 61 | 61 | 32 | |||||||||||||||||||||||
Liquidity | 146 | 291 | (289 | ) | 1 | — | 149 | 146 | 19 | |||||||||||||||||||||||
Alternative / Other products | 116 | 9 | (10 | ) | 1 | (1 | ) | 115 | 116 | 74 | ||||||||||||||||||||||
Total assets under management or supervision | $ | 405 | $ | 312 | $ | (313 | ) | $ | 3 | $ | (1 | ) | $ | 406 | $ | 404 | 48 | |||||||||||||||
Shares of minority stake assets | 8 | 8 | 8 | |||||||||||||||||||||||||||||
At December 31, | Inflows | Outflows | Market Impact | Other1 | At June 30, | Average for the Six Months Ended June 30, 2017 | ||||||||||||||||||||||||||
$ in billions, Fee Rate in bps | Total AUM | Fee Rate | ||||||||||||||||||||||||||||||
Equity | $ | 79 | $ | 11 | $ | (10 | ) | $ | 13 | $ | 1 | $ | 94 | $ | 87 | 74 | ||||||||||||||||
Fixed income | 60 | 13 | (11 | ) | 2 | 2 | 66 | 63 | 33 | |||||||||||||||||||||||
Liquidity | 163 | 636 | (646 | ) | — | 1 | 154 | 155 | 18 | |||||||||||||||||||||||
Alternative / Other products | 115 | 13 | (10 | ) | 4 | (1 | ) | 121 | 119 | 70 | ||||||||||||||||||||||
Total assets under management or supervision | $ | 417 | $ | 673 | $ | (677 | ) | $ | 19 | $ | 3 | $ | 435 | $ | 424 | 46 | ||||||||||||||||
Shares of minority stake assets | 8 | 8 | 8 | |||||||||||||||||||||||||||||
At December 31, | Inflows | Outflows | Market Impact | Other1 | At June 30, | Average for the Six Months Ended June 30, 2016 | ||||||||||||||||||||||||||
$ in billions, Fee Rate in bps | Total AUM | Fee Rate | ||||||||||||||||||||||||||||||
Equity | $ | 83 | $ | 10 | $ | (12 | ) | $ | — | — | $ | 81 | $ | 80 | 73 | |||||||||||||||||
Fixed income | 60 | 12 | (14 | ) | 2 | 1 | 61 | 60 | 32 | |||||||||||||||||||||||
Liquidity | 149 | 627 | (627 | ) | — | — | 149 | 148 | 18 | |||||||||||||||||||||||
Alternative / Other products | 114 | 14 | (14 | ) | 1 | — | 115 | 115 | 77 | |||||||||||||||||||||||
Total assets under management or supervision | $ | 406 | $ | 663 | $ | (667 | ) | $ | 3 | 1 | $ | 406 | $ | 403 | 48 | |||||||||||||||||
Shares of minority stake assets | 8 | 8 | 8 |
bps—Basis points
$ in billions | At December 31, 2017 | Inflows | Outflows | Market Impact | Other1 | At March 31, 2018 | ||||||||||||||||||
Equity | $ | 105 | $ | 9 | $ | (7 | ) | $ | 1 | $ | 1 | $ | 109 | |||||||||||
Fixed income | 73 | 7 | (8 | ) | (1 | ) | 1 | 72 | ||||||||||||||||
Alternative/Other | 128 | 4 | (4 | ) | — | 3 | 131 | |||||||||||||||||
Long-term AUM subtotal | 306 | 20 | (19 | ) | — | 5 | 312 | |||||||||||||||||
Liquidity | 176 | 325 | (344 | ) | — | — | 157 | |||||||||||||||||
Total AUM | $ | 482 | $ | 345 | $ | (363 | ) | $ | — | $ | 5 | $ | 469 | |||||||||||
Shares of minority stake assets | 7 | 7 | ||||||||||||||||||||||
$ in billions | At December 31, 2016 | Inflows | Outflows | Market Impact | Other1 | At March 31, 2017 | ||||||||||||||||||
Equity | $ | 79 | $ | 5 | $ | (5 | ) | $ | 8 | $ | — | $ | 87 | |||||||||||
Fixed income | 60 | 5 | (5 | ) | 1 | 1 | 62 | |||||||||||||||||
Alternative/Other | 115 | 7 | (4 | ) | 1 | — | 119 | |||||||||||||||||
Long-term AUM subtotal | 254 | 17 | (14 | ) | 10 | 1 | 268 | |||||||||||||||||
Liquidity | 163 | 328 | (338 | ) | — | — | 153 | |||||||||||||||||
Total AUM | $ | 417 | $ | 345 | $ | (352 | ) | $ | 10 | $ | 1 | $ | 421 | |||||||||||
Shares of minority stake assets | 8 | 7 |
1. | Includes distributions and foreign currency |
March 2018 Form 10-Q |
Management’s Discussion and Analysis |
Average AUM
Three Months Ended March 31, | ||||||||
$ in billions | 2018 | 2017 | ||||||
Equity | $ | 109 | $ | 83 | ||||
Fixed income | 73 | 62 | ||||||
Alternative/Other | 129 | 117 | ||||||
Long-term AUM subtotal | 311 | 262 | ||||||
Liquidity | 163 | 157 | ||||||
Total AUM | $ | 474 | $ | 419 | ||||
Shares of minority | 7 | 7 |
Average Fee Rate
Three Months Ended March 31, | ||||||||
Fee rate in bps | 2018 | 2017 | ||||||
Equity | 76 | 74 | ||||||
Fixed income | 35 | 33 | ||||||
Alternative/Other | 68 | 71 | ||||||
Long-term AUM | 63 | 63 | ||||||
Liquidity | 18 | 18 | ||||||
Total AUM | 47 | 46 |
13 | March 2018 Form 10-Q |
Management’s Discussion and Analysis |
Supplemental Financial Information and Disclosures
Income Tax Matters
Effective Tax Rate from Continuing Operations
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
U.S. GAAP | 20.9% | 29.0% | ||||||
Adjusted effective income taxrate—non-GAAP1 | 20.9% | 28.5% |
1. | Adjusted amounts exclude an intermittent net discrete tax provision of $14 million in the prior year quarter. Income tax consequences associated with employee share-based awards are recognized in Provision for income taxes in the income statements but are excluded from the intermittent net discrete tax provisions (benefits) adjustment as we anticipate conversion activity each quarter. For further information onnon-GAAP measures, see “SelectedNon-GAAP Financial Information” herein. |
The effective tax rates include recurring-type discrete tax benefits associated with employee share-based payments of $147 million and $112 million in the current quarter and prior year quarter, respectively.
The effective tax rate reflects our current assumptions, estimates and interpretations related to the U.S. Tax Cuts and Jobs Act (“Tax Act”) and other factors. The Tax Act, enacted on December 22, 2017, significantly revised U.S. corporate income tax law by, among other things, reducing the corporate income tax rate to 21%, and implementing a modified territorial tax system that includes aone-time transition tax on deemed repatriated earnings ofnon-U.S. subsidiaries; imposes a minimum tax on global intangiblelow-taxed income (“GILTI”) and an alternative base erosion and anti-abuse tax (“BEAT”) on U.S. corporations that make deductible payments tonon-U.S. related persons in excess of specified amounts; and broadens the tax base by partially or wholly eliminating tax deductions for certain historically deductible expenses.
Our estimates may change as additional clarification and implementation guidance continue to be received from the U.S. Treasury Department and as the interpretation of the Tax Act evolves over time. Taking into account continuing developments related to provisions of the Tax Act such as the modified territorial tax system and GILTI, we expect our effective tax rate from continuing operations for 2018 to be approximately 22% to 25% (see “Forward-Looking Statements” in the 2017 Form10-K).
U.S. Bank Subsidiaries
We provide loans to a variety of customers, from large corporate and institutional clients to high net worth individuals, primarily through our U.S. bank subsidiaries, Morgan Stanley Bank N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA”) (collectively, “U.S. Bank Subsidiaries”). The lending activities in the Institutional Securities business segment primarily include loans orand lending commitments to corporate clients. The lending activities in the Wealth Management business segment primarily includeinclude: securities-based lending, thatwhich allows clients to borrow money against the value of qualifying securitiessecurities; and also include residential real estate loans.
We expect our lending activities to continue to grow through further market penetration of the Wealth Management business segment’s client base. For a further discussion of our credit risks, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Credit Risk.” For further discussion about loans and lending commitments, see Notes 7 and 11 to the consolidated financial statements.
U.S. Bank Subsidiaries’ Supplemental Financial Information Excluding Transactions with the Parent Company1
$ in billions | At 2017 | At December 31, 2016 | At 2018 | At December 31, 2017 | ||||||||||||
U.S. Bank Subsidiaries assets | $ | 175.4 | $ | 180.7 | ||||||||||||
U.S. Bank Subsidiaries investment securities portfolio: | ||||||||||||||||
Assets | $ | 188.3 | $ | 185.3 | ||||||||||||
Investment securities portfolio: | ||||||||||||||||
Investment securities—AFS | 38.3 | 50.3 | 43.1 | 42.0 | ||||||||||||
Investment securities—HTM | 15.3 | 13.6 | 18.0 | 17.5 | ||||||||||||
Total | $ | 53.6 | $ | 63.9 | ||||||||||||
Wealth Management U.S. Bank Subsidiaries data |
| |||||||||||||||
Securities-based lending and other loans1 | $ | 39.4 | $ | 36.0 | ||||||||||||
Total investment securities | $ | 61.1 | $ | 59.5 | ||||||||||||
Deposits2 | $ | 160.1 | $ | 159.1 | ||||||||||||
Wealth Management | Wealth Management |
| ||||||||||||||
Securities-based lending and other loans3 | $ | 41.7 | $ | 41.2 | ||||||||||||
Residential real estate loans | 25.7 | 24.4 | 26.6 | 26.7 | ||||||||||||
Total | $ | 65.1 | $ | 60.4 | $ | 68.3 | $ | 67.9 | ||||||||
Institutional Securities U.S. Bank Subsidiaries data |
| |||||||||||||||
Institutional Securities | Institutional Securities |
| ||||||||||||||
Corporate loans | $ | 20.0 | $ | 20.3 | $ | 27.4 | $ | 24.2 | ||||||||
Wholesale real estate loans | 10.7 | 9.9 | 12.4 | 12.2 | ||||||||||||
Total | $ | 30.7 | $ | 30.2 | $ | 39.8 | $ | 36.4 |
AFS—Available for sale
HTM—Held to maturity
1. | Amounts exclude transactions with the Parent Company and between the bank subsidiaries. |
2. | For further information on deposits, see “Liquidity and Capital Resources—Funding Management—Unsecured Financing” herein. |
3. | Other loans primarily include tailored lending. |
AFS Investment securities in our U.S. Bank Subsidiaries decreased as of June 30, 2017 as compared with December 31, 2016 primarily as a result of sales of securities to fund changes in our liquidity profile including deposit outflows, growth in loans and growth in HTM securities.
Income Tax Matters
Effective Tax Rate
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
From continuing operations | 32.0 | % | 33.5 | % | 30.5 | % | 33.4 | % |
March 2018 Form 10-Q | 14 |
The effective tax rate for the current year period includes net discrete tax benefits of $110 million, primarily resulting from a $128 million recurring-type benefit in the current year period associated with the adoption of new accounting guidance related to employee share-based payments. See Note 2 to the consolidated financial statements for information on the adoption of the accounting updateImprovements to Employee Share-Based Payment Accounting.
Management’s Discussion and Analysis |
Accounting Development Updates
The Financial Accounting Standards Board has issued certain accounting updates that apply to us but are not yet effective for the Firm.
us. Accounting updates not listed below were assessed and determined to be either not applicable or are not expected to have a significant impact on our consolidated financial statements.
The following accounting updates are currently being evaluated to determine the potential impact of adoption:
• |
|
We expect this accounting update to potentially change the timing and presentation of certain revenues, as well as the timing and presentation of certain related costs for Investment banking fees and Asset management, distribution and administration fees. Subject to the resolution of certain industry interpretations, these changes are not expected to be significant.
The recognition of performance fees from fund management activities in the form of carried interest that are subject to reversal is expected to remain essentially unchanged. We expect to apply the equity method of accounting to such carried interest, thus excluding them from the scope of this standard.
We will continue to assess the impact of the new standard as we progress through the implementation process and as industry interpretations are resolved; therefore, additional impacts may be identified prior to adoption.
Leases. This accounting update requires lessees to recognize |
The right of use asset and lease liability will initially be measured using the present value of the remaining rental payments. |
• | Financial Instruments–Credit Losses. This accounting update impacts the impairment model for certain financial assets measured at amortized cost |
The update |
Under the update, there may be an ability to determine there are no expected credit losses in certain circumstances,e.g., based on collateral arrangements for lending and financing transactions or based on the credit quality of the borrower or issuer. |
Overall, the amendments in this update are expected to accelerate the recognition of credit losses for portfolios |
where the CECL models will be applied. This update is effective as of January 1, |
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions (see Note 1 to the consolidated financial statements). We believe that of our significant accounting policies (see Note 2 to the consolidated financial statements in Item 8 of the 20162017 Form10-K and Note 2 to the consolidated financial statements), the fair value, goodwill and intangible assets, legal and regulatory contingencies and income taxes policies involve a higher degree of judgment and complexity. For a further discussion about our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in Part II, Item 7 of the 20162017 Form10-K.
Liquidity and Capital Resources
Senior management, with oversight by the Asset and Liability Management Committee and the Board of Directors (“Board”), establishes and maintains our liquidity and capital policies. Through various risk and control committees, senior management reviews business performance relative to these policies, monitors the availability of alternative sources of financing, and oversees the liquidity, interest rate and currency sensitivity of our asset and liability position. The Treasury Department,department, Firm Risk Committee, Asset and Liability Management Committee, and other committees and control groups assist in evaluating, monitoring and controlling the impact that our business activities have on our consolidated balance sheets,sheet, liquidity and capital structure. Liquidity and capital matters are reported regularly to the Board of Directors (the “Board”) and the Board’s Risk Committee.Committee of the Board.
The Balance Sheet
We monitor and evaluate the composition and size of our balance sheet on a regular basis. Our balance sheet management process includes quarterly planning, business-specific thresholds, monitoring of business-specific usage versus key performance metrics and new business impact assessments.
We establish balance sheet thresholds at the consolidated and business segment levels. We monitor balance sheet utilization and review variances resulting from business activity or market fluctuations. On a regular basis, we review current performance versus established thresholds and assess the need tore-allocate our balance sheet based on business unit needs. We also monitor key metrics, including asset and liability size and capital usage.
15 | March 2018 Form 10-Q |
Management’s Discussion and Analysis |
Total Assets by Business Segment
At June 30, 2017 | ||||||||||||||||
$ in millions | Institutional Securities | Wealth Management | Investment Management | Total | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents1 | $ | 30,203 | $ | 14,391 | $ | 65 | $ | 44,659 | ||||||||
Trading assets at fair value | 288,255 | 77 | 2,470 | 290,802 | ||||||||||||
Investment securities | 18,077 | 53,499 | — | 71,576 | ||||||||||||
Securities purchased under agreements to resell | 90,490 | 6,918 | — | 97,408 | ||||||||||||
Securities borrowed | 126,428 | 294 | — | 126,722 | ||||||||||||
Customer and other receivables | 35,954 | 18,380 | 583 | 54,917 | ||||||||||||
Loans, net of allowance | 32,528 | 65,106 | 5 | 97,639 | ||||||||||||
Other assets2 | 43,668 | 12,070 | 1,555 | 57,293 | ||||||||||||
Total assets | $ | 665,603 | $ | 170,735 | $ | 4,678 | $ | 841,016 |
At March 31, 2018 | ||||||||||||||||
$ in millions | IS | WM | IM | Total | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents1 | $ | 74,096 | $ | 13,173 | $ | 75 | $ | 87,344 | ||||||||
Trading assets at fair value | 269,200 | 85 | 3,759 | 273,044 | ||||||||||||
Investment securities | 19,913 | 60,728 | — | 80,641 | ||||||||||||
Securities purchased under agreements to resell | 72,460 | 7,786 | — | 80,246 | ||||||||||||
Securities borrowed | 135,608 | 227 | — | 135,835 | ||||||||||||
Customer and other receivables | 48,257 | 17,973 | 605 | 66,835 | ||||||||||||
Loans, net of allowance2 | 40,804 | 68,326 | 5 | 109,135 | ||||||||||||
Other assets3 | 14,447 | 9,305 | 1,663 | 25,415 | ||||||||||||
Total assets | $ | 674,785 | $ | 177,603 | $ | 6,107 | $ | 858,495 | ||||||||
At December 31, 2017 | ||||||||||||||||
$ in millions | IS | WM | IM | Total | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents1 | $ | 63,597 | $ | 16,733 | $ | 65 | $ | 80,395 | ||||||||
Trading assets at fair value | 295,678 | 59 | 2,545 | 298,282 | ||||||||||||
Investment securities | 19,556 | 59,246 | — | 78,802 | ||||||||||||
Securities purchased under agreements to resell | 74,732 | 9,526 | — | 84,258 | ||||||||||||
Securities borrowed | 123,776 | 234 | — | 124,010 | ||||||||||||
Customer and other receivables | 36,803 | 18,763 | 621 | 56,187 | ||||||||||||
Loans, net of allowance2 | 36,269 | 67,852 | 5 | 104,126 | ||||||||||||
Other assets3 | 14,563 | 9,596 | 1,514 | 25,673 | ||||||||||||
Total assets | $ | 664,974 | $ | 182,009 | $ | 4,750 | $ | 851,733 |
WM—Wealth Management
At December 31, 2016 | ||||||||||||||||
$ in millions | Institutional Securities | Wealth Management | Investment Management | Total | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents1 | $ | 25,291 | $ | 18,022 | $ | 68 | $ | 43,381 | ||||||||
Trading assets at fair value | 259,680 | 64 | 2,410 | 262,154 | ||||||||||||
Investment securities | 16,222 | 63,870 | — | 80,092 | ||||||||||||
Securities purchased under agreements to resell | 96,735 | 5,220 | — | 101,955 | ||||||||||||
Securities borrowed | 124,840 | 396 | — | 125,236 | ||||||||||||
Customer and other receivables | 26,624 | 19,268 | 568 | 46,460 | ||||||||||||
Loans, net of allowance | 33,816 | 60,427 | 5 | 94,248 | ||||||||||||
Other assets2 | 45,941 | 13,868 | 1,614 | 61,423 | ||||||||||||
Total assets | $ | 629,149 | $ | 181,135 | $ | 4,665 | $ | 814,949 |
IM—Investment Management
1. | Cash and cash equivalents |
2. | Amounts include loans held for investment (net of allowance) and loans held for sale but exclude loans at fair value, which are included in Trading assets in the balance sheets (see Note 7 to the financial statements). |
3. | Other assets primarily includes |
A substantial portion of total assets consists of liquid marketable securities and short-term receivables arising principally from sales and trading activities in the Institutional Securities business segment. Total assets increased to $841.0$858.5 billion at June 30, 2017March 31, 2018 from $814.9$851.7 billion at December 31, 2016,2017, primarily driven by an increase in tradingCustomer and other receivables and growth within the Institutional Securities loan portfolios. Trading Assets within the Institutional Securities business segment declined as we sold inventory within Institutional Securities. The increase reflects higher market values for corporate equities compared with December 31, 2016, along within Equities to support increased trading activity across fixed income products including U.S. governmentdemand and agency securitieschanges in client positioning. This was offset by increases in Securities borrowed and Other sovereign government obligations.GLR cash deposits. For further information regarding our GLR, see “Global Liquidity Reserve” herein.
Securities Repurchase Agreements and Securities Lending
Securities borrowed or securities purchased under agreements to resell and securities loaned or securities sold under agreements to repurchase are treated as collateralized financings (see Note 2 to the consolidated financial statements in the 20162017 Form10-K and Note 6 to the consolidated financial statements).
Collateralized Financing Transactions
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Securities purchased under agreements to resell and Securities borrowed1 | $ | 224,130 | $ | 227,191 | ||||
Securities sold under agreements to repurchase and Securities loaned1 | $ | 67,559 | $ | 70,472 | ||||
Securities received as collateral2 | $ | 14,408 | $ | 13,737 |
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Securities purchased under agreements to resell and Securities borrowed | $ | 216,081 | $ | 208,268 | ||||
Securities sold under agreements to repurchase and Securities loaned | $ | 65,131 | $ | 70,016 | ||||
Securities received as collateral1 | $ | 8,693 | $ | 13,749 | ||||
Average Daily Balance Three Months Ended | ||||||||
$ in millions | March 31, 2018 | December 31, 2017 | ||||||
Securities purchased under agreements to resell and Securities borrowed | $ | 211,753 | $ | 214,343 | ||||
Securities sold under agreements to repurchase and Securities loaned | $ | 65,684 | $ | 66,879 |
Daily Average Balance Three Months Ended | ||||||||
$ in millions | June 30, 2017 | December 31, 2016 | ||||||
Securities purchased under agreements to resell and Securities borrowed1 | $ | 220,045 | $ | 224,355 | ||||
Securities sold under agreements to repurchase and Securities loaned1 | $ | 72,040 | $ | 68,908 |
1. |
|
Included in Trading assets in the |
Customer Securities Financing
The customer receivable portion of the securities financing transactions primarily includes customer margin loans, collateralized by customer-owned securities, which are segregated in accordance with regulatory requirements. The customer payable portion of the securities financing transactions primarily includes payables to our prime brokerage customers. Our risk exposure on these transactions is mitigated by collateral maintenance policies that limit our credit exposure to customers and liquidity reserves held against this risk exposure.
Liquidity Risk Management Framework
The primary goal of our Liquidity Risk Management Framework is to ensure that we have access to adequate funding across a wide range of market conditions and time horizons. The framework is designed to enable us to fulfill our financial obligations and support the execution of our business strategies.
The core components of our Liquidity Risk Management Framework are the Required Liquidity Framework, Liquidity Stress Tests and the Global Liquidity Reserve (“GLR”),GLR, which support our target liquidity profile. For further discussion about the Firm’s Required Liquidity Framework and Liquidity Stress Tests, see “Management’s Discussion and Analysis of Financial
March 2018 Form 10-Q | 16 |
Management’s Discussion and Analysis |
Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Risk Management Framework” in Part II, Item 7 of the 20162017 Form10-K.
At June 30, 2017March 31, 2018 and December 31, 2016,2017, we maintained sufficient liquidity to meet current and contingent funding obligations as modeled in our Liquidity Stress Tests.
Global Liquidity Reserve
We maintain sufficient global liquidity reserves pursuant to our Required Liquidity Framework. For further discussion of our GLR, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Risk Management Framework—Global Liquidity Reserve” in Part II, Item 7 of the 2016 2017Form10-K.
GLR by Type of Investment
$ in millions | At June 30, 2017 | At December 31, | At March 31, | At December 31, 2017 | ||||||||||||
Cash deposits with banks | $ | 10,057 | $ | 8,679 | ||||||||||||
Cash deposits with central banks | 29,427 | 30,568 | ||||||||||||||
Cash deposits with banks1 | $ | 9,930 | $ | 7,167 | ||||||||||||
Cash deposits with central banks1 | 37,243 | 33,791 | ||||||||||||||
Unencumbered highly liquid securities: | ||||||||||||||||
U.S. government obligations | 71,336 | 78,615 | 84,155 | 73,422 | ||||||||||||
U.S. agency and agency mortgage-backed securities | 52,967 | 46,360 | 51,805 | 55,750 | ||||||||||||
Non-U.S. sovereign obligations1 | 21,290 | 30,884 | ||||||||||||||
Non-U.S. sovereign obligations2 | 20,334 | 19,424 | ||||||||||||||
Other investment grade securities | 3,219 | 7,191 | 2,996 | 3,106 | ||||||||||||
Total | $ | 188,296 | $ | 202,297 | $ | 206,463 | $ | 192,660 |
1. | Primarily included in Cash and due from banks and Interest bearing deposits with banks in the balance sheets. |
2. | Non-U.S. sovereign obligations are primarily composed of unencumbered German, French, Dutch, U.K. and Japanese government obligations. |
GLR Managed by Bank andNon-Bank Legal Entities
At June 30, | At December 31, | Daily Average Balance Three Months Ended | ||||||||||
$ in millions | June 30, 2017 | |||||||||||
Bank legal entities | ||||||||||||
Domestic | $ | 62,897 | $ | 74,411 | $ | 65,976 | ||||||
Foreign | 4,145 | 4,238 | 3,949 | |||||||||
Total Bank legal entities | 67,042 | 78,649 | 69,925 | |||||||||
Non-Bank legal entities | ||||||||||||
Domestic: | ||||||||||||
Parent Company | 48,987 | 66,514 | 56,070 | |||||||||
Non-Parent Company | 32,953 | 18,801 | 31,557 | |||||||||
Total Domestic | 81,940 | 85,315 | 87,627 | |||||||||
Foreign | 39,314 | 38,333 | 42,620 | |||||||||
TotalNon-Bank legal entities | 121,254 | 123,648 | 130,247 | |||||||||
Total | $ | 188,296 | $ | 202,297 | $ | 200,172 |
The reduction in total GLR as of June 30, 2017 compared with December 31, 2016, reflecting the decrease in our AFS Investment securities, was primarily related to the reduction in our deposits balance and growth in loans.
At 2018
| At 2017
| Average Daily
| ||||||||||
$ in millions | March 31, 2018 | |||||||||||
Bank legal entities | ||||||||||||
Domestic | $ | 68,826 | $ | 70,364 | $ | 69,955 | ||||||
Foreign | 4,602 | 4,756 | 4,263 | |||||||||
Total Bank legal entities | 73,428 | 75,120 | 74,218 | |||||||||
Non-Bank legal entities |
| |||||||||||
Domestic: | ||||||||||||
Parent Company | 48,998 | 41,642 | 44,184 | |||||||||
Non-Parent Company | 32,415 | 35,264 | 32,356 | |||||||||
Total Domestic | 81,413 | 76,906 | 76,540 | |||||||||
Foreign | 51,622 | 40,634 | 44,216 | |||||||||
TotalNon-Bank legal entities | 133,035 | 117,540 | 120,756 | |||||||||
Total | $ | 206,463 | $ | 192,660 | $ | 194,974 |
Regulatory Liquidity Framework
Liquidity Coverage Ratio
We and our U.S. Bank Subsidiaries are subject to the LCR requirements including a requirement to calculate each entity’s LCR on each business day. The Basel Committee on Banking Supervision’s (“Basel Committee”) Liquidity Coverage Ratio (“LCR”) standard isrequirements are designed to ensure that banking organizations have sufficient high-quality liquid assets (“HQLA”)HQLA to cover net cash outflows arising from significant stress over 30 calendar days. The standard’s objective is to promotedays, thus promoting the short-term resilience of the liquidity risk profile of banking organizations. We and our U.S. Bank Subsidiaries are subject tocompliant with the minimum required LCR requirements issued by U.S. banking regulators (“U.S. LCR”), which are based on the Basel Committee’s LCR, including a requirement to calculate each entity’s U.S. LCR on each business day.of 100%.
HQLA by Type of Asset and LCR
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Cash1 | $ | 29,608 | $ | 30,569 | ||||
Securities2 | 138,666 | 129,524 | ||||||
Total3 | $ | 168,274 | $ | 160,093 |
Average Daily Balance Three Months Ended | ||||||||
$ in millions | March 31, 2018 | December 31, 2017 | ||||||
HQLA | ||||||||
Cash deposits with central banks | $ | 33,350 | $ | 33,450 | ||||
Securities1 | 125,015 | 125,269 | ||||||
Total | $ | 158,365 | $ | 158,719 | ||||
LCR | 121% | 128% |
1. |
|
Primarily includes U.S. Treasuries; U.S. agency mortgage-backed securities; sovereign bonds; |
The decrease in the LCR in the current quarter is due to an increase in net outflows (the denominator of the ratio) driven by the impact of an increase in lending commitments, primarily within the Institutional Securities business segment. |
The regulatory definition of HQLA is substantially the same as our GLR. Differences includeGLR includes cash placed at institutions other than central banks whichthat is included in our GLR but considered an inflow for LCR purposes, andpurposes. HQLA includes a portion of cash placed at central banks, certain unencumbered investment grade corporate bonds and publicly traded common equities, which are includable in HQLA but do not meet the definition of our GLR.
We and our U.S. Bank Subsidiaries are required to maintain a minimum of 100% of the fullyphased-in U.S. LCR. We and our U.S. Bank Subsidiaries are compliant with the minimum required U.S. LCR based on current interpretations.
Net Stable Funding Ratio
The objective of the Net Stable Funding Ratio (“NSFR”)NSFR is to reduce funding risk over aone-year horizon by requiring banking organizations to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress.
The Basel Committee on Banking Supervision (“Basel Committee”) has previously finalized the NSFR framework in 2014.framework. In May 2016, the U.S. banking regulatorsagencies issued a proposal to implement the NSFR in the U.S. If adopted as proposed, the requirements, which would apply to us and our U.S. Bank Subsidiaries beginning January 1, 2018. We continue to evaluate the potential impact of the proposal, which is subject to further rulemaking procedures following the closing of the public comment period in August 2016.Subsidiaries. Our preliminary estimates, based on the current proposal, indicate that actions will be necessary to meet the requirement, which we would expect to
17 | March 2018 Form 10-Q |
Management’s Discussion and Analysis |
accomplish by the effective date of any final rule. Our preliminary estimates are subject to risks and uncertainties that may cause actual results based on the final rule.rule to differ materially from estimates. For an additional discussion of the NSFR, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Liquidity Framework—Net Stable Funding Ratio” in Part II, Item 7 of the 2016 2017Form10-K.
Funding Management
We manage our funding in a manner that reduces the risk of disruption to our operations. We pursue a strategy of diversification of secured and unsecured funding sources (by product, investor and region) and attempt to ensure that the tenor of our liabilities equals or exceeds the expected holding period of the assets being financed.
We fund our balance sheet on a global basis through diverse sources. These sources may include our equity capital, long-term borrowings, securitiesSecurities sold under agreements to repurchase, (“repurchase agreements”), securities lending, deposits, letters of credit and lines of credit. We have active financing programs for both standard and structured products targeting global investors and currencies.
Secured Financing
For a discussion of our secured financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Funding Management—Secured Financing” in Part II, Item 7 of the 20162017 Form10-K.
At June 30, 2017March 31, 2018 and December 31, 2016,2017, the weighted average maturity of our secured financing of less liquid assets was greater than 120 days.
Unsecured Financing
For a discussion of our unsecured financing activities, see “Management’s Discussion and Analysis of FinancingFinancial Condition and Results of Operations—Liquidity and Capital Resources—Funding Management—Unsecured Financing” in Part II, Item 7 of the 20162017 Form10-K and see Note 4 to the consolidated financial statements.
Deposits
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Deposits | $ | 144,913 | $ | 155,863 | ||||||||||||
Savings and demand deposits: | ||||||||||||||||
Brokerage sweep deposits1 | $ | 129,177 | $ | 135,946 | ||||||||||||
Savings and other | 9,181 | 8,541 | ||||||||||||||
Total Savings and demand deposits | 138,358 | 144,487 | ||||||||||||||
Time deposits2 | 22,066 | 14,949 | ||||||||||||||
Total | $ | 160,424 | $ | 159,436 |
The majority of deposits in our U.S. Bank Subsidiaries
1. | Represents balances swept from client brokerage accounts. |
2. | Certain time deposit accounts are carried at fair value under the fair value option (see Note 3 to the financial statements). |
Deposits are primarily sourced from our retail brokerage accountsWealth Management clients and are considered to have stable,low-cost funding characteristics. Available funding sources to our U.S. Bank Subsidiaries include demand deposit accounts, money market deposit accounts, timeTotal deposits repurchase agreements, federal funds purchased and Federal Home Loan Bank advances. The reduction in Deposits as of June 30, 2017at March 31, 2018 were up slightly compared with December 31, 2016 was2017, primarily driven by measures to increase Time deposits and Savings and other deposits, partially offset by a reduction in Brokerage sweep deposits due to client deployment of cash into the markets and typical seasonal client tax payments.
Short-Term Borrowingsinvestments.
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Short-term borrowings | $ | 916 | $ | 941 |
Our unsecured short-term borrowings primarily consist of structured notes, bank loans and bank notes with original maturities of 12 months or less.
Long-Term Borrowings
We believe that accessing debt investors through multiple distribution channels helps provide consistent access to the unsecured markets. In addition, the issuance of long-term borrowings with original maturities greater than one year allows us to reduce reliance on short-term credit sensitive instruments. Long-term borrowingsBorrowings with original maturities greater than one year are generally managed to achieve staggered maturities, thereby mitigating refinancing risk, and to maximize investor diversification through sales to global institutional and retail clients across regions, currencies and product types. Availability
The availability and cost of financing to us can vary depending on market conditions, the volume of certain trading and lending activities, our credit ratings and the overall availability of credit.
We mayalso engage in, various transactionsand may continue to engage in, repurchases of our borrowings in the credit markets (including, for example, debt retirements) that we believe are in our investors’ best interests.
Long-term Borrowings by Maturity at June 30, 2017
$ in millions | Parent Company | Subsidiaries | Total | |||||||||
2017 | $ | 8,742 | $ | 4,079 | $ | 12,821 | ||||||
2018 | 18,532 | 2,044 | 20,576 | |||||||||
2019 | 21,738 | 1,567 | 23,305 | |||||||||
2020 | 19,238 | 1,860 | 21,098 | |||||||||
2021 | 15,826 | 1,350 | 17,176 | |||||||||
Thereafter | 80,485 | 8,651 | 89,136 | |||||||||
Total | $ | 164,561 | $ | 19,551 | $ | 184,112 | ||||||
Maturities over next 12 months |
| $ | 28,823 | |||||||||
Approximate net increase in long-term borrowingsJune 30, 2017throughJuly 28, 2017 |
| $ | 7,518 | |||||||||
Includes: |
| |||||||||||
Senior debt issuance onJuly 24, 2017 |
| 7,000 |
For further information on long-term borrowings, see Note 10 to the consolidated financial statements.ordinary course of business.
Management’s Discussion and Analysis |
Borrowings by Remaining Maturity at March 31, 20181
$ in millions | Parent Company | Subsidiaries | Total | |||||||||
Original maturities of one year or less | $ | — | $ | 1,256 | $ | 1,256 | ||||||
Original maturities greater than one year |
| |||||||||||
2018 | $ | 12,783 | $ | 3,318 | $ | 16,101 | ||||||
2019 | 21,765 | 3,769 | 25,534 | |||||||||
2020 | 18,775 | 2,284 | 21,059 | |||||||||
2021 | 20,163 | 2,650 | 22,813 | |||||||||
2022 | 15,261 | 1,985 | 17,246 | |||||||||
Thereafter | 78,873 | 12,082 | 90,955 | |||||||||
Total | $ | 167,620 | $ | 26,088 | $ | 193,708 | ||||||
Total Borrowings | $ | 167,620 | $ | 27,344 | $ | 194,964 | ||||||
Maturities over next 12 months2 |
| $ | 23,029 |
1. | Original maturity in the table is generally based on contractual final maturity. For Borrowings with put options, remaining maturity represents the earliest put date. |
2. | Includes only borrowings with original maturities greater than one year. |
Borrowings increased to $194,964 million as of March 31, 2018 compared with $192,582 million at December 31, 2017. This increase is a result of issuances, partially offset primarily by maturities and retirements as presented in the following table.
$ in millions | Three Months Ended March 31, 2018 | |||
Issued | $ | 15,370 | ||
Matured or retired | 11,377 |
For further information on Borrowings, see Note 10 to the financial statements.
Credit Ratings
We rely on external sources to finance a significant portion of our daily operations. The cost and availability of financing generally are impacted by our credit ratings, among other things. In addition, our 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. RatingWhen determining credit ratings, rating agencies consider company-specific factors;factors, other industry factors such as regulatory or legislative changes, and the macroeconomic environment, among other things.
Our credit ratings do not include any uplift from perceived government support from any rating agency given the significant progress of the U.S. financial reform legislation and regulations. Some rating agencies have stated that they
currently incorporate various degrees of credit rating uplift fromnon-governmental third-party sources of potential support.
Parent Company and MSBNA’s Senior Unsecured Ratings at July 28, 2017
Parent Company and MSBNA Senior Unsecured Ratings at April 30, 2018 | ||||||
Parent Company | ||||||
Debt | Debt | Rating Outlook | ||||
DBRS, Inc. | R-1 (middle) | A (high) | Stable | |||
Fitch Ratings, Inc. | F1 | A | Stable | |||
Moody’s Investors Service, Inc. | P-2 | A3 | Stable | |||
Rating and Investment Information, Inc. | a-1 | A- | Stable | |||
| A-2 | BBB+ | Stable |
Debt | Debt | Rating Outlook | ||||||
Fitch Ratings, Inc. | F1 | A+ | Stable | |||||
Moody’s Investors Service, Inc. | P-1 | A1 | Stable | |||||
| A-1 | A+ | Stable |
In connection with certain OTC trading agreements and certain other agreements where we are a liquidity provider to certain financing vehicles associated with the Institutional Securities business segment, we may be required to provide additional collateral, immediately settle any outstanding liability balances with certain counterparties or pledge additional collateral to certain exchanges and clearing organizations in the event of a future credit rating downgrade irrespective of whether we are in a net asset or net liability position.
The additional collateral or termination payments that may be called in the event of a future credit rating downgrade vary by contract andcan be based on ratings by either or both of Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’sS&P Global Ratings (“S&P”).Ratings. The following table shows
the future potential collateral amounts and termination payments that could be called or required by counterparties or exchanges and clearing organizations in the event ofone-notch ortwo-notch downgrade scenarios, from the lowest of Moody’s ratings or S&P ratings,Global Ratings, based on the relevant contractual downgrade triggers.
Incremental Collateral or Terminating Payments upon
Potential Future Rating Downgrade
$ in millions | At June 30, 2017 | At December 31, 2016 | At 2018 | At 2017 | ||||||||||||
One-notch downgrade | $ | 950 | $ | 1,292 | $ | 806 | $ | 822 | ||||||||
Two-notch downgrade | 720 | 875 | 611 | 596 |
19 | March 2018 Form 10-Q |
Management’s Discussion and Analysis |
While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact it would have on our business and results of operations in future periods is inherently uncertain and would depend on a number of interrelated factors, including, among others, the magnitude of the downgrade, the rating relative to peers, the rating assigned by the relevant agencypre-downgrade, individual client behavior and future mitigating actions we might take. The liquidity impact of additional collateral requirements is included in our Liquidity Stress Tests.
Capital Management
We view capital as an important source of financial strength and actively manage our consolidated capital position based upon, among other things, business opportunities, risks, capital availability and rates of return together with internal capital policies, regulatory requirements and rating agency guidelines and, therefore, in the future may expand or contract our capital base to address the changing needs of our businesses. We attempt to maintain total capital, on a consolidated basis, at least equal to the sum of our operating subsidiaries’ required equity.
Common Stock
We repurchased approximately $500 million of
Three Months Ended March 31, | ||||||||
$ in millions | 2018 | 2017 | ||||||
Repurchases of common stock under our share repurchase program | $ | 1,250 | $ | 750 |
From time to time we repurchase our outstanding common stock, including as part of our share repurchase program duringprogram. As previously announced, on April 18, 2018, we entered into a sales plan with Mitsubishi UFJ Financial Group, Inc. (“MUFG”) whereby MUFG will sell shares of the current quarter and $1,250 million during the current year period. We repurchased approximately $625 million during the prior year quarter and $1,250 millionFirm’s common stock to us, as part of our share repurchase program. The sales plan is only intended to maintain MUFG’s ownership percentage below 24.9% in the prior year period (see Note 14order to comply with MUFG’s passivity commitments to the consolidated financial statements).
Federal Reserve and will have no impact on the strategic alliance between MUFG and us, including the joint venture in Japan. For a description of our share repurchase program, see “Unregistered Sales of Equity Securities and Use of Proceeds.”
For a description of our 2017 capital plan, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans and Stress Tests.”
Common Stock Dividend Announcement
Announcement date | ||||
Amount per share | ||||
Date to be paid | May 15, 2018 | |||
Shareholders of record as of | April 30, 2018 |
Preferred Stock Dividend Announcement
Announcement date | ||
Date paid | April 16, 2018 | |
Shareholders of record as of | March 29, 2018 |
Preferred Stock
On June 15, 2017, we announced that the Board declared quarterly dividends for preferred stock shareholders of record on June 30, 2017 that were paid on July 17, 2017.
For additional information on common and preferred stock, see Note 14 to the consolidated financial statements.
Tangible Equity
At | At | Monthly Average Balance Three Months Ended | ||||||||||
$ in millions | June 30, 2017 | |||||||||||
Common equity | $ | 70,306 | $ | 68,530 | $ | 69,916 | ||||||
Preferred equity | 8,520 | 7,520 | 8,520 | |||||||||
Morgan Stanley shareholders’ equity | 78,826 | 76,050 | 78,436 | |||||||||
Less: Goodwill and net intangible assets | (9,156 | ) | (9,296 | ) | (9,194 | ) | ||||||
Morgan Stanley tangible shareholders’ equity1 | $ | 69,670 | $ | 66,754 | $ | 69,242 | ||||||
Common equity | $ | 70,306 | $ | 68,530 | $ | 69,916 | ||||||
Less: Goodwill and net intangible assets | (9,156 | ) | (9,296 | ) | (9,194 | ) | ||||||
Tangible common equity1 | $ | 61,150 | $ | 59,234 | $ | 60,722 |
|
Regulatory Requirements
Regulatory Capital Framework
We are a financial holding company (“FHC”) under the Bank Holding Company Act of 1956, as amended (the “BHC(“BHC Act”), and are subject to the regulation and oversight of the Board of Governors of the Federal Reserve System (the “Federal(“Federal Reserve”). The Federal Reserve establishes capital requirements for us, including well-capitalized standards, and evaluates our compliance with such capital requirements. The Office of the Comptroller of the Currency (“OCC”)OCC establishes similar capital requirements and standards for our U.S. Bank Subsidiaries. The regulatory capital requirements are largely based on the Basel III capital standards established by the Basel Committee and also implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank(“Dodd-Frank Act”).
The Basel Committee has recently published revisions to certain standards in its capital framework, and is actively considering potential revisions to other capital standards, that, if adopted by the U.S. banking agencies, could substantially change the U.S. regulatory capital framework. For additional discussion of regulatory capital framework, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Capital Framework” in Part II, Item 7 of the 2016 Form10-K.
Regulatory Capital Requirements
We are required to maintain minimum risk-based and leverage capital ratios under the regulatory capital requirements. A summary of the calculations ofFor more information on our regulatory capital risk-weighted assets (“RWAs”)requirements, see “Management’s Discussion and transition provisions follows.Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Capital Requirements” in the 2017 Form10-K.
Regulatory Capital.Minimum risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital (which includes Tier 2 capital). Certain adjustments to and deductions from capital are required for purposes of determining these ratios, such as goodwill, intangible assets, certain deferred tax assets, other amounts in Accumulated other comprehensive income (loss) (“AOCI”)AOCI and investments in the capital instruments of unconsolidated financial institutions. Certain of these adjustments and deductions are also subject to transitional provisions.
March 2018 Form 10-Q | 20 |
Management’s Discussion and Analysis |
In addition to the minimum risk-based capital ratio requirements, on a fullyphased-in basis by 2019 we will be subject to:to the following buffers:
A greater than 2.5% Common Equity Tier 1 capital conservation buffer;
The Common Equity Tier 1 global systemically important bank(“G-SIB”)G-SIB capital surcharge, currently at 3%; and
Up to a 2.5% Common Equity Tier 1 countercyclical capital buffer (“CCyB”),CCyB, currently set by U.S. banking regulatorsagencies at zero (collectively, the “buffers”).zero.
In 2017 thephase-in amount forand 2018, each of the buffers is 50% and 75%, respectively, of the fullyphased-in buffer requirement.2019 requirement noted above. Failure to maintain the buffers would result in restrictions on our ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers. For a further discussion of theG-SIB capital surcharge, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—RegulatoryRequirements—G-SIB Capital Surcharge” in Part II, Item 7the 2017Form 10-K.
Our risk-based capital ratios for purposes of determining regulatory compliance are the lower of the 2016 Form10-K.capital ratios computed under (i) the standardized approaches for calculating credit risk and market risk RWA (“Standardized Approach”) and (ii) the applicable advanced approaches for calculating credit risk, market risk and operational risk RWA (“Advanced Approach”). At March 31, 2018 and December 31, 2017, our ratios are based on the Standardized Approach rules.
Effective January 1, 2019, Common Equity Tier 1 capital, Tier 1 capital and Total capital requirements, inclusive of buffers, will increase to 10.0%, 11.5%, and 13.5%, respectively.
See “Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements” herein for additional capital requirements effective January 1, 2019.
Risk-Weighted Assets.RWAs reflect both ouron- andoff-balance sheet risk as well as capital charges attributable to the risk of loss arising from the following:Regulatory Capital Ratios
Credit risk: The failure of a borrower, counterparty or issuer to meet its financial obligations to us;
At March 31, 2018 | ||||||||||||
FullyPhased-In | ||||||||||||
$ in millions | Required Ratio | Standardized | Advanced | |||||||||
Risk-based capital | ||||||||||||
Common Equity Tier 1 capital | $ | 60,568 | $ | 60,568 | ||||||||
Tier 1 capital | 69,213 | 69,213 | ||||||||||
Total capital | 79,363 | 79,138 | ||||||||||
Total RWA | 390,390 | 378,442 | ||||||||||
Common Equity Tier 1 capital ratio | 8.6% | 15.5% | 16.0% | |||||||||
Tier 1 capital ratio | 10.1% | 17.7% | 18.3% | |||||||||
Total capital ratio | 12.1% | 20.3% | 20.9% | |||||||||
Leverage-based capital | ||||||||||||
Adjusted average assets1 | $ | 846,868 | N/A | |||||||||
Tier 1 leverage ratio | 4.0% | 8.2% | N/A |
At December 31, 2017 | ||||||||||||||||||||
Transitional2 | FullyPhased-In | |||||||||||||||||||
$ in millions | Required Ratio | Standardized | Advanced | Standardized | Advanced | |||||||||||||||
Risk-based capital | ||||||||||||||||||||
Common Equity | ||||||||||||||||||||
Tier 1 capital | $ | 61,134 | $ | 61,134 | $ | 60,564 | $ | 60,564 | ||||||||||||
Tier 1 capital | 69,938 | 69,938 | 69,120 | 69,120 | ||||||||||||||||
Total capital | 80,275 | 80,046 | 79,470 | 79,240 | ||||||||||||||||
Total RWA | 369,578 | 350,212 | 377,241 | 358,324 | ||||||||||||||||
Common Equity Tier 1 capital ratio | 7.3% | 16.5% | 17.5% | 16.1% | 16.9% | |||||||||||||||
Tier 1 capital ratio | 8.8% | 18.9% | 20.0% | 18.3% | 19.3% | |||||||||||||||
Total capital ratio | 10.8% | 21.7% | 22.9% | 21.1% | 22.1% | |||||||||||||||
Leverage-based capital | ||||||||||||||||||||
Adjusted average assets1 | $ | 842,270 | N/A | $ | 841,756 | N/A | ||||||||||||||
Tier 1 leverage ratio | 4.0% | 8.3% | N/A | 8.2% | N/A |
Market risk: Adverse changes in the level of one or more market prices, rates, indices, implied volatilities, correlations or other market factors, such as market liquidity; and
|
For a further discussion of our market, credit and operational risks, see “Quantitative and Qualitative Disclosures about Market Risk.”
Our binding risk-based capital ratios for regulatory purposes are the lower of the capital ratios computed under (i) the standardized approaches for calculating credit risk and market risk RWAs (the “Standardized Approach”) and (ii) the applicable advanced approaches for calculating credit risk, market risk and operational risk RWAs (the “Advanced Approach”). The credit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWAs using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At June 30, 2017, our binding ratios are based on the Advanced Approach transitional rules.
The methods for calculating each of our risk-based capital ratios will change through January 1, 2022 as aspects of the capital rules are phased in. These changes may result in differences in our reported capital ratios from one reporting period to the next that are independent of changes to our capital base, asset composition,off-balance sheet exposures or risk profile.
Minimum Risk-Based Capital Ratios: Transitional Provisions
|
Transitional and FullyPhased-In Regulatory Capital Ratios
|
| |||||||||||||||
At June 30, 2017 | ||||||||||||||||
Transitional | Pro Forma Fully Phased-In | |||||||||||||||
$ in millions | Standardized | Advanced | Standardized | Advanced | ||||||||||||
Risk-based capital | ||||||||||||||||
Common Equity Tier 1 capital | $ | 61,604 | $ | 61,604 | $ | 60,862 | $ | 60,862 | ||||||||
Tier 1 capital | 70,380 | 70,380 | 69,603 | 69,603 | ||||||||||||
Total capital | 81,302 | 81,025 | 80,537 | 80,261 | ||||||||||||
Total RWAs | 368,963 | 370,679 | 379,191 | 381,520 | ||||||||||||
Common Equity Tier 1 capital ratio | 16.7 | % | 16.6 | % | 16.1 | % | 16.0 | % | ||||||||
Tier 1 capital ratio | 19.1 | % | 19.0 | % | 18.4 | % | 18.2 | % | ||||||||
Total capital ratio | 22.0 | % | 21.9 | % | 21.2 | % | 21.0 | % | ||||||||
Leverage-based capital | ||||||||||||||||
Adjusted average assets1 | $ | 828,365 | N/A | $ | 827,842 | N/A | ||||||||||
Tier 1 leverage ratio2 | 8.5 | % | N/A | 8.4 | % | N/A |
At December 31, 2016 | ||||||||||||||||
Transitional | Pro Forma Fully Phased-In | |||||||||||||||
$ in millions | Standardized | Advanced | Standardized | Advanced | ||||||||||||
Risk-based capital | ||||||||||||||||
Common Equity Tier 1 capital | $ | 60,398 | $ | 60,398 | $ | 58,616 | $ | 58,616 | ||||||||
Tier 1 capital | 68,097 | 68,097 | 66,315 | 66,315 | ||||||||||||
Total capital | 78,917 | 78,642 | 77,155 | 76,881 | ||||||||||||
Total RWAs | 340,191 | 358,141 | 351,101 | 369,709 | ||||||||||||
Common Equity Tier 1 capital ratio | 17.8 | % | 16.9 | % | 16.7 | % | 15.9 | % | ||||||||
Tier 1 capital ratio | 20.0 | % | 19.0 | % | 18.9 | % | 17.9 | % | ||||||||
Total capital ratio | 23.2 | % | 22.0 | % | 22.0 | % | 20.8 | % | ||||||||
Leverage-based capital | ||||||||||||||||
Adjusted average assets1 | $ | 811,402 | N/A | $ | 810,288 | N/A | ||||||||||
Tier 1 leverage ratio2 | 8.4 | % | N/A | 8.2 | % | N/A |
N/A—Not Applicable
1. | Adjusted average assets represent the denominator of the Tier 1 leverage ratio and are composed of the average daily balance of consolidatedon-balance sheet assets under U.S. GAAP during the |
2. |
|
TheAt December 31, 2017, the pro formafully phased-in estimated amounts utilize fullyphased-in Tier 1 capital, including the fullyphased-in Tier 1 capital deductions that applied beginning January 1, 2018. These pro formafully phased-in estimates inwere non-GAAP financial measures because the previous tables arerelated capital rules were not yet effective at December 31, 2017. These estimates were based on our current understanding of the capital rules and other factors which may be subject to change as we receive additional clarification and implementation guidance fromat the Federal Reserve and as the interpretation of the regulations evolves over time. These fullyphased-in pro forma estimates arenon-GAAP financial measures because they were not yet effective at June 30, 2017. These preliminary estimates are subject to risks and uncertainties that may cause actual results to differ materially and should not be taken as a projection of what our capital, capital ratios, RWAs, earnings or other results will actually be at future dates. For a discussion of risks and uncertainties that may affect our future results, see “Risk Factors” in Part I, Item 1A of the 2016 Form10-K.
Management’s Discussion and Analysis |
Well-Capitalized Minimum Regulatory Capital RatiosRatio Requirements for U.S. Bank Subsidiaries
At | ||||
Common Equity Tier 1 risk-based capital ratio | 6.5% | |||
Tier 1 risk-based capital ratio | 8.0% | |||
Total risk-based capital ratio | 10.0% | |||
Tier 1 leverage ratio | 5.0% | |||
SLR | 6.0% |
For us to remain a financial holding company,an FHC, our U.S. Bank Subsidiaries must qualify as well-capitalized by maintaining the minimum ratio requirements set forth in the previous table. The Federal Reserve has not yet revised the well-capitalized standard for financial holding companiesFHCs to reflect the higher capital standards required forof us under the capital rules. Assuming that the Federal Reserve would apply the same or very similar well-capitalized standards to financial holding companies,FHCs, each of our risk-based capital ratios, and Tier 1 leverage ratio and SLR at June 30, 2017March 31, 2018 would have exceeded the revised well-capitalized standard. The Federal Reserve may require usan FHC to maintain risk- and leverage-based capital ratios substantially in excess of mandated minimumwell-capitalized levels, depending upon general economic conditions and a financial holding company’sthe FHC’s particular condition, risk profile and growth plans.
Regulatory compliance was determined based on capital ratios including regulatory capital and RWA calculated under the transitional rules until December 31, 2017. The regulatory capital analyses in the following tables are presented using pro forma fullyphased-in estimates as of December 31, 2017, which are equivalent to amounts calculated as of March 31, 2018.
FullyPhased-InRegulatory Capital Calculated under Transitional Rules
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 20171 | ||||||||||||
Common Equity Tier 1 capital | ||||||||||||||||
Common stock and surplus | $ | 16,469 | $ | 17,494 | $ | 12,911 | $ | 14,354 | ||||||||
Retained earnings | 56,325 | 53,679 | 60,009 | 57,577 | ||||||||||||
AOCI | (2,488 | ) | (2,643 | ) | (3,406 | ) | (3,060 | ) | ||||||||
Regulatory adjustments and deductions: | ||||||||||||||||
Net goodwill | (6,532 | ) | (6,526 | ) | (6,716 | ) | (6,599 | ) | ||||||||
Net intangible assets (other than goodwill and mortgage servicing assets) | (2,051 | ) | (1,631 | ) | (2,424 | ) | (2,446 | ) | ||||||||
Other adjustments and deductions1 | (119 | ) | 25 | |||||||||||||
Other adjustments and deductions2 | 194 | 738 | ||||||||||||||
Total Common Equity Tier 1 capital | $ | 61,604 | $ | 60,398 | $ | 60,568 | $ | 60,564 | ||||||||
Additional Tier 1 capital | ||||||||||||||||
Preferred stock | $ | 8,520 | �� | $ | 7,520 | $ | 8,520 | $ | 8,520 | |||||||
Noncontrolling interests | 489 | 613 | 482 | 415 | ||||||||||||
Other adjustments and deductions2 | (66 | ) | (246 | ) | ||||||||||||
Other adjustments and deductions | (23 | ) | (23 | ) | ||||||||||||
Additional Tier 1 capital | $ | 8,943 | $ | 7,887 | $ | 8,979 | $ | 8,912 | ||||||||
Deduction for investments in covered funds | (167 | ) | (188 | ) | (334 | ) | (356 | ) | ||||||||
Total Tier 1 capital | $ | 70,380 | $ | 68,097 | $ | 69,213 | $ | 69,120 | ||||||||
Standardized Tier 2 capital | ||||||||||||||||
Subordinated debt | $ | 10,351 | $ | 10,303 | $ | 9,612 | $ | 9,839 | ||||||||
Noncontrolling interests | 80 | 62 | 113 | 98 | ||||||||||||
Eligible allowance for credit losses | 493 | 464 | 448 | 423 | ||||||||||||
Other adjustments and deductions | (2 | ) | (9 | ) | (23 | ) | (10 | ) | ||||||||
Total Standardized Tier 2 capital | $ | 10,922 | $ | 10,820 | $ | 10,150 | $ | 10,350 | ||||||||
Total Standardized capital | $ | 81,302 | $ | 78,917 | $ | 79,363 | $ | 79,470 | ||||||||
Advanced Tier 2 capital | ||||||||||||||||
Subordinated debt | $ | 10,351 | $ | 10,303 | $ | 9,612 | $ | 9,839 | ||||||||
Noncontrolling interests | 80 | 62 | 113 | 98 | ||||||||||||
Eligible credit reserves | 216 | 189 | 223 | 193 | ||||||||||||
Other adjustments and deductions | (2 | ) | (9 | ) | (23 | ) | (10 | ) | ||||||||
Total Advanced Tier 2 capital | $ | 10,645 | $ | 10,545 | $ | 9,925 | $ | 10,120 | ||||||||
Total Advanced capital | $ | 81,025 | $ | 78,642 | $ | 79,138 | $ | 79,240 |
Management’s Discussion and Analysis |
FullyPhased-InRegulatory Capital Rollforward Calculated under Transitional Rules
$ in millions | Six Months Ended June 30, 2017 | Three Months Ended March 31, 2018 | ||||||
Common Equity Tier 1 capital | ||||||||
Common Equity Tier 1 capital at December 31, 2016 | $ | 60,398 | ||||||
Common Equity Tier 1 capital at December 31, 20171 | $ | 60,564 | ||||||
Change related to the following items: | ||||||||
Value of shareholders’ common equity | 1,776 | 643 | ||||||
Net goodwill | (6 | ) | (117 | ) | ||||
Net intangible assets (other than goodwill and mortgage servicing assets) | (420 | ) | 22 | |||||
Other adjustments and deductions1 | (144 | ) | ||||||
Common Equity Tier 1 capital at June 30, 2017 | $ | 61,604 | ||||||
Other adjustments and deductions2 | (544 | ) | ||||||
Common Equity Tier 1 capital at March 31, 2018 | $ | 60,568 | ||||||
Additional Tier 1 capital | ||||||||
Additional Tier 1 capital at December 31, 2016 | $ | 7,887 | ||||||
New issuance of qualifying preferred stock | 1,000 | |||||||
Additional Tier 1 capital at December 31, 20171 | $ | 8,912 | ||||||
Change related to the following items: | ||||||||
Noncontrolling interests | (124 | ) | 67 | |||||
Other adjustments and deductions2 | 180 | |||||||
Additional Tier 1 capital at June 30, 2017 | 8,943 | |||||||
Deduction for investments in covered funds at December 31, 2016 | (188 | ) | ||||||
Other adjustments and deductions | — | |||||||
Additional Tier 1 capital at March 31, 2018 | 8,979 | |||||||
Deduction for investments in covered funds at December 31, 2017 | (356 | ) | ||||||
Change in deduction for investments in covered funds | 21 | 22 | ||||||
Deduction for investments in covered funds at June 30, 2017 | (167 | ) | ||||||
Tier 1 capital at June 30, 2017 | $ | 70,380 | ||||||
Deduction for investments in covered funds at March 31, 2018 | (334 | ) | ||||||
Tier 1 capital at March 31, 2018 | $ | 69,213 | ||||||
Standardized Tier 2 capital | ||||||||
Tier 2 capital at December 31, 2016 | $ | 10,820 | ||||||
Tier 2 capital at December 31, 20171 | $ | 10,350 | ||||||
Change related to the following items: | ||||||||
Eligible allowance for credit losses | 29 | 25 | ||||||
Other changes, adjustments and deductions3 | 73 | (225 | ) | |||||
Standardized Tier 2 capital at June 30, 2017 | $ | 10,922 | ||||||
Total Standardized capital at June 30, 2017 | $ | 81,302 | ||||||
Standardized Tier 2 capital at March 31, 2018 | $ | 10,150 | ||||||
Total Standardized capital at March 31, 2018 | $ | 79,363 | ||||||
Advanced Tier 2 capital | ||||||||
Tier 2 capital at December 31, 2016 | $ | 10,545 | ||||||
Tier 2 capital at December 31, 20171 | $ | 10,120 | ||||||
Change related to the following items: | ||||||||
Eligible credit reserves | 27 | 30 | ||||||
Other changes, adjustments and deductions3 | 73 | (225 | ) | |||||
Advanced Tier 2 capital at June 30, 2017 | $ | 10,645 | ||||||
Total Advanced capital at June 30, 2017 | $ | 81,025 | ||||||
Advanced Tier 2 capital at March 31, 2018 | $ | 9,925 | ||||||
Total Advanced capital at March 31, 2018 | $ | 79,138 |
1. | The pro forma fullyphased-in estimates as of December 31, 2017 arenon-GAAP financial measures. See “SelectedNon-GAAP Financial Information” herein. |
2. | Other adjustments and deductions used in the calculation of Common Equity Tier 1 capital include credit spread premium over risk-free rate for derivative liabilities, net deferred tax assets, netafter-tax DVA and adjustments related to AOCI. |
|
3. | Other changes, adjustments and deductions used in the calculations of Standardized and Advanced Tier 2 capital include changes in subordinated debt and noncontrolling interests. |
RWAsFullyPhased-In RWA Rollforward Calculated under Transitional Rules
Six Months Ended June 30, 20171 | Three Months Ended March 31, 20181 | |||||||||||||||
$ in millions | Standardized | Advanced | Standardized | Advanced | ||||||||||||
Credit risk RWAs | ||||||||||||||||
Balance at December 31, 2016 | $ | 278,874 | $ | 169,231 | ||||||||||||
Credit risk RWA | ||||||||||||||||
Balance at December 31, 20172 | $ | 301,946 | $ | 170,754 | ||||||||||||
Change related to the following items: | ||||||||||||||||
Derivatives | 3,799 | 1,896 | (229 | ) | 3,568 | |||||||||||
Securities financing transactions | 4,406 | 1,719 | 177 | 2,242 | ||||||||||||
Securitizations | 1,362 | 992 | (357 | ) | (1,277 | ) | ||||||||||
Investment securities | (3,025 | ) | (1,593 | ) | (270 | ) | 320 | |||||||||
Commitments, guarantees and loans | 40 | 228 | 12,934 | 15,090 | ||||||||||||
Cash | (452 | ) | (520 | ) | 784 | 294 | ||||||||||
Equity investments | (933 | ) | (991 | ) | 2,726 | 2,887 | ||||||||||
Other credit risk2 | 1,141 | 622 | ||||||||||||||
Total change in credit risk RWAs | $ | 6,338 | $ | 2,353 | ||||||||||||
Balance at June 30, 2017 | $ | 285,212 | $ | 171,584 | ||||||||||||
Market risk RWAs | ||||||||||||||||
Balance at December 31, 2016 | $ | 61,317 | $ | 60,872 | ||||||||||||
Other credit risk3 | 634 | 236 | ||||||||||||||
Total change in credit risk RWA | $ | 16,399 | $ | 23,360 | ||||||||||||
Balance at March 31, 2018 | $ | 318,345 | $ | 194,114 | ||||||||||||
Market risk RWA | ||||||||||||||||
Balance at December 31, 20172 | $ | 75,295 | $ | 74,907 | ||||||||||||
Change related to the following items: | ||||||||||||||||
Regulatory VaR | 2,366 | 2,366 | 1,187 | 1,187 | ||||||||||||
Regulatory stressed VaR | 14,279 | 14,279 | 235 | 235 | ||||||||||||
Incremental risk charge | 2,448 | 2,448 | 2,968 | 2,968 | ||||||||||||
Comprehensive risk measure | (1,935 | ) | (1,670 | ) | (2,135 | ) | (1,947 | ) | ||||||||
Specific risk: | ||||||||||||||||
Non-securitizations | 2,138 | 2,138 | (2,590 | ) | (2,590 | ) | ||||||||||
Securitizations | 3,138 | 3,175 | (2,915 | ) | (2,917 | ) | ||||||||||
Total change in market risk RWAs | $ | 22,434 | $ | 22,736 | ||||||||||||
Balance at June 30, 2017 | $ | 83,751 | $ | 83,608 | ||||||||||||
Operational risk RWAs | ||||||||||||||||
Balance at December 31, 2016 | $ | N/A | $ | 128,038 | ||||||||||||
Change in operational risk RWAs3 | N/A | (12,551 | ) | |||||||||||||
Balance at June 30, 2017 | $ | N/A | $ | 115,487 | ||||||||||||
Total RWAs | $ | 368,963 | $ | 370,679 | ||||||||||||
Total change in market risk RWA | $ | (3,250 | ) | $ | (3,064 | ) | ||||||||||
Balance at March 31, 2018 | $ | 72,045 | $ | 71,843 | ||||||||||||
Operational risk RWA | ||||||||||||||||
Balance at December 31, 20172 | $ | N/A | $ | 112,663 | ||||||||||||
Change in operational risk RWA | N/A | (178 | ) | |||||||||||||
Balance at March 31, 2018 | $ | N/A | $ | 112,485 | ||||||||||||
Total RWA | $ | 390,390 | $ | 378,442 |
Regulatory VaR—Value-at-Risk
N/A—Not ApplicableVaR for regulatory capital requirements
1. | The |
2. | The pro forma fullyphased-in estimates as of December 31, 2017 arenon-GAAP financial measures. See “SelectedNon-GAAP Financial Information” herein. |
3. | Amount reflects assets not in a defined category,non-material portfolios of exposures and unsettled transactions, as applicable. |
|
Regulatory stressed VaRCredit risk RWA increased $14,279 million in the current year periodquarter under both the Standardized and Advanced Approaches primarily due to increased exposures in corporate lending within the Institutional Securities business segment. Credit risk RWA also increased under the Advanced approaches. These increases wereApproach due to increased exposures in derivatives.
Market risk RWA decreased in the current quarter under the Standardized and Advanced Approaches primarily driven by increasesdue to a decrease in trading inventory across the equities, global macro, and credit businesses within Institutional Securities, in response to client demand.standardized specific risk charges.
Management’s Discussion and Analysis |
The decrease in operational risk RWA under the Advanced Approach reflects a reduction in the internal loss frequency related to litigation utilized in the operational risk capital model.
Supplementary Leverage Ratio
We and our U.S. Bank Subsidiaries are required to publicly disclose our supplementary leverage ratios, which will become effective as a capital standard on January 1, 2018. By January 1, 2018, we must also maintain a Tier 1 supplementary leverage capital buffer of at least 2% in addition to the 3% minimum supplementary leverage ratio (for a total of at least 5%), in order to avoid limitations on capital distributions, including dividends and stock repurchases, and discretionary bonus payments to executive officers. In addition, beginning in 2018, our U.S. Bank Subsidiaries must maintain a supplementary leverage ratio of 6% to be considered well-capitalized.
Pro Forma Supplementary Leverage Exposure and Ratio
At June 30, 2017 | At December 31, 2016 | |||||||||||||||
$ in millions | Transitional basis | Fully phased-in1 | Transitional basis | Fully phased-in1 | ||||||||||||
Average total assets2 | $ | 837,875 | $ | 837,875 | $ | 820,536 | $ | 820,536 | ||||||||
Adjustments3, 4 | 241,726 | 241,203 | 242,113 | 240,999 | ||||||||||||
Pro forma supplementary leverage exposure | $ | 1,079,601 | $ | 1,079,078 | $ | 1,062,649 | $ | 1,061,535 | ||||||||
Pro forma supplementary leverage ratio | 6.5% | 6.5% | 6.4% | 6.2% |
At March 31, 2018 | At December 31, 2017 | |||||||||||
$ in millions | Fully Phased-in | Transitional Basis1 | Fully Phased-in2 | |||||||||
Average total assets3 | $ | 856,738 | $ | 851,510 | $ | 851,510 | ||||||
Adjustments4, 5 | 234,780 | 231,173 | 230,660 | |||||||||
Supplementary leverage exposure | $ | 1,091,518 | $ | 1,082,683 | $ | 1,082,170 | ||||||
SLR | 6.3% | 6.5% | 6.4% |
1. | Transitional provisions applied until December 31, 2017. |
2. | Estimated amounts utilize fullyphased-in Tier 1 capital, |
Computed as the average daily balance of consolidated total assets under U.S. GAAP during the |
Computed as the |
Adjustments are to: (i) incorporate derivative exposures, including adding the related potential future exposure (including for derivatives cleared for clients), grossing up cash collateral netting where qualifying criteria are not met and adding the effective notional principal amount of sold credit protection offset by qualifying purchased credit protection; (ii) reflect the counterparty credit risk for repo-style transactions; (iii) add the credit equivalent amount foroff-balance sheet exposures; and (iv) apply other adjustments to Tier 1 capital, including disallowed goodwill, |
Pro forma fullyphased-inThe SLR became effective as a capital standard on January 1, 2018. We are required to maintain a Tier 1 supplementary leverage exposureratio of 3% as well as an enhanced SLR capital buffer of at least 2% (for a total of at least 5%) in order to avoid limitations on capital distributions, including dividends and ratio are based onstock repurchases, and discretionary bonus payments to executive officers. In addition, our current understandingU.S. Bank Subsidiaries must maintain an SLR of rules and other factors.6% to be considered well-capitalized.
U.S. Subsidiary Banks’ Pro FormaBank Subsidiaries’ FullyPhased-In Supplementary Leverage Ratios on a Transitional Basis
At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 20171 | |||||||||||||
MSBNA | 8.8 | % | 7.7% | 9.0% | 9.1% | |||||||||||
MSPBNA | 9.9 | % | 10.2% | 9.3% | 9.3% |
1. | Estimated amounts utilize fullyphased-in Tier 1 capital, including the fullyphased-in Tier 1 capital deductions that apply beginning January 1, 2018. |
The pro forma transitional andfully phased-in supplementary leverage exposures and pro forma supplementary leverage ratios both on transitional and fullyphased-inare non-GAAP financial bases, arenon-GAAP financial measures because they havewere not yet become effective. Our estimates are subject to risks and uncertainties that may cause actual results to differ materially from estimates based on these regulations. Further, these expectations should not be taken as projections of what our supplementary leverage ratios, earnings, assets or exposures will actually beeffective at future dates. For aDecember 31, 2017.
discussion of risks and uncertainties that may affect our future results, see “Risk Factors” in Part I, Item 1A of the 2016 Form10-K.
Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements
On December 15, 2016, the Federal Reserve adopted a final rule fortop-tier bank holding companiesBHCs of U.S.G-SIBsG-SIB (“covered BHCs”BHC”), including the Parent Company, that establishes external total loss-absorbing capacity (“TLAC”),TLAC, long-term debt (“LTD”) and clean holding company requirements. The final rule contains various definitions and restrictions, such as requiring eligible LTD to be issued by the covered BHC and be unsecured, have a maturity of one year or more from the date of issuance and not have certain derivative-linked features typically associated with certain types of structured notes. We expect to be in compliance with all requirements of the rule by January 1, 2019, the date that compliance is required.
The Federal Reserve’s proposed modifications to the enhanced SLR would also make corresponding changes to the calibration of the TLAC leverage-based requirements, as well as certain other technical changes to the TLAC rule. For a further discussion of the enhanced SLR, see “Regulatory Developments—Proposed Modifications to the Enhanced SLR and to the SLR Applicable to Our U.S. Bank Subsidiaries” herein.
For a further discussion of TLAC and LTD requirements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements” in Part II, Item 7 of the 20162017 Form10-K. For discussions about the interaction between the single point of entrySPOE resolution strategy and the TLAC and LTD requirements, see “Business—Supervision and Regulation—Financial Holding Company—Resolution and Recovery Planning” in Part I, Item 1 and “Risk Factors—Legal, Regulatory and Compliance Risk” in Part I, Item 1A of the 20162017 Form10-K.
Capital Plans and Stress Tests
Pursuant to the Dodd-Frank Act, the Federal Reserve has adopted capital planning and stress test requirements for large bank holding companies,BHCs, including us, which form part of the Federal Reserve’s annual Comprehensive Capital Analysis and Review (“CCAR”)CCAR framework.
We submitted our 2017 capital plan2018 Capital Plan (“Capital Plan”) andcompany-run stress test results to the Federal Reserve on April 5, 2017. On June 22, 2017,2018. We expect that the Federal Reserve publishedwill provide its response to our 2018 Capital Plan by June 30, 2018. There could be a range of potential outcomes to our Capital Plan whereby the Federal Reserve could object to, or otherwise require us to modify, such plan. See “Risk Factors” in the 2017 Form 10-K. The Federal Reserve is expected to publish summary results of the CCAR and Dodd-Frank Act supervisory stress tests of each large bank holding company,BHC, including us. On June 28, 2017, the Federal Reserve published summary results of CCAR and announced that they did not object to our 2017 Capital Plan (“Capital Plan”). The Capital Plan includes the repurchase of up to $5.0 billion of outstanding common stock for the period beginning July 1, 2017 through June 30, 2018, an increase from $3.5 billion in the 2016 Capital Plan. Additionally, the Capital Plan includes an increase in our quarterly commonus, by
Management’s Discussion and Analysis |
stock dividendJune 30, 2018. We are required to $0.25 per share from $0.20 per share, beginning with the common stock dividend declared on July 19, 2017. We discloseddisclose a summary of the results ofourcompany-run stress tests within 15 days of the date the Federal Reserve discloses the results of the supervisory stress tests on June 23, 2017 on our Investor Relations website.tests. In addition, we must submit the results ofourmid-cyclecompany-run mid-cycle company-run stress stress test to the Federal Reserve by October 5, 20172018 and disclose a summary of the results between October 5, 20172018 and November 4, 2017.2018.
The Dodd-Frank Act also requires each of our U.S. Bank Subsidiaries to conduct an annual stress test. MSBNA and MSPBNA submitted their 20172018 annualcompany-run stress tests to the OCC on April 5, 20172018 and publishedmust publish a summary of their stress test results onbetween June 23, 2017 on our Investor Relations website.15, 2018 and July 15, 2018.
For a further discussion of our capital plans and stress tests, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Capital Plans and Stress Tests” in Part II, Item 7 of the 20162017 Form10-K.
Attribution of Average Common Equity According to the Required Capital Framework
Our required capital (“Required Capital”) estimation is based on the Required Capital framework, an internal capital adequacy measure. Common equity attribution to the business segments is based on capital usage calculated byunder the Required Capital framework, as well as each business segment’s relative contribution to our total Required Capital. Required Capital is assessed for 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 is a risk-based and leverageuse-of-capital measure, which is compared with our regulatory capital to ensure that we maintain an amount of going concern capital after absorbing potential losses from stress events, where applicable, at a point in time. We define the difference between our total average common equity and the sum of the average common equity amounts allocated to our business segments as Parent Company equity. We generally hold Parent Company equity for prospective regulatory requirements, organic growth, acquisitions and other capital needs.
Common equity estimation and attribution to the business segments are based on our pro forma fullyphased-in regulatory capital estimates, including supplementary leverage, and incorporates our internal stress tests.rules. The amount of capital allocated to the business segments is generally set at the beginning of each year and remains fixed throughout the year until the next
annual reset.reset unless a significant business change occurs (e.g., acquisition or disposition). Differences between available and Required Capital are attributed to Parent Company equity during the year.
The Required Capital framework is expected to evolve over time in response to changes in the business and regulatory environment.environment, for example, to incorporate changes in stress
testing or enhancements to modeling techniques. We will continue to evaluate the framework with respect to the impact of future regulatory requirements, as appropriate.
Average Common Equity Attribution1
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
$ in billions | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | ||||||||||||||||||
Institutional Securities | $ | 40.2 | $ | 43.2 | $ | 40.2 | $ | 43.2 | $ | 40.8 | $ | 40.2 | ||||||||||||
Wealth Management | 17.2 | 15.3 | 17.2 | 15.3 | 16.8 | 17.2 | ||||||||||||||||||
Investment Management | 2.4 | 2.8 | 2.4 | 2.8 | 2.6 | 2.4 | ||||||||||||||||||
Parent Company | 10.1 | 7.7 | 9.7 | 7.3 | 8.8 | 9.2 | ||||||||||||||||||
Total1 | $ | 69.9 | $ | 69.0 | $ | 69.5 | $ | 68.6 | ||||||||||||||||
Total | $ | 69.0 | $ | 69.0 |
1. | Average common equity is anon-GAAP financial measure. See “SelectedNon-GAAP Financial Information” herein. |
Regulatory Developments
Resolution and Recovery Planning
Pursuant to the Dodd-Frank Act, we are required to periodically submit to the Federal Reserve and the Federal Deposit Insurance Corporation (“FDIC”) an annualFDIC a resolution plan that describes our strategy for a rapid and orderly resolution under the U.S. Bankruptcy Code in the event of our material financial distress or failure.
Our preferred resolution strategy, which is set out in our 2017 resolution plan, is a single point of entryan SPOE strategy. We submitted our full 2017 resolution plan on June 30, 2017. We previously submitted a status report in respect of certain shortcomings identified in our 2015 resolution plan on September 30, 2016. As indicated in our 2017 resolution plan and anticipated in our 2016 status report, theThe Parent Company has amended and restated its support agreement with its material subsidiaries.entities, as defined in our 2017 resolution plan. Under the secured amended and restated support agreement, upon the occurrence of a resolution scenario, the Parent Company would be obligated to contribute or loan on a subordinated basis all of its contributable material assets, other than shares in subsidiaries of the Parent Company and certain intercompany receivables, to provide capital and liquidity, as applicable, to our material subsidiaries. entities.
The obligations of the Parent Company under the secured amended and restated support agreement are in most cases secured on a senior basis by the assets of the Parent Company (other than shares in subsidiaries of the Parent Company). As a result, claims of our material subsidiariesentities against the assets of the Parent Company (other than shares in subsidiaries of the
Parent Company) are effectively senior to unsecured obligations of the Parent Company.
In September 2016, the OCC issued final guidelines that establish enforceable standards for recovery planning by national banks and certain other institutions with total consolidated assets of $50 billion or more, calculated on a rolling four-quarter average basis, including MSBNA and MSPBNA. The guidelines were effective on January 1, 2017; MSBNA must be in compliance by January 1, 2018 and MSPBNA must be in compliance by October 1, 2018.
For more information about resolution and recovery planning requirements and our activities in these areas, including the implications of such activities in a resolution scenario, see “Business—Supervision and Regulation—Financial Holding Company—Resolution and Recovery Planning” in Part I, Item 1,and “Risk Factors—Legal, Regulatory and Compliance Risk” in Part I, Item 1A and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Developments—Resolution and Recovery Planning” in Part II, Item 7 of the 20162017 Form10-K.
25 | March 2018 Form 10-Q |
Management’s Discussion and Analysis |
Legacy Covered Funds under the Volcker Rule
The Volcker Rule prohibits “banking entities,” including us and our affiliates, from engaging in certain “proprietary trading” activities, as defined in the Volcker Rule, subject to exemptions for underwriting, market-making-related activities, risk-mitigating hedging and certain other activities. The Volcker Rule also prohibits certain investments and relationships by banking entities with “covered funds,” with a number of exemptions and exclusions. In June 2017, we received approval from the Federal Reserve of our application for a five-year extension of the transition period to conform investments in certain legacy Volcker covered funds that are also illiquid funds. The approval covers essentially all of ournon-conforming investments in, and relationships with, legacy covered funds subject to the Volcker Rule.
For more information about the Volcker Rule, requirements and our activities in these areas, including the conformance periods applicable to certain covered funds and our application for a statutory extension, see “Business—Supervision and Regulation—Financial Holding Company—Activities Restrictions under the Volcker Rule” in Part I, Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Developments—Legacy Covered Funds under the Volcker Rule” in Part II, Item 7 of the 20162017 Form10-K.
U.S. Department of Labor Conflict of Interest Rule and SEC Standards of Conduct for Investment Professionals
The U.S. Department of Labor’sDOL’s final Conflict of Interest Rule under ERISA went into effect on June 9, 2017, with certain aspects subject tophased-in compliance. Full compliance and full compliancewith the rule’s related exemptions was scheduled to be required by JanuaryJuly 1, 2018. The2019. However, on March 15, 2018, the U.S. DepartmentCourt of Labor is undertaking an examinationAppeals for the Fifth Circuit vacated the Conflict of Interest Rule and accompanying exemptions in their entirety. While the U.S. DOL could appeal to the U.S. Supreme Court, the order to vacate the rule which may result in changes to the rule or related exemptions or a change in the January 1, 2018 full compliance date.could take effect as soon as May 7, 2018. For a discussion of the U.S. Department of LaborDOL Conflict of Interest Rule, see “Business—Supervision and Regulation—Institutional Securities and Wealth Management” in Part I, Item 1the 2017 Form 10-K.
On April 18, 2018, the SEC released for public comment a package of proposed rulemaking on the standards of conduct and required disclosures for broker-dealers and investment advisers. One of the 2016 Formproposals, entitled “Regulation Best Interest,” would require broker-dealers to act in the “best interest” of retail customers at the time a recommendation is made without placing the financial or other interests of the broker-dealer ahead of the interest of the retail customer. Additionally, the SEC proposed a new requirement for both broker-dealers and investment advisers to provide a brief relationship summary to retail investors with information intended to clarify the relationship between the parties. Finally, the SEC issued a proposed interpretation regarding the fiduciary duty that investment advisers owe their clients. We are reviewing the SEC’s package of proposed rules.
Proposed Stress Buffer Requirements
On April 10, 2018, the Federal Reserve issued a proposal to integrate its annual capital planning and stress testing requirements with certain ongoing regulatory capital requirements. The proposal, which would apply to certain BHCs, including us, would introduce a stress capital buffer and a stress leverage buffer (collectively, “Stress Buffer
Requirements”) and related changes to the capital planning and stress testing processes. Under the proposal, Stress Buffer Requirements would apply only with respect to the Standardized Approach and Tier 1 leverage regulatory capital requirements and would generally be effective on October 1, 2019.
In the Standardized Approach, the stress capital buffer would replace the existing Common Equity Tier 1 capital conservation buffer, which will be 2.5% as of January 1, 2019. The Standardized Approach stress capital buffer would equal the greater of (i) the maximum decline in our Common Equity Tier 1 capital ratio under the severely adverse scenario over the supervisory stress test measurement period, plus the sum of the ratios of the dollar amount of our planned common stock dividends to our projected RWA for each of the fourth through seventh quarters of the supervisory stress test projection period, and (ii) 2.5%. Regulatory capital requirements under the Standardized Approach would include the stress capital buffer, as summarized above, as well as our Common Equity Tier 110-K.G-SIB capital surcharge and any applicable Common Equity Tier 1 CCyB.
Like the stress capital buffer, the stress leverage buffer would be calculated based on the results of our annual supervisory stress tests. The stress leverage buffer would equal the maximum decline in our Tier 1 leverage ratio under the severely adverse scenario, plus the sum of the ratios of the dollar amount of our planned common stock dividends to our projected leverage ratio denominator for each of the fourth through seventh quarters of the supervisory stress test projection period. No floor would be established for the stress leverage buffer, which would apply in addition to the current minimum Tier 1 leverage ratio of 4%.
The proposal would make related changes to capital planning and stress testing processes for BHCs subject to the Stress Buffer Requirements. In particular, the proposal would limit projected capital actions to planned common stock dividends in the fourth through seventh quarters of the supervisory stress test projection period and would assume that BHCs maintain a constant level of assets and RWA throughout the supervisory stress test projection period.
The proposal does not change regulatory capital requirements under the Advanced Approach or the SLR, although the Federal Reserve and the OCC have separately proposed to modify the enhanced SLR requirements, as summarized below. If the proposal is adopted in its current form, limitations on capital distributions and discretionary bonus payments to executive officers would be determined by the most stringent limitation, if any, as determined under the Standardized Approach or the Tier 1 leverage ratio, inclusive of Stress Buffer Requirements, or the Advanced Approach or SLR or TLAC requirements, inclusive of applicable buffers.
March 2018 Form 10-Q | 26 |
Management’s Discussion and Analysis |
Proposed Modifications to the Enhanced SLR and to the SLR Applicable to Our U.S. Bank Subsidiaries
On April 11, 2018, the Federal Reserve proposed modifications to the enhanced SLR that would replace the current 2% enhanced SLR buffer applicable to U.S.G-SIBs, including us, with a leverage buffer equal to 50% of our Common Equity Tier 1G-SIB capital surcharge, which is currently 3%. Under the proposal, our enhanced SLR buffer would become 1.5%, for a total enhanced SLR requirement of 4.5%, assuming that ourG-SIB capital surcharge remains the same when the proposal becomes effective, which may be as early as 2018 under the proposal.
As part of the same proposal, the Federal Reserve and the OCC also proposed to align the well-capitalized SLR standard applicable to our U.S. Bank Subsidiaries with the proposed enhanced SLR buffer applicable to the Firm. Under the proposal, the well-capitalized SLR requirement for our U.S. Bank Subsidiaries would change from the current 6% to 3% plus 50% of our current Common Equity Tier 1G-SIB capital surcharge, for a total well-capitalized SLR requirement of 4.5%, assuming that ourG-SIB capital surcharge remains the same when the proposal becomes effective.
Proposed Regulatory Capital Adjustments Related to Implementation of the Current Expected Credit Losses Methodology
On April 17, 2018, the U.S. banking agencies issued a proposal to revise the regulatory capital framework applicable to banking organizations, including us and our U.S. Bank Subsidiaries, to address the new accounting standard for credit losses, known as a CECL methodology. For a further discussion of CECL, see “Accounting Development Updates— Financial Instruments—Credit Losses” herein.
The proposal modifies the regulatory capital rules to identify which credit loss allowances under the new accounting standard are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in, over a three-year period, the adverse effects on regulatory capital that may result from the adoption of the new accounting standard. The proposal requires a banking organization that has adopted a CECL methodology to include the provision for credit losses beginning in the 2020 stress test cycle.
U.K. ReferendumWithdrawal from the E.U.
Following the U.K. electorate vote to leave the European Union,E.U., the U.K. invoked Article 50 of the Lisbon Treaty on March 29, 2017.2017, which triggered atwo-year period, subject to extension
(which would need the unanimous approval of the E.U. Member States), during which the U.K. government has been negotiating its withdrawal agreement with the E.U. For further discussion of U.K. referendum’sthe potential impact of the U.K.’s withdrawal from the E.U. on our operations, see “Risk Factors—International Risk” in Part I, Item 1A of the 20162017 Form10-K. For further information regarding our exposure to the U.K., see also “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Credit Risk—Country Risk Exposure.”
Off-Balance Sheet ArrangementsExpected Replacement of London Interbank Offered Rate
We enter into variousoff-balance sheet arrangements,Central banks around the world, including through unconsolidated special purpose entities (“SPEs”)the Federal Reserve, have commissioned working groups of market participants and lending-related financial instruments (e.g., guarantees and commitments), primarily in connectionofficial sector representatives with the Institutional Securitiesgoal of finding suitable replacements for LIBOR based on observable market transactions. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next few years. The U.K. Financial Conduct Authority (“FCA”), which regulates LIBOR, has announced that it has commitments from panel banks to continue to contribute to LIBOR through the end of 2021, but that it will not use its powers to compel contributions beyond such date. Accordingly, there is considerable uncertainty regarding the publication of such rates beyond 2021.
On April 3, 2018, the Federal Reserve Bank of New York commenced publication of three reference rates based on overnight U.S. Treasury repurchase agreement transactions, including the Secured Overnight Financing Rate (“SOFR”), which has been recommended as an alternative to U.S. dollar LIBOR by the Alternative Reference Rates Committee. Further, the Bank of England has commenced publication of a reformed Sterling Overnight Index Average (“reformed SONIA”), comprised of a broader set of overnight Sterling money market transactions, as of April 23, 2018. Reformed SONIA has been recommended as the alternative to Sterling LIBOR by the Working Group on Sterling Risk-Free Reference Rates.
Although the full impact of such reforms and Investment Management business segments.
We utilize SPEs primarilyactions, together with any transition away from LIBOR, including the potential or actual discontinuance of LIBOR publication, remains unclear, these changes may have an adverse impact on the value of, return on and trading markets for a broad array of financial products, including any LIBOR-based securities, loans and derivatives that are included in connection with securitization activities. For information on our securitization activities, see Note 12financial assets and liabilities. Such reforms and actions may also require extensive changes to the consolidated financial statements.contracts that govern these LIBOR-based products, as well as our systems and processes.
27 | March 2018 Form 10-Q |
For information on our commitments, obligations under certain guarantee arrangements and indemnities, see Note 11 to the consolidated financial statements. For further information on our lending commitments, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Credit Risk—Lending Activities.”
Management’s Discussion and Analysis |
Effects of Inflation and Changes in Interest and Foreign Exchange Rates
For a discussion of the effects of inflation and changes in interest and foreign exchange rates on our business and financial results and strategies to mitigate potential exposures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Effects of Inflation and Changes in Interest and Foreign Exchange Rates” in Part II, Item 7the 2017 Form10-K.
Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance Sheet Arrangements
We enter into variousoff-balance sheet arrangements, including through unconsolidated SPEs and lending-related financial instruments (e.g., guarantees and commitments), primarily in connection with the Institutional Securities and Investment Management business segments.
We utilize SPEs primarily in connection with securitization activities. For information on our securitization activities, see Note 12 to the financial statements.
For information on our commitments, obligations under certain guarantee arrangements and indemnities, see Note 11 to the financial statements. For further information on our lending commitments, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Credit Risk—Lending Activities Included in Loans and Trading Assets.”
Contractual Obligations
For a discussion about our contractual obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations” in the 20162017 Form10-K.
Quantitative and Qualitative Disclosures about Market Risk
Risk Management
Management believes effective risk management is vital to the success of our business activities. For a discussion of our risk management functions, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management” in Part II, Item 7A of the 20162017 Form10-K.
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, we incur market risk as a result of trading, investing and client facilitation activities, principally within the Institutional Securities business segment where the substantial majority of ourValue-at-Risk (“VaR”) VaR for market risk exposures is generated. In addition, we incur market risk within the Wealth Management and Investment Management business segments. The Wealth Management business segment primarily incursnon-trading market risk from lending and deposit-taking activities. The Investment Management business segment primarily incursnon-trading market risk from capital investments in real estate fundsalternative and investments in private equity vehicles.other funds. For a further discussion of market risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Market Risk” in Part II, Item 7A of the 20162017 Form10-K.
VaRValue-at-Risk
We use theThe statistical technique known as VaR asis one of the tools usedwe use to measure, monitor and review the market risk exposures of our trading portfolios. The Market Risk Department calculates and distributes dailyVaR-based risk measures to various levels of management.
VaR Methodology, Assumptions and Limitations. For information regarding our VaR methodology, assumptions and limitations, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Market Risk—Sales and Trading and Related Activities—VaR Methodology, Assumptions and Limitations” in Part II, Item 7A of the 20162017 Form10-K.
We utilize the same VaR model for risk management purposes as well asand for regulatory capital calculations. Our regulators have approved our VaR model has been approved by our regulators for use in regulatory calculations.
The portfolio of positions used for our VaR for risk management purposes (“Management VaR”) differs from that used for regulatory capital requirements (“Regulatory VaR”).
Management VaR contains certain positions that are excluded from Regulatory VaR. Examples include counterparty credit valuation adjustment (“CVA”)CVA and related hedges, as well as loans that are carried at fair value and associated hedges.
The following table presents the Management VaR for the Trading portfolio, on aperiod-end, quarterly average and quarterly high and low basis. To further enhance the transparency of the traded market risk, the Credit Portfolio VaR has been disclosed as a separate category from the Primary Risk Categories. The Credit Portfolio includes counterparty CVA and related hedges, as well as loans that are carried at fair value and associated hedges.
Trading Risks
95%/One-Day Management VaR
95%/One-Day VaR for the | ||||||||||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||||||||
June 30, 2017 | 95%/One-Day VaR for the Three Months Ended March 31, 2018 | |||||||||||||||||||||||||||||||
$ in millions | Period End | Average | High | Low | Period End | Average | High | Low | ||||||||||||||||||||||||
Interest rate and credit spread | $ | 35 | $ | 35 | $ | 44 | $ | 27 | $ | 41 | $ | 35 | $ | 46 | $ | 30 | ||||||||||||||||
Equity price | 15 | 18 | 26 | 15 | 16 | 14 | 17 | 11 | ||||||||||||||||||||||||
Foreign exchange rate | 10 | 11 | 15 | 8 | 10 | 9 | 13 | 7 | ||||||||||||||||||||||||
Commodity price | 9 | 9 | 10 | 8 | 10 | 9 | 11 | 7 | ||||||||||||||||||||||||
Less: Diversification benefit1, 2 | (27 | ) | (27 | ) | N/A | N/A | (27 | ) | (25 | ) | N/A | N/A | ||||||||||||||||||||
Primary Risk Categories | $ | 42 | $ | 46 | $ | 60 | $ | 36 | $ | 50 | $ | 42 | $ | 51 | $ | 36 | ||||||||||||||||
Credit Portfolio | 11 | 12 | 14 | 11 | 11 | 10 | 11 | 9 | ||||||||||||||||||||||||
Less: Diversification benefit1, 2 | (7 | ) | (7 | ) | N/A | N/A | (7 | ) | (6 | ) | N/A | N/A | ||||||||||||||||||||
Total Management VaR | $ | 46 | $ | 51 | $ | 64 | $ | 41 | $ | 54 | $ | 46 | $ | 55 | $ | 40 | ||||||||||||||||
95%/One-Day VaR for the | ||||||||||||||||||||||||||||||||
Three Months Ended | 95%/One-Day VaR for the Three Months Ended December 31, 2017 | |||||||||||||||||||||||||||||||
March 31, 2017 | ||||||||||||||||||||||||||||||||
$ in millions | Period End | Average | High | Low | Period End | Average | High | Low | ||||||||||||||||||||||||
Interest rate and credit spread | $ | 40 | $ | 30 | $ | 40 | $ | 23 | $ | 32 | $ | 29 | $ | 36 | $ | 24 | ||||||||||||||||
Equity price | 19 | 15 | 26 | 12 | 11 | 13 | 15 | 10 | ||||||||||||||||||||||||
Foreign exchange rate | 11 | 11 | 18 | 7 | 9 | 8 | 11 | 6 | ||||||||||||||||||||||||
Commodity price | 8 | 8 | 11 | 7 | 7 | 8 | 11 | 6 | ||||||||||||||||||||||||
Less: Diversification benefit1, 2 | (26 | ) | (25 | ) | N/A | N/A | (20 | ) | (23 | ) | N/A | N/A | ||||||||||||||||||||
Primary Risk Categories | $ | 52 | $ | 39 | $ | 52 | $ | 28 | $ | 39 | $ | 35 | $ | 41 | $ | 30 | ||||||||||||||||
Credit Portfolio | 14 | 15 | 17 | 14 | 9 | 9 | 10 | 8 | ||||||||||||||||||||||||
Less: Diversification benefit1, 2 | (9 | ) | (10 | ) | N/A | N/A | (5 | ) | (6 | ) | N/A | N/A | ||||||||||||||||||||
Total Management VaR | $ | 57 | $ | 44 | $ | 57 | $ | 33 | $ | 43 | $ | 38 | $ | 44 | $ | 34 |
N/A—Not Applicable
1. | Diversification benefit equals the difference between the total Management VaR and the sum of the component VaRs. This benefit arises because the simulatedone-day losses for each of the components occur on different days; similar diversification benefits also are taken into account within each component. |
2. | The high and low VaR values for the total Management VaR and each of the component VaRs might have occurred on different days during the quarter, and therefore, the diversification benefit is not an applicable measure. |
Average total Management VaR and average Management VaR for the Primary Risk Categories of $46 million and $42 million, respectively, increased from the three-months ended December 31, 2017, primarily as a result of increases in trading inventory across the Fixed Income Macro and Credit trading businesses in the Institutional Securities business segment and increased market volatility, particularly in Equities.
Risk Disclosures |
The average total Management VaR for the three months ended June 30, 2017 (“current quarter”) was $51 million compared with $44 million for the three months ended March 31, 2017 (“last quarter”). The average Management VaR for the Primary Risk Categories for the current quarter was $46 million compared with $39 million for the last quarter. These increases were primarily driven by increases in trading inventory across the equities, global macro, and credit businesses within Institutional Securities, in response to client demand.
Distribution of VaR Statistics and Net Revenues for the Current Quarter.current quarter. One method of evaluating the reasonableness of our VaR model as a measure of our potential volatility of net revenues is to compare VaR with corresponding actual trading revenues. Assuming no intraday trading, for a95%/one-day VaR, the expected number of times that trading losses should exceed VaR during the year is 13, and, in general, if trading losses were to exceed VaR more than 21 times in a year, the adequacy of the VaR model would be questioned.
We evaluate the reasonableness of our VaR model by comparing the potential declines in portfolio values generated by the model with corresponding actual trading results for the Firm, as well as individual business units. For days where losses exceed the VaR statistic, we examine the drivers of trading losses to evaluate the VaR model’s accuracy relative to realized trading results. During the current quarter, we experienced net trading losses on one day, which was not in excess of the95%/one-day Total Management VaR.
The distribution of VaR Statisticsstatistics and Net Revenuesnet revenues is presented in the following histograms for the Total Trading populations.
Total Trading. As shown in the95%/One-Day Management VaR table, on the preceding page, the average95%/one-day total Management VaR for the current quarter was $51$46 million. The following histogram presents the distribution of the daily95%/one-day total Management VaR for the current quarter, which wasquarter.
Daily95%/One-Day Total Management VaR for the Current Quarter
($ in a range between $40 million and $60 million for approximately 95% of trading days during the current quarter.millions)
The following histogram shows the distribution for the current quarter of daily net trading revenues, including profits and losses from Interest rate and credit spread, Equity price, Foreign exchange rate, Commodity price, and Credit Portfolio positions and intraday trading activities, for our
Trading businesses. Daily net trading revenues also include intraday trading activities but exclude certain items not captured in the VaR model, such as fees, commissions and net interest income. Daily net trading revenues differ from the definition of revenues required for Regulatory VaR backtesting, which further excludes intraday trading. During
Daily Net Trading Revenues for the current quarter, we experienced net trading losses on one day, which was notCurrent Quarter
($ in excess of the95%/one-day Total Management VaR.millions)
Non-Trading Risks
We believe that sensitivity analysis is an appropriate representation of ournon-trading risks. Reflected below is this analysis coveringThe following sensitivity analyses cover substantially all of thenon-trading risk in our portfolio.
Counterparty Exposure Related to Our Own Credit Spread.The credit spread risk sensitivity of the counterparty exposure related to our own credit spread corresponded to an increase in value of approximately $6 million for each 1 basis point widening in our credit spread level at both June 30, 2017 and March 31, 2017.
Funding Liabilities.The credit spread risk sensitivity of ourmark-to-market funding liabilities corresponded to an increase in value of approximately $26 million and $19 million for each Credit Spread Risk Sensitivity1 basis point widening in our credit spread level at June 30, 2017 and March 31, 2017, respectively.
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Derivatives | $ | 6 | $ | 6 | ||||
Funding liabilities2 | 31 | 29 |
1. | Amounts represent the increase in value for each 1 bps widening of our credit spread. |
2. | Relates to structured note liabilities carried at fair value. |
Interest Rate Risk Sensitivity. The following table presents an analysis of selected instantaneous upward and downward parallel interest rate shocks on net interest income over the next 12 months for our U.S. Bank Subsidiaries. These shocks
are applied to our12-month forecast for our U.S. Bank Subsidiaries, which incorporates market expectations of interest rates and our forecasted business activity, including our deposit deployment strategy and asset-liability management hedges.
March 2018 Form 10-Q | 30 |
Risk Disclosures |
U.S. Bank Subsidiaries’ Net Interest Income Sensitivity Analysis
$ in millions | At June 30, 2017 | At March 31, 2017 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Basis point change | ||||||||||||||||
+200 | $ | 716 | $ | 537 | $ | 438 | $ | 489 | ||||||||
+100 | 413 | 332 | 226 | 367 | ||||||||||||
-100 | (577 | ) | (569) | (464 | ) | (500 | ) |
We do not manage to any single rate scenario but rather manage net interest income in our U.S. Bank Subsidiaries to optimize across a range of possible outcomes.outcomes, includingnon-parallel rate change scenarios. The sensitivity analysis assumes that we take no action in response to these scenarios, assumes there are no changes in other macroeconomic variables normally correlated with changes in interest rates, and includes subjective assumptions regarding customer and marketre-pricing behavior and other factors. The increasechange in positive sensitivity to interest rates arising in the +200 and +100 basis points scenarios between March 31, 20172018 and June 30,December 31, 2017 is related to overall changes in our asset-liability positioning, primarily lower holdings of fixed-rate AFS Investment securities.profile and higher market rates.
Investments.We have exposure to public and private companies through direct investments, as well as through funds that invest in these assets. These investments are predominantly equity positions with long investment horizons, a portion of which are for business facilitation purposes. The market risk related to these investments is measured by estimating the potential reduction in net income associated with a 10% decline in investment values and related impact on performance fees.
Investments Sensitivity, Including Related Performance Fees
10% Sensitivity | Loss from 10% Decline | |||||||||||||||
$ in millions | At June 30, 2017 | At March 31, 2017 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Investments related to Investment Management activities | $ | 326 | $ | 337 | ||||||||||||
Investments related to Investment | ||||||||||||||||
Management activities | $ | 321 | $ | 316 | ||||||||||||
Other investments: | ||||||||||||||||
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. | 171 | 171 | ||||||||||||||
MUMSS | 172 | 168 | ||||||||||||||
Other Firm investments | 151 | 151 | 187 | 178 |
MUMSS—Mitsubishi UFJ Morgan Stanley Securities Co., LTD.
Equity Market Sensitivity. In the Wealth Management and Investment Management business segments, certainfee-based revenue streams are driven by the value of clients’ equity holdings. The overall level of revenues for these streams also depends on multiple additional factors that include, but are not limited to, the level and duration of the equity market increase or decline, price volatility, the geographic and
industry mix of client assets, the rate and magnitude of client investments and redemptions, and the impact of such market
increase or decline and price volatility on client behavior. Therefore, overall revenues do not correlate completely with changes in the equity markets.
Credit Risk
Credit risk refers to the risk of loss arising when a borrower, counterparty or issuer does not meet its financial obligations to us. We primarily incur credit risk exposure to institutions and individuals through our Institutional Securities and Wealth Management business segments. For a further discussion of our credit risks, see “Quantitative and Qualitative Disclosures about Market Risk–Risk Management–Credit Risk” in Part II, Item 7A of the 20162017 Form10-K. Also, see Notes 7 and 11 to the consolidated financial statements for additional information about our loans and lending commitments, respectively.
Lending Activities Included in Loans and Trading Assets
We provide loans and lending commitments to a variety of customers, from large corporate and institutional clients to high net worth individuals. In addition, we purchase loans in the secondary market. In the consolidated balance sheets, these loans and lending commitments are carried at either fair value with changes in fair value recorded in earnings;as held for investment, which are recorded at amortized cost; oras held for sale, which are recorded at the lower of cost or fair value.value; or at fair value with changes in fair value recorded in earnings. Loans held for investment and loans held for sale are classified in Loans, and loans held at fair value are classified in Trading assets in the consolidated balance sheets. See Notes 3, 7 and 11 to the consolidated financial statements for further information.
Loan and Lending Commitment Portfolio by Business Segment
At June 30, 2017 | ||||||||||||||||
$ in millions | Institutional Securities | Wealth Management | Investment Management1 | Total | ||||||||||||
Corporate loans | $ | 13,730 | $ | 13,096 | $ | 5 | $ | 26,831 | ||||||||
Consumer loans | — | 26,354 | — | 26,354 | ||||||||||||
Residential real estate loans | — | 25,646 | — | 25,646 | ||||||||||||
Wholesale real estate loans | 8,482 | — | — | 8,482 | ||||||||||||
Loans held for investment, gross of allowance | 22,212 | 65,096 | 5 | 87,313 | ||||||||||||
Allowance for loan losses | (266 | ) | (40 | ) | — | (306) | ||||||||||
Loans held for investment, net of allowance | 21,946 | 65,056 | 5 | 87,007 | ||||||||||||
Corporate loans | 9,394 | — | — | 9,394 | ||||||||||||
Residential real estate loans | 10 | 50 | — | 60 | ||||||||||||
Wholesale real estate loans | 1,178 | — | — | 1,178 | ||||||||||||
Loans held for sale | 10,582 | 50 | — | 10,632 | ||||||||||||
Corporate loans | 6,755 | — | 20 | 6,775 | ||||||||||||
Residential real estate loans | 662 | — | — | 662 | ||||||||||||
Wholesale real estate loans | 1,788 | — | — | 1,788 | ||||||||||||
Loans held at fair value | 9,205 | — | 20 | 9,225 | ||||||||||||
Total loans2 | 41,733 | 65,106 | 25 | 106,864 | ||||||||||||
Lending commitments3,4 | 88,739 | 9,110 | — | 97,849 | ||||||||||||
Total loans and lending commitments2,3,4 | $ | 130,472 | $ | 74,216 | $ | 25 | $ | 204,713 |
Risk Disclosures |
Loans and Lending Commitments
At December 31, 2016 | At March 31, 2018 | |||||||||||||||||||||||||||||||
$ in millions | Institutional Securities | Wealth Management | Investment Management1 | Total | IS | WM | IM1 | Total | ||||||||||||||||||||||||
Corporate loans | $ | 13,858 | $ | 11,162 | $ | 5 | $ | 25,025 | $ | 17,005 | $ | 14,893 | $ | 5 | $ | 31,903 | ||||||||||||||||
Consumer loans | — | 24,866 | — | 24,866 | — | 26,877 | — | 26,877 | ||||||||||||||||||||||||
Residential real estate loans | — | 24,385 | — | 24,385 | — | 26,566 | — | 26,566 | ||||||||||||||||||||||||
Wholesale real estate loans | 7,702 | — | — | 7,702 | 10,021 | — | — | 10,021 | ||||||||||||||||||||||||
Loans held for investment, gross of allowance | 21,560 | 60,413 | 5 | 81,978 | 27,026 | 68,336 | 5 | 95,367 | ||||||||||||||||||||||||
Allowance for loan losses | (238 | ) | (36 | ) | — | (274) | (201 | ) | (42 | ) | — | (243 | ) | |||||||||||||||||||
Loans held for investment, net of allowance | 21,322 | 60,377 | 5 | 81,704 | 26,825 | 68,294 | 5 | 95,124 | ||||||||||||||||||||||||
Corporate loans | 10,710 | — | — | 10,710 | 12,000 | — | — | 12,000 | ||||||||||||||||||||||||
Residential real estate loans | 11 | 50 | — | 61 | 1 | 32 | — | 33 | ||||||||||||||||||||||||
Wholesale real estate loans | 1,773 | — | — | 1,773 | 1,978 | — | — | 1,978 | ||||||||||||||||||||||||
Loans held for sale | 12,494 | 50 | — | 12,544 | 13,979 | 32 | — | 14,011 | ||||||||||||||||||||||||
Corporate loans | 7,199 | — | 18 | 7,217 | 9,323 | — | 23 | 9,346 | ||||||||||||||||||||||||
Residential real estate loans | 966 | — | — | 966 | 706 | — | — | 706 | ||||||||||||||||||||||||
Wholesale real estate loans | 519 | — | — | 519 | 1,770 | — | 1,171 | 2,941 | ||||||||||||||||||||||||
Loans held at fair value | 8,684 | — | 18 | 8,702 | 11,799 | — | 1,194 | 12,993 | ||||||||||||||||||||||||
Total loans2 | 42,500 | 60,427 | 23 | 102,950 | ||||||||||||||||||||||||||||
Lending commitments3,4 | 90,143 | 8,299 | — | 98,442 | ||||||||||||||||||||||||||||
Total loans and lending commitments2,3,4 | $ | 132,643 | $ | 68,726 | $ | 23 | $ | 201,392 | ||||||||||||||||||||||||
Total loans | 52,603 | 68,326 | 1,199 | 122,128 | ||||||||||||||||||||||||||||
Lending commitments2, 3 | 109,025 | 10,404 | 187 | 119,616 | ||||||||||||||||||||||||||||
Total loans and lending commitments2, 3 | $ | 161,628 | $ | 78,730 | $ | 1,386 | $ | 241,744 |
At December 31, 2017 | ||||||||||||||||
$ in millions | IS | WM | IM | Total | ||||||||||||
Corporate loans | $ | 15,332 | $ | 14,417 | $ | 5 | $ | 29,754 | ||||||||
Consumer loans | — | 26,808 | — | 26,808 | ||||||||||||
Residential real estate loans | — | 26,635 | — | 26,635 | ||||||||||||
Wholesale real estate loans | 9,980 | — | — | 9,980 | ||||||||||||
Loans held for investment, gross of allowance | 25,312 | 67,860 | 5 | 93,177 | ||||||||||||
Allowance for loan losses | (182 | ) | (42 | ) | — | (224 | ) | |||||||||
Loans held for investment, net of allowance | 25,130 | 67,818 | 5 | 92,953 | ||||||||||||
Corporate loans | 9,456 | — | — | 9,456 | ||||||||||||
Residential real estate loans | 1 | 34 | — | 35 | ||||||||||||
Wholesale real estate loans | 1,682 | — | — | 1,682 | ||||||||||||
Loans held for sale | 11,139 | 34 | — | 11,173 | ||||||||||||
Corporate loans | 8,336 | — | 22 | 8,358 | ||||||||||||
Residential real estate loans | 799 | — | — | 799 | ||||||||||||
Wholesale real estate loans | 1,579 | — | — | 1,579 | ||||||||||||
Loans held at fair value | 10,714 | — | 22 | 10,736 | ||||||||||||
Total loans | 46,983 | 67,852 | 27 | 114,862 | ||||||||||||
Lending commitments2, 3 | 92,588 | 9,481 | — | 102,069 | ||||||||||||
Total loans and lending commitments2, 3 | $ | 139,571 | $ | 77,333 | $ | 27 | $ | 216,931 |
1. |
|
2. |
|
Lending commitments represent the notional amount of legally binding obligations to provide funding to clients for |
For syndications led by us, |
Total loans and lending commitments increased by approximately $25 billion in the current quarter, primarily due to increases in Corporate lending commitments within the Institutional Securities business segment.
Our credit exposure from our loans and lending commitments is measured in accordance with our internal risk management standards. Risk factors considered in determining the aggregate allowance for loan and commitment losses include the borrower’s financial strength, seniority of the loan, collateral type, volatility of collateral value, debt cushion,loan-to-value ratio, debt service ratio, covenants and counterparty type. Qualitative and environmental factors such as economic and business conditions, nature and volume of the portfolio and lending terms, and volume and severity of past due loans may also be considered.
At June 30, 2017Allowance for Loans and December 31, 2016, the allowanceLending Commitments Held for loan losses related to loans that were accounted for as held forInvestment
investment was $306 million and $274 million, respectively, and the allowance for commitment losses related to lending commitments that were accounted for as held for investment was $186 million and $190 million, respectively.
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Loans | $ | 243 | $ | 224 | ||||
Lending commitments | 205 | 198 |
The aggregate allowance for loanloans and lending commitment losses increased during the current year periodquarter primarily due to updates to model parameters used in determiningoverall portfolio changes and qualitative and environmental factors impacting the inherent allowance.allowance within the Institutional Securities business segment. See Note 7 to the consolidated financial statements for further information.
Status of Loans Held for Investment
At March 31, 2018 | At December 31, 2017 | |||||||||||||||
IS | WM | IS | WM | |||||||||||||
Current | 99.7% | 99.9% | 99.5% | 99.9% | ||||||||||||
Non-accrual1 | 0.3% | 0.1% | 0.5% | 0.1% |
1. | These loans are on nonaccrual status because the loans were past due for a period of 90 days or more or payment of principal or interest was in doubt. |
March 2018 Form 10-Q | 32 |
Risk Disclosures |
Institutional Securities Lending Activities.
In connection with certain Institutional Securities business segment activities, we provide loans and lending commitments to a diverse group of corporate and other institutional clients. These activities include originating and purchasing corporate loans, commercial and residential mortgage lending, asset-backed lending, financing extended to equities and commodities customers and loans to municipalities. These loans and lending commitments may have varying terms; may be senior or subordinated; may be secured or unsecured; are generally contingent upon representations, warranties and contractual conditions applicable to the borrower; and may be syndicated, traded or hedged by us.
We also participate in securitization activities, whereby we extend short-term or long-term funding to clients through loans and lending commitments that are secured by the assets of the borrower and generally provide for over-collateralization, including commercial real estate loans, loans secured by loan pools, commercial companycorporate loans and secured lines of revolving credit. Credit risk with respect to these loans and lending commitments arises from the failure of a borrower to perform according to the terms of the loan agreement or a decline in the underlying collateral value. See Note 12 to the consolidated financial statements for information about our securitization activities. In addition, a collateral management group monitors collateral levels against requirements and oversees the administration of the collateral function. See Note 6 to the consolidated financial statements for additional information about our collateralized transactions.
Institutional Securities loans and lending commitments are mainly related to relationship-based and event-driven lending to select corporate clients. Relationship-based loans and lending commitments are used for general corporate purposes, working capital and liquidity purposes by our investment banking clients and typically consist of revolving lines of credit, letter of credit facilities and term loans. In connection with the relationship-based lending activities, we had hedges (which included single-name, sector and index hedges) with a notional amount of $15.2 billion and $20.2 billion at June 30, 2017 and December 31, 2016,
respectively. Event-driven loans and lending commitments are associated with a particular event or transaction, such as to support client merger, acquisition, recapitalization and project finance activities. Event-driven loans and lending commitments typically consist of revolving lines of credit, term loans and bridge loans.
Institutional Securities Loans and Lending Commitments by Credit Rating1
At June 30, 2017 | At March 31, 2018 | |||||||||||||||||||||||||||||||||||||||
Years to Maturity | Years to Maturity | |||||||||||||||||||||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | Less than 1 | 1-3 | 3-5 | Over 5 | Total | ||||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||||||
AA | $ | — | $ | 450 | $ | 28 | $ | 5 | $ | 483 | ||||||||||||||||||||||||||||||
A | 1,435 | 2,262 | 1,287 | 389 | 5,373 | |||||||||||||||||||||||||||||||||||
BBB | 3,626 | 8,398 | 3,709 | 875 | 16,608 | |||||||||||||||||||||||||||||||||||
NIG | 6,213 | 10,940 | 7,521 | 3,199 | 27,873 | |||||||||||||||||||||||||||||||||||
Unrated2 | 59 | 98 | 262 | 1,847 | 2,266 | |||||||||||||||||||||||||||||||||||
Total loans | 11,333 | 22,148 | 12,807 | 6,315 | 52,603 | |||||||||||||||||||||||||||||||||||
Lending commitments | Lending commitments |
| ||||||||||||||||||||||||||||||||||||||
AAA | $ | — | $ | — | $ | — | $ | — | $ | — | — | 165 | — | — | 165 | |||||||||||||||||||||||||
AA | — | — | 34 | 187 | 221 | 3,127 | 1,348 | 2,707 | — | 7,182 | ||||||||||||||||||||||||||||||
A | 800 | 2,018 | 860 | 781 | 4,459 | 4,374 | 14,521 | 11,316 | 425 | 30,636 | ||||||||||||||||||||||||||||||
BBB | 2,213 | 4,505 | 2,737 | 590 | 10,045 | 4,865 | 14,276 | 18,546 | 166 | 37,853 | ||||||||||||||||||||||||||||||
NIG | 5,314 | 13,016 | 4,275 | 2,246 | 24,851 | 1,436 | 11,241 | 13,636 | 6,801 | 33,114 | ||||||||||||||||||||||||||||||
Unrated2 | 320 | 129 | 430 | 1,278 | 2,157 | 1 | 25 | 10 | 39 | 75 | ||||||||||||||||||||||||||||||
Total Loans3 | 8,647 | 19,668 | 8,336 | 5,082 | 41,733 | |||||||||||||||||||||||||||||||||||
Lending Commitments | ||||||||||||||||||||||||||||||||||||||||
AAA | — | 165 | — | — | 165 | |||||||||||||||||||||||||||||||||||
AA | 3,885 | 614 | 3,620 | 4 | 8,123 | |||||||||||||||||||||||||||||||||||
A | 2,976 | 4,704 | 11,749 | 759 | 20,188 | |||||||||||||||||||||||||||||||||||
BBB | 2,680 | 10,216 | 17,070 | 208 | 30,174 | |||||||||||||||||||||||||||||||||||
NIG | 3,677 | 11,065 | 12,378 | 2,855 | 29,975 | |||||||||||||||||||||||||||||||||||
Unrated2 | 41 | 46 | 4 | 23 | 114 | |||||||||||||||||||||||||||||||||||
Total Lending Commitments | 13,259 | 26,810 | 44,821 | 3,849 | 88,739 | |||||||||||||||||||||||||||||||||||
Total Exposure | $ | 21,906 | $ | 46,478 | $ | 53,157 | $ | 8,931 | $ | 130,472 | ||||||||||||||||||||||||||||||
Total lending | 13,803 | 41,576 | 46,215 | 7,431 | 109,025 | |||||||||||||||||||||||||||||||||||
Total exposure | $ | 25,136 | $ | 63,724 | $ | 59,022 | $ | 13,746 | $ | 161,628 |
At December 31, 2016 | ||||||||||||||||||||
Years to Maturity | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Loans | ||||||||||||||||||||
AAA | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
AA | — | — | 38 | — | 38 | |||||||||||||||
A | 235 | 775 | 1,391 | 552 | 2,953 | |||||||||||||||
BBB | 1,709 | 6,473 | 2,768 | 1,362 | 12,312 | |||||||||||||||
NIG | 4,667 | 12,114 | 5,629 | 2,304 | 24,714 | |||||||||||||||
Unrated2 | 699 | 126 | 175 | 1,483 | 2,483 | |||||||||||||||
Total Loans3 | 7,310 | 19,488 | 10,001 | 5,701 | 42,500 | |||||||||||||||
Lending Commitments | ||||||||||||||||||||
AAA | 50 | 105 | 50 | — | 205 | |||||||||||||||
AA | 3,724 | 451 | 3,989 | — | 8,164 | |||||||||||||||
A | 1,994 | 4,610 | 11,135 | 392 | 18,131 | |||||||||||||||
BBB | 6,261 | 9,006 | 18,148 | 653 | 34,068 | |||||||||||||||
NIG | 2,839 | 8,934 | 14,267 | 3,418 | 29,458 | |||||||||||||||
Unrated2 | 107 | 6 | — | 4 | 117 | |||||||||||||||
Total Lending Commitments | 14,975 | 23,112 | 47,589 | 4,467 | 90,143 | |||||||||||||||
Total Exposure | $ | 22,285 | $ | 42,600 | $ | 57,590 | $ | 10,168 | $ | 132,643 |
At December 31, 2017 | ||||||||||||||||||||
Years to Maturity | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Loans | ||||||||||||||||||||
AA | $ | 14 | $ | 503 | $ | 30 | $ | 5 | $ | 552 | ||||||||||
A | 1,608 | 1,710 | 1,235 | 693 | 5,246 | |||||||||||||||
BBB | 2,791 | 6,558 | 3,752 | 646 | 13,747 | |||||||||||||||
NIG | 4,760 | 12,311 | 4,480 | 3,245 | 24,796 | |||||||||||||||
Unrated2 | 243 | 291 | 621 | 1,487 | 2,642 | |||||||||||||||
Total loans | 9,416 | 21,373 | 10,118 | 6,076 | 46,983 | |||||||||||||||
Lending commitments |
| |||||||||||||||||||
AAA | — | 165 | — | — | 165 | |||||||||||||||
AA | 3,745 | 1,108 | 3,002 | — | 7,855 | |||||||||||||||
A | 3,769 | 5,533 | 11,774 | 197 | 21,273 | |||||||||||||||
BBB | 3,987 | 12,345 | 16,818 | 1,095 | 34,245 | |||||||||||||||
NIG | 4,159 | 9,776 | 12,279 | 2,698 | 28,912 | |||||||||||||||
Unrated2 | 9 | 40 | 42 | 47 | 138 | |||||||||||||||
Total lending | 15,669 | 28,967 | 43,915 | 4,037 | 92,588 | |||||||||||||||
Total exposure | $ | 25,085 | $ | 50,340 | $ | 54,033 | $ | 10,113 | $ | 139,571 |
NIG–Non-investment | grade |
1. | Obligor credit ratings are determined by the Credit Risk Management |
2. | Unrated loans and lending commitments are primarily trading positions that are measured at fair value and risk managed as a component of Market Risk. For a further discussion of our Market Risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Market Risk” herein. |
|
Event-Driven Loans and Lending Commitments
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Loans | $ | 4,777 | $ | 5,097 | ||||
Lending commitments | 9,685 | 16,252 | ||||||
Total | $ | 14,462 | $ | 21,349 | ||||
Loans and lending commitments to non-investment grade borrowers | $ | 11,550 | $ | 15,339 |
Maturity Profile of Event-Driven Loans and Lending Commitments
|
| |||||||
At June 30, 2017 | At December 31, 2016 | |||||||
Less than 1 year | 22% | 34% | ||||||
1-3 years | 34% | 14% | ||||||
3-5 years | 21% | 28% | ||||||
Over 5 years | 23% | 24% |
Institutional Securities Credit Exposure from Loans and Lending Commitments by Industry
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Industry1 | ||||||||||||||||
Industry | ||||||||||||||||
Real estate | $ | 23,794 | $ | 19,807 | $ | 28,847 | $ | 28,426 | ||||||||
Financials | 27,224 | 22,112 | ||||||||||||||
Consumer discretionary | 13,171 | 12,059 | 15,706 | 11,555 | ||||||||||||
Funds, exchanges and other financial services2 | 12,382 | 11,481 | ||||||||||||||
Industrials | 13,768 | 11,090 | ||||||||||||||
Information technology | 12,434 | 11,862 | ||||||||||||||
Insurance | 10,747 | 4,739 | ||||||||||||||
Healthcare | 10,456 | 9,956 | ||||||||||||||
Energy | 11,572 | 11,757 | 10,354 | 10,233 | ||||||||||||
Industrials | 11,049 | 11,465 | ||||||||||||||
Utilities | 9,515 | 9,216 | 10,296 | 9,592 | ||||||||||||
Healthcare | 9,185 | 11,534 | ||||||||||||||
Information technology | 8,138 | 8,602 | ||||||||||||||
Consumer staples | 7,707 | 7,329 | 10,054 | 8,315 | ||||||||||||
Mortgage finance | 5,553 | 6,296 | ||||||||||||||
Materials | 5,283 | 7,630 | 5,123 | 5,069 | ||||||||||||
Telecommunications services | 4,437 | 6,156 | 4,533 | 4,172 | ||||||||||||
Insurance | 3,510 | 4,190 | ||||||||||||||
Consumer finance | 2,572 | 2,847 | ||||||||||||||
Other | 2,604 | 2,274 | 2,086 | 2,450 | ||||||||||||
Total | $ | 130,472 | $ | 132,643 | $ | 161,628 | $ | 139,571 |
Institutional Securities business segment loans and lending commitments are mainly related to relationship-based and event-driven lending to select corporate clients. Relationship-based loans and lending commitments are used for general corporate purposes, working capital and liquidity purposes by our investment banking clients and typically consist of
|
|
Risk Disclosures |
Institutional Securitiesrevolving lines of credit, letter of credit facilities and term loans. In connection with the relationship-based lending activities, we enter into hedges, as detailed below.
Relationship-based Lending Exposures Related to the Energy Industry.At June 30, 2017, Institutional Securities’Activities Hedges—Notional Amounts
$ in billions | At March 31, 2018 | At December 31, 2017 | ||||||
Single-name and index CDS | $ | 15.0 | $ | 16.6 |
Event-Driven Loans and Lending Commitments
At March 31, 2018 | ||||||||||||||||||||
Years to Maturity | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Loans | $ | 2,631 | $ | 689 | $ | 518 | $ | 1,835 | $ | 5,673 | ||||||||||
Lending commitments | 2,902 | 11,963 | 3,262 | 3,982 | 22,109 | |||||||||||||||
Total loans and lending commitments | $ | 5,533 | $ | 12,652 | $ | 3,780 | $ | 5,817 | $ | 27,782 |
At December 31, 2017 | ||||||||||||||||||||
Years to Maturity | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Loans | $ | 1,458 | $ | 1,058 | $ | 639 | $ | 2,012 | $ | 5,167 | ||||||||||
Lending commitments | 1,272 | 3,206 | 2,091 | 1,874 | 8,443 | |||||||||||||||
Total loans and lending commitments | $ | 2,730 | $ | 4,264 | $ | 2,730 | $ | 3,886 | $ | 13,610 |
Event-driven loans and lending commitments relatedare associated with a particular event or transaction, such as to the energy industry were $11.6 billion, of which approximately 67% are accounted for as held for investmentsupport client merger, acquisition, recapitalization and 33% are accounted for as either held for sale or at fair value. Additionally, approximately 56% of the total energy industryproject finance activities. Event-driven loans and lending commitments were to investment grade counterparties.
At June 30, 2017, the energy industry portfolio included $1.1 billion intypically consist of revolving lines of credit, term loans and $2.1 billionbridge loans. The increase in event-driven lending commitments in the current quarter is primarily due to Oil and Gas Exploration and Production (“E&P”) companies. The E&P loans were tonon-investment grade counterparties, which are generally subject to periodic borrowing base reassessments based onan increase in held-for-sale commitments driven by new client transactions in the valuelatter part of the underlying oil and gas reserves pledged as collateral. In limited situations, we may extend the period related to borrowing base reassessments typically in conjunction with taking certain risk mitigating actions with the borrower. Approximately 52% of the E&P lending commitments were to investment grade counterparties. To the extent oil and natural gas prices remain atquarter-end levels, or deteriorate further, we may incur additional lending losses.
Institutional Securities Margin Lending. In addition to the activities noted above, Institutional Securities provides margin lending, which allows the client to borrow against the value of qualifying securities. At June 30, 2017 and December 31, 2016, the amounts related to margin lending were $15.4 billion and $11.9 billion, respectively, which were classified within Customer and other receivables in the consolidated balance sheets.quarter.
Wealth Management Lending Activities.
The principal Wealth Management lending activities include securities-based lending and residential real estate loans.
Securities-based lending provided to our retail clients is primarily conducted through our Portfolio Loan Account (“PLA”) and Liquidity Access Line (“LAL”) platforms, which had an outstanding loan balance of $31.6 billion and $29.7 billion at June 30, 2017 and December 31, 2016, respectively.platform. For more information about our securities-based lending and residential real estate loans, see “Quantitative and Qualitative Disclosures about Market Risk–Risk Management–Credit Risk–Lending Activities” in Part II, Item 7A of the 20162017 Form10-K.
Wealth Management Loans and Lending Commitments
At March 31, 2018 | ||||||||||||||||||||
Contractual Years to Maturity | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Securities-based lending and other loans1 | $ | 34,730 | $ | 3,789 | $ | 1,849 | $ | 1,382 | $ | 41,750 | ||||||||||
Residential real estate loans | — | 30 | 10 | 26,536 | 26,576 | |||||||||||||||
Total loans | $ | 34,730 | $ | 3,819 | $ | 1,859 | $ | 27,918 | $ | 68,326 | ||||||||||
Lending commitments | 7,392 | 2,283 | 444 | 285 | 10,404 | |||||||||||||||
Total loans and lending commitments | $ | 42,122 | $ | 6,102 | $ | 2,303 | $ | 28,203 | $ | 78,730 |
At December 31, 2017 | ||||||||||||||||||||
Contractual Years to Maturity | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Securities-based lending and other loans1 | $ | 34,389 | $ | 3,687 | $ | 1,899 | $ | 1,231 | $ | 41,206 | ||||||||||
Residential real estate loans | — | 24 | 15 | 26,607 | 26,646 | |||||||||||||||
Total loans | $ | 34,389 | $ | 3,711 | $ | 1,914 | $ | 27,838 | $ | 67,852 | ||||||||||
Lending commitments | 7,253 | 1,827 | 120 | 281 | 9,481 | |||||||||||||||
Total loans and lending commitments | $ | 41,642 | $ | 5,538 | $ | 2,034 | $ | 28,119 | $ | 77,333 |
1. | The Liquidity Access Line platform had an outstanding loan balance of $32.1 billion and $32.2 billion at March 31, 2018 and December 31, 2017, respectively. |
For the current quarter, loans and lending commitments associated with the Wealth Management business segment lending activities increased by approximately 6%2%, mainlyprimarily due to growth in securities-based lending and other loans.
Wealth Management Lending Activities by Remaining Contractual Maturity
At June 30, 2017 | ||||||||||||||||||||
Years to Maturity | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Securities-based lending and other loans | $ | 34,048 | $ | 3,208 | $ | 1,196 | $ | 979 | $ | 39,431 | ||||||||||
Residential real estate loans | — | 9 | 35 | 25,631 | 25,675 | |||||||||||||||
Total1 | $ | 34,048 | $ | 3,217 | $ | 1,231 | $ | 26,610 | $ | 65,106 | ||||||||||
Lending commitments | 6,484 | 1,903 | 458 | 265 | 9,110 | |||||||||||||||
Total loans and lending commitments | $ | 40,532 | $ | 5,120 | $ | 1,689 | $ | 26,875 | $ | 74,216 |
At December 31, 2016 | ||||||||||||||||||||
Years to Maturity | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Securities-based lending and other loans | $ | 30,547 | $ | 2,983 | $ | 1,304 | $ | 1,179 | $ | 36,013 | ||||||||||
Residential real estate loans | — | — | 45 | 24,369 | 24,414 | |||||||||||||||
Total1 | $ | 30,547 | $ | 2,983 | $ | 1,349 | $ | 25,548 | $ | 60,427 | ||||||||||
Lending commitments | 6,372 | 1,413 | 268 | 246 | 8,299 | |||||||||||||||
Total loans and lending commitments | $ | 36,919 | $ | 4,396 | $ | 1,617 | $ | 25,794 | $ | 68,726 |
|
Wealth Management Loans includedIncluded in Customer and Other Receivables
Margin Loans
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Net customer receivables representing margin loans | $ | 12,328 | $ | 12,483 | ||||
Employee loans1: | ||||||||
Balance | $ | 4,323 | $ | 4,804 | ||||
Allowance for loan losses | (83 | ) | (89 | ) | ||||
Balance, net | $ | 4,240 | $ | 4,715 |
At March 31, 2018 | ||||||||||||
$ in millions | IS | WM | Total | |||||||||
Net customer receivables | $ | 22,396 | $ | 11,986 | $ | 34,382 |
At December 31, 2017 | ||||||||||||
$ in millions | IS | WM | Total | |||||||||
Net customer receivables | $ | 19,977 | $ | 12,135 | $ | 32,112 |
The Institutional Securities and Wealth Management business segments provide margin lending arrangements which allow the client to borrow against the value of qualifying securities. Margin lending activities generally have minimal credit risk due to the value of collateral held and their short-term nature.
| ||||
March 2018 Form 10-Q | 34 |
Risk Disclosures |
Employee Loans
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Employee loans: | ||||||||
Balance | $ | 3,687 | $ | 4,185 | ||||
Allowance for loan losses | (75 | ) | (77 | ) | ||||
Balance, net | $ | 3,612 | $ | 4,108 | ||||
Repayment term range, in years | 1 to 20 | 1 to 20 |
Employee loans are generally granted to retain and recruit certain employees, are full recourse and generally require periodic repayments. We establish an allowance for loan amounts to terminated employees that we do not consider recoverable, which is recorded in Compensation and benefits expense. See Note 7 to the financial statements for a further description of our employee loans.
Credit Exposure—Derivatives
We incur credit risk as a dealer in OTC derivatives. Credit risk with respect to derivative instruments arises from the possibility that a counterparty may fail to perform according to the terms of the contract. In connection with our OTC derivative activities, we generally enter into master netting agreements and collateral arrangements with counterparties. These agreements provide us with the ability to demand
collateral, as well as to liquidate collateral and offset receivables and payables covered under the same master netting agreement in the event of counterparty default.
We manage our 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.(e.g., futures, forwards, swaps and options). For credit exposure information on our OTC derivative products, see Note 4 to the consolidated financial statements. For a discussion of our credit exposure and related credit derivative contracts, see “Quantitative and Qualitative Disclosuresdisclosures about Market Risk—Risk–Risk Management—Management–Credit Risk—Risk–Credit Exposure—Exposure–Derivatives” in Part II, Item 7Athe 2017 Form10-K.
Fair values as shown below represent the Firm’s net exposure to counterparties related to its OTC derivative products. Obligor credit ratings are determined internally by the Credit Risk Management department.
Counterparty Credit Rating and Remaining Contractual Maturity of the 2016 Form 10-K.
CreditOTC Derivative Portfolio by Counterparty TypeAssets at Fair Value
At June 30, 2017 | ||||||||||||||||||||
Fair Values1 | Notionals | |||||||||||||||||||
$ in millions | Receivable | Payable | Net | Protection Purchased | Protection Sold | |||||||||||||||
Banks and securities firms | $ | 5,870 | $ | 6,293 | $ | (423 | ) | $ | 222,828 | $ | 195,023 | |||||||||
Insurance and other financial institutions | 3,563 | 4,022 | (459 | ) | 156,758 | 154,604 | ||||||||||||||
Non-financial entities | 39 | 90 | (51 | ) | 3,586 | 1,189 | ||||||||||||||
Total | $ | 9,472 | $ | 10,405 | $ | (933 | ) | $ | 383,172 | $ | 350,816 |
Credit Rating | ||||||||||||||||||||||||
Non- | ||||||||||||||||||||||||
investment | ||||||||||||||||||||||||
$ in millions | AAA | AA | A | BBB | grade | Total | ||||||||||||||||||
At March 31, 2018 |
| |||||||||||||||||||||||
< 1 year | $ | 543 | $ | 5,281 | $ | 37,768 | $ | 12,570 | $ | 6,192 | $ | 62,354 | ||||||||||||
1-3 years | 690 | 3,687 | 22,356 | 7,981 | 4,425 | 39,139 | ||||||||||||||||||
3-5 years | 767 | 2,907 | 15,236 | 5,093 | 4,989 | 28,992 | ||||||||||||||||||
Over 5 years | 4,813 | 11,955 | 77,582 | 36,990 | 12,395 | 143,735 | ||||||||||||||||||
Total, gross | $ | 6,813 | $ | 23,830 | $ | 152,942 | $ | 62,634 | $ | 28,001 | $ | 274,220 | ||||||||||||
Counterparty Netting | (3,339 | ) | (15,278 | ) | (123,256 | ) | (44,638 | ) | (15,195 | ) | (201,706 | ) | ||||||||||||
Cash and Securities collateral | (3,158 | ) | (6,512 | ) | (24,812 | ) | (12,055 | ) | (9,077 | ) | (55,614 | ) | ||||||||||||
Total, net | $ | 316 | $ | 2,040 | $ | 4,874 | $ | 5,941 | $ | 3,729 | $ | 16,900 |
At December 31, 2016 | ||||||||||||||||||||
Fair Values1 | Notionals | |||||||||||||||||||
$ in millions | Receivable | Payable | Net | Protection Purchased | Protection Sold | |||||||||||||||
Banks and securities firms | $ | 8,516 | $ | 9,397 | $ | (881 | ) | $ | 319,830 | $ | 273,462 | |||||||||
Insurance and other financial institutions | 3,619 | 3,901 | (282 | ) | 144,527 | 151,999 | ||||||||||||||
Non-financial entities | 94 | 127 | (33 | ) | 5,832 | 4,269 | ||||||||||||||
Total | $ | 12,229 | $ | 13,425 | $ | (1,196 | ) | $ | 470,189 | $ | 429,730 |
Credit Rating1 | ||||||||||||||||||||||||
$ in millions | AAA | AA | A | BBB | Non- investment grade | Total | ||||||||||||||||||
At December 31, 2017 |
| |||||||||||||||||||||||
< 1 year | $ | 356 | $ | 5,302 | $ | 36,001 | $ | 11,577 | $ | 5,904 | $ | 59,140 | ||||||||||||
1-3 years | 558 | 4,118 | 23,137 | 8,887 | 4,827 | 41,527 | ||||||||||||||||||
3-5 years | 702 | 3,183 | 15,577 | 5,489 | 4,879 | 29,830 | ||||||||||||||||||
Over 5 years | 5,470 | 11,667 | 78,779 | 37,286 | 12,079 | 145,281 | ||||||||||||||||||
Total, gross | $ | 7,086 | $ | 24,270 | $ | 153,494 | $ | 63,239 | $ | 27,689 | $ | 275,778 | ||||||||||||
Counterparty Netting | (3,018 | ) | (15,261 | ) | (125,378 | ) | (45,421 | ) | (15,828 | ) | (204,906 | ) | ||||||||||||
Cash and Securities collateral | (3,188 | ) | (6,785 | ) | (23,257 | ) | (12,844 | ) | (9,123 | ) | (55,197 | ) | ||||||||||||
Total, net | $ | 880 | $ | 2,224 | $ | 4,859 | $ | 4,974 | $ | 2,738 | $ | 15,675 |
1. |
|
The fair values shown in the previous table are before the application of contractual netting or collateral. For additional credit exposure information on our credit derivative portfolio, see Note 4 to the consolidated financial statements.
OTC Derivative Products at Fair Value, Net of Collateral, by Industry
$ in millions | At June 30, 2017 | At December 31, 20161 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Industry2 | ||||||||||||||||
Industry | ||||||||||||||||
Utilities | $ | 4,052 | $ | 4,184 | $ | 4,912 | $ | 4,382 | ||||||||
Funds, exchanges and other financial services3 | 3,145 | 2,756 | ||||||||||||||
Financials | 4,245 | 3,330 | ||||||||||||||
Industrials | 1,269 | 1,644 | 1,335 | 1,124 | ||||||||||||
Regional governments | 1,144 | 1,352 | 1,002 | 1,005 | ||||||||||||
Information technology | 869 | 715 | ||||||||||||||
Healthcare | 842 | 882 | ||||||||||||||
Energy | 656 | 646 | ||||||||||||||
Not-for-profit organizations | 633 | 703 | ||||||||||||||
Sovereign governments | 1,104 | 709 | 502 | 1,084 | ||||||||||||
Banks and securities firms | 949 | 1,485 | ||||||||||||||
Healthcare | 930 | 1,103 | ||||||||||||||
Not-for-profit organizations | 730 | 830 | ||||||||||||||
Hedge funds | 542 | 233 | ||||||||||||||
Consumer discretionary | 392 | 590 | 463 | 464 | ||||||||||||
Information technology | 366 | 267 | ||||||||||||||
Real estate | 378 | 374 | ||||||||||||||
Materials | 348 | 235 | 276 | 329 | ||||||||||||
Insurance | 279 | 570 | 243 | 206 | ||||||||||||
Energy | 267 | 533 | ||||||||||||||
Consumer staples | 243 | 567 | 118 | 161 | ||||||||||||
Special purpose vehicles | 229 | 821 | ||||||||||||||
Other | 166 | 256 | 426 | 270 | ||||||||||||
Total4 | $ | 16,155 | $ | 18,135 | ||||||||||||
Total1 | $ | 16,900 | $ | 15,675 |
1. |
|
|
|
For further information on derivative instruments and hedging activities, see Note 4 to the |
Risk Disclosures |
For additional credit exposure information on our credit derivative portfolio, see Note 4 to the financial statements.
Country Risk Exposure
Country risk exposure is the risk that events in, or that affect, a foreign country (any country other than the U.S.) might adversely affect us. We actively manage country risk exposure through a comprehensive risk management framework that combines credit and market fundamentals and allows us to effectively identify, monitor and limit country risk. Country risk exposure before and after hedging is monitored and managed. For a further discussion of our country risk exposure see, “Quantitative and Qualitative Disclosures about Market Risk—Risk–Risk Management—Management–Country Risk Exposure” in Part II, Item 7A of the 20162017 Form10-K.
Our sovereign exposures consist of financial instruments entered into with sovereign and local governments. Ournon-sovereign exposures consist of exposures tofinancial instruments
entered into primarily with corporations and financial institutions. The following table shows our 10 largestnon-U.S. country risk net exposures at June 30, 2017.March 31, 2018. Index credit derivatives are included in the country risk exposure table. 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 that 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 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.
Risk Disclosures |
Top Ten Country Exposures at June 30, 20171March 31, 2018
$ in millions | Net Inventory2 | Net Counterparty Exposure3,4 | Loans | Lending Commitments | Exposure Before Hedges | Hedges5 | Net Exposure | Net Inventory1 | Net Counterparty Exposure2 | Loans | Lending Commitments | Exposure before Hedges | Hedges3 | Net Exposure | ||||||||||||||||||||||||||||||||||||||||||
Country | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.K.: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | (836 | ) | $ | 53 | $ | — | $ | — | $ | (783 | ) | $ | (357 | ) | $ | (1,140 | ) | ||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 1,003 | 10,249 | 2,533 | 7,022 | 20,807 | (1,875 | ) | 18,932 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 167 | $ | 10,302 | $ | 2,533 | $ | 7,022 | $ | 20,024 | $ | (2,232 | ) | $ | 17,792 | |||||||||||||||||||||||||||||||||||||||||
Germany: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 1,645 | $ | 460 | $ | — | $ | — | $ | 2,105 | $ | (858 | ) | $ | 1,247 | |||||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 328 | 2,200 | 1,132 | 3,787 | 7,447 | (1,317 | ) | 6,130 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,973 | $ | 2,660 | $ | 1,132 | $ | 3,787 | $ | 9,552 | $ | (2,175 | ) | $ | 7,377 | |||||||||||||||||||||||||||||||||||||||||
France: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | (924 | ) | $ | 2 | $ | — | $ | — | $ | (922 | ) | $ | (50 | ) | $ | (972 | ) | ||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 9 | 1,862 | 294 | 4,100 | 6,265 | (748 | ) | 5,517 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | (915 | ) | $ | 1,864 | $ | 294 | $ | 4,100 | $ | 5,343 | $ | (798 | ) | $ | 4,545 | ||||||||||||||||||||||||||||||||||||||||
Spain: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 1,444 | $ | 92 | $ | — | $ — | $ | 1,536 | $ | (254) | $ | 1,282 | $ | (1,648 | ) | $ | — | $ | — | $ | — | $ | (1,648 | ) | $ | — | $ | (1,648 | ) | ||||||||||||||||||||||||||
Non-sovereigns | 595 | 9,995 | 2,050 | 5,630 | 18,270 | (1,824 | ) | 16,446 | 54 | 283 | 3,249 | 2,748 | 6,334 | (193 | ) | 6,141 | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 2,039 | $ | 10,087 | $ | 2,050 | $ | 5,630 | $ | 19,806 | $ | (2,078 | ) | $ | 17,728 | $ | (1,594 | ) | $ | 283 | $ | 3,249 | $ | 2,748 | $ | 4,686 | $ | (193 | ) | $ | 4,493 | |||||||||||||||||||||||||
Japan: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 2,205 | $ | 76 | $ | — | $ | — | $ | 2,281 | $ | (82 | ) | $ | 2,199 | $ | 164 | $ | 84 | $ | — | �� | $ | — | $ | 248 | $ | (118 | ) | $ | 130 | |||||||||||||||||||||||||
Non-sovereigns | 512 | 3,161 | 95 | — | 3,768 | (144 | ) | 3,624 | 476 | 3,783 | — | — | 4,259 | (118 | ) | 4,141 | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 2,717 | $ | 3,237 | $ | 95 | $ | — | $ | 6,049 | $ | (226 | ) | $ | 5,823 | $ | 640 | $ | 3,867 | $ | — | $ | — | $ | 4,507 | $ | (236 | ) | $ | 4,271 | ||||||||||||||||||||||||||
Brazil: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 4,088 | $ | — | $ | — | $ | — | $ | 4,088 | $ | (12 | ) | $ | 4,076 | |||||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 52 | 568 | 955 | 68 | 1,643 | (511 | ) | 1,132 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 4,140 | $ | 568 | $ | 955 | $ | 68 | $ | 5,731 | $ | (523 | ) | $ | 5,208 | |||||||||||||||||||||||||||||||||||||||||
Germany: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 1,237 | $ | 772 | $ | — | $ | — | $ | 2,009 | $ | (908 | ) | $ | 1,101 | |||||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 144 | 1,359 | 526 | 3,256 | 5,285 | (1,370 | ) | 3,915 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,381 | $ | 2,131 | $ | 526 | $ | 3,256 | $ | 7,294 | $ | (2,278 | ) | $ | 5,016 | |||||||||||||||||||||||||||||||||||||||||
Canada: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 182 | $ | 100 | $ | — | $ | — | $ | 282 | $ | — | $ | 282 | ||||||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 276 | 1,619 | 155 | 1,465 | 3,515 | (356 | ) | 3,159 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 458 | $ | 1,719 | $ | 155 | $ | 1,465 | $ | 3,797 | $ | (356 | ) | $ | 3,441 | |||||||||||||||||||||||||||||||||||||||||
United Arab Emirates: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | (25 | ) | $ | 831 | $ | — | $ | — | $ | 806 | $ | (24 | ) | $ | 782 | $ | (326 | ) | $ | 48 | $ | — | $ | — | $ | (278 | ) | $ | — | $ | (278 | ) | |||||||||||||||||||||||
Non-sovereigns | 5 | 191 | 28 | 1,983 | 2,207 | (15 | ) | 2,192 | 574 | 2,033 | 92 | 1,417 | 4,116 | (278 | ) | 3,838 | ||||||||||||||||||||||||||||||||||||||||
Total | $ | (20 | ) | $ | 1,022 | $ | 28 | $ | 1,983 | $ | 3,013 | $ | (39 | ) | $ | 2,974 | $ | 248 | $ | 2,081 | $ | 92 | $ | 1,417 | $ | 3,838 | $ | (278 | ) | $ | 3,560 | |||||||||||||||||||||||||
China: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | (45 | ) | $ | 213 | $ | — | $ | — | $ | 168 | $ | (249 | ) | $ | (81 | ) | $ | 659 | $ | 188 | $ | — | $ | — | $ | 847 | $ | (54 | ) | $ | 793 | ||||||||||||||||||||||||
Non-sovereigns | 1,032 | 157 | 759 | 515 | 2,463 | (10 | ) | 2,453 | 737 | 228 | 1,291 | 434 | 2,690 | (10 | ) | 2,680 | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 987 | $ | 370 | $ | 759 | $ | 515 | $ | 2,631 | $ | (259 | ) | $ | 2,372 | $ | 1,396 | $ | 416 | $ | 1,291 | $ | 434 | $ | 3,537 | $ | (64 | ) | $ | 3,473 | ||||||||||||||||||||||||||
Brazil: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 2,561 | $ | — | $ | — | $ | — | $ | 2,561 | $ | (12 | ) | $ | 2,549 | |||||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 69 | 167 | 26 | 451 | 713 | (16 | ) | 697 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 2,630 | $ | 167 | $ | 26 | $ | 451 | $ | 3,274 | $ | (28 | ) | $ | 3,246 | |||||||||||||||||||||||||||||||||||||||||
Netherlands: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | (75 | ) | $ | — | $ | — | $ | — | $ | (75 | ) | $ | (20 | ) | $ | (95 | ) | ||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 374 | 733 | 1,150 | 1,153 | 3,410 | (305 | ) | 3,105 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 299 | $ | 733 | $ | 1,150 | $ | 1,153 | $ | 3,335 | $ | (325 | ) | $ | 3,010 | |||||||||||||||||||||||||||||||||||||||||
India: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 1,157 | $ | — | $ | — | $ | — | $ | 1,157 | $ | — | $ | 1,157 | $ | 1,744 | $ | — | $ | — | $ | — | $ | 1,744 | $ | — | $ | 1,744 | ||||||||||||||||||||||||||||
Non-sovereigns | 562 | 507 | — | — | 1,069 | — | 1,069 | 696 | 534 | — | — | 1,230 | — | 1,230 | ||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,719 | $ | 507 | $ | — | $ | — | $ | 2,226 | $ | — | $ | 2,226 | $ | 2,440 | $ | 534 | $ | — | $ | — | $ | 2,974 | $ | — | $ | 2,974 | ||||||||||||||||||||||||||||
Ireland: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 13 | $ | 5 | $ | — | $ | — | $ | 18 | $ | (82 | ) | $ | (64 | ) | ||||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 122 | 399 | 1,671 | 74 | 2,266 | — | 2,266 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 135 | $ | 404 | $ | 1,671 | $ | 74 | $ | 2,284 | $ | (82 | ) | $ | 2,202 | |||||||||||||||||||||||||||||||||||||||||
Singapore: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sovereigns | $ | 1,482 | $ | 149 | $ | — | $ | — | $ | 1,631 | $ | — | $ | 1,631 | ||||||||||||||||||||||||||||||||||||||||||
Non-sovereigns | 50 | 228 | 29 | 117 | 424 | — | 424 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1,532 | $ | 377 | $ | 29 | $ | 117 | $ | 2,055 | $ | — | $ | 2,055 |
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 a notional amount assuming zero recovery adjusted for any fair value receivable or payable). |
Net counterparty exposure (i.e., repurchase transactions, securities lending and OTC derivatives) takes into consideration legally enforceable master netting agreements and collateral. |
|
Amounts represent CDS hedges (purchased and sold) on net counterparty exposure and lending executed by trading desks responsible for hedging counterparty and lending credit risk exposures for us. Amounts are based on the CDS notional amount assuming zero recovery adjusted for any fair value receivable or payable. For a further description of the contractual terms for purchased credit protection and whether they may limit the effectiveness of our hedges, see “Credit Exposure—Derivatives” herein. |
Risk Disclosures |
As a market maker, we may transact in CDS positions to facilitate client trading. Exposures related to single-name and index credit derivatives for those countries shown in the previous table were as follows:
Credit Derivatives Included in Net Inventory
$ in millions | At March 31, 2018 | |||
Gross purchased protection | $ | (78,994 | ) | |
Gross written protection | 76,135 | |||
Net exposure | $ | (2,859 | ) |
Net counterparty exposure shown in the Top Ten Country Exposures table above are net of the benefit of collateral received, which is typically composed of cash and government obligations.
Benefit of Collateral Received against Counterparty Credit Exposure
$ in millions | Collateral1 | At March 31, 2018 | ||||
Counterparty credit exposure | ||||||
U.K. | U.K., U.S. and Japan | $ | 9,215 | |||
Germany | Belgium and Germany | 9,193 | ||||
Other | Japan, France and Spain | 14,696 |
1. | Collateral primarily consists of cash and government obligations. |
Country Risk Exposures Related to the United Kingdom.U.K. At June 30, 2017,March 31, 2018, our country risk exposures in the U.K. included net exposures of $17,728$17,792 million as shown in the previousTop Ten Country Exposures table, and overnight deposits of $6,657$7,047 million. The $16,446$18,932 million of exposures tonon-sovereigns were diversified across both names and sectors. Of this exposure $14,162these exposures, $6,168 million waswere to investment gradeU.K.-focused counterparties withthat generate more thanone-third of their revenues in the largest single component ($5,334 million)U.K., $5,562 million were to geographically diversified counterparties, and $6,248 million were to exchanges and clearing houses.clearinghouses.
Country Risk Exposures Related to Brazil. At June 30, 2017,March 31, 2018, our country risk exposures in Brazil included net exposures of $5,208$3,246 million as shown in the previousTop Ten Country Exposures table. Our sovereign net exposures in Brazil were principally in the form of local currency government bonds held onshore to support client activity. The $1,132$697 million of exposures tonon-sovereigns were diversified across both names and sectors.
Operational Risk
Operational risk refers to the risk of loss, or of damage to our reputation, resulting from inadequate or failed processes or systems, from human factors or from external events (e.g., fraud, theft, legal and compliance risks, cyber attacks 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 support and control groups (e.g., information technology and trade processing). For a further discussion about our operational risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Operational Risk” in Part II, Item 7A of the 20162017 Form10-K.
Model Risk
Model risk refers to the potential for adverse consequences from decisions based on incorrect or misused model outputs. Model risk can lead to financial loss, poor business and strategic decision making, or damage to the Firm’s reputation. The risk inherent in a model is a function of the materiality,
complexity and uncertainty around inputs and assumptions. Model risk is generated from the use of models impacting financial statements, regulatory filings, capital adequacy assessments and the formulation of business strategies.strategy. For a further discussion about our model risk, see “Quantitative and Qualitative Disclosures about Market Risk–Risk Management–Model Risk” in Part II, Item 7A of the 20162017 Form10-K.
Liquidity Risk
Liquidity 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 risk also encompasses our ability (or perceived ability) to meet our financial obligations without experiencing significant business disruption or reputational damage that may threaten our viability as a going concern. For a further discussion about our liquidity risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Liquidity Risk” in Part II, Item 7A of the 20162017 Form10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in Part I, Item 2.Resources.”
Legal and Compliance Risk
Legal and compliance risk includes the risk of legal or regulatory sanctions, material financial loss, including fines, penalties, judgments, damages and/or settlements, or loss to reputation that we may suffer as a result of failure to comply with laws, regulations, rules, related self-regulatory organization standards and codes of conduct applicable to our business activities. This risk also includes contractual and commercial risk, such as the risk that a counterparty’s performance obligations will be unenforceable. It also includes compliance with anti-money launderingAML and terrorist financing rules and regulations. For a further discussion about our legal and compliance risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Legal and Compliance Risk” in Part II, Item 7A of the 20162017 Form10-K.
Under the supervision and with the participation of the Firm’s management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the Firm’s disclosure controls and procedures (as defined in Rule13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
No change in the Firm’s internal control over financial reporting (as defined in Rule13a-15(f) of the Exchange Act) occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Morgan Stanley:
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheet of Morgan Stanley and subsidiaries (the “Firm”) as of June 30, 2017,March 31, 2018, and the related condensed consolidated income statements, and comprehensive income statements, for the three-month andsix-month periods ended June 30, 2017 and 2016, and the cash flow statements and statements of changes in total equity for thesix-month three-month periods ended June 30,March 31, 2018 and 2017, and 2016. Thesethe related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements areinformation for it to be in conformity with accounting principles generally accepted in the responsibilityUnited States of the management of the Firm.America.
We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Firm as of December 31, 2017, and the related consolidated income statement, comprehensive income statement, cash flow statement and statement of changes in total equity for the year then ended (not presented herein) included in the Firm’s Annual Report on Form10-K; and in our report dated February 27, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2017 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Firm’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Firm in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed interim consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Firm as of December 31, 2016, and the consolidated income statement, comprehensive income statement, cash flow statement and statement of changes in total equity for the year then ended (not presented herein) included in the Firm’s Annual Report on Form10-K; and in our report dated February 27, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
New York, New York
August 3, 2017May 4, 2018
39 | March 2018 Form 10-Q |
Consolidated Financial Statements and Notes Consolidated Income Statements (Unaudited) |
Consolidated Income Statements
(Unaudited)
Three Months Ended March 31, | ||||||||
in millions, except per share data | 2018 | 2017 | ||||||
Revenues | ||||||||
Investment banking | $ | 1,634 | $ | 1,545 | ||||
Trading | 3,770 | 3,235 | ||||||
Investments | 126 | 165 | ||||||
Commissions and fees | 1,173 | 1,033 | ||||||
Asset management | 3,192 | 2,767 | ||||||
Other | 207 | 229 | ||||||
Total non-interest revenues | 10,102 | 8,974 | ||||||
Interest income | 2,860 | 1,965 | ||||||
Interest expense | 1,885 | 1,194 | ||||||
Net interest | 975 | 771 | ||||||
Net revenues | 11,077 | 9,745 | ||||||
Non-interest expenses | ||||||||
Compensation and benefits | 4,914 | 4,466 | ||||||
Occupancy and equipment | 336 | 327 | ||||||
Brokerage, clearing and exchange fees | 627 | 509 | ||||||
Information processing and communications | 478 | 428 | ||||||
Marketing and business development | 140 | 136 | ||||||
Professional services | 510 | 527 | ||||||
Other | 652 | 544 | ||||||
Total non-interest expenses | 7,657 | 6,937 | ||||||
Income from continuing operations before income taxes | 3,420 | 2,808 | ||||||
Provision for income taxes | 714 | 815 | ||||||
Income from continuing operations | 2,706 | 1,993 | ||||||
Income (loss) from discontinued operations, net of income taxes | (2 | ) | (22 | ) | ||||
Net income | $ | 2,704 | $ | 1,971 | ||||
Net income applicable to noncontrolling interests | 36 | 41 | ||||||
Net income applicable to Morgan Stanley | $ | 2,668 | $ | 1,930 | ||||
Preferred stock dividends and other | 93 | 90 | ||||||
Earnings applicable to Morgan Stanley common shareholders | $ | 2,575 | $ | 1,840 | ||||
Earnings per basic common share | ||||||||
Income from continuing operations | $ | 1.48 | $ | 1.03 | ||||
Income (loss) from discontinued operations | — | (0.01 | ) | |||||
Earnings per basic common share | $ | 1.48 | $ | 1.02 | ||||
Earnings per diluted common share | ||||||||
Income from continuing operations | $ | 1.46 | $ | 1.01 | ||||
Income (loss) from discontinued operations | (0.01 | ) | (0.01 | ) | ||||
Earnings per diluted common share | $ | 1.45 | $ | 1.00 | ||||
Dividends declared per common share | $ | 0.25 | $ | 0.20 | ||||
Average common shares outstanding | ||||||||
Basic | 1,740 | 1,801 | ||||||
Diluted | 1,771 | 1,842 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
in millions, except per share data | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | ||||||||||||||||
Investment banking | $ | 1,530 | $ | 1,224 | $ | 3,075 | $ | 2,331 | ||||||||
Trading | 2,931 | 2,746 | 6,166 | 4,811 | ||||||||||||
Investments | 163 | 126 | 328 | 92 | ||||||||||||
Commissions and fees | 1,027 | 1,020 | 2,060 | 2,075 | ||||||||||||
Asset management, distribution and administration fees | 2,902 | 2,637 | 5,669 | 5,257 | ||||||||||||
Other | 199 | 243 | 428 | 323 | ||||||||||||
Totalnon-interest revenues | 8,752 | 7,996 | 17,726 | 14,889 | ||||||||||||
Interest income | 2,106 | 1,667 | 4,071 | 3,414 | ||||||||||||
Interest expense | 1,355 | 754 | 2,549 | 1,602 | ||||||||||||
Net interest | 751 | 913 | 1,522 | 1,812 | ||||||||||||
Net revenues | 9,503 | 8,909 | 19,248 | 16,701 | ||||||||||||
Non-interest expenses | ||||||||||||||||
Compensation and benefits | 4,252 | 4,015 | 8,718 | 7,698 | ||||||||||||
Occupancy and equipment | 333 | 329 | 660 | 658 | ||||||||||||
Brokerage, clearing and exchange fees | 525 | 484 | 1,034 | 949 | ||||||||||||
Information processing and communications | 433 | 429 | 861 | 871 | ||||||||||||
Marketing and business development | 155 | 154 | 291 | 288 | ||||||||||||
Professional services | 561 | 547 | 1,088 | 1,061 | ||||||||||||
Other | 602 | 468 | 1,146 | 955 | ||||||||||||
Totalnon-interest expenses | 6,861 | 6,426 | 13,798 | 12,480 | ||||||||||||
Income from continuing operations before income taxes | 2,642 | 2,483 | 5,450 | 4,221 | ||||||||||||
Provision for income taxes | 846 | 833 | 1,661 | 1,411 | ||||||||||||
Income from continuing operations | 1,796 | 1,650 | 3,789 | 2,810 | ||||||||||||
Income (loss) from discontinued operations, net of income taxes | (5 | ) | (4 | ) | (27 | ) | (7 | ) | ||||||||
Net income | $ | 1,791 | $ | 1,646 | $ | 3,762 | $ | 2,803 | ||||||||
Net income applicable to noncontrolling interests | 34 | 64 | 75 | 87 | ||||||||||||
Net income applicable to Morgan Stanley | $ | 1,757 | $ | 1,582 | $ | 3,687 | $ | 2,716 | ||||||||
Preferred stock dividends and other | 170 | 157 | 260 | 235 | ||||||||||||
Earnings applicable to Morgan Stanley common shareholders | $ | 1,587 | $ | 1,425 | $ | 3,427 | $ | 2,481 | ||||||||
Earnings per basic common share | ||||||||||||||||
Income from continuing operations | $ | 0.89 | $ | 0.77 | $ | 1.92 | $ | 1.33 | ||||||||
Income (loss) from discontinued operations | — | (0.01 | ) | (0.01 | ) | (0.01 | ) | |||||||||
Earnings per basic common share | $ | 0.89 | $ | 0.76 | $ | 1.91 | $ | 1.32 | ||||||||
Earnings per diluted common share | ||||||||||||||||
Income from continuing operations | $ | 0.87 | $ | 0.75 | $ | 1.88 | $ | 1.30 | ||||||||
Income (loss) from discontinued operations | — | — | (0.01 | ) | — | |||||||||||
Earnings per diluted common share | $ | 0.87 | $ | 0.75 | $ | 1.87 | $ | 1.30 | ||||||||
Dividends declared per common share | $ | 0.20 | $ | 0.15 | $ | 0.40 | $ | 0.30 | ||||||||
Average common shares outstanding | ||||||||||||||||
Basic | 1,791 | 1,866 | 1,796 | 1,875 | ||||||||||||
Diluted | 1,830 | 1,899 | 1,836 | 1,907 |
March 2018 Form 10-Q | 40 | See Notes to Consolidated Financial Statements |
Consolidated Comprehensive Income Statements (Unaudited) |
Three Months Ended March 31, | ||||||||
$ in millions | 2018 | 2017 | ||||||
Net income | $ | 2,704 | $ | 1,971 | ||||
Other comprehensive income (loss), net of tax: | ||||||||
Foreign currency translation adjustments | $ | 117 | $ | 150 | ||||
Change in net unrealized gains (losses) on available-for-sale securities | (410 | ) | 84 | |||||
Pension, postretirement and other | 5 | — | ||||||
Change in net debt valuation adjustment | 451 | 9 | ||||||
Total other comprehensive income (loss) | $ | 163 | $ | 243 | ||||
Comprehensive income | $ | 2,867 | $ | 2,214 | ||||
Net income applicable to noncontrolling interests | 36 | 41 | ||||||
Other comprehensive income (loss) applicable to noncontrolling interests | 72 | 50 | ||||||
Comprehensive income applicable to Morgan Stanley | $ | 2,759 | $ | 2,123 |
See Notes to Consolidated Financial Statements | 41 | March 2018 Form 10-Q |
Consolidated Balance Sheets |
$ in millions, except share data | (Unaudited) At March 31, 2018 | At December 31, 2017 | ||||||
Assets | ||||||||
Cash and cash equivalents: | ||||||||
Cash and due from banks | $ | 29,073 | $ | 24,816 | ||||
Interest bearing deposits with banks | 22,980 | 21,348 | ||||||
Restricted cash | 35,291 | 34,231 | ||||||
Trading assets at fair value ($163,158and $169,735 were pledged to various parties) | 273,044 | 298,282 | ||||||
Investment securities (includes$56,749and $55,203 at fair value) | 80,641 | 78,802 | ||||||
Securities purchased under agreements to resell | 80,246 | 84,258 | ||||||
Securities borrowed | 135,835 | 124,010 | ||||||
Customer and other receivables | 66,835 | 56,187 | ||||||
Loans: | ||||||||
Held for investment (net of allowance of$243 and $224) | 95,124 | 92,953 | ||||||
Held for sale | 14,011 | 11,173 | ||||||
Goodwill | 6,706 | 6,597 | ||||||
Intangible assets (net of accumulated amortization of$2,817 and $2,730) | 2,427 | 2,448 | ||||||
Other assets | 16,282 | 16,628 | ||||||
Total assets | $ | 858,495 | $ | 851,733 | ||||
Liabilities | ||||||||
Deposits (includes$242 and $204 at fair value) | $ | 160,424 | $ | 159,436 | ||||
Trading liabilities at fair value | 139,023 | 131,295 | ||||||
Securities sold under agreements to repurchase (includes$792 and $800 at fair value) | 51,575 | 56,424 | ||||||
Securities loaned | 13,556 | 13,592 | ||||||
Other secured financings (includes$3,423and $3,863 at fair value) | 10,275 | 11,271 | ||||||
Customer and other payables | 194,924 | 191,510 | ||||||
Other liabilities and accrued expenses | 14,265 | 17,157 | ||||||
Borrowings (includes$47,533 and $46,912 at fair value) | 194,964 | 192,582 | ||||||
Total liabilities | 779,006 | 773,267 | ||||||
Commitments and contingent liabilities (see Note 11) | ||||||||
Equity | ||||||||
Morgan Stanley shareholders’ equity: | ||||||||
Preferred stock | 8,520 | 8,520 | ||||||
Common stock, $0.01 par value: | ||||||||
Shares authorized:3,500,000,000; Shares issued:2,038,893,979; Shares outstanding:1,773,934,393 and 1,788,086,805 | 20 | 20 | ||||||
Additional paid-in capital | 23,260 | 23,545 | ||||||
Retained earnings | 60,009 | 57,577 | ||||||
Employee stock trusts | 2,907 | 2,907 | ||||||
Accumulated other comprehensive income (loss) | (3,406 | ) | (3,060 | ) | ||||
Common stock held in treasury at cost, $0.01 par value (264,959,586 and 250,807,174 shares) | (10,369 | ) | (9,211 | ) | ||||
Common stock issued to employee stock trusts | (2,907 | ) | (2,907 | ) | ||||
Total Morgan Stanley shareholders’ equity | 78,034 | 77,391 | ||||||
Noncontrolling interests | 1,455 | 1,075 | ||||||
Total equity | 79,489 | 78,466 | ||||||
Total liabilities and equity | $ | 858,495 | $ | 851,733 |
March 2018 Form 10-Q | 42 | See Notes to Consolidated Financial Statements |
Consolidated Statements of Changes in Total Equity (Unaudited) |
$ in millions | Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Employee Stock Trusts | Accumulated Other Comprehensive Income (Loss) | Common Stock Held in Treasury at Cost | Common Stock Issued to Employee Stock Trusts | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | 8,520 | $ | 20 | $ | 23,545 | $ | 57,577 | $ | 2,907 | $ | (3,060 | ) | $ | (9,211 | ) | $ | (2,907 | ) | $ | 1,075 | $ | 78,466 | |||||||||||||||||
Cumulative adjustment for accounting changes1 | — | — | — | 306 | — | (437 | ) | — | — | — | (131 | ) | ||||||||||||||||||||||||||||
Net income applicable to Morgan Stanley | — | — | — | 2,668 | — | — | — | — | — | 2,668 | ||||||||||||||||||||||||||||||
Net income applicable to noncontrolling interests | — | — | — | — | — | — | — | — | 36 | 36 | ||||||||||||||||||||||||||||||
Dividends | — | — | — | (542 | ) | — | — | — | — | — | (542 | ) | ||||||||||||||||||||||||||||
Shares issued under employee plans | — | — | (285 | ) | — | — | — | 710 | — | — | 425 | |||||||||||||||||||||||||||||
Repurchases of common stock and employee tax withholdings | — | — | — | — | — | — | (1,868 | ) | — | — | (1,868 | ) | ||||||||||||||||||||||||||||
Net change in Accumulated other comprehensive income (loss) | — | — | — | — | — | 91 | — | — | 72 | 163 | ||||||||||||||||||||||||||||||
Other net increases | — | — | — | — | — | — | — | — | 272 | 272 | ||||||||||||||||||||||||||||||
Balance at March 31, 2018 | $ | 8,520 | $ | 20 | $ | 23,260 | $ | 60,009 | $ | 2,907 | $ | (3,406 | ) | $ | (10,369 | ) | $ | (2,907 | ) | $ | 1,455 | $ | 79,489 | |||||||||||||||||
Balance at December 31, 2016 | $ | 7,520 | $ | 20 | $ | 23,271 | $ | 53,679 | $ | 2,851 | $ | (2,643 | ) | $ | (5,797 | ) | $ | (2,851 | ) | $ | 1,127 | $ | 77,177 | |||||||||||||||||
Cumulative adjustment for accounting changes1 | — | — | 45 | (35 | ) | — | — | — | — | — | 10 | |||||||||||||||||||||||||||||
Net income applicable to Morgan Stanley | — | — | — | 1,930 | — | — | — | — | — | 1,930 | ||||||||||||||||||||||||||||||
Net income applicable to noncontrolling interests | — | — | — | — | — | — | — | — | 41 | 41 | ||||||||||||||||||||||||||||||
Dividends | — | — | — | (465 | ) | — | — | — | — | — | (465 | ) | ||||||||||||||||||||||||||||
Shares issued under employee plans | — | — | (430 | ) | — | 186 | — | 803 | (186 | ) | — | 373 | ||||||||||||||||||||||||||||
Repurchases of common stock and employee tax withholdings | — | — | — | — | — | — | (1,161 | ) | — | — | (1,161 | ) | ||||||||||||||||||||||||||||
Net change in Accumulated other comprehensive income (loss) | — | — | — | — | — | 193 | — | — | 50 | 243 | ||||||||||||||||||||||||||||||
Issuance of preferred stock | 1,000 | — | (6 | ) | — | — | — | — | — | — | 994 | |||||||||||||||||||||||||||||
Other net decreases | — | — | — | — | — | — | — | — | (58 | ) | (58 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2017 | $ | 8,520 | $ | 20 | $ | 22,880 | $ | 55,109 | $ | 3,037 | $ | (2,450 | ) | $ | (6,155 | ) | $ | (3,037 | ) | $ | 1,160 | $ | 79,084 |
1. | The cumulative adjustments relate to the adoption of certain accounting updates during the current and prior year quarters. See Notes 2 and 14 for further information. |
See Notes to Consolidated Financial Statements | 43 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 1,791 | $ | 1,646 | $ | 3,762 | $ | 2,803 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Foreign currency translation adjustments | $ | 12 | $ | 131 | 162 | 317 | ||||||||||
Change in net unrealized gains onavailable-for-sale securities | 108 | 143 | 192 | 538 | ||||||||||||
Pension, postretirement and other | 4 | (5 | ) | 4 | (4 | ) | ||||||||||
Change in net debt valuation adjustment | (183 | ) | 145 | (174 | ) | 348 | ||||||||||
Total other comprehensive income (loss) | $ | (59 | ) | $ | 414 | $ | 184 | $ | 1,199 | |||||||
Comprehensive income | $ | 1,732 | $ | 2,060 | $ | 3,946 | $ | 4,002 | ||||||||
Net income applicable to noncontrolling interests | 34 | 64 | 75 | 87 | ||||||||||||
Other comprehensive income (loss) applicable to noncontrolling interests | (21 | ) | 81 | 29 | 136 | |||||||||||
Comprehensive income applicable to Morgan Stanley | $ | 1,719 | $ | 1,915 | $ | 3,842 | $ | 3,779 |
(Unaudited) | ||||||||
$ in millions, except share data | At June 30, | At December 31, | ||||||
Assets | ||||||||
Cash and due from banks | $ | 25,008 | $ | 22,017 | ||||
Interest bearing deposits with banks | 19,651 | 21,364 | ||||||
Trading assets at fair value ($163,689and $152,548 were pledged to various parties) | 290,802 | 262,154 | ||||||
Investment securities (includes$50,488 and $63,170 at fair value) | 71,576 | 80,092 | ||||||
Securities purchased under agreements to resell (includes$102 and $302 at fair value) | 97,408 | 101,955 | ||||||
Securities borrowed | 126,722 | 125,236 | ||||||
Customer and other receivables | 54,917 | 46,460 | ||||||
Loans:
| ||||||||
Held for investment (net of allowance of$306 and $274) | 87,007 | 81,704 | ||||||
Held for sale | 10,632 | 12,544 | ||||||
Goodwill | 6,591 | 6,577 | ||||||
Intangible assets (net of accumulated amortization of$2,575 and $2,421) | 2,567 | 2,721 | ||||||
Other assets | 48,135 | 52,125 | ||||||
Total assets | $ | 841,016 | $ | 814,949 | ||||
Liabilities | ||||||||
Deposits (includes$130 and $63 at fair value) | $ | 144,913 | $ | 155,863 | ||||
Short-term borrowings (includes$582 and $406 at fair value) | 916 | 941 | ||||||
Trading liabilities at fair value | 134,810 | 128,194 | ||||||
Securities sold under agreements to repurchase (includes$738 and $729 at fair value) | 50,697 | 54,628 | ||||||
Securities loaned | 16,862 | 15,844 | ||||||
Other secured financings (includes$5,731 and $5,041 at fair value) | 16,642 | 11,118 | ||||||
Customer and other payables | 197,055 | 190,513 | ||||||
Other liabilities and accrued expenses | 15,042 | 15,896 | ||||||
Long-term borrowings (includes$43,226 and $38,736 at fair value) | 184,112 | 164,775 | ||||||
Total liabilities | 761,049 | 737,772 | ||||||
Commitments and contingent liabilities (see Note 11) | ||||||||
Equity | ||||||||
Morgan Stanley shareholders’ equity: | ||||||||
Preferred stock | 8,520 | 7,520 | ||||||
Common stock, $0.01 par value: | ||||||||
Shares authorized:3,500,000,000; Shares issued:2,038,893,979; Shares outstanding:1,839,578,174 and 1,852,481,601 | 20 | 20 | ||||||
Additionalpaid-in capital | 23,140 | 23,271 | ||||||
Retained earnings | 56,325 | 53,679 | ||||||
Employee stock trusts | 2,945 | 2,851 | ||||||
Accumulated other comprehensive income (loss) | (2,488 | ) | (2,643 | ) | ||||
Common stock held in treasury at cost, $0.01 par value (199,315,805 and 186,412,378 shares) | (6,691 | ) | (5,797 | ) | ||||
Common stock issued to employee stock trusts | (2,945 | ) | (2,851 | ) | ||||
Total Morgan Stanley shareholders’ equity | 78,826 | 76,050 | ||||||
Noncontrolling interests | 1,141 | 1,127 | ||||||
Total equity | 79,967 | 77,177 | ||||||
Total liabilities and equity | $ | 841,016 | $ | 814,949 |
$ in millions | Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Employee Stock Trusts | Accumulated Other Comprehensive Income (Loss) | Common Stock Held in Treasury at Cost | Common Stock Issued to Employee Stock Trusts | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||||||
Balance at December 31, 2016 | $ | 7,520 | $ | 20 | $ | 23,271 | $ | 53,679 | $ | 2,851 | $ | (2,643 | ) | $ | (5,797 | ) | $ | (2,851 | ) | $ | 1,127 | $ | 77,177 | |||||||||||||||||
Cumulative adjustment for accounting changes1 | — | — | 45 | (35 | ) | — | — | — | — | — | 10 | |||||||||||||||||||||||||||||
Net income applicable to Morgan Stanley | — | — | — | 3,687 | — | — | — | — | — | 3,687 | ||||||||||||||||||||||||||||||
Net income applicable to noncontrolling interests | — | — | — | — | — | — | — | — | 75 | 75 | ||||||||||||||||||||||||||||||
Dividends | — | — | — | (1,006 | ) | — | — | — | — | — | (1,006 | ) | ||||||||||||||||||||||||||||
Shares issued under employee plans | — | — | (170 | ) | — | 94 | — | 815 | (94 | ) | — | 645 | ||||||||||||||||||||||||||||
Repurchases of common stock and employee tax withholdings | — | — | — | — | — | — | (1,709 | ) | — | — | (1,709 | ) | ||||||||||||||||||||||||||||
Net change in Accumulated other comprehensive income (loss) | — | — | — | — | — | 155 | — | — | 29 | 184 | ||||||||||||||||||||||||||||||
Issuance of preferred stock | 1,000 | — | (6 | ) | — | — | — | — | — | — | 994 | |||||||||||||||||||||||||||||
Other net decreases | — | — | — | — | — | — | — | — | (90 | ) | (90 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2017 | $ | 8,520 | $ | 20 | $ | 23,140 | $ | 56,325 | $ | 2,945 | $ | (2,488 | ) | $ | (6,691 | ) | $ | (2,945 | ) | $ | 1,141 | $ | 79,967 | |||||||||||||||||
Balance at December 31, 2015 | $ | 7,520 | $ | 20 | $ | 24,153 | $ | 49,204 | $ | 2,409 | $ | (1,656 | ) | $ | (4,059 | ) | $ | (2,409 | ) | $ | 1,002 | $ | 76,184 | |||||||||||||||||
Cumulative adjustment for accounting change related to DVA2 | — | — | — | 312 | — | (312 | ) | — | — | — | — | |||||||||||||||||||||||||||||
Net adjustment for accounting change related to consolidation3 | — | — | — | — | — | — | — | — | 106 | 106 | ||||||||||||||||||||||||||||||
Net income applicable to Morgan Stanley | — | — | — | 2,716 | — | — | — | — | — | 2,716 | ||||||||||||||||||||||||||||||
Net income applicable to noncontrolling interests | — | — | — | — | — | — | — | — | 87 | 87 | ||||||||||||||||||||||||||||||
Dividends | — | — | — | (822 | ) | — | — | — | — | — | (822 | ) | ||||||||||||||||||||||||||||
Shares issued under employee plans and related tax effects | — | — | (1,456 | ) | — | 464 | — | 2,062 | (464 | ) | — | 606 | ||||||||||||||||||||||||||||
Repurchases of common stock and employee tax withholdings | — | — | — | — | — | — | (1,629 | ) | — | — | (1,629 | ) | ||||||||||||||||||||||||||||
Net change in Accumulated other comprehensive income (loss) | — | — | — | — | — | 1,063 | — | — | 136 | 1,199 | ||||||||||||||||||||||||||||||
Other net decreases | — | — | — | — | — | — | — | — | (72 | ) | (72 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2016 | $ | 7,520 | $ | 20 | $ | 22,697 | $ | 51,410 | $ | 2,873 | $ | (905) | $ | (3,626) | $ | (2,873) | $ | 1,259 | $ | 78,375 |
|
|
|
Consolidated Cash Flow Statements (Unaudited) |
Six Months Ended June 30, | ||||||||
$ in millions | 2017 | 2016 | ||||||
Cash flows from operating activities | ||||||||
Net income | $ | 3,762 | $ | 2,803 | ||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | ||||||||
(Income) loss from equity method investments | — | (1 | ) | |||||
Compensation payable in common stock and options | 518 | 492 | ||||||
Depreciation and amortization | 889 | 879 | ||||||
Net gain on sale ofavailable-for-sale securities | (16 | ) | (82 | ) | ||||
Impairment charges | 6 | 67 | ||||||
Provision for credit losses on lending activities | 25 | 131 | ||||||
Other operating adjustments | (148 | ) | 218 | |||||
Changes in assets and liabilities: | ||||||||
Trading assets, net of Trading liabilities | (18,050 | ) | (333 | ) | ||||
Securities borrowed | (1,486 | ) | 11,135 | |||||
Securities loaned | 1,018 | (2,117 | ) | |||||
Customer and other receivables and other assets | (2,336 | ) | (10,537 | ) | ||||
Customer and other payables and other liabilities | 5,732 | 9,949 | ||||||
Securities purchased under agreements to resell | 4,547 | (9,932 | ) | |||||
Securities sold under agreements to repurchase | (3,931 | ) | 13,636 | |||||
Net cash provided by (used for) operating activities | (9,470 | ) | 16,308 | |||||
Cash flows from investing activities | ||||||||
Proceeds from (payments for): | ||||||||
Other assets—Premises, equipment and software, net | (723 | ) | (645 | ) | ||||
Changes in loans, net | (5,326 | ) | (4,724 | ) | ||||
Investment securities: | ||||||||
Purchases | (8,418 | ) | (30,700 | ) | ||||
Proceeds from sales | 13,533 | 20,274 | ||||||
Proceeds from paydowns and maturities | 3,668 | 3,507 | ||||||
Other investing activities | (39 | ) | (126 | ) | ||||
Net cash provided by (used for) investing activities | 2,695 | (12,414 | ) | |||||
Cash flows from financing activities | ||||||||
Net proceeds from (payments for): | ||||||||
Short-term borrowings | (25 | ) | (1,293 | ) | ||||
Noncontrolling interests | (35 | ) | (43 | ) | ||||
Other secured financings | 4,272 | (69 | ) | |||||
Deposits | (10,950 | ) | (3,341 | ) | ||||
Proceeds from: | ||||||||
Derivatives financing activities | 73 | — | ||||||
Issuance of preferred stock, net of issuance costs | 994 | — | ||||||
Issuance of long-term borrowings | 33,522 | 20,628 | ||||||
Payments for: | ||||||||
Long-term borrowings | (17,796 | ) | (15,900 | ) | ||||
Derivatives financing activities | (48 | ) | (120 | ) | ||||
Repurchases of common stock and employee tax withholdings | (1,709 | ) | (1,629 | ) | ||||
Cash dividends | (954 | ) | (791 | ) | ||||
Other financing activities | 21 | — | ||||||
Net cash provided by (used for) financing activities | 7,365 | (2,558 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 688 | 714 | ||||||
Net increase in cash and cash equivalents | 1,278 | 2,050 | ||||||
Cash and cash equivalents, at beginning of period | 43,381 | 54,083 | ||||||
Cash and cash equivalents, at end of period | $ | 44,659 | $ | 56,133 | ||||
Cash and cash equivalents include: | ||||||||
Cash and due from banks | $ | 25,008 | $ | 27,597 | ||||
Interest bearing deposits with banks | 19,651 | 28,536 | ||||||
Cash and cash equivalents, at end of period | $ | 44,659 | $ | 56,133 |
Supplemental Disclosure of Cash Flow Information
Cash payments for interest were$1,922 millionand $1,082 million.
Cash payments for income taxes, net of refunds, were$732 millionand $340 million
Three Months Ended March 31, | ||||||||
$ in millions | 2018 | 2017 | ||||||
Cash flows from operating activities | ||||||||
Net income | $ | 2,704 | $ | 1,971 | ||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | ||||||||
(Income) loss from equity method investments | (50 | ) | (9 | ) | ||||
Stock-based compensation expense | 321 | 269 | ||||||
Depreciation and amortization | 390 | 434 | ||||||
Net gain on sale of available-for-sale securities | — | (2 | ) | |||||
Impairment charges | 8 | 5 | ||||||
Provision for credit losses on lending activities | 26 | 25 | ||||||
Other operating adjustments | 5 | (74 | ) | |||||
Changes in assets and liabilities: | ||||||||
Trading assets, net of Trading liabilities | 33,832 | (12,838 | ) | |||||
Securities borrowed | (11,825 | ) | 13,433 | |||||
Securities loaned | (36 | ) | 3,090 | |||||
Customer and other receivables and other assets | (13,019 | ) | (1,687 | ) | ||||
Customer and other payables and other liabilities | 1,129 | (3,556 | ) | |||||
Securities purchased under agreements to resell | 4,012 | (2,868 | ) | |||||
Securities sold under agreements to repurchase | (4,849 | ) | 1,897 | |||||
Net cash provided by (used for) operating activities | 12,648 | 90 | ||||||
Cash flows from investing activities | ||||||||
Proceeds from (payments for): | ||||||||
Other assets—Premises, equipment and software, net | (410 | ) | (350 | ) | ||||
Changes in loans, net | (3,801 | ) | (1,105 | ) | ||||
Investment securities: | ||||||||
Purchases | (5,482 | ) | (6,449 | ) | ||||
Proceeds from sales | 810 | 3,604 | ||||||
Proceeds from paydowns and maturities | 2,125 | 2,071 | ||||||
Other investing activities | (164 | ) | 61 | |||||
Net cash provided by (used for) investing activities | (6,922 | ) | (2,168 | ) | ||||
Cash flows from financing activities | ||||||||
Net proceeds from (payments for): | ||||||||
Noncontrolling interests | (5 | ) | (2 | ) | ||||
Other secured financings | (2,101 | ) | 199 | |||||
Deposits | 988 | (3,754 | ) | |||||
Proceeds from: | ||||||||
Derivatives financing activities | — | 48 | ||||||
Issuance of preferred stock, net of issuance costs | — | 994 | ||||||
Issuance of Borrowings | 15,370 | 18,433 | ||||||
Payments for: | ||||||||
Borrowings | (11,377 | ) | (11,538 | ) | ||||
Repurchases of common stock and employee tax withholdings | (1,868 | ) | (1,161 | ) | ||||
Cash dividends | (599 | ) | (511 | ) | ||||
Other financing activities | (45 | ) | 14 | |||||
Net cash provided by (used for) financing activities | 363 | 2,722 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 860 | 877 | ||||||
Net increase (decrease) in cash and cash equivalents | 6,949 | 1,521 | ||||||
Cash and cash equivalents, at beginning of period | 80,395 | 77,360 | ||||||
Cash and cash equivalents, at end of period | $ | 87,344 | $ | 78,881 | ||||
Cash and cash equivalents: | ||||||||
Cash and due from banks | $ | 29,073 | $ | 22,081 | ||||
Interest bearing deposits with banks | 22,980 | 20,773 | ||||||
Restricted cash | 35,291 | 36,027 | ||||||
Cash and cash equivalents, at end of period | $ | 87,344 | $ | 78,881 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash payments for: | ||||||||
Interest | $ | 1,407 | $ | 737 | ||||
Income taxes, net of refunds | 250 | 262 |
March 2018 Form 10-Q | 44 | See Notes to Consolidated Financial Statements |
Notes to Consolidated Financial Statements (Unaudited) |
1. Introduction and Basis of Presentation
The Firm
Morgan Stanley a financial holding company, is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms “Morgan Stanley” or the “Firm” mean Morgan Stanley (the “Parent Company”) together with its consolidated subsidiaries. See the “Glossary of Common Acronyms” for definitions of certain acronyms used throughout this Form 10-Q.
A description of the clients and principal products and services of each of the Firm’s business segments is as follows:
Institutional Securities provides investment banking, sales and trading, lending and other services to corporations, governments, financial institutions, and high to ultra-high net worth clients. Investment banking services consist of capital raising and financial advisory services, including services relating to the underwriting of debt, equity and other securities, as well as advice on mergers and acquisitions, restructurings, real estate and project finance. Sales and trading services include sales, financing, prime brokerage and market-making activities in equity and fixed income products, including prime brokerage services, global macro, creditforeign exchange and commodities products.commodities. Lending services include originating and/or purchasing corporate loans, commercial and residential mortgage lending, asset-backed lending, financing extended to equities and commodities customers, and loans to municipalities. Other servicesactivities include investmentinvestments and research activities.research.
Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small tomedium-sized businesses/ businesses and institutions covering brokerage and investment advisory services, financial and wealth planning services, annuity and insurance products, credit and other lending products, banking and retirement plan services.
Investment Managementprovides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products include equity, fixed
income, liquidity and alternative/other products. Institutional clients include defined benefit/defined contribution plans, founda-
tions,foundations, endowments, government entities, sovereign wealth funds, insurance companies, third-party fund sponsors and corporations. Individual clients are serviced through intermediaries, including affiliated andnon-affiliated distributors.
Basis of Financial Information
The unaudited consolidated financial statements (“consolidated financial statements”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”),GAAP, which requirerequires the Firm 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 legal and tax matters, allowance for credit losses and other matters that affect its consolidated financial statements and related disclosures. The Firm believes that the estimates utilized in the preparation of its consolidated financial statements are prudent and reasonable. Actual results could differ materially from these estimates. Intercompany balances and transactions have been eliminated. Certain reclassifications have been made to prior periods to conform to the current presentation.
The accompanying consolidated financial statements should be read in conjunction with the Firm’s consolidated financial statements and notes thereto included in the 20162017 Form10-K. Certain footnote disclosures included in the 20162017 Form10-K have been condensed or omitted from these consolidated financial statements as they are not required for interim reporting under U.S. GAAP. The consolidated financial statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The results of operations for interim periods are not necessarily indicative of results for the entire year.
Consolidation
The consolidated financial statements include the accounts of the Firm, its wholly owned subsidiaries and other entities in which the Firm has a controlling financial interest, including certain variable interest entities (“VIE”)VIEs (see Note 12). For consolidated subsidiaries that are less than wholly owned, the third-party holdings of equity interests are referred to as noncontrolling interests. The net income attributable to noncontrolling interests for such subsidiaries is presented as Net income applicable to noncontrolling interests in the consolidated income statements.statements (“income statements”). The portion of shareholders’ equity that is attributable to noncontrolling interests for such subsidiaries is presented as noncontrolling interests, a component of total equity, in the consolidated balance sheets.sheets (“balance sheets”).
45 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
For a discussion of the Firm’s involvement with VIEs and its significant regulated U.S. and international subsidiaries, see Notes 1 and 2 to the consolidated financial statements in the 2016 2017Form10-K.
2. Significant Accounting Policies
For a detailed discussion about the Firm’s significant accounting policies, see Note 2 to the consolidated financial statements in the 20162017 Form10-K.
During the sixthree months ended June 30, 2017March 31, 2018 (“current year period”quarter”), other than the following, there were no significant updates maderevisions to the Firm’s significant accounting policies.policies, other than the following and the accounting updates adopted.
Carried Interest
The Firm is entitled to receive performance-based fees (also referred to as incentive fees, and includes carried interest) when the return on assets under management exceeds certain benchmark returns or other performance targets. Beginning January 1, 2018, when the Firm earns carried interest from funds as specified performance thresholds are met, that carried interest and any related general or limited partner interest is accounted for under the equity method of accounting and measured based on the Firm’s claim on the NAV of the fund at the reporting date taking into account the distribution terms applicable to the interest held. Performance-based fees in the form of carried interest considered equity method investments are therefore outside the scope of the policies for revenue from contracts with customers discussed below. See Note 11 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received.
Accounting StandardsUpdates Adopted
The Firm adopted the following accounting update onupdates in the current quarter. Prior year quarter results are presented under previous policies. See Note 14 for a summary of the Retained earnings impacts of these and other minor adoptions effective this quarter.
Revenue from Contracts with Customers
On January 1, 2017.2018, we adoptedRevenue from Contracts with Customers using the modified retrospective method, which resulted in a net decrease to Retained earnings of $32 million, net of tax. Prior period amounts were not restated. See Note 20 for new disclosures related to the adoption of this standard.
Our revised accounting policy in accordance with this adoption is effective January 1, 2018, and is discussed below.
Revenue Recognition
Revenues are recognized when the promised goods or services are delivered to our customers, in an amount that is based on the consideration the Firm expects to receive in exchange for those goods or services when such amounts are not probable of significant reversal.
• |
|
Beginning in 2017, theRevenue from investment banking activities consists of revenues earned from underwriting primarily equity and fixed income tax consequencessecurities and advisory fees for mergers, acquisitions, restructuring and advisory assignments.
Underwriting revenues are generally recognized on trade date if there is no uncertainty or contingency related to share-based payments are requiredthe amount to be paid. Underwriting costs are deferred and recognized in Provision for income taxesthe relevant non-compensation expense line items when the related underwriting revenues are recorded.
Advisory fees are recognized as advice is provided to the client, based on the estimated progress of work and when the revenue is not probable of a significant reversal. Advisory costs are recognized as incurred in the consolidated incomerelevant non-compensation expense line items, including when reimbursed.
• | Commissions and Fees |
Commission and fee revenues result from transaction-based arrangements in which the client is charged a fee for the execution of transactions. Such revenues primarily arise from transactions in equity securities; services related to sales and trading activities; and sales of mutual funds, alternative funds, futures, insurance products and options. Commission and fee revenues are recognized on trade date when the performance obligation is satisfied.
• | Asset Management Revenues |
Asset management, distribution and administration fees are generally based on related asset levels being managed, such as the AUM of a customer’s account, or the net asset value of a fund. These fees are generally recognized when services are performed and the fees become known. Management fees are reduced by estimated fee waivers and expense caps, if any, provided to the customer.
March 2018 Form 10-Q | 46 |
Notes to Consolidated Financial Statements (Unaudited) |
Performance-based fees not in the form of carried interest are recorded when the annual performance target is met and the revenue is not probable of a significant reversal. Performance-based fees in the form of carried interest are considered equity method investments and are therefore outside the scope of these policies for revenue from contracts with customers.
Sales commissions paid by the Firm in connection with the sale of certain classes of shares of its open-end mutual fund products are accounted for as deferred commission assets and amortized to expense over the expected life of the contract. The Firm periodically tests deferred commission assets for recoverability based on cash flows expected to be received in future periods. Other asset management and distribution costs are recognized as incurred in the relevant non-compensation expense line items.
• | Other Items |
Revenue from commodities-related contracts is recognized as the promised goods or services are delivered to the customer.
Receivables from contracts with customers are recognized in Customer and other receivables in the balance sheets when the underlying performance obligations have been satisfied and the Firm has the right per the contract to bill the customer. Contract assets are recognized in Other assets when the Firm has satisfied its performance obligations, but customer payment is conditional. Contract liabilities are recognized in Other liabilities when the Firm has collected payment from a customer based on the terms of the contract, but the underlying performance obligations are not yet satisfied.
For contracts with a term less than one year, incremental costs to obtain the contract are expensed as incurred. Revenues are not discounted when payment is expected within one year.
The Firm presents, net within revenues, all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Firm from a customer.
statements uponDerivatives and Hedging–Targeted Improvements to Accounting for Hedging Activities
This accounting update aims to better align the conversionhedge accounting requirements with an entity’s risk management strategies and improve the financial reporting of employee share-based awards instead of additionalpaid-in capital. The impacthedging relationships. It also results in simplification of the income tax consequences upon conversionapplication of hedge accounting related to the awards may be either a benefit or a provision. Conversionassessment of employee share-based awards tohedge effectiveness.
The Firm shares will primarily occurearly adopted this accounting update in the first quarter of each year. The impact of recognizing excess tax benefits upon conversion of awards in the quarter in which the accounting update was adopted (three months ended March 31, 2017) was a $112 million benefit to Provision for income taxes. The classification of cash flows from excess tax benefits was moved from the financing section to the operating section of the consolidated cash flow statements, and was applied on a retrospective basis.
In addition, this accounting update permits an entity to elect whether to continue to estimate the total forfeitures, or to account for forfeitures on an actual basis as they occur. The Firm has elected to account for forfeitures on an actual basis as they occur. This change is required to be applied using a modified retrospective approach, and upon2018. Upon adoption, the Firm recorded a cumulativecatch-up adjustment, decreasing Retained earnings by approximately $30$99 million, net of tax. This adjustment represents the cumulative effect of applying the new rules from the inception of certain fair value hedges of the interest rate risk of our borrowings, in particular the provision allowing only the benchmark rate component of coupon cash flows to be hedged.
Effective January 1, 2018, in accordance with this adoption, the Firm has updated its accounting policies to permit the hedged item in a fair value hedge of interest rate risk to be defined as including only the benchmark rate component of contractual coupon cash flows, and to allow for hedging part of the contractual term of the hedged instrument. The accounting policy also requires the entire gain or loss from revaluing hedges of net investments in foreign operations at the spot rate to be reported within AOCI.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This accounting update, which the Firm elected to early adopt as of January 1, 2018, allows companies to reclassify from AOCI to Retained earnings the stranded tax increasing Additionalpaid-in capital by approximately $45 millioneffects associated with enactment of the Tax Act on December 22, 2017. These stranded tax effects resulted from the requirement to reflect the total amount of the remeasurement of and increasingother adjustments to deferred tax assets by approximately $15 million.and liabilities in 2017 income from continuing operations, regardless of whether the deferred taxes were originally recorded in AOCI. Accordingly, as of January 1, 2018, the Firm recorded a net increase to Retained earnings as a result of the reclassification of $443 million of such stranded tax effects previously recorded in AOCI, which were primarily the result of the remeasurement of deferred tax assets and liabilities associated with the change in tax rates.
Aside from the above treatment related to the Tax Act, the Firm releases stranded tax effects from AOCI into earnings once the related category of instruments or transactions giving rise to these effects no longer exists. For further detail on the tax effects reclassified, refer to Note 14 to the financial statements.
Notes to Consolidated Financial Statements (Unaudited) |
Fair Value Measurement
Assets and Liabilities Measured at Fair Value on a Recurring
Basis
At June 30, 2017 | ||||||||||||||||||||
$ in millions | Level 1 | Level 2 | Level 3 | Netting4 | Total | |||||||||||||||
Assets at Fair Value | ||||||||||||||||||||
Trading assets: | ||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||
U.S. Treasury securities | $ | 27,473 | $ | — | $ | — | $ | — | $ | 27,473 | ||||||||||
U.S. agency securities | 2,148 | 25,832 | — | — | 27,980 | |||||||||||||||
Total U.S. government and agency securities | 29,621 | 25,832 | — | — | 55,453 | |||||||||||||||
Other sovereign government obligations1 | 19,553 | 5,382 | 100 | — | 25,035 | |||||||||||||||
Corporate and other debt: | ||||||||||||||||||||
State and municipal securities | — | 2,572 | 9 | — | 2,581 | |||||||||||||||
Residential mortgage-, commercial mortgage- and asset-backed securities | — | 2,564 | 264 | — | 2,828 | |||||||||||||||
Corporate bonds | — | 15,338 | 449 | — | 15,787 | |||||||||||||||
Collateralized debt and loan obligations | — | 305 | 58 | — | 363 | |||||||||||||||
Loans and lending commitments2 | — | 4,361 | 4,864 | — | 9,225 | |||||||||||||||
Other debt | — | 2,269 | 186 | — | 2,455 | |||||||||||||||
Total corporate and other debt | — | 27,409 | 5,830 | — | 33,239 | |||||||||||||||
Corporate equities3 | 127,252 | 394 | 500 | — | 128,146 | |||||||||||||||
Securities received as collateral | 14,402 | 6 | — | — | 14,408 | |||||||||||||||
Derivative and other contracts: | ||||||||||||||||||||
Interest rate | 623 | 254,677 | 1,850 | — | 257,150 | |||||||||||||||
Credit | — | 9,049 | 423 | — | 9,472 | |||||||||||||||
Foreign exchange | 100 | 54,895 | 62 | — | 55,057 | |||||||||||||||
Equity | 803 | 41,506 | 3,073 | — | 45,382 | |||||||||||||||
Commodity and other | 1,647 | 6,705 | 4,071 | — | 12,423 | |||||||||||||||
Netting4 | (2,976 | ) | (297,356 | ) | (2,360 | ) | (46,652 | ) | (349,344 | ) | ||||||||||
Total derivative and other contracts | 197 | 69,476 | 7,119 | (46,652 | ) | 30,140 | ||||||||||||||
Investments5 | 305 | 243 | 946 | — | 1,494 | |||||||||||||||
Physical commodities | — | 134 | — | — | 134 | |||||||||||||||
Total trading assets5 | 191,330 | 128,876 | 14,495 | (46,652 | ) | 288,049 | ||||||||||||||
Investment securities—AFS | 22,018 | 28,470 | — | — | 50,488 | |||||||||||||||
Securities purchased under agreements to resell | — | 102 | — | — | 102 | |||||||||||||||
Intangible assets | — | 3 | — | — | 3 | |||||||||||||||
Total assets at fair value6 | $ | 213,348 | $ | 157,451 | $ | 14,495 | $ | (46,652 | ) | $ | 338,642 |
At March 31, 2018 | ||||||||||||||||||||
$ in millions | Level 1 | Level 2 | Level 3 | Netting1 | Total | |||||||||||||||
Assets at fair value | ||||||||||||||||||||
Trading assets: | ||||||||||||||||||||
U.S. Treasury and agency securities | $ | 22,675 | $ | 23,430 | $ | — | $ | — | $ | 46,105 | ||||||||||
Other sovereign government obligations | 18,185 | 9,371 | 7 | — | 27,563 | |||||||||||||||
State and municipal securities | — | 3,235 | 2 | — | 3,237 | |||||||||||||||
MABS | — | 1,799 | 342 | — | 2,141 | |||||||||||||||
Loans and lending commitments2 | — | 4,865 | 8,128 | — | 12,993 | |||||||||||||||
Corporate and other debt | — | 21,392 | 814 | — | 22,206 | |||||||||||||||
Corporate equities3 | 120,280 | 494 | 233 | — | 121,007 | |||||||||||||||
Derivative and other contracts: |
| |||||||||||||||||||
Interest rate | 989 | 176,030 | 1,250 | — | 178,269 | |||||||||||||||
Credit | — | 6,971 | 362 | — | 7,333 | |||||||||||||||
Foreign exchange | 45 | 53,504 | 29 | — | 53,578 | |||||||||||||||
Equity | 1,165 | 44,506 | 3,871 | — | 49,542 | |||||||||||||||
Commodity and other | 383 | 6,908 | 4,576 | — | 11,867 | |||||||||||||||
Netting1 | (1,665 | ) | (216,759 | ) | (1,581 | ) | (47,436 | ) | (267,441 | ) | ||||||||||
Total derivative and other contracts | 917 | 71,160 | 8,507 | (47,436 | ) | 33,148 | ||||||||||||||
Investments4 | 482 | 372 | 1,012 | — | 1,866 | |||||||||||||||
Physical commodities | — | 205 | — | — | 205 | |||||||||||||||
Total trading assets4 | 162,539 | 136,323 | 19,045 | (47,436 | ) | 270,471 | ||||||||||||||
Investment securities— AFS | 29,979 | 26,770 | — | — | 56,749 | |||||||||||||||
Intangible assets | — | 3 | — | — | 3 | |||||||||||||||
Total assets at fair value | $ | 192,518 | $ | 163,096 | $ | 19,045 | $ | (47,436 | ) | $ | 327,223 |
At June 30, 2017 | ||||||||||||||||||||
$ in millions | Level 1 | Level 2 | Level 3 | Netting4 | Total | |||||||||||||||
Liabilities at Fair Value | ||||||||||||||||||||
Deposits | $ | — | $ | 51 | $ | 79 | $ | — | $ | 130 | ||||||||||
Short-term borrowings | — | 582 | — | — | 582 | |||||||||||||||
Trading liabilities: | ||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||
U.S. Treasury securities | 16,142 | — | — | — | 16,142 | |||||||||||||||
U.S. agency securities | 439 | 84 | — | — | 523 | |||||||||||||||
Total U.S. government and agency securities | 16,581 | 84 | — | — | 16,665 | |||||||||||||||
Other sovereign government obligations1 | 25,411 | 1,118 | — | — | 26,529 | |||||||||||||||
Corporate and other debt: | ||||||||||||||||||||
Corporate bonds | — | 6,653 | 13 | — | 6,666 | |||||||||||||||
Other debt | — | 316 | 2 | — | 318 | |||||||||||||||
Total corporate and other debt | — | 6,969 | 15 | — | 6,984 | |||||||||||||||
Corporate equities3 | 36,338 | 81 | 27 | — | 36,446 | |||||||||||||||
Obligation to return securities received as collateral | 21,471 | 9 | 1 | — | 21,481 | |||||||||||||||
Derivative and other contracts: | ||||||||||||||||||||
Interest rate | 551 | 233,943 | 880 | — | 235,374 | |||||||||||||||
Credit | — | 9,677 | 728 | — | 10,405 | |||||||||||||||
Foreign exchange | 35 | 58,070 | 60 | — | 58,165 | |||||||||||||||
Equity | 699 | 44,996 | 1,980 | — | 47,675 | |||||||||||||||
Commodity and other | 1,847 | 6,757 | 2,562 | — | 11,166 | |||||||||||||||
Netting4 | (2,976 | ) | (297,356 | ) | (2,360 | ) | (33,388 | ) | (336,080 | ) | ||||||||||
Total derivative and other contracts | 156 | 56,087 | 3,850 | (33,388 | ) | 26,705 | ||||||||||||||
Total trading liabilities | 99,957 | 64,348 | 3,893 | (33,388 | ) | 134,810 | ||||||||||||||
Securities sold under agreements to repurchase | — | 590 | 148 | — | 738 | |||||||||||||||
Other secured financings | — | 5,487 | 244 | — | 5,731 | |||||||||||||||
Long-term borrowings | 67 | 40,513 | 2,646 | — | 43,226 | |||||||||||||||
Total liabilities at fair value6 | $ | 100,024 | $ | 111,571 | $ | 7,010 | $ | (33,388 | ) | $ | 185,217 |
At March 31, 2018 | ||||||||||||||||||||
$ in millions | Level 1 | Level 2 | Level 3 | Netting1 | Total | |||||||||||||||
Liabilities at fair value | ||||||||||||||||||||
Deposits | $ | — | $ | 198 | $ | 44 | $ | — | $ | 242 | ||||||||||
Trading liabilities: | ||||||||||||||||||||
U.S. Treasury and agency securities | 20,182 | 32 | — | — | 20,214 | |||||||||||||||
Other sovereign government obligations | 24,281 | 3,890 | 3 | — | 28,174 | |||||||||||||||
Corporate and other debt | — | 7,886 | 4 | — | 7,890 | |||||||||||||||
Corporate equities3 | 56,667 | 60 | 32 | — | 56,759 | |||||||||||||||
Derivative and other contracts: |
| |||||||||||||||||||
Interest rate | 1,043 | 159,538 | 580 | — | 161,161 | |||||||||||||||
Credit | — | 7,456 | 392 | — | 7,848 | |||||||||||||||
Foreign exchange | 31 | 53,408 | 62 | — | 53,501 | |||||||||||||||
Equity | 1,054 | 46,616 | 2,856 | — | 50,526 | |||||||||||||||
Commodity and other | 543 | 5,680 | 2,916 | — | 9,139 | |||||||||||||||
Netting1 | (1,665 | ) | (216,759 | ) | (1,581 | ) | (36,184 | ) | (256,189 | ) | ||||||||||
Total derivative and other contracts | 1,006 | 55,939 | 5,225 | (36,184 | ) | 25,986 | ||||||||||||||
Total trading liabilities | 102,136 | 67,807 | 5,264 | (36,184 | ) | 139,023 | ||||||||||||||
Securities sold under agreements to repurchase | — | 792 | — | — | 792 | |||||||||||||||
Other secured financings | — | 3,203 | 220 | — | 3,423 | |||||||||||||||
Borrowings | — | 43,907 | 3,626 | — | 47,533 | |||||||||||||||
Total liabilities at fair value | $ | 102,136 | $ | 115,907 | $ | 9,154 | $ | (36,184 | ) | $ | 191,013 |
Notes to Consolidated Financial Statements (Unaudited) |
At December 31, 2016 | ||||||||||||||||||||
$ in millions | Level 1 | Level 2 | Level 3 | Netting4 | Total | |||||||||||||||
Assets at Fair Value | ||||||||||||||||||||
Trading assets: | ||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||
U.S. Treasury securities | $ | 25,457 | $ | — | $ | — | $ | — | $ | 25,457 | ||||||||||
U.S. agency securities | 2,122 | 20,392 | 74 | — | 22,588 | |||||||||||||||
Total U.S. government and agency securities | 27,579 | 20,392 | 74 | — | 48,045 | |||||||||||||||
Other sovereign government obligations | 14,005 | 5,497 | 6 | — | 19,508 | |||||||||||||||
Corporate and other debt: | ||||||||||||||||||||
State and municipal securities | — | 2,355 | 250 | — | 2,605 | |||||||||||||||
Residential mortgage-, commercial mortgage- and asset-backed securities | — | 1,691 | 217 | — | 1,908 | |||||||||||||||
Corporate bonds | — | 11,051 | 232 | — | 11,283 | |||||||||||||||
Collateralized debt and loan obligations | — | 602 | 63 | — | 665 | |||||||||||||||
Loans and lending commitments2 | — | 3,580 | 5,122 | — | 8,702 | |||||||||||||||
Other debt | — | 1,360 | 180 | — | 1,540 | |||||||||||||||
Total corporate and other debt | — | 20,639 | 6,064 | — | 26,703 | |||||||||||||||
Corporate equities3 | 117,857 | 333 | 445 | — | 118,635 | |||||||||||||||
Securities received as collateral | 13,717 | 19 | 1 | — | 13,737 | |||||||||||||||
Derivative and other contracts: | ||||||||||||||||||||
Interest rate | 1,131 | 300,406 | 1,373 | — | 302,910 | |||||||||||||||
Credit | — | 11,727 | 502 | — | 12,229 | |||||||||||||||
Foreign exchange | 231 | 74,921 | 13 | — | 75,165 | |||||||||||||||
Equity | 1,185 | 35,736 | 1,708 | — | 38,629 | |||||||||||||||
Commodity and other | 2,808 | 6,734 | 3,977 | — | 13,519 | |||||||||||||||
Netting4 | (4,378 | ) | (353,543 | ) | (1,944 | ) | (51,381 | ) | (411,246 | ) | ||||||||||
Total derivative and other contracts | 977 | 75,981 | 5,629 | (51,381 | ) | 31,206 | ||||||||||||||
Investments5 | 237 | 197 | 958 | — | 1,392 | |||||||||||||||
Physical commodities | — | 112 | — | — | 112 | |||||||||||||||
Total trading assets5 | 174,372 | 123,170 | 13,177 | (51,381 | ) | 259,338 | ||||||||||||||
Investment securities—AFS | 29,120 | 34,050 | — | — | 63,170 | |||||||||||||||
Securities purchased under agreements to resell | — | 302 | — | — | 302 | |||||||||||||||
Intangible assets | — | 3 | — | — | 3 | |||||||||||||||
Total assets at fair value6 | $ | 203,492 | $ | 157,525 | $ | 13,177 | $ | (51,381 | ) | $ | 322,813 |
At December 31, 2017 | ||||||||||||||||||||
$ in millions | Level 1 | Level 2 | Level 3 | Netting1 | Total | |||||||||||||||
Assets at fair value | ||||||||||||||||||||
Trading assets: | ||||||||||||||||||||
U.S. Treasury and agency securities | $ | 22,077 | $ | 26,888 | $ | — | $ | — | $ | 48,965 | ||||||||||
Other sovereign government obligations | 20,234 | 7,825 | 1 | — | 28,060 | |||||||||||||||
State and municipal securities | — | 3,592 | 8 | — | 3,600 | |||||||||||||||
MABS | — | 2,364 | 423 | — | 2,787 | |||||||||||||||
Loans and lending commitments2 | — | 4,791 | 5,945 | — | 10,736 | |||||||||||||||
Corporate and other debt | — | 16,837 | 701 | — | 17,538 | |||||||||||||||
Corporate equities3 | 149,697 | 492 | 166 | — | 150,355 | |||||||||||||||
Derivative and other contracts: |
| |||||||||||||||||||
Interest rate | 472 | 178,704 | 1,763 | — | 180,939 | |||||||||||||||
Credit | — | 7,602 | 420 | — | 8,022 | |||||||||||||||
Foreign exchange | 58 | 53,724 | 15 | — | 53,797 | |||||||||||||||
Equity | 1,101 | 40,359 | 3,530 | — | 44,990 | |||||||||||||||
Commodity and other | 1,126 | 5,390 | 4,147 | — | 10,663 | |||||||||||||||
Netting1 | (2,088 | ) | (216,764 | ) | (1,575 | ) | (47,171 | ) | (267,598 | ) | ||||||||||
Total derivative and other contracts | 669 | 69,015 | 8,300 | (47,171 | ) | 30,813 | ||||||||||||||
Investments4 | 297 | 523 | 1,020 | — | 1,840 | |||||||||||||||
Physical commodities | — | 1,024 | — | — | 1,024 | |||||||||||||||
Total trading assets4 | 192,974 | 133,351 | 16,564 | (47,171 | ) | 295,718 | ||||||||||||||
Investment securities— AFS | 27,522 | 27,681 | — | — | 55,203 | |||||||||||||||
Intangible assets | — | 3 | — | — | 3 | |||||||||||||||
Total assets at fair value | $ | 220,496 | $ | 161,035 | $ | 16,564 | $ | (47,171 | ) | $ | 350,924 |
At December 31, 2016 | At December 31, 2017 | |||||||||||||||||||||||||||||||||||||||
$ in millions | Level 1 | Level 2 | Level 3 | Netting4 | Total | Level 1 | Level 2 | Level 3 | Netting1 | Total | ||||||||||||||||||||||||||||||
Liabilities at Fair Value | ||||||||||||||||||||||||||||||||||||||||
Liabilities at fair value | ||||||||||||||||||||||||||||||||||||||||
Deposits | $ | — | $ | 21 | $ | 42 | $ | — | $ | 63 | $ | — | $ | 157 | $ | 47 | $ | — | $ | 204 | ||||||||||||||||||||
Short-term borrowings | — | 404 | 2 | — | 406 | |||||||||||||||||||||||||||||||||||
Trading liabilities: | ||||||||||||||||||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities | 10,745 | — | — | — | 10,745 | |||||||||||||||||||||||||||||||||||
U.S. agency securities | 891 | 61 | — | — | 952 | |||||||||||||||||||||||||||||||||||
Total U.S. government and agency securities | 11,636 | 61 | — | — | 11,697 | |||||||||||||||||||||||||||||||||||
U.S. Treasury and agency securities | 17,802 | 24 | — | — | 17,826 | |||||||||||||||||||||||||||||||||||
Other sovereign government obligations | 20,658 | 2,430 | — | — | 23,088 | 24,857 | 2,016 | — | — | 26,873 | ||||||||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||||||||||
Corporate bonds | — | 5,572 | 34 | — | 5,606 | |||||||||||||||||||||||||||||||||||
Other debt | — | 549 | 2 | — | 551 | |||||||||||||||||||||||||||||||||||
Total corporate and other debt | — | 6,121 | 36 | — | 6,157 | |||||||||||||||||||||||||||||||||||
Corporate and other debt | — | 7,141 | 3 | — | 7,144 | |||||||||||||||||||||||||||||||||||
Corporate equities3 | 37,611 | 29 | 34 | — | 37,674 | 52,653 | 82 | 22 | — | 52,757 | ||||||||||||||||||||||||||||||
Obligation to return securities received as collateral | 20,236 | 25 | 1 | — | 20,262 | |||||||||||||||||||||||||||||||||||
Derivative and other contracts: | Derivative and other contracts: |
| ||||||||||||||||||||||||||||||||||||||
Interest rate | 1,244 | 285,379 | 953 | — | 287,576 | 364 | 162,239 | 545 | — | 163,148 | ||||||||||||||||||||||||||||||
Credit | — | 12,550 | 875 | — | 13,425 | — | 8,166 | 379 | — | 8,545 | ||||||||||||||||||||||||||||||
Foreign exchange | 17 | 75,510 | 56 | — | 75,583 | 23 | 55,118 | 127 | — | 55,268 | ||||||||||||||||||||||||||||||
Equity | 1,162 | 37,828 | 1,524 | — | 40,514 | 1,001 | 44,666 | 2,322 | — | 47,989 | ||||||||||||||||||||||||||||||
Commodity and other | 2,663 | 6,845 | 2,377 | — | 11,885 | 1,032 | 5,156 | 2,701 | — | 8,889 | ||||||||||||||||||||||||||||||
Netting4 | (4,378 | ) | (353,543 | ) | (1,944 | ) | (39,803 | ) | (399,668 | ) | ||||||||||||||||||||||||||||||
Netting1 | (2,088 | ) | (216,764 | ) | (1,575 | ) | (36,717 | ) | (257,144 | ) | ||||||||||||||||||||||||||||||
Total derivative and other contracts | 708 | 64,569 | 3,841 | (39,803 | ) | 29,315 | 332 | 58,581 | 4,499 | (36,717 | ) | 26,695 | ||||||||||||||||||||||||||||
Physical commodities | — | 1 | — | — | 1 | |||||||||||||||||||||||||||||||||||
Total trading liabilities | 90,849 | 73,236 | 3,912 | (39,803 | ) | 128,194 | 95,644 | 67,844 | 4,524 | (36,717 | ) | 131,295 | ||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | — | 580 | 149 | — | 729 | — | 650 | 150 | — | 800 | ||||||||||||||||||||||||||||||
Other secured financings | — | 4,607 | 434 | — | 5,041 | — | 3,624 | 239 | — | 3,863 | ||||||||||||||||||||||||||||||
Long-term borrowings | 47 | 36,677 | 2,012 | — | 38,736 | |||||||||||||||||||||||||||||||||||
Total liabilities at fair value6 | $ | 90,896 | $ | 115,525 | $ | 6,551 | $ | (39,803 | ) | $ | 173,169 | |||||||||||||||||||||||||||||
Borrowings | — | 43,928 | 2,984 | — | 46,912 | |||||||||||||||||||||||||||||||||||
Total liabilities at fair value | $ | 95,644 | $ | 116,203 | $ | 7,944 | $ | (36,717 | ) | $ | 183,074 |
AFS—Available for sale
|
|
|
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 “Netting.” |
For a further breakdown by type, see the following Loans and Lending Commitments at Fair Value table. |
3. | For trading purposes, the Firm holds or sells short equity securities issued by entities in diverse industries and of varying sizes. |
4. | Amounts exclude certain investments that are measured |
|
Loans and Lending Commitments at Fair Value
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Corporate | $ | 9,346 | $ | 8,358 | ||||
Residential real estate | 706 | 799 | ||||||
Wholesale real estate | 2,941 | 1,579 | ||||||
Total | $ | 12,993 | $ | 10,736 |
Notes to Consolidated Financial Statements (Unaudited) |
Unsettled Fair Value of Futures Contracts1
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Customer and other receivables, net | $ | 714 | $ | 831 |
1. | These contracts are primarily Level 1, actively traded, valued based on quoted prices from the exchange and are excluded from the previous recurring fair value tables. |
For a description of the valuation techniques applied to the Firm’s major categories of assets and liabilities measured at fair value on a recurring basis, see Note 3 to the consolidated financial statements in the 20162017 Form10-K. During the current quarter, there were no significant updatesrevisions made to the Firm’s valuation techniques.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present additional information about Level 3 assets and liabilities measured at fair value on a
recurring basis for the three months ended June 30, 2017 (“current quarter”), the three months ended June 30, 2016 (“prior year quarter”), the current year period and the six months ended June 30, 2016 (“prior year period”).basis. Level 3 instruments may be hedged with instruments classified in Level 1 and Level 2. As a result, the realized and unrealized gains (losses) for assets and liabilities within the Level 3 category presented in the following tables do not reflect the related realized and unrealized gains (losses) on hedging instruments that have been classified by the Firm within the Level 1 and/or Level 2 categories.
Additionally, both observable and unobservable inputs may be used to determine the fair value of positions that the Firm has classified within the Level 3 category. As a result, the unrealized gains (losses) during the period for assets and liabilities within the Level 3 category presented in the following tables herein may include changes in fair value during the period that were attributable to both observable and unobservable inputs. Total realized and unrealized gains (losses) are primarily included in Trading revenues in the consolidated income statements.
Roll-forward
Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Current Quarter
$ in millions | Beginning Balance at March 31, 2017 | Realized and Unrealized Gains (Losses) | Purchases1 | Sales and Issuances2 | Settlements1 | Net Transfers | Ending Balance at June 30, 2017 | Unrealized Gains (Losses) at June 30, 2017 | ||||||||||||||||||||||||
Assets at Fair Value | ||||||||||||||||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||||||||||
U.S. agency securities | $ | 42 | $ | — | $ | — | $ | — | $ | — | $ | (42 | ) | $ | — | $ | — | |||||||||||||||
Other sovereign government obligations | 65 | — | 87 | (52 | ) | — | — | 100 | — | |||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
State and municipal securities | 55 | 3 | 3 | (52 | ) | — | — | 9 | — | |||||||||||||||||||||||
Residential mortgage-, commercial mortgage- and asset backed securities | 216 | 36 | 32 | (44 | ) | (5 | ) | 29 | 264 | 8 | ||||||||||||||||||||||
Corporate bonds | 445 | 2 | 144 | (161 | ) | — | 19 | 449 | (2 | ) | ||||||||||||||||||||||
Collateralized debt and loan obligations | 78 | (2 | ) | 5 | (23 | ) | (1 | ) | 1 | 58 | (2 | ) | ||||||||||||||||||||
Loans and lending commitments | 4,479 | 27 | 1,242 | (417 | ) | (581 | ) | 114 | 4,864 | 11 | ||||||||||||||||||||||
Other debt | 194 | 33 | 57 | (108 | ) | — | 10 | 186 | 30 | |||||||||||||||||||||||
Total corporate and other debt | 5,467 | 99 | 1,483 | (805 | ) | (587 | ) | 173 | 5,830 | 45 | ||||||||||||||||||||||
Corporate equities | 309 | 8 | 101 | (59 | ) | — | 141 | 500 | 9 | |||||||||||||||||||||||
Securities received as collateral | 1 | — | — | (1 | ) | — | — | — | — | |||||||||||||||||||||||
Net derivative and other contracts3: | ||||||||||||||||||||||||||||||||
Interest rate | 298 | 35 | 28 | (27 | ) | 637 | (1 | ) | 970 | 58 | ||||||||||||||||||||||
Credit | (351 | ) | 28 | — | — | 16 | 2 | (305 | ) | 24 | ||||||||||||||||||||||
Foreign exchange | (71 | ) | 53 | 1 | (1 | ) | 22 | (2 | ) | 2 | 64 | |||||||||||||||||||||
Equity | 217 | 185 | 677 | (171 | ) | 80 | 105 | 1,093 | 189 | |||||||||||||||||||||||
Commodity and other | 1,503 | 154 | 3 | — | (108 | ) | (43 | ) | 1,509 | 79 | ||||||||||||||||||||||
Total net derivative and other contracts | 1,596 | 455 | 709 | (199 | ) | 647 | 61 | 3,269 | 414 | |||||||||||||||||||||||
Investments | 961 | 11 | 20 | (25 | ) | 4 | (25 | ) | 946 | 7 | ||||||||||||||||||||||
Liabilities at Fair Value | ||||||||||||||||||||||||||||||||
Deposits | $ | 56 | $ | — | $ | — | $ | 23 | $ | — | $ | — | $ | 79 | $ | — | ||||||||||||||||
Trading liabilities: | ||||||||||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
Corporate bonds | 34 | — | (135 | ) | 124 | — | (10 | ) | 13 | (1 | ) | |||||||||||||||||||||
Other debt | 2 | — | — | — | — | — | 2 | — | ||||||||||||||||||||||||
Total corporate and other debt | 36 | — | (135 | ) | 124 | — | (10 | ) | 15 | (1 | ) | |||||||||||||||||||||
Corporate equities | — | (12 | ) | (34 | ) | 44 | — | 5 | 27 | (11 | ) | |||||||||||||||||||||
Obligation to return securities received as collateral | 2 | — | (2 | ) | 1 | — | — | 1 | — | |||||||||||||||||||||||
Securities sold under agreements to repurchase | 148 | — | — | — | — | — | 148 | — | ||||||||||||||||||||||||
Other secured financings | 203 | (4 | ) | — | 38 | (1 | ) | — | 244 | (4 | ) | |||||||||||||||||||||
Long-term borrowings | 2,092 | (45 | ) | — | 694 | (145 | ) | (40 | ) | 2,646 | (49 | ) |
|
$ in millions | Beginning Balance at March 31, 2016 | Realized and Unrealized Gains (Losses) | Purchases1 | Sales and Issuances2 | Settlements1 | Net Transfers | Ending Balance at June 30, 2016 | Unrealized Gains (Losses) at June 30, 2016 | ||||||||||||||||||||||||
Assets at Fair Value | ||||||||||||||||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||||||||||
U.S. agency securities | $ | 8 | $ | — | $ | — | $ | (18 | ) | $ | — | $ | 30 | $ | 20 | $ | — | |||||||||||||||
Other sovereign government obligations | 8 | — | — | (3 | ) | — | (3 | ) | 2 | — | ||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
State and municipal securities | 5 | 1 | 4 | — | — | — | 10 | 2 | ||||||||||||||||||||||||
Residential mortgage-, commercial mortgage- and asset backed securities | 355 | (4 | ) | 7 | (87 | ) | — | 84 | 355 | (14 | ) | |||||||||||||||||||||
Corporate bonds | 224 | 17 | 116 | (35 | ) | — | (46 | ) | 276 | 17 | ||||||||||||||||||||||
Collateralized debt and loan obligations | 348 | 18 | 3 | (178 | ) | — | (82 | ) | 109 | 18 | ||||||||||||||||||||||
Loans and lending commitments | 6,185 | (46 | ) | 360 | (484 | ) | (596 | ) | (1 | ) | 5,418 | (55 | ) | |||||||||||||||||||
Other debt | 527 | 4 | 13 | (19 | ) | — | 3 | 528 | 2 | |||||||||||||||||||||||
Total corporate and other debt | 7,644 | (10 | ) | 503 | (803 | ) | (596 | ) | (42 | ) | 6,696 | (30 | ) | |||||||||||||||||||
Corporate equities | 430 | (63 | ) | 273 | (82 | ) | — | 14 | 572 | (63 | ) | |||||||||||||||||||||
Net derivative and other contracts3: | ||||||||||||||||||||||||||||||||
Interest rate | 169 | (159 | ) | 2 | (7 | ) | 42 | (282 | ) | (235 | ) | (157 | ) | |||||||||||||||||||
Credit | (723 | ) | 65 | 1 | — | 93 | (550 | ) | (1,114 | ) | 53 | |||||||||||||||||||||
Foreign exchange | 126 | (58 | ) | — | — | (94 | ) | 25 | (1 | ) | (47 | ) | ||||||||||||||||||||
Equity | (1,832 | ) | 168 | 50 | (140 | ) | 263 | 18 | (1,473 | ) | (106 | ) | ||||||||||||||||||||
Commodity and other | 1,200 | 211 | 5 | �� | (4 | ) | (88 | ) | (37 | ) | 1,287 | 130 | ||||||||||||||||||||
Total net derivative and other contracts | (1,060 | ) | 227 | 58 | (151 | ) | 216 | (826 | ) | (1,536 | ) | (127 | ) | |||||||||||||||||||
Investments | 922 | 5 | 58 | (11 | ) | — | — | 974 | 7 | |||||||||||||||||||||||
Intangible assets | 4 | — | — | — | — | (4 | ) | — | — | |||||||||||||||||||||||
Liabilities at Fair Value | ||||||||||||||||||||||||||||||||
Deposits | $ | 23 | $ | (1 | ) | $ | — | $ | 8 | $ | — | $ | (2 | ) | $ | 30 | $ | (1 | ) | |||||||||||||
Trading liabilities: | ||||||||||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
Corporate bonds | 6 | (1 | ) | (5 | ) | 29 | — | (25 | ) | 6 | (1 | ) | ||||||||||||||||||||
Other debt | 5 | 1 | (1 | ) | — | — | — | 3 | — | |||||||||||||||||||||||
Total corporate and other debt | 11 | — | (6 | ) | 29 | — | (25 | ) | 9 | (1 | ) | |||||||||||||||||||||
Corporate equities | 31 | (28 | ) | (33 | ) | 5 | — | (5 | ) | 26 | — | |||||||||||||||||||||
Obligation to return securities received as collateral | 1 | — | (1 | ) | — | — | — | — | — | |||||||||||||||||||||||
Securities sold under agreements to repurchase | 151 | 1 | — | — | — | — | 150 | 1 | ||||||||||||||||||||||||
Other secured financings | 454 | (14 | ) | — | 23 | (22 | ) | (28 | ) | 441 | (14 | ) | ||||||||||||||||||||
Long-term borrowings | 1,798 | 21 | — | 164 | (131 | ) | 119 | 1,929 | 26 |
|
$ in millions | Beginning Balance at December 31, 2016 | Realized and Unrealized Gains (Losses) | Purchases1 | Sales and Issuances2 | Settlements1 | Net Transfers | Ending Balance at June 30, 2017 | Unrealized Gains (Losses) at June 30, 2017 | ||||||||||||||||||||||||
Assets at Fair Value | ||||||||||||||||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||||||||||
U.S. agency securities | $ | 74 | $ | (1 | ) | $ | — | $ | (240 | ) | $ | — | $ | 167 | $ | — | $ | — | ||||||||||||||
Other sovereign government obligations | 6 | — | 98 | (4 | ) | — | — | 100 | — | |||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
State and municipal securities | 250 | 3 | 3 | (77 | ) | — | (170 | ) | 9 | — | ||||||||||||||||||||||
Residential mortgage-, commercial mortgage- and asset backed securities | 217 | 44 | 78 | (83 | ) | (16 | ) | 24 | 264 | 27 | ||||||||||||||||||||||
Corporate bonds | 232 | (2 | ) | 241 | (98 | ) | — | 76 | 449 | (1 | ) | |||||||||||||||||||||
Collateralized debt and loan obligations | 63 | (3 | ) | 11 | (12 | ) | (2 | ) | 1 | 58 | (3 | ) | ||||||||||||||||||||
Loans and lending commitments | 5,122 | 89 | 1,596 | (1,002 | ) | (1,146 | ) | 205 | 4,864 | 41 | ||||||||||||||||||||||
Other debt | 180 | 36 | 38 | (115 | ) | — | 47 | 186 | 34 | |||||||||||||||||||||||
Total corporate and other debt | 6,064 | 167 | 1,967 | (1,387 | ) | (1,164 | ) | 183 | 5,830 | 98 | ||||||||||||||||||||||
Corporate equities | 445 | 10 | 97 | (158 | ) | — | 106 | 500 | 15 | |||||||||||||||||||||||
Securities received as collateral | 1 | — | — | (1 | ) | — | — | — | — | |||||||||||||||||||||||
Net derivative and other contracts3: | ||||||||||||||||||||||||||||||||
Interest rate | 420 | (66 | ) | 47 | (27 | ) | 652 | (56 | ) | 970 | (55 | ) | ||||||||||||||||||||
Credit | (373 | ) | 1 | — | — | 62 | 5 | (305 | ) | (13 | ) | |||||||||||||||||||||
Foreign exchange | (43 | ) | 23 | 1 | (1 | ) | 8 | 14 | 2 | 43 | ||||||||||||||||||||||
Equity | 184 | 118 | 758 | (158 | ) | 121 | 70 | 1,093 | 200 | |||||||||||||||||||||||
Commodity and other | 1,600 | 104 | 9 | (19 | ) | (188 | ) | 3 | 1,509 | (76 | ) | |||||||||||||||||||||
Total net derivative and other contracts | 1,788 | 180 | 815 | (205 | ) | 655 | 36 | 3,269 | 99 | |||||||||||||||||||||||
Investments | 958 | 19 | 82 | (28 | ) | (63 | ) | (22 | ) | 946 | 11 | |||||||||||||||||||||
Liabilities at Fair Value | ||||||||||||||||||||||||||||||||
Deposits | $ | 42 | $ | (1 | ) | $ | — | $ | 36 | $ | — | $ | — | $ | 79 | $ | (1 | ) | ||||||||||||||
Short-term borrowings | 2 | — | — | — | (2 | ) | — | — | — | |||||||||||||||||||||||
Trading liabilities: | ||||||||||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
Corporate bonds | 34 | — | (164 | ) | 129 | — | 14 | 13 | — | |||||||||||||||||||||||
Other debt | 2 | — | — | — | — | — | 2 | — | ||||||||||||||||||||||||
Total corporate and other debt | 36 | — | (164 | ) | 129 | — | 14 | 15 | — | |||||||||||||||||||||||
Corporate equities | 34 | — | (63 | ) | 5 | — | 51 | 27 | — | |||||||||||||||||||||||
Obligation to return securities received as collateral | 1 | — | — | — | — | — | 1 | — | ||||||||||||||||||||||||
Securities sold under agreements to repurchase | 149 | 1 | — | — | — | — | 148 | 1 | ||||||||||||||||||||||||
Other secured financings | 434 | (23 | ) | — | 52 | (221 | ) | (44 | ) | 244 | (16 | ) | ||||||||||||||||||||
Long-term borrowings | 2,012 | (104 | ) | — | 981 | (286 | ) | (165 | ) | 2,646 | (95 | ) |
|
$ in millions | Beginning Balance at December 31, 2015 | Realized and Unrealized Gains (Losses) | Purchases1 | Sales and Issuances2 | Settlements1 | Net Transfers | Ending Balance at June 30, 2016 | Unrealized Gains (Losses) at June 30, 2016 | Beginning Balance at December 31, 2017 | Realized and Unrealized Gains (Losses) | Purchases1 | Sales and Issuances2 | Settlements1 | Net Transfers | Ending Balance at March 31, 2018 | Unrealized Gains (Losses) | ||||||||||||||||||||||||||||||||||||||||||||||||
Assets at Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. agency securities | $ | — | $ | 1 | $ | — | $ | (19 | ) | $ | — | $ | 38 | $ | 20 | $ | 1 | |||||||||||||||||||||||||||||||||||||||||||||||
Other sovereign government obligations | 4 | — | — | (5 | ) | — | 3 | 2 | 1 | $ | 1 | $ | — | $ | 7 | $ | — | $ | — | $ | (1 | ) | $ | 7 | $ | — | ||||||||||||||||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
State and municipal securities | 19 | 1 | 4 | (15 | ) | — | 1 | 10 | 1 | 8 | — | 1 | (7 | ) | — | — | 2 | — | ||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage-, commercial mortgage- and asset backed securities | 438 | (36 | ) | 26 | (170 | ) | — | 97 | 355 | (33 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | 267 | 62 | 113 | (128 | ) | — | (38 | ) | 276 | 61 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Collateralized debt and loan obligations | 430 | 5 | 22 | (224 | ) | — | (124 | ) | 109 | 17 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
MABS | 423 | 77 | 64 | (238 | ) | (16 | ) | 32 | 342 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans and lending commitments | 5,936 | (111 | ) | 970 | (720 | ) | (672 | ) | 15 | 5,418 | (121 | ) | 5,945 | 28 | 3,740 | (283 | ) | (1,218 | ) | (84 | ) | 8,128 | (9 | ) | ||||||||||||||||||||||||||||||||||||||||
Other debt | 448 | (2 | ) | 133 | (63 | ) | — | 12 | 528 | (2 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total corporate and other debt | 7,538 | (81 | ) | 1,268 | (1,320 | ) | (672 | ) | (37 | ) | 6,696 | (77 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate and other debt | 701 | 1 | 350 | (243 | ) | — | 5 | 814 | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate equities | 433 | (45 | ) | 296 | (119 | ) | — | 7 | 572 | (64 | ) | 166 | — | 166 | (132 | ) | — | 33 | 233 | (9 | ) | |||||||||||||||||||||||||||||||||||||||||||
Securities received as collateral | 1 | — | — | (1 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net derivative and other contracts3: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate | 260 | 305 | 3 | (21 | ) | (60 | ) | (722 | ) | (235 | ) | 205 | 1,218 | 52 | 32 | (41 | ) | (81 | ) | (510 | ) | 670 | 75 | |||||||||||||||||||||||||||||||||||||||||
Credit | (844 | ) | (343 | ) | 1 | — | 153 | (81 | ) | (1,114 | ) | (360 | ) | 41 | (107 | ) | — | — | 38 | (2 | ) | (30 | ) | (109 | ) | |||||||||||||||||||||||||||||||||||||||
Foreign exchange | 141 | (109 | ) | — | — | (201 | ) | 168 | (1 | ) | (82 | ) | (112 | ) | 57 | — | (31 | ) | 33 | 20 | (33 | ) | (9 | ) | ||||||||||||||||||||||||||||||||||||||||
Equity | (2,031 | ) | (321 | ) | 71 | (184 | ) | 1,121 | (129 | ) | (1,473 | ) | (434 | ) | 1,208 | 356 | 142 | (799 | ) | 159 | (51 | ) | 1,015 | 315 | ||||||||||||||||||||||||||||||||||||||||
Commodity and other | 1,050 | 297 | 7 | (4 | ) | (176 | ) | 113 | 1,287 | 210 | 1,446 | 217 | 13 | (6 | ) | (57 | ) | 47 | 1,660 | 149 | ||||||||||||||||||||||||||||||||||||||||||||
Total net derivative and other contracts | (1,424 | ) | (171 | ) | 82 | (209 | ) | 837 | (651 | ) | (1,536 | ) | (461 | ) | 3,801 | 575 | 187 | (877 | ) | 92 | (496 | ) | 3,282 | 421 | ||||||||||||||||||||||||||||||||||||||||
Investments | 707 | (56 | ) | 404 | (40 | ) | (41 | ) | — | 974 | (53 | ) | 1,020 | 44 | 21 | (78 | ) | — | 5 | 1,012 | 22 | |||||||||||||||||||||||||||||||||||||||||||
Intangible assets | 5 | — | — | — | — | (5 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities at Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | $ | 19 | $ | (2 | ) | $ | — | $ | 13 | $ | — | $ | (4 | ) | $ | 30 | $ | (2 | ) | $ | 47 | $ | 1 | $ | — | $ | 9 | $ | (1 | ) | $ | (10 | ) | $ | 44 | $ | 1 | |||||||||||||||||||||||||||
Short-term borrowings | 1 | — | — | — | (1 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | — | (5 | ) | (7 | ) | 10 | — | (2 | ) | 6 | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other debt | 4 | 2 | (3 | ) | 4 | — | — | 3 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total corporate and other debt | 4 | (3 | ) | (10 | ) | 14 | — | (2 | ) | 9 | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other sovereign government obligations | — | — | — | 3 | — | — | 3 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate and other debt | 3 | — | (2 | ) | 1 | — | 2 | 4 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate equities | 17 | (3 | ) | (22 | ) | 18 | — | 10 | 26 | (3 | ) | 22 | 4 | (5 | ) | 11 | — | 8 | 32 | 4 | ||||||||||||||||||||||||||||||||||||||||||||
Obligation to return securities received as collateral | 1 | — | (1 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 151 | 1 | — | — | — | — | 150 | 1 | 150 | — | — | — | — | (150 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Other secured financings | 461 | (32 | ) | — | 69 | (43 | ) | (78 | ) | 441 | (32 | ) | 239 | 13 | — | 4 | (10 | ) | — | 220 | 13 | |||||||||||||||||||||||||||||||||||||||||||
Long-term borrowings | 1,987 | (12 | ) | — | 276 | (167 | ) | (179 | ) | 1,929 | (6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings | 2,984 | 102 | — | 640 | (83 | ) | 187 | 3,626 | 99 |
1. | Loan originations and consolidations of VIEs are included in |
2. | Amounts related to entering into Net |
3. | Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts. Amounts are presented before counterparty netting. |
March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Prior Year Quarter
$ in millions | Beginning Balance at December 31, 2016 | Realized and Unrealized Gains (Losses) | Purchases1 | Sales and Issuances2 | Settlements1 | Net Transfers | Ending Balance at March 31, 2017 | Unrealized Gains (Losses) | ||||||||||||||||||||||||
Assets at fair value | ||||||||||||||||||||||||||||||||
Trading assets: | ||||||||||||||||||||||||||||||||
U.S. Treasury and agency securities | $ | 74 | $ | — | $ | 42 | $ | (241 | ) | $ | — | $ | 167 | $ | 42 | $ | — | |||||||||||||||
Other sovereign government obligations | 6 | — | 61 | (2 | ) | — | — | 65 | — | |||||||||||||||||||||||
State and municipal securities | 250 | — | 2 | (2 | ) | — | (195 | ) | 55 | — | ||||||||||||||||||||||
MABS | 217 | 7 | 39 | (56 | ) | (11 | ) | 20 | 216 | (1 | ) | |||||||||||||||||||||
Loans and lending commitments | 5,122 | 53 | 757 | (555 | ) | (985 | ) | 87 | 4,479 | 39 | ||||||||||||||||||||||
Corporate and other debt | 475 | 21 | 262 | (142 | ) | (1 | ) | 102 | 717 | 3 | ||||||||||||||||||||||
Corporate equities | 446 | (1 | ) | 41 | (105 | ) | — | (71 | ) | 310 | 3 | |||||||||||||||||||||
Net derivative and other contracts3: | ||||||||||||||||||||||||||||||||
Interest rate | 420 | (114 | ) | 46 | (24 | ) | 16 | (46 | ) | 298 | (127 | ) | ||||||||||||||||||||
Credit | (373 | ) | (25 | ) | 6 | (5 | ) | 41 | 5 | (351 | ) | (33 | ) | |||||||||||||||||||
Foreign exchange | (43 | ) | (36 | ) | 1 | — | 11 | (4 | ) | (71 | ) | (20 | ) | |||||||||||||||||||
Equity | 184 | (144 | ) | 83 | (121 | ) | 231 | (16 | ) | 217 | (81 | ) | ||||||||||||||||||||
Commodity and other | 1,600 | 127 | 6 | (28 | ) | (69 | ) | (133 | ) | 1,503 | 34 | |||||||||||||||||||||
Total net derivative and other contracts | 1,788 | (192 | ) | 142 | (178 | ) | 230 | (194 | ) | 1,596 | (227 | ) | ||||||||||||||||||||
Investments | 958 | 8 | 62 | (3 | ) | (66 | ) | 2 | 961 | 8 | ||||||||||||||||||||||
Liabilities at fair value | ||||||||||||||||||||||||||||||||
Deposits | $ | 42 | $ | (1 | ) | $ | — | $ | 13 | $ | — | $ | — | $ | 56 | $ | (1 | ) | ||||||||||||||
Trading liabilities: | ||||||||||||||||||||||||||||||||
Corporate and other debt | 36 | (1 | ) | (119 | ) | 101 | — | 17 | 36 | (1 | ) | |||||||||||||||||||||
Corporate equities | 35 | 12 | (68 | ) | 26 | — | 21 | 2 | — | |||||||||||||||||||||||
Securities sold under agreements to repurchase | 149 | 1 | — | — | — | — | 148 | 1 | ||||||||||||||||||||||||
Other secured financings | 434 | (19 | ) | — | 13 | (220 | ) | (43 | ) | 203 | (12 | ) | ||||||||||||||||||||
Borrowings | 2,014 | (59 | ) | — | 270 | (165 | ) | (86 | ) | 2,092 | (58 | ) |
1. | Loan originations and consolidations of VIEs are included in Purchases and deconsolidations of VIEs are included in Settlements. |
2. | Amounts related to entering into Net derivative and other contracts, Deposits, Other secured financings and Borrowings primarily represent issuances. Amounts for other line items primarily represent sales. |
3. | Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts. Amounts are presented before counterparty netting. |
Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements
The following disclosures provide information on the valuation techniques, significant unobservable inputs, and their ranges and averages for each major category of assets and liabilities measured at fair value on a recurring and nonrecurring basis with a significant Level 3 balance. The level of aggregation and breadth of products cause the range of inputs to be wide and not evenly distributed across the inventory. Further, the range of unobservable inputs may differ across firms in the financial services industry because of diversity in the types of products included in each firm’s inventory. For qualitative information on the sensitivity of the fair value measurements to changes in the significant unobservable inputs, see Note 3 to the consolidated financial statements in the 20162017 Form 10-K. There are no predictable relationships between multiple significant unobservable inputs attributable to a given valuation technique. A single amount is disclosed when there is no significant difference between the minimum, maximum and average (weighted average or simple average / average/median).
Valuation Techniques and Sensitivity of Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements
Predominant Valuation Techniques/Significant Unobservable Inputs | Range (Weighted Averages or Simple Averages/Median)1 | |||||
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||
Recurring Fair Value Measurement | ||||||
Assets at Fair Value | ||||||
U.S. agency securities ($- and $74) | ||||||
Comparable pricing: | Comparable bond price | N/A | 96 to 105 points (102 points) | |||
Other sovereign government obligations ($100 and $6) | ||||||
Comparable pricing: | Comparable bond price | 92 to 99 points (96 points) | N/M | |||
State and municipal securities ($9 and $250) | ||||||
Comparable pricing: | Comparable bond price | N/M | 53 to 100 points (91 points) | |||
Residential mortgage-, commercial mortgage- and asset-backed securities ($264 and $217) | ||||||
Comparable pricing: | Comparable bond price | 0 to 95 points (24 points) | 0 to 86 points (27 points) | |||
Corporate bonds ($449 and $232) | ||||||
Comparable pricing: | Comparable bond price | 2 to 133 points (87 points) | 3 to 130 points (70 points) | |||
Option model: | At the money volatility | 15% to 34% (24%) | 23% to 33% (30%) | |||
Collateralized debt and loan obligations ($58 and $63) | ||||||
Comparable pricing: | Comparable bond price | 0 to 65 points (35 points) | 0 to 103 points (50 points) | |||
Correlation model: | Credit correlation | 42% to 49% (44%) | N/M | |||
Loans and lending commitments($4,864 and $5,122) | ||||||
Corporate loan model: | Credit spread | N/M | 402 to 672 bps (557 bps) | |||
Expected recovery: | Asset coverage | 36% to 100% (85%) | 43% to 100% (83%) | |||
Option model: | Volatility skew | -1% | N/M | |||
Margin loan model: | Discount rate | 1% to 5% (2%) | 2% to 8% (3%) | |||
Volatility skew | 10% to 32% (18%) | 21% to 63% (33%) | ||||
Comparable pricing: | Comparable loan price | 55 to 104 points (95 points) | 45 to 100 points (84 points) | |||
Discounted cash flow: | Implied weighted average cost of capital | N/M | 5% | |||
Capitalization rate | N/M | 4% to 10% (4%) | ||||
Other debt ($186 and $180) | ||||||
Option model: | At the money volatility | 17% to 52% (44%) | 16% to 52% (52%) | |||
Discounted cash flow: | Discount rate | 9% to 12% (11%) | 7% to 12% (11%) | |||
Comparable pricing: | Comparable loan price | N/M | 1 to 74 points (23 points) | |||
Corporate equities ($500 and $445) | ||||||
Comparable pricing: | Comparable equity price | 100% | 100% | |||
Net derivative and other contracts2: | ||||||
Interest rate ($970 and $420) | ||||||
Option model: | Interest rate - Foreign exchange correlation | N/M | 28% to 58% (44% / 43%) | |||
Interest rate volatility skew | 26% to 94% (42% / 41%) | 19% to 117% (55% / 56%) | ||||
Interest rate quanto correlation | N/M | -17% to 31% (1% /-5%) | ||||
Interest rate curve correlation | N/M | 28% to 96% (68% / 72%) | ||||
Inflation volatility | 24% to 63% (44% / 41%) | 23% to 55% (40% / 39%) | ||||
Interest rate - inflation correlation | -48% to -27% (-36% / -34%) | N/M | ||||
Interest rate curve | 1% | N/M |
51 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
Valuation Techniques and Sensitivity of Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements | Valuation Techniques and Sensitivity of Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements | |||||||||||
Predominant Valuation Techniques/Significant Unobservable Inputs | Range (Weighted Averages or Simple Averages/Median)1 | Predominant Valuation Techniques/ Significant Unobservable Inputs | Range (Weighted Average or Simple Average/Median)1 | |||||||||
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||||||
Credit ($(305)and $(373)) | ||||||||||||
$ in millions, except inputs | Predominant Valuation Techniques/ Significant Unobservable Inputs | At March 31, 2018 | At December 31, 2017 | |||||||||
Recurring Fair Value Measurement | Recurring Fair Value Measurement | |||||||||||
Assets at fair value | Assets at fair value | |||||||||||
MABS ($342and $423) | ||||||||||||
Comparable pricing: | Comparable bond price | 0 to 95 points (41 points) | 0 to 95 points (26 points) | |||||||||
Loans and lending commitments ($8,128and $5,945) | Loans and lending commitments ($8,128and $5,945) | |||||||||||
Margin loan model: | Discount rate | 0% to 3% (1%) | 0% to 3% (1%) | |||||||||
Volatility skew | 9% to 67% (28%) | 7% to 41% (22%) | ||||||||||
Comparable pricing: | Comparable loan price | 55 to 101 points (97 points) | 55 to 102 points (95 points) | |||||||||
Corporate and other debt ($814 and $701) | Corporate and other debt ($814 and $701) | |||||||||||
Comparable pricing: | Comparable bond price | 3 to 100 points (70 points) | 3 to 134 points (59 points) | |||||||||
Discounted cash flow: | Recovery rate | 16% | 6% to 36% (27%) | |||||||||
Discount rate | 7% to 20% (15%) | 7% to 20% (14%) | ||||||||||
Option model: | At the money volatility | 15% to 52% (33%) | 17% to 52% (52%) | |||||||||
Corporate equities ($233and $166) | Corporate equities ($233and $166) | |||||||||||
Comparable pricing: | Comparable equity price | 100% | 100% | |||||||||
Net derivative and other contracts2: | Net derivative and other contracts2: | |||||||||||
Interest rate ($670 and $1,218) | Interest rate ($670 and $1,218) | |||||||||||
Option model: | Interest rate volatility skew | 29% to 106% (40% / 43%) | 31% to 97% (41% / 47%) | |||||||||
Inflation volatility | 23% to 61% (44% / 41%) | 23% to 63% (44% / 41%) | ||||||||||
Interest rate curve | 1% to 2% (2% / 2%) | 2% | ||||||||||
Credit ($(30)and $41) | Credit ($(30)and $41) | |||||||||||
Comparable pricing: | Cash synthetic basis | 4 to 6 points (5 points) | 5 to 12 points (11 points) | Cash synthetic basis | 10 to 11 points (11 points) | 12 to 13 points (12 points) | ||||||
Comparable bond price | N/M | 0 to 70 points (23 points) | Comparable bond price | 0 to 75 points (25 points) | 0 to 75 points (25 points) | |||||||
Correlation model: | Credit correlation | 37% to 78% (48%) | 32% to 70% (45%) | Credit correlation | 39% to 67% (50%) | 38% to 100% (48%) | ||||||
Foreign exchange3 ($2and $(43)) | ||||||||||||
Foreign exchange3 ($(33)and $(112)) | Foreign exchange3 ($(33)and $(112)) | |||||||||||
Option model: | Interest rate - Foreign exchange correlation | 27% to 54% (44% / 44%) | 28% to 58% (44% / 43%) | Interest rate - Foreign exchange correlation | 55% to 57% (56% / 56%) | 54% to 57% (56% / 56%) | ||||||
Interest rate volatility skew | 29% to 102% (47% / 46%) | 34% to 117% (55% / 56%) | Interest rate volatility skew | 29% to 106% (40% / 43%) | 31% to 97% (41% / 47%) | |||||||
Interest rate quanto correlation | N/M | -17% to 31% (1% /-5%) | Contingency probability | 90% to 95% (93% / 93%) | 95% to 100% (96% / 95%) | |||||||
Equity3 ($1,093 and $184) | ||||||||||||
Equity3 ($1,015 and $1,208) | Equity3 ($1,015 and $1,208) | |||||||||||
Option model: | At the money volatility | 6% to 57% (33%) | 7% to 66% (33%) | At the money volatility | 14% to 55% (35%) | 7% to 54% (32%) | ||||||
Volatility skew | -3% to 1%(-1%) | -4% to 0%(-1%) | Volatility skew | -3% to 0% (-1%) | -5% to 0% (-1%) | |||||||
Equity - Equity correlation | 5% to 99% (78%) | 25% to 99% (73%) | Equity - Equity correlation | 5% to 99% (76%) | 5% to 99% (76%) | |||||||
Equity - Foreign exchange correlation | -70% to 9%(-30%) | -63% to 30%(-43%) | Equity - Foreign exchange correlation | -62% to 55% (-42%) | -55% to 40% (36%) | |||||||
Equity - Interest rate correlation | -7% to 52% (23% / 24%) | -8% to 52% (12% / 4%) | Equity - Interest rate correlation | -7% to 48% (18% / 14%) | -7% to 49% (18% / 20%) | |||||||
Commodity and other($1,509and $1,600) | ||||||||||||
Commodity and other ($1,660and $1,446) | Commodity and other ($1,660and $1,446) | |||||||||||
Option model: | Forward power price | $6 to $87 ($30) per MWh | $7 to $90 ($32) per MWh | Forward power price | $2 to $212 ($30) per MWh | $4 to $102 ($31) per MWh | ||||||
Commodity volatility | 6% to 62% (17%) | 6% to 130% (18%) | Commodity volatility | 5% to 167% (14%) | 7% to 205% (17%) | |||||||
Cross-commodity correlation | 5% to 99% (92%) | 5% to 99% (92%) | Cross-commodity correlation | 5% to 99% (92%) | 5% to 99% (92%) | |||||||
Investments ($946 and $958) | ||||||||||||
Investments ($1,012and $1,020) | Investments ($1,012and $1,020) | |||||||||||
Discounted cash flow: | Implied weighted average cost of capital | N/M | 10% | WACC | 9% to 15% (9%) | 8% to 15% (9%) | ||||||
Exit multiple | 10 times | 10 to 24 times (11 times) | Exit multiple | 8 to 10 times (10 times) | 8 to 11 times (10 times) | |||||||
Market approach: | EBITDA multiple | 8 to 24 times (13 times) | 6 to 24 times (12 times) | EBITDA multiple | 6 to 24 times (11 times) | 6 to 25 times (11 times) | ||||||
Comparable pricing: | Comparable equity price | 75% to 100% (90%) | 75% to 100% (93%) | Comparable equity price | 35% to 100% (93%) | 45% to 100% (92%) | ||||||
Liabilities at Fair Value | ||||||||||||
Deposits ($79 and $42) | ||||||||||||
Option model: | At the money volatility | 15% to 50% (24%) | N/M | |||||||||
Volatility skew | -1% to 0%(-1%) | N/M | ||||||||||
Securities sold under agreements to repurchase ($148 and $149) | ||||||||||||
Discounted cash flow: | Funding spread | 131 to 145 bps (136 bps) | 118 to 127 bps (121 bps) | |||||||||
Other secured financings ($244 and $434) | ||||||||||||
Discounted cash flow: | Funding spread | 48 to 80 bps (64 bps) | 63 to 92 bps (78 bps) | |||||||||
Option model: | Volatility skew | -1% | -1% | |||||||||
At the money volatility | 10% to 40% (26%) | N/M | ||||||||||
Discounted cash flow: | Discount rate | N/M | 4% | |||||||||
Long-term borrowings ($2,646and $2,012) | ||||||||||||
Option model: | At the money volatility | 6% to 42% (26%) | 7% to 42% (30%) | |||||||||
Volatility skew | -3% to 1%(-1%) | -2% to 0%(-1%) | ||||||||||
Equity - Equity correlation | 36% to 98% (71%) | 35% to 99% (84%) | ||||||||||
Equity - Foreign exchange correlation | -72% to 13%(-29%) | -63% to 13%(-40%) | ||||||||||
Option model: | Interest rate volatility skew | 26% to 94% (42% / 41%) | 25% | |||||||||
Equity volatility discount | 9% to 12% (10% / 11%) | 7% to 11% (10% / 10%) | ||||||||||
Comparable pricing: | Comparable equity price | 100% | N/M | |||||||||
Nonrecurring Fair Value Measurement | ||||||||||||
Assets at Fair Value | ||||||||||||
Loans ($1,277 and $2,443) | ||||||||||||
Corporate loan model: | Credit spread | 90 to 563 bps (273 bps) | 90 to 487 bps (208 bps) | |||||||||
Expected recovery: | Asset coverage | 73% to 95% (84%) | 73% to 99% (97%) |
bps—Basis points. One basis point equals 1/100th of 1%.
March 2018 Form 10-Q | 52 |
Points—Percentage of par
Notes to Consolidated Financial Statements (Unaudited) |
Predominant Valuation Techniques/ Significant Unobservable Inputs | Range (Weighted Average or Simple Average/Median)1 | |||||
$ in millions, except inputs | At March 31, 2018 | At December 31, 2017 | ||||
Liabilities at Fair Value | ||||||
Securities sold under agreements to repurchase ($— and $150) | ||||||
Discounted cash flow: | Funding spread | N/A | 107 to 126 bps (120 bps) | |||
Other secured financings ($220 and $239) | ||||||
Discounted cash flow: | Funding spread | 54 to 93 bps (74 bps) | 39 to 76 bps (57 bps) | |||
Option model: | Volatility skew | -1% | -1% | |||
At the money volatility | 10% to 40% (26%) | 10% to 40% (26%) | ||||
Borrowings ($3,626and $2,984) | ||||||
Option model: | At the money volatility | 5% to 33% (23%) | 5% to 35% (22%) | |||
Volatility skew | -2% to 0% (0%) | -2% to 0% (0%) | ||||
Equity - Equity correlation | 45% to 95% (81%) | 39% to 95% (86%) | ||||
Equity - Foreign exchange correlation | -43% to 30% (-26%) | -55% to 10% (-18%) | ||||
Nonrecurring Fair Value Measurement | ||||||
Assets at fair value | ||||||
Loans ($1,057and $924) | ||||||
Corporate loan model: | Credit spread | 94 to 432 bps (206 bps) | 93 to 563 bps (239 bps) | |||
Expected recovery: | Asset coverage | 95% to 99% (95%) | 95% to 99% (95%) |
MWh—Megawatt hours
EBITDA—Earnings before interest, taxes, depreciation and amortization
N/A—Not Applicable
N/M—Not Meaningful
Points—Percentage | of par |
1. | Amounts represent weighted averages except where simple averages and the median of the inputs are provided when more relevant. |
2. |
|
3. | Includes derivative contracts with multiple risks (i.e., hybrid products). |
|
For a description of the Firm’s significant unobservable inputs for all major categories of assets and liabilities,related sensitivity, see Note 3 to the consolidated financial statements in the 20162017 Form10-K. During the current quarter, there were no significant updatesrevisions made to the Firm’s significant unobservable inputs.
FairMeasured Based on Net Asset Value of Investments Measured at NAV
For a description of the Firm’s investments in private equity funds, real estate funds and hedge funds, which are measured at fair value based on NAV, see Note 3 to the consolidated financial statements in the 20162017 Form10-K.
Investments in Certain Funds Measured at NAV per Share
At June 30, 2017 | At December 31, 2016 | |||||||||||||||
$ in millions | Fair Value | Commitment | Fair Value | Commitment | ||||||||||||
Private equity funds | $ | 1,588 | $ | 388 | $ | 1,566 | $ | 335 | ||||||||
Real estate funds | 1,050 | 157 | 1,103 | 136 | ||||||||||||
Hedge funds | 115 | 18 | 147 | 4 | ||||||||||||
Total | $ | 2,753 | $ | 563 | $ | 2,816 | $ | 475 |
At March 31, 2018 | At December 31, 2017 | |||||||||||||||
$ in millions | Carrying Value | Commitment | Carrying Value | Commitment | ||||||||||||
Private equity | $ | 1,678 | $ | 304 | $ | 1,674 | $ | 308 | ||||||||
Real estate | 796 | 181 | 800 | 183 | ||||||||||||
Hedge1 | 99 | 4 | 90 | 4 | ||||||||||||
Total | $ | 2,573 | $ | 489 | $ | 2,564 | $ | 495 |
1. | Investments in hedge funds may be subject to initial period lock-up or gate provisions, which restrict an investor from withdrawing from the fund during a certain initial period or restrict the redemption amount on any redemption date, respectively. |
Amounts in the previous table represent the Firm’s carrying value of general and limited partnership interests in fund investments, as well as any related performance fees in the form of carried interest. The carrying amounts are measured
based on the NAV of the fund taking into account the distribution terms applicable to the interest held. This same measurement applies whether investments are accounted for under the equity method or fair value.
See Note 11 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received. See Note 19 for information regarding related performance fees at risk of reversal, including performance fees in the form of carried interest.
Nonredeemable Funds by Contractual Maturity
Fair Value at June 30, 2017 | ||||||||
$ in millions | Private Equity | Real Estate | ||||||
Less than 5 years | $ | 297 | $ | 80 | ||||
5-10 years | 745 | 644 | ||||||
Over 10 years | 546 | 326 | ||||||
Total | $ | 1,588 | $ | 1,050 |
Restrictions
Investments in hedge funds may be subject to initial periodlock-up or gate provisions. Alock-up provision is a provision that provides that during a certain initial period an investor may not make a withdrawal from the fund. A gate provision restricts the amount of redemption that an investor can demand on any redemption date.
Hedge Funds Redemption Frequency
| ||
| ||
| ||
| ||
|
|
|
The redemption notice periods for hedge funds were primarily greater than six months.
Carrying Value at March 31, 2018 | ||||||||
$ in millions | Private Equity | Real Estate | ||||||
Less than 5 years | $ | 430 | $ | 60 | ||||
5-10 years | 1,054 | 527 | ||||||
Over 10 years | 194 | 209 | ||||||
Total | $ | 1,678 | $ | 796 |
Fair Value Option
The Firm elected the fair value option for certain eligible instruments that are risk managed on a fair value basis to mitigate income statement volatility caused by measurement basis differences between the elected instruments and their associated risk management transactions or to eliminate complexities of applying certain accounting models.
53 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
Earnings Impact of Instruments under the Fair Value Option
$ in millions | Trading Revenues | Interest Income (Expense) | Net Revenues | |||||||
Three Months Ended June 30, 2017 | ||||||||||
Securities purchased under agreements to resell | $ | (1 | ) | $ 1 | $ | — | ||||
Deposits1 | — | — | — | |||||||
Short-term borrowings1 | 6 | (1) | 5 | |||||||
Securities sold under agreements to repurchase1 | (3 | ) | (4) | (7) | ||||||
Long-term borrowings1 | (901 | ) | (111) | (1,012) | ||||||
Three Months Ended June 30, 2016 | ||||||||||
Securities purchased under agreements to resell | $ | (1 | ) | $ 2 | $ | 1 | ||||
Deposits1 | (1 | ) | (1) | (2) | ||||||
Short-term borrowings1 | (9 | ) | — | (9) | ||||||
Securities sold under agreements to repurchase1 | (3 | ) | (3) | (6) | ||||||
Long-term borrowings1 | (1,289 | ) | (130) | (1,419) | ||||||
Six Months Ended June 30, 2017 | ||||||||||
Securities purchased under agreements to resell | $ | (1 | ) | $ 2 | $ | 1 | ||||
Deposits1 | (1 | ) | — | (1) | ||||||
Short-term borrowings1 | (9 | ) | (1) | (10) | ||||||
Securities sold under agreements to repurchase1 | (1 | ) | (8) | (9) | ||||||
Long-term borrowings1 | (2,511 | ) | (230) | (2,741) | ||||||
Six Months Ended June 30, 2016 | ||||||||||
Securities purchased under agreements to resell | $ | (1 | ) | $ 4 | $ | 3 | ||||
Deposits1 | (3 | ) | (1) | (4) | ||||||
Short-term borrowings1 | 36 | — | 36 | |||||||
Securities sold under agreements to repurchase1 | (12 | ) | (5) | (17) | ||||||
Long-term borrowings1 | (2,254 | ) | (269) | (2,523) |
$ in millions | Trading Revenues | Interest Income (Expense) | Net Revenues | |||||||||
Three Months Ended March 31, 2018 |
| |||||||||||
Borrowings | $ | 26 | $ | (102 | ) | $ | (76 | ) | ||||
Three Months Ended March 31, 2017 |
| |||||||||||
Borrowings | $ | (1,625 | ) | $ | (119 | ) | $ | (1,744 | ) |
Gains (losses) are mainly attributable to changes in foreign currency rates or interest rates or movements in the reference price or index.
|
The amounts in the previous table are included within Net revenues and do not reflect any gains or losses on related hedging instruments. In addition to the amounts in the
|
previous table, as discussed in Note 2 to the consolidated financial statements in the 2016 Form10-K, instruments within Trading assets or Trading liabilities are measured at fair value.
Gains (Losses) Due to Changes in Instrument-Specific Credit Risk
Three Months Ended June 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
$ in millions | Trading Revenues | OCI | Trading Revenues | OCI | ||||||||||||
Short-term and long-term borrowings1 | $ | (4 | ) | $ (281) | $ | — | $ | 226 | ||||||||
Securities sold under agreements to repurchase1 | — | — | — | (1 | ) | |||||||||||
Loans and other debt2 | 48 | — | (14 | ) | — | |||||||||||
Lending commitments3 | — | — | 2 | — | ||||||||||||
Six Months Ended June 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
$ in millions | Trading Revenues | OCI | Trading Revenues | OCI | ||||||||||||
Short-term and long-term borrowings1 | $ | (8 | ) | $ | (267 | ) | $ | 41 | $ | 545 | ||||||
Securities sold under agreements to repurchase1 | — | (3 | ) | — | 3 | |||||||||||
Loans and other debt2 | 45 | — | (114 | ) | — | |||||||||||
Lending commitments3 | — | — | 3 | — |
Three Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
$ in millions | Trading Revenues | OCI | Trading Revenues | OCI | ||||||||||||
Borrowings | $ | (15 | ) | $ | 593 | $ | (4 | ) | $ | 14 | ||||||
Securities sold under agreements to repurchase | — | 2 | — | (3 | ) | |||||||||||
Loans and other debt1 | 81 | — | (3 | ) | — | |||||||||||
Lending commitments2 | 2 | — | — | — |
$ in millions | June 30, 2017 | December 31, 2016 | At March 31, 2018 | At December 31, | ||||||||||||
Cumulativepre-tax DVA gain (loss) | $ (1,191) | $ | (921 | ) | $ | (1,236 | ) | $ | (1,831 | ) |
OCI—Other comprehensive income (loss)
1. |
|
Loans and other debt instrument-specific credit gains (losses) were determined by excluding thenon-credit components of gains and |
Gains (losses) on lending commitments were generally determined based on the difference between estimated expected client yields and contractual yields at each respectiveperiod-end. |
Short-Term and Long-Term Borrowings Measured at Fair Value on a Recurring Basis
$ in millions | At June 30, 2017 | At December 31, | At March 31, | At December 31, 2017 | ||||||||||||
Business Unit Responsible for Risk Management | Business Unit Responsible for Risk Management |
| ||||||||||||||
Equity | $ | 23,605 | $ | 21,066 | $ | 25,181 | $ | 25,903 | ||||||||
Interest rates | 18,502 | 16,051 | 19,744 | 19,230 | ||||||||||||
Foreign exchange | 760 | 1,114 | 622 | 666 | ||||||||||||
Credit | 709 | 647 | 855 | 815 | ||||||||||||
Commodities | 232 | 264 | 1,131 | 298 | ||||||||||||
Total | $ | 43,808 | $ | 39,142 | $ | 47,533 | $ | 46,912 |
Net DifferenceExcess of Contractual Principal Amount Over Fair Value
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, | At December 31, 2017 | ||||||||||||
Loans and other debt1 | $ | 12,986 | $ | 13,495 | $ | 14,843 | $ | 13,481 | ||||||||
Loans 90 or more days past due and/or on nonaccrual status1 | 11,337 | 11,502 | 11,834 | 11,253 | ||||||||||||
Short-term and long-term borrowings2 | 621 | 720 | ||||||||||||||
Borrowings2 | 897 | 71 |
1. | The majority of the difference between principal and fair value amounts for loans and other debt relates to distressed debt positions purchased at amounts well below par. |
2. |
|
Fair Value Loans on Nonaccrual Status
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, | At December 31, 2017 | ||||||||||||
Nonaccrual loans | $ | 1,326 | $ | 1,536 | $ | 1,315 | $ | 1,240 | ||||||||
Nonaccrual loans 90 or more days past due | $ | 796 | $ | 787 | $ | 654 | $ | 779 |
The previous tables excludenon-recourse debt from consolidated VIEs, liabilities related to failed sales of financial assets, pledged commodities and other liabilities that have specified assets attributable to them.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Current Quarter Gains (Losses)Carrying and Fair Values
At March 31, 2018 | ||||||||||||||||||||
Three Months Ended June 30, | Fair Value | |||||||||||||||||||
$ in millions | 20171 | 20161 | Level 2 | Level 31 | Total | |||||||||||||||
Assets | ||||||||||||||||||||
Loans2 | $ | 20 | $ | (34 | ) | |||||||||||||||
Other Assets—Other investments3 | — | (38 | ) | |||||||||||||||||
Other assets—Premises, equipment and software costs4 | (1 | ) | (22 | ) | ||||||||||||||||
Loans | $ | 1,352 | $ | 1,057 | $ | 2,409 | ||||||||||||||
Other assets—Premises, equipment and software | — | — | — | |||||||||||||||||
Total | $ | 19 | $ | (94 | ) | $ | 1,352 | $ | 1,057 | $ | 2,409 | |||||||||
Liabilities | ||||||||||||||||||||
Other liabilities and accrued expenses2 | ||||||||||||||||||||
Lending commitments | $ | 21 | $ | 13 | ||||||||||||||||
Other liabilities and accrued expenses—Lending commitments | $ | 173 | $ | 40 | $ | 213 | ||||||||||||||
Total | $ | 21 | $ | 13 | $ | 173 | $ | 40 | $ | 213 |
March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
At December 31, 2017 | ||||||||||||
Fair Value | ||||||||||||
$ in millions | Level 2 | Level 31 | Total | |||||||||
Assets | ||||||||||||
Loans | $ | 1,394 | $ | 924 | $ | 2,318 | ||||||
Other assets—Other investments | — | 144 | 144 | |||||||||
Total | $ | 1,394 | $ | 1,068 | $ | 2,462 | ||||||
Liabilities | ||||||||||||
Other liabilities and accrued expenses—Lending commitments | $ | 158 | $ | 38 | $ | 196 | ||||||
Total | $ | 158 | $ | 38 | $ | 196 |
1. | For significant Level 3 balances, refer to “Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements” section herein for details of the significant unobservable inputs used for nonrecurring fair value measurement. |
Gains (Losses) from Fair Value Remeasurements1
Current Year Period Gains (Losses)
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
$ in millions | 20171 | 20161 | 2018 | 2017 | ||||||||||||
Assets | ||||||||||||||||
Loans2 | $ | 44 | $ | (131 | ) | $ | 8 | $ | 32 | |||||||
Other Assets—Other investments3 | — | (40 | ) | |||||||||||||
Other assets—Premises, equipment and software costs4 | (6 | ) | (27 | ) | ||||||||||||
Other assets—Premises, equipment and software3 | (8 | ) | (5 | ) | ||||||||||||
Total | $ | 38 | $ | (198 | ) | $ | — | $ | 27 | |||||||
Liabilities | ||||||||||||||||
Other liabilities and accrued expenses2 | ||||||||||||||||
Lending commitments | $ | 48 | $ | 24 | ||||||||||||
Other liabilities and accrued expenses—Lending commitments2 | $ | 6 | $ | 11 | ||||||||||||
Total | $ | 48 | $ | 24 | $ | 6 | $ | 11 |
1. | Gains and losses for Loans |
2. |
|
3. | Losses related to Other assets— |
|
Carrying and Fair Values
At June 30, 2017 | ||||||||||||
Fair Value by Level | ||||||||||||
$ in millions | Total | Level 2 | Level 31 | |||||||||
Assets | ||||||||||||
Loans | $ | 2,632 | $ | 1,355 | $ | 1,277 | ||||||
Total assets | $ | 2,632 | $ | 1,355 | $ | 1,277 | ||||||
Liabilities | ||||||||||||
Other liabilities and accrued expenses—Lending commitments | $ | 212 | $ | 164 | $ | 48 | ||||||
Total liabilities | $ | 212 | $ | 164 | $ | 48 |
At December 31, 2016 | ||||||||||||
Fair Value by Level | ||||||||||||
$ in millions | Total | Level 2 | Level 31 | |||||||||
Assets | ||||||||||||
Loans | $ | 4,913 | $ | 2,470 | $ | 2,443 | ||||||
Other assets—Other investments | 123 | — | 123 | |||||||||
Other assets—Premises, equipment and software costs | 25 | 22 | 3 | |||||||||
Total assets | $ | 5,061 | $ | 2,492 | $ | 2,569 | ||||||
Liabilities | ||||||||||||
Other liabilities and accrued expenses—Lending commitments | $ | 226 | $ | 166 | $ | 60 | ||||||
Total liabilities | $ | 226 | $ | 166 | $ | 60 |
|
Financial Instruments Not Measured at Fair Value
At June 30, 2017 | ||||||||||||||||||||
Carrying | Fair Value | |||||||||||||||||||
$ in millions | Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Financial Assets |
| |||||||||||||||||||
Cash and due | $ | 25,008 | $ | 25,008 | $ | — | $ | — | $ | 25,008 | ||||||||||
Interest bearing | 19,651 | 19,651 | — | — | 19,651 | |||||||||||||||
Investment securities—HTM | 21,088 | 8,255 | 12,319 | 123 | 20,697 | |||||||||||||||
Securities purchased under agreements | 97,306 | — | 92,537 | 4,718 | 97,255 | |||||||||||||||
Securities borrowed | 126,722 | — | 126,722 | 1 | 126,723 | |||||||||||||||
Customer and other receivables1 | 49,292 | — | 45,052 | 4,110 | 49,162 | |||||||||||||||
Loans2 | 97,639 | — | 20,319 | 78,579 | 98,898 | |||||||||||||||
Other assets3 | 30,171 | 30,171 | — | — | 30,171 | |||||||||||||||
Financial Liabilities |
| |||||||||||||||||||
Deposits | $ | 144,783 | $ | — | $ | 144,783 | $ | — | $ | 144,783 | ||||||||||
Short-term | 334 | — | 334 | — | 334 | |||||||||||||||
Securities sold | 49,959 | — | 46,452 | 3,488 | 49,940 | |||||||||||||||
Securities loaned | 16,862 | — | 16,477 | 401 | 16,878 | |||||||||||||||
Other secured financings | 10,911 | — | 9,961 | 956 | 10,917 | |||||||||||||||
Customer and | 192,973 | — | 192,973 | — | 192,973 | |||||||||||||||
Long-term | 140,886 | — | 145,544 | 51 | 145,595 |
At March 31, 2018 | ||||||||||||||||||||
Carrying | Fair Value | |||||||||||||||||||
$ in millions | Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and cash equivalents: |
| |||||||||||||||||||
Cash and due from banks | $ | 29,073 | $ | 29,073 | $ | — | $ | — | $ | 29,073 | ||||||||||
Interest bearing deposits with banks | 22,980 | 22,980 | — | — | 22,980 | |||||||||||||||
Restricted cash | 35,291 | 35,291 | — | — | 35,291 | |||||||||||||||
Investment securities—HTM | 23,892 | 11,327 | 11,270 | 322 | 22,919 | |||||||||||||||
Securities purchased under agreements to resell | 80,246 | — | 80,175 | 16 | 80,191 | |||||||||||||||
Securities borrowed | 135,835 | — | 135,781 | — | 135,781 | |||||||||||||||
Customer and other receivables1 | 61,017 | — | 57,405 | 3,433 | 60,838 | |||||||||||||||
Loans2 | 109,135 | — | 25,687 | 83,146 | 108,833 | |||||||||||||||
Other assets | 438 | — | 438 | — | 438 | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Deposits | $ | 160,182 | $ | — | $ | 160,172 | $ | — | $ | 160,172 | ||||||||||
Securities sold under agreements to repurchase | 50,783 | — | 50,763 | 1 | 50,764 | |||||||||||||||
Securities loaned | 13,556 | — | 13,623 | — | 13,623 | |||||||||||||||
Other secured financings | 6,852 | — | 6,265 | 607 | 6,872 | |||||||||||||||
Customer and other payables1 | 191,332 | — | 191,332 | — | 191,332 | |||||||||||||||
Borrowings | 147,431 | — | 151,664 | 27 | 151,691 |
|
At December 31, 2017 | ||||||||||||||||||||
Carrying | Fair Value | |||||||||||||||||||
$ in millions | Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and cash equivalents: |
| |||||||||||||||||||
Cash and due from banks | $ | 24,816 | $ | 24,816 | $ | — | $ | — | $ | 24,816 | ||||||||||
Interest bearing deposits with banks | 21,348 | 21,348 | — | — | 21,348 | |||||||||||||||
Restricted cash | 34,231 | 34,231 | — | — | 34,231 | |||||||||||||||
Investment securities—HTM | 23,599 | 11,119 | 11,673 | 289 | 23,081 | |||||||||||||||
Securities purchased under agreements to resell | 84,258 | — | 78,239 | 5,978 | 84,217 | |||||||||||||||
Securities borrowed | 124,010 | — | 124,018 | 1 | 124,019 | |||||||||||||||
Customer and other receivables1 | 51,269 | — | 47,159 | 3,984 | 51,143 | |||||||||||||||
Loans2 | 104,126 | — | 21,290 | 82,928 | 104,218 | |||||||||||||||
Other assets | 433 | — | 433 | — | 433 | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Deposits | $ | 159,232 | $ | — | $ | 159,232 | $ | — | $ | 159,232 | ||||||||||
Securities sold under agreements to repurchase | 55,624 | — | 51,752 | 3,867 | 55,619 | |||||||||||||||
Securities loaned | 13,592 | — | 13,191 | 401 | 13,592 | |||||||||||||||
Other secured financings | 7,408 | — | 5,987 | 1,431 | 7,418 | |||||||||||||||
Customer and other payables1 | 188,464 | — | 188,464 | — | 188,464 | |||||||||||||||
Borrowings | 145,670 | — | 151,692 | 30 | 151,722 |
At December 31, 2016 | ||||||||||||||||||||
Carrying | Fair Value | |||||||||||||||||||
$ in millions | Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and due | $ | 22,017 | $ | 22,017 | $ | — | $ | — | $ | 22,017 | ||||||||||
Interest bearing | 21,364 | 21,364 | — | — | 21,364 | |||||||||||||||
Investment securities—HTM | 16,922 | 5,557 | 10,896 | — | 16,453 | |||||||||||||||
Securities purchased under agreements | 101,653 | — | 97,825 | 3,830 | 101,655 | |||||||||||||||
Securities borrowed | 125,236 | — | 125,093 | 147 | 125,240 | |||||||||||||||
Customer and other receivables1 | 41,679 | — | 36,962 | 4,575 | 41,537 | |||||||||||||||
Loans2 | 94,248 | — | 20,906 | 74,121 | 95,027 | |||||||||||||||
Other assets3 | 33,979 | 33,979 | — | — | 33,979 | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Deposits | $ | 155,800 | $ | — | $ | 155,800 | $ | — | $ | 155,800 | ||||||||||
Short-term | 535 | — | 535 | — | 535 | |||||||||||||||
Securities sold | 53,899 | — | 50,941 | 2,972 | 53,913 | |||||||||||||||
Securities loaned | 15,844 | — | 15,853 | — | 15,853 | |||||||||||||||
Other secured financings | 6,077 | — | 4,792 | 1,290 | 6,082 | |||||||||||||||
Customer and | 187,497 | — | 187,497 | — | 187,497 | |||||||||||||||
Long-term | 126,039 | — | 129,826 | 51 | 129,877 |
|
1. | Accrued interest |
2. | Amounts include loans measured at fair value on a |
| ||||
55 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
Lending commitments—Commitments—Held for investmentInvestment and Held for saleSale
Commitment | Fair Value | |||||||||||||||
$ in millions | amount1 | Total | Level 2 | Level 3 | ||||||||||||
June 30, 2017 | $ | 95,090 | $ | 917 | $ | 706 | $ | 211 | ||||||||
December 31, 2016 | 97,409 | 1,241 | 973 | 268 |
Commitment Amount1 | Fair Value | |||||||||||||||
$ in millions | Level 2 | Level 3 | Total | |||||||||||||
March 31, 2018 | $ | 117,582 | $ | 643 | $ | 185 | $ | 828 | ||||||||
December 31, 2017 | 100,151 | 620 | 174 | 794 |
1. | For further discussion on lending commitments, see Note 11. |
The previous tables exclude certain financial instruments such as equity method investments and allnon-financial assets and liabilities such as the value of the long-term relationships with the Firm’s deposit customers. For further discussion of the contents and valuation techniques of financial instruments not measured at fair value, see Note 3 to the consolidated financial statements in the 2016 Form10-K. During the current quarter, there were no significant updates made to the Firm’s valuation techniques for financial instruments not measured at fair value.
March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
4. Derivative Instruments and Hedging Activities
Derivative Fair Values
Derivative Fair Values | ||||||||||||||||
At March 31, 2018 |
| |||||||||||||||
Assets | ||||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 804 | $ | 1 | $ | — | $ | 805 | ||||||||
Foreign exchange contracts | 43 | 7 | — | 50 | ||||||||||||
Total | 847 | 8 | — | 855 | ||||||||||||
Not designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | 175,200 | 1,742 | 522 | 177,464 | ||||||||||||
Credit contracts | 5,352 | 1,981 | — | 7,333 | ||||||||||||
Foreign exchange contracts | 52,711 | 764 | 53 | 53,528 | ||||||||||||
Equity contracts | 25,320 | — | 24,222 | 49,542 | ||||||||||||
Commodity and other contracts | 10,295 | — | 1,572 | 11,867 | ||||||||||||
Total | 268,878 | 4,487 | 26,369 | 299,734 | ||||||||||||
Total gross derivatives | $ | 269,725 | $ | 4,495 | $ | 26,369 | $ | 300,589 | ||||||||
Amounts offset |
| |||||||||||||||
Counterparty netting | (198,282 | ) | (3,424 | ) | (22,787 | ) | (224,493 | ) | ||||||||
Cash collateral netting | (42,284 | ) | (664 | ) | — | (42,948 | ) | |||||||||
Total in Trading assets | $ | 29,159 | $ | 407 | $ | 3,582 | $ | 33,148 | ||||||||
Amounts not offset1 |
| |||||||||||||||
Financial instruments collateral | (12,646 | ) | — | — | (12,646 | ) | ||||||||||
Other cash collateral | (20 | ) | — | — | (20 | ) | ||||||||||
Net amounts | $ | 16,493 | $ | 407 | $ | 3,582 | $ | 20,482 | ||||||||
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable |
| $ | 3,876 |
Liabilities | ||||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 174 | $ | 1 | $ | — | $ | 175 | ||||||||
Foreign exchange contracts | 107 | 22 | — | 129 | ||||||||||||
Total | 281 | 23 | — | 304 | ||||||||||||
Not designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | 159,276 | 1,267 | 443 | 160,986 | ||||||||||||
Credit contracts | 5,723 | 2,125 | — | 7,848 | ||||||||||||
Foreign exchange contracts | 52,493 | 835 | 44 | 53,372 | ||||||||||||
Equity contracts | 26,778 | — | 23,748 | 50,526 | ||||||||||||
Commodity and other contracts | 7,583 | — | 1,556 | 9,139 | ||||||||||||
Total | 251,853 | 4,227 | 25,791 | 281,871 | ||||||||||||
Total gross derivatives | $ | 252,134 | $ | 4,250 | $ | 25,791 | $ | 282,175 | ||||||||
Amounts offset |
| |||||||||||||||
Counterparty netting | (198,282 | ) | (3,424 | ) | (22,787 | ) | (224,493 | ) | ||||||||
Cash collateral netting | (31,280 | ) | (416 | ) | — | (31,696 | ) | |||||||||
Total in Trading liabilities | $ | 22,572 | $ | 410 | $ | 3,004 | $ | 25,986 | ||||||||
Amounts not offset1 |
| |||||||||||||||
Financial instruments collateral | (4,966 | ) | — | (374 | ) | (5,340 | ) | |||||||||
Other cash collateral | (38 | ) | (26 | ) | — | (64 | ) | |||||||||
Net amounts | $ | 17,568 | $ | 384 | $ | 2,630 | $ | 20,582 | ||||||||
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable |
| $ | 4,366 |
At December 31, 2017 | ||||||||||||||||
Assets | ||||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 1,057 | $ | — | $ | — | $ | 1,057 | ||||||||
Foreign exchange contracts | 57 | 6 | — | 63 | ||||||||||||
Total | 1,114 | 6 | — | 1,120 | ||||||||||||
Not designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | 177,948 | 1,700 | 234 | 179,882 | ||||||||||||
Credit contracts | 5,740 | 2,282 | — | 8,022 | ||||||||||||
Foreign exchange contracts | 52,878 | 798 | 58 | 53,734 | ||||||||||||
Equity contracts | 24,452 | — | 20,538 | 44,990 | ||||||||||||
Commodity and other contracts | 8,861 | — | 1,802 | 10,663 | ||||||||||||
Total | 269,879 | 4,780 | 22,632 | 297,291 | ||||||||||||
Total gross derivatives | $ | 270,993 | $ | 4,786 | $ | 22,632 | $ | 298,411 | ||||||||
Amounts offset |
| |||||||||||||||
Counterparty netting | (201,051 | ) | (3,856 | ) | (19,861 | ) | (224,768 | ) | ||||||||
Cash collateral netting | (42,141 | ) | (689 | ) | — | (42,830 | ) | |||||||||
Total in Trading assets | $ | 27,801 | $ | 241 | $ | 2,771 | $ | 30,813 | ||||||||
Amounts not offset1 |
| |||||||||||||||
Financial instruments collateral | (12,363 | ) | — | — | (12,363 | ) | ||||||||||
Other cash collateral | (4 | ) | — | — | (4 | ) | ||||||||||
Net amounts | $ | 15,434 | $ | 241 | $ | 2,771 | $ | 18,446 | ||||||||
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable |
| $ | 3,154 |
At June 30, 2017 | ||||||||||||||||
Assets | ||||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC1 | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 1,547 | $ | 937 | $ | — | $ | 2,484 | ||||||||
Foreign exchange contracts | 48 | 8 | — | 56 | ||||||||||||
Total | 1,595 | 945 | — | 2,540 | ||||||||||||
Not designated as accounting hedges2 |
| |||||||||||||||
Interest rate contracts | 182,333 | 72,140 | 193 | 254,666 | ||||||||||||
Credit contracts | 7,282 | 2,190 | — | 9,472 | ||||||||||||
Foreign exchange contracts | 54,357 | 544 | 100 | 55,001 | ||||||||||||
Equity contracts | 24,832 | — | 20,550 | 45,382 | ||||||||||||
Commodity and other contracts | 10,197 | — | 2,226 | 12,423 | ||||||||||||
Total | 279,001 | 74,874 | 23,069 | 376,944 | ||||||||||||
Total gross derivatives | $ | 280,596 | $ | 75,819 | $ | 23,069 | $ | 379,484 | ||||||||
Amounts offset | ||||||||||||||||
Counterparty netting | (215,065 | ) | (71,178 | ) | (20,307 | ) | (306,550 | ) | ||||||||
Cash collateral netting | (38,973 | ) | (3,821 | ) | — | (42,794 | ) | |||||||||
Total in Trading assets | $ | 26,558 | $ | 820 | $ | 2,762 | $ | 30,140 | ||||||||
Amounts not offset3 | ||||||||||||||||
Financial instruments collateral | (11,213 | ) | — | — | (11,213 | ) | ||||||||||
Other cash collateral | (10 | ) | — | — | (10 | ) | ||||||||||
Net amounts4 | $ | 15,335 | $ | 820 | $ | 2,762 | $ | 18,917 | ||||||||
Liabilities | ||||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC1 | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 60 | $ | 757 | $ | — | $ | 817 | ||||||||
Foreign exchange contracts | 138 | 40 | — | 178 | ||||||||||||
Total | 198 | 797 | — | 995 | ||||||||||||
Not designated as accounting hedges2 |
| |||||||||||||||
Interest rate contracts | 166,210 | 68,206 | 141 | 234,557 | ||||||||||||
Credit contracts | 8,132 | 2,273 | — | 10,405 | ||||||||||||
Foreign exchange contracts | 57,314 | 625 | 48 | 57,987 | ||||||||||||
Equity contracts | 27,653 | — | 20,022 | 47,675 | ||||||||||||
Commodity and other contracts | 8,881 | — | 2,285 | 11,166 | ||||||||||||
Total | 268,190 | 71,104 | 22,496 | 361,790 | ||||||||||||
Total gross derivatives | $ | 268,388 | $ | 71,901 | $ | 22,496 | $ | 362,785 | ||||||||
Amounts offset | ||||||||||||||||
Counterparty netting | (215,065 | ) | (71,178 | ) | (20,307 | ) | (306,550 | ) | ||||||||
Cash collateral netting | (29,136 | ) | (394 | ) | — | (29,530 | ) | |||||||||
Total in Trading liabilities | $ | 24,187 | $ | 329 | $ | 2,189 | $ | 26,705 | ||||||||
Amounts not offset3 | ||||||||||||||||
Financial instruments collateral | (6,276 | ) | — | (168 | ) | (6,444 | ) | |||||||||
Other cash collateral | (26 | ) | (58 | ) | — | (84 | ) | |||||||||
Net amounts4 | $ | 17,885 | $ | 271 | $ | 2,021 | $ | 20,177 |
At December 31, 2016 | ||||||||||||||||
Assets | ||||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 1,924 | $ | 1,049 | $ | — | $ | 2,973 | ||||||||
Foreign exchange contracts | 249 | 18 | — | 267 | ||||||||||||
Total | 2,173 | 1,067 | — | 3,240 | ||||||||||||
Not designated as accounting hedges5 |
| |||||||||||||||
Interest rate contracts | 200,336 | 99,217 | 384 | 299,937 | ||||||||||||
Credit contracts | 9,837 | 2,392 | — | 12,229 | ||||||||||||
Foreign exchange contracts | 73,645 | 1,022 | 231 | 74,898 | ||||||||||||
Equity contracts | 20,710 | — | 17,919 | 38,629 | ||||||||||||
Commodity and other contracts | 9,792 | — | 3,727 | 13,519 | ||||||||||||
Total | 314,320 | 102,631 | 22,261 | 439,212 | ||||||||||||
Total gross derivatives | $ | 316,493 | $ | 103,698 | $ | 22,261 | $ | 442,452 | ||||||||
Amounts offset | ||||||||||||||||
Counterparty netting | (243,488 | ) | (100,477 | ) | (19,607 | ) | (363,572 | ) | ||||||||
Cash collateral netting | (45,875 | ) | (1,799 | ) | — | (47,674 | ) | |||||||||
Total in Trading assets | $ | 27,130 | $ | 1,422 | $ | 2,654 | $ | 31,206 | ||||||||
Amounts not offset3 | ||||||||||||||||
Financial instruments collateral | (10,293 | ) | — | — | (10,293 | ) | ||||||||||
Other cash collateral | (124 | ) | — | — | (124 | ) | ||||||||||
Net amounts4 | $ | 16,713 | $ | 1,422 | $ | 2,654 | $ | 20,789 | ||||||||
Liabilities | ||||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 77 | $ | 647 | $ | — | $ | 724 | ||||||||
Foreign exchange contracts | 15 | 25 | — | 40 | ||||||||||||
Total | 92 | 672 | — | 764 | ||||||||||||
Not designated as accounting hedges5 |
| |||||||||||||||
Interest rate contracts | 183,063 | 103,392 | 397 | 286,852 | ||||||||||||
Credit contracts | 11,024 | 2,401 | — | 13,425 | ||||||||||||
Foreign exchange contracts | 74,575 | 952 | 16 | 75,543 | ||||||||||||
Equity contracts | 22,531 | — | 17,983 | 40,514 | ||||||||||||
Commodity and other contracts | 8,303 | — | 3,582 | 11,885 | ||||||||||||
Total | 299,496 | 106,745 | 21,978 | 428,219 | ||||||||||||
Total gross derivatives | $ | 299,588 | $ | 107,417 | $ | 21,978 | $ | 428,983 | ||||||||
Amounts offset | ||||||||||||||||
Counterparty netting | (243,488 | ) | (100,477 | ) | (19,607 | ) | (363,572 | ) | ||||||||
Cash collateral netting | (30,405 | ) | (5,691 | ) | — | (36,096 | ) | |||||||||
Total in Trading liabilities | $ | 25,695 | $ | 1,249 | $ | 2,371 | $ | 29,315 | ||||||||
Amounts not offset3 | ||||||||||||||||
Financial instruments collateral | (7,638 | ) | — | (585 | ) | (8,223 | ) | |||||||||
Other cash collateral | (10 | ) | (1 | ) | — | (11 | ) | |||||||||
Net amounts4 | $ | 18,047 | $ | 1,248 | $ | 1,786 | $ | 21,081 |
Liabilities | ||||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 67 | $ | 1 | $ | — | $ | 68 | ||||||||
Foreign exchange contracts | 72 | 57 | — | 129 | ||||||||||||
Total | 139 | 58 | — | 197 | ||||||||||||
Not designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | 161,758 | 1,178 | 144 | 163,080 | ||||||||||||
Credit contracts | 6,273 | 2,272 | — | 8,545 | ||||||||||||
Foreign exchange contracts | 54,191 | 925 | 23 | 55,139 | ||||||||||||
Equity contracts | 27,993 | — | 19,996 | 47,989 | ||||||||||||
Commodity and other contracts | 7,117 | — | 1,772 | 8,889 | ||||||||||||
Total | 257,332 | 4,375 | 21,935 | 283,642 | ||||||||||||
Total gross derivatives | $ | 257,471 | $ | 4,433 | $ | 21,935 | $ | 283,839 | ||||||||
Amounts offset |
| |||||||||||||||
Counterparty netting | (201,051 | ) | (3,856 | ) | (19,861 | ) | (224,768 | ) | ||||||||
Cash collateral netting | (31,892 | ) | (484 | ) | — | (32,376 | ) | |||||||||
Total in Trading liabilities | $ | 24,528 | $ | 93 | $ | 2,074 | $ | 26,695 | ||||||||
Amounts not offset1 |
| |||||||||||||||
Financial instruments collateral | (5,523 | ) | — | (412 | ) | (5,935 | ) | |||||||||
Other cash collateral | (18 | ) | (14 | ) | — | (32 | ) | |||||||||
Net amounts | $ | 18,987 | $ | 79 | $ | 1,662 | $ | 20,728 | ||||||||
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable |
| $ | 3,751 |
|
Derivative Notionals
At June 30, 2017
Assets | ||||||||||||||||
$ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 25 | $ | 36 | $ | — | $ | 61 | ||||||||
Foreign exchange contracts | 4 | — | — | 4 | ||||||||||||
Total | 29 | 36 | — | 65 | ||||||||||||
Not designated as accounting hedges2 |
| |||||||||||||||
Interest rate contracts | 3,928 | 7,275 | 3,184 | 14,387 | ||||||||||||
Credit contracts | 255 | 105 | — | 360 | ||||||||||||
Foreign exchange contracts | 1,779 | 60 | 10 | 1,849 | ||||||||||||
Equity contracts | 388 | — | 291 | 679 | ||||||||||||
Commodity and other contracts | 69 | — | 84 | 153 | ||||||||||||
Total | 6,419 | 7,440 | 3,569 | 17,428 | ||||||||||||
Total gross derivatives | $ | 6,448 | $ | 7,476 | $ | 3,569 | $ | 17,493 | ||||||||
Liabilities | ||||||||||||||||
$ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 2 | $ | 95 | $ | — | $ | 97 | ||||||||
Foreign exchange contracts | 5 | 1 | — | 6 | ||||||||||||
Total | 7 | 96 | — | 103 | ||||||||||||
Not designated as accounting hedges2 |
| |||||||||||||||
Interest rate contracts | 3,671 | 5,901 | 1,236 | 10,808 | ||||||||||||
Credit contracts | 287 | 87 | — | 374 | ||||||||||||
Foreign exchange contracts | 1,869 | 62 | 23 | 1,954 | ||||||||||||
Equity contracts | 378 | — | 347 | 725 | ||||||||||||
Commodity and other contracts | 76 | — | 69 | 145 | ||||||||||||
Total | 6,281 | 6,050 | 1,675 | 14,006 | ||||||||||||
Total gross derivatives | $ | 6,288 | $ | 6,146 | $ | 1,675 | $ | 14,109 |
At December 31, 2016
Assets | ||||||||||||||||
$ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 30 | $ | 38 | $ | — | $ | 68 | ||||||||
Foreign exchange contracts | 6 | — | — | 6 | ||||||||||||
Total | 36 | 38 | — | 74 | ||||||||||||
Not designated as accounting hedges5 |
| |||||||||||||||
Interest rate contracts | 3,586 | 6,224 | 2,586 | 12,396 | ||||||||||||
Credit contracts | 333 | 112 | — | 445 | ||||||||||||
Foreign exchange contracts | 1,580 | 52 | 13 | 1,645 | ||||||||||||
Equity contracts | 338 | — | 242 | 580 | ||||||||||||
Commodity and other contracts | 67 | — | 79 | 146 | ||||||||||||
Total | 5,904 | 6,388 | 2,920 | 15,212 | ||||||||||||
Total gross derivatives | $ | 5,940 | $ | 6,426 | $ | 2,920 | $ | 15,286 | ||||||||
Liabilities | ||||||||||||||||
$ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||||
Designated as accounting hedges |
| |||||||||||||||
Interest rate contracts | $ | 2 | $ | 52 | $ | — | $ | 54 | ||||||||
Foreign exchange contracts | 1 | 1 | — | 2 | ||||||||||||
Total | 3 | 53 | — | 56 | ||||||||||||
Not designated as accounting hedges5 |
| |||||||||||||||
Interest rate contracts | 3,462 | 6,087 | 897 | 10,446 | ||||||||||||
Credit contracts | 359 | 96 | — | 455 | ||||||||||||
Foreign exchange contracts | 1,557 | 48 | 14 | 1,619 | ||||||||||||
Equity contracts | 321 | — | 273 | 594 | ||||||||||||
Commodity and other contracts | 78 | — | 59 | 137 | ||||||||||||
Total | 5,777 | 6,231 | 1,243 | 13,251 | ||||||||||||
Total gross derivatives | $ | 5,780 | $ | 6,284 | $ | 1,243 | $ | 13,307 |
OTC—Over–the-counter
1. |
|
|
Amounts relate to master netting agreements and collateral agreements that have been determined by the Firm to be legally enforceable in the event of default but where certain other criteria are not met in accordance with applicable offsetting accounting guidance. |
Notes to Consolidated Financial Statements (Unaudited) |
See Note 3 for information related to the unsettled fair value of futures contracts not designated as accounting hedges, which are excluded from the tables above. Derivative Notionals
The Firm believes that the notional amounts of the derivative contracts generally overstate its exposure. |
|
For information related to offsetting of certain collateralized transactions, see Note 6. For a discussion of the Firm’s derivative instruments and hedging activities, see Note 4 to the consolidated financial statements in the 20162017 Form10-K.
Gains (Losses) on Accounting Hedges
Three Months Ended | ||||||||
March 31, | ||||||||
$ in millions | 2018 | 2017 | ||||||
Fair Value Hedges—Recognized in Interest Expense |
| |||||||
Interest rate contracts | $ | (1,841 | ) | $ | (805 | ) | ||
Borrowings | 1,852 | 717 | ||||||
Net Investment Hedges—Foreign exchange contracts |
| |||||||
Recognized in OCI | $ | (148 | ) | $ | (205 | ) | ||
Forward points excluded from hedge effectiveness testing—Interest income | 7 | $ | (9 | ) |
Borrowings under Fair Value Hedges
Recognized in Interest Expense | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Derivatives | $ 138 | $ 969 | $ (660) | $ | 3,119 | |||||||||||
Borrowings | (213 | ) | (993 | ) | 495 | (3,282) | ||||||||||
Total | $ | (75 | ) | $ | (24 | ) | $ (165) | $ | (163) |
$ in millions | At March 31, 2018 | |||
Carrying amount of Borrowings currently or previously hedged | $ | 107,264 | ||
Basis adjustments included in carrying amount—outstanding hedges | 2,035 |
Gains (Losses) on Net Investment HedgesHedge accounting basis adjustments for Borrowings are primarily related to outstanding hedges.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Foreign exchange contracts |
| |||||||||||||||
Effective portion—OCI | $ (47) | $ | (112 | ) | $ (251) | $ (336) | ||||||||||
Forward points excluded from hedge effectiveness testing—Interest income | $ (9) | $ | (19 | ) | $ (19) | $ (39) |
March 2018 Form 10-Q | 58 |
Notes to Consolidated Financial Statements (Unaudited) |
Trading Revenues by Product Type
Three Months Ended | ||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | March 31, | ||||||||||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | ||||||||||||||||||
Interest rate contracts | $ | 451 | $ | 320 | $ | 1,045 | $ | 626 | $ | 871 | $ | 594 | ||||||||||||
Foreign exchange contracts | 197 | 362 | 432 | 599 | 261 | 235 | ||||||||||||||||||
Equity security and index contracts1 | 1,818 | 1,615 | 3,459 | 2,945 | 1,877 | 1,641 | ||||||||||||||||||
Commodity and other contracts | 110 | 20 | 299 | (124) | 435 | 189 | ||||||||||||||||||
Credit contracts | 355 | 429 | 931 | 765 | 326 | 576 | ||||||||||||||||||
Total | $ | 2,931 | $ | 2,746 | $ | 6,166 | $ | 4,811 | $ | 3,770 | $ | 3,235 |
1. | Dividend income is included within equity security and index contracts. |
The previous table summarizes gains and losses included in Trading revenues in the consolidated income statements from trading activities.statements. These activities include revenues related to derivative andnon-derivative financial instruments. The Firm generally utilizes financial instruments across a variety of product types in connection with its market-making and related risk management strategies. Accordingly, theThe trading revenues presented in the previous table are not representative of the manner in which the Firm manages its business activities and are prepared in a manner similar to the presentation of trading revenues for regulatory reporting purposes.
OTC Derivative Products—Trading Assets
Counterparty Credit Rating and Remaining Maturity of OTC Derivative Assets
Fair Value at June 30, 20171 | ||||||||||||||||||||
Contractual Years to Maturity | Total Derivative Assets | |||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | ||||||||||||||||
Credit Rating2 |
| |||||||||||||||||||
AAA | $ | 232 | $ | 308 | $ | 406 | $ | 3,168 | $ | 4,114 | ||||||||||
AA | 1,357 | 1,913 | 2,336 | 10,841 | 16,447 | |||||||||||||||
A | 6,487 | 5,123 | 4,342 | 18,625 | 34,577 | |||||||||||||||
BBB | 3,417 | 2,685 | 2,001 | 12,737 | 20,840 | |||||||||||||||
Non-investment grade | 2,753 | 2,104 | 3,070 | 2,247 | 10,174 | |||||||||||||||
Total | $ | 14,246 | $ | 12,133 | $ | 12,155 | $ | 47,618 | $ | 86,152 |
Fair Value at June 30, 20171 | ||||||||||||||||
$ in millions | Total Derivative Assets | Cross-Maturity and Cash Collateral Netting3 | Net Amounts Post-cash Collateral | Net Amounts Post- | ||||||||||||
Credit Rating2 |
| |||||||||||||||
AAA | $ | 4,114 | $ | (3,091 | ) | $ | 1,023 | $ | 952 | |||||||
AA | 16,447 | (10,935 | ) | 5,512 | 2,756 | |||||||||||
A | 34,577 | (25,571 | ) | 9,006 | 5,118 | |||||||||||
BBB | 20,840 | (14,301 | ) | 6,539 | 4,908 | |||||||||||
Non-investment grade | 10,174 | (4,886 | ) | 5,288 | 2,421 | |||||||||||
Total | $ | 86,152 | $ | (58,784 | ) | $ | 27,368 | $ | 16,155 |
Fair Value at December 31, 20161 | ||||||||||||||||||||
Contractual Years to Maturity | Total Derivative Assets | |||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | ||||||||||||||||
Credit Rating2 |
| |||||||||||||||||||
AAA | $ | 150 | $ | 428 | $ | 918 | $ | 2,931 | $ | 4,427 | ||||||||||
AA | 3,177 | 2,383 | 2,942 | 10,194 | 18,696 | |||||||||||||||
A | 9,244 | 6,676 | 5,495 | 21,322 | 42,737 | |||||||||||||||
BBB | 4,423 | 3,085 | 2,434 | 13,023 | 22,965 | |||||||||||||||
Non-investment grade | 2,283 | 1,702 | 1,722 | 1,794 | 7,501 | |||||||||||||||
Total | $ | 19,277 | $ | 14,274 | $ | 13,511 | $ | 49,264 | $ | 96,326 |
|
Fair Value at December 31, 20161 | ||||||||||||||||
$ in millions | Total Derivative Assets | Cross-Maturity and Cash Collateral | Net Amounts Post-cash Collateral | Net Amounts Post- collateral4 | ||||||||||||
Credit Rating2 |
| |||||||||||||||
AAA | $ | 4,427 | $ | (3,900 | ) | $ | 527 | $ | 485 | |||||||
AA | 18,696 | (11,813 | ) | 6,883 | 4,114 | |||||||||||
A | 42,737 | (31,425 | ) | 11,312 | 6,769 | |||||||||||
BBB | 22,965 | (16,629 | ) | 6,336 | 4,852 | |||||||||||
Non-investment grade | 7,501 | (4,131 | ) | 3,370 | 1,915 | |||||||||||
Total | $ | 96,326 | $ | (67,898 | ) | $ | 28,428 | $ | 18,135 |
|
|
|
|
Credit Risk-Related Contingencies
In connection with certain OTC trading agreements, the Firm may be required to provide additional collateral or immediately settle any outstanding liability balances with certain counterparties in the event of a credit rating downgrade of the Firm.
The following table presents the aggregate fair value of certain derivative contracts that contain credit risk-related contingent features that are in a net liability position for which the Firm has posted collateral in the normal course of business.
Net Derivative Liabilities and Collateral Posted
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Net derivative liabilities with credit risk-related contingent features | $ | 19,335 | $ | 22,939 | $ | 17,213 | $ | 20,675 | ||||||||
Collateral posted | 14,672 | 17,040 | 15,244 | 16,642 |
The additional collateral or termination payments that may be called in the event of a future credit rating downgrade vary by contract and can be based on ratings by either or both of Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’sS&P Global Ratings (“S&P”).TheRatings. The following table shows the future potential collateral amounts and termination payments that could be called or required by counterparties or exchange and clearing organizations in the event ofone-notch ortwo-notch
downgrade scenarios based on the relevant contractual downgrade triggers.
Incremental Collateral or Termination Payments upon Potential Future Ratings Downgrade
| ||
|
$ in millions | At March 31, 2018 | |||
One-notch downgrade | $ | 618 | ||
Two-notch downgrade | 409 | |||
Bilateral downgrade agreements included in the amounts above1 | $ | 910 |
1. |
|
Credit Derivatives and Other Credit Contracts
The Firm enters into credit derivatives, principally through credit default swaps,CDS, under which it receives or provides protection against the risk of default on a set of debt obligations issued by a specified reference entity or entities. A majority of the Firm’s counterparties for these derivatives are banks, broker-dealers, and insurance and other financial institutions.
For further information on credit derivatives and other credit contracts, see Note 4 to the consolidated financial statements in the 20162017 Form10-K.
Protection Sold and Purchased with Credit Default SwapsCDS
At March 31, 2018 | ||||||||||||||||||||||||||||||||
At June 30, 2017 | Notional | Fair Value (Asset)/Liability | ||||||||||||||||||||||||||||||
Protection Sold | Protection Purchased | Protection | Protection | Protection | Protection | |||||||||||||||||||||||||||
$ in millions | Notional | Fair Value Liability | Notional | Fair Value Liability | Sold | Purchased | Sold | Purchased | ||||||||||||||||||||||||
Credit default swaps |
| |||||||||||||||||||||||||||||||
Single name | $ | 195,821 | $ | (1,274 | ) | $ | 207,973 | $ | 1,613 | $ | 133,209 | $ | 152,446 | $ | (1,148 | ) | $ | 1,580 | ||||||||||||||
Index and basket | 131,476 | (48 | ) | 126,594 | (113 | ) | 103,531 | 98,822 | (163 | ) | 5 | |||||||||||||||||||||
Tranched index and basket | 23,519 | (408 | ) | 48,605 | 1,163 | 12,330 | 25,506 | (276 | ) | 517 | ||||||||||||||||||||||
Total | $ | 350,816 | $ | (1,730 | ) | $ | 383,172 | $ | 2,663 | $ | 249,070 | $ | 276,774 | $ | (1,587 | ) | $ | 2,102 | ||||||||||||||
Single name and non-tranched index and basket with identical underlying reference obligations | $ | 323,765 | — | $ | 330,349 | — | $ | 233,572 | $ | 250,376 |
At December 31, 2017 | ||||||||||||||||||||||||||||||||
At December 31, 2016 | Notional | Fair Value (Asset)/Liability | ||||||||||||||||||||||||||||||
Protection Sold | Protection Purchased | Protection | Protection | Protection | Protection | |||||||||||||||||||||||||||
$ in millions | Notional | Fair Value Liability | Notional | Fair Value Liability | Sold | Purchased | Sold | Purchased | ||||||||||||||||||||||||
Credit default swaps |
| |||||||||||||||||||||||||||||||
Single name | $ | 266,918 | $ | (753 | ) | $ | 269,623 | $ | 826 | $ | 146,948 | $ | 164,773 | $ | (1,277 | ) | $ | 1,658 | ||||||||||||||
Index and basket | 130,383 | 374 | 122,061 | (481 | ) | 131,073 | 120,348 | (341 | ) | 209 | ||||||||||||||||||||||
Tranched index and basket | 32,429 | (670 | ) | 78,505 | 1,900 | 11,864 | 24,498 | (342 | ) | 616 | ||||||||||||||||||||||
Total | $ | 429,730 | $ | (1,049 | ) | $ | 470,189 | $ | 2,245 | $ | 289,885 | $ | 309,619 | $ | (1,960 | ) | $ | 2,483 | ||||||||||||||
Single name and non-tranched index and basket with identical underlying reference obligations | $ | 395,536 | — | $ | 389,221 | — | $ | 274,473 | $ | 281,162 |
Notes to Consolidated Financial Statements (Unaudited) |
Fair value amounts as shown in the table below are on a gross basis prior to cash collateral or counterparty netting. In order to provide an indication of the current payment status or performance risk of the CDS, a breakdown of CDS based on the Firm’s internal credit ratings by investment grade and non-investment grade is provided. Internal credit ratings
serve as the Credit Risk Management Department’s assessment of credit risk and the basis for a comprehensive credit limits framework used to control credit risk. The Firm uses quantitative models and judgment to estimate the various risk parameters related to each obligor.
Credit Ratings of Reference Obligation and Maturities of Credit Protection Sold
At June 30, 2017 | At March 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
Maximum Potential Payout/Notional | Fair Value (Asset)/ Liability1 | Maximum Potential Payout/Notional | Fair Value (Asset)/ Liability | |||||||||||||||||||||||||||||||||||||||||||||
Years to Maturity | Years to Maturity | |||||||||||||||||||||||||||||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | Less than 1 | 1-3 | 3-5 | Over 5 | Total | ||||||||||||||||||||||||||||||||||||||
Single name credit default swaps2 | ||||||||||||||||||||||||||||||||||||||||||||||||
Single name CDS | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment grade | $ | 57,174 | $ | 52,949 | $ | 26,353 | $ | 9,523 | $ | 145,999 | $ | (1,397 | ) | $ | 33,332 | $ | 35,927 | $ | 17,621 | $ | 10,658 | $ | 97,538 | $ | (1,124 | ) | ||||||||||||||||||||||
Non-investment grade | 22,379 | 18,958 | 7,465 | 1,020 | 49,822 | 123 | 12,994 | 13,871 | 6,813 | 1,993 | 35,671 | (24 | ) | |||||||||||||||||||||||||||||||||||
Total single name credit default swaps | 79,553 | 71,907 | 33,818 | 10,543 | 195,821 | (1,274 | ) | |||||||||||||||||||||||||||||||||||||||||
Index and basket credit default swaps2 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total single name CDS | $ | 46,326 | $ | 49,798 | $ | 24,434 | $ | 12,651 | $ | 133,209 | $ | (1,148 | ) | |||||||||||||||||||||||||||||||||||
Index and basket CDS | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment grade | 26,972 | 14,044 | 48,806 | 7,914 | 97,736 | (999 | ) | $ | 29,448 | $ | 14,049 | $ | 16,003 | $ | 10,902 | $ | 70,402 | $ | (811 | ) | ||||||||||||||||||||||||||||
Non-investment grade | 27,129 | 7,037 | 13,807 | 9,286 | 57,259 | 543 | 5,941 | 6,139 | 17,681 | 15,698 | 45,459 | 372 | ||||||||||||||||||||||||||||||||||||
Total index and basket credit default swaps | 54,101 | 21,081 | 62,613 | 17,200 | 154,995 | (456 | ) | |||||||||||||||||||||||||||||||||||||||||
Total credit default swaps sold | $ | 133,654 | $ | 92,988 | $ | 96,431 | $ | 27,743 | $ | 350,816 | $ | (1,730 | ) | |||||||||||||||||||||||||||||||||||
Total index and basket CDS | $ | 35,389 | $ | 20,188 | $ | 33,684 | $ | 26,600 | $ | 115,861 | $ | (439 | ) | |||||||||||||||||||||||||||||||||||
Total CDS sold | $ | 81,715 | $ | 69,986 | $ | 58,118 | $ | 39,251 | $ | 249,070 | $ | (1,587 | ) | |||||||||||||||||||||||||||||||||||
Other credit contracts | 27 | — | 13 | 129 | 169 | 4 | — | 2 | — | 127 | 129 | 20 | ||||||||||||||||||||||||||||||||||||
Total credit derivatives and other credit contracts | $ | 133,681 | $ | 92,988 | $ | 96,444 | $ | 27,872 | $ | 350,985 | $ | (1,726 | ) | $ | 81,715 | $ | 69,988 | $ | 58,118 | $ | 39,378 | $ | 249,199 | $ | (1,567 | ) |
At December 31, 2016 | ||||||||||||||||||||||||
Maximum Potential Payout/Notional | Fair Value (Asset)/ Liability1 | |||||||||||||||||||||||
Years to Maturity | ||||||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||||||
Single name credit default swaps2 | ||||||||||||||||||||||||
Investment grade | $ | 79,449 | $ | 70,796 | $ | 34,529 | $ | 10,293 | $ | 195,067 | $ | (1,060 | ) | |||||||||||
Non-investment grade | 34,571 | 25,820 | 10,436 | 1,024 | 71,851 | 307 | ||||||||||||||||||
Total single name credit default swaps | $ | 114,020 | $ | 96,616 | $ | 44,965 | $ | 11,317 | $ | 266,918 | $ | (753 | ) | |||||||||||
Index and basket credit default swaps2 | ||||||||||||||||||||||||
Investment grade | $ | 26,530 | $ | 21,388 | $ | 35,060 | $ | 9,096 | $ | 92,074 | $ | (846 | ) | |||||||||||
Non-investment grade | 26,135 | 22,983 | 11,759 | 9,861 | 70,738 | 550 | ||||||||||||||||||
Total index and basket credit default swaps | $ | 52,665 | $ | 44,371 | $ | 46,819 | $ | 18,957 | $ | 162,812 | $ | (296 | ) | |||||||||||
Total credit default swaps sold | $ | 166,685 | $ | 140,987 | $ | 91,784 | $ | 30,274 | $ | 429,730 | $ | (1,049 | ) | |||||||||||
Other credit contracts | 49 | 6 | — | 215 | 270 | — | ||||||||||||||||||
Total credit derivatives and other credit contracts | $ | 166,734 | $ | 140,993 | $ | 91,784 | $ | 30,489 | $ | 430,000 | $ | (1,049 | ) |
|
|
At December 31, 2017 | ||||||||||||||||||||||||
Maximum Potential Payout/Notional | Fair Value (Asset)/ Liability | |||||||||||||||||||||||
Years to Maturity | ||||||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||||||
Single name CDS | ||||||||||||||||||||||||
Investment grade | $ | 39,721 | $ | 42,591 | $ | 18,157 | $ | 8,872 | $ | 109,341 | $ | (1,167 | ) | |||||||||||
Non-investment grade | 14,213 | 16,293 | 6,193 | 908 | 37,607 | (110 | ) | |||||||||||||||||
Total single name CDS | $ | 53,934 | $ | 58,884 | $ | 24,350 | $ | 9,780 | $ | 146,948 | $ | (1,277 | ) | |||||||||||
Index and basket CDS | ||||||||||||||||||||||||
Investment grade | $ | 29,046 | $ | 15,418 | $ | 37,343 | $ | 6,807 | $ | 88,614 | $ | (1,091 | ) | |||||||||||
Non-investment grade | 5,246 | 7,371 | 32,417 | 9,289 | 54,323 | 408 | ||||||||||||||||||
Total index and basket CDS | $ | 34,292 | $ | 22,789 | $ | 69,760 | $ | 16,096 | $ | 142,937 | $ | (683 | ) | |||||||||||
Total CDS sold | $ | 88,226 | $ | 81,673 | $ | 94,110 | $ | 25,876 | $ | 289,885 | $ | (1,960 | ) | |||||||||||
Other credit contracts | 2 | — | — | 134 | 136 | 16 | ||||||||||||||||||
Total credit derivatives and other credit contracts | $ | 88,228 | $ | 81,673 | $ | 94,110 | $ | 26,010 | $ | 290,021 | $ | (1,944 | ) |
Notes to Consolidated Financial Statements (Unaudited) |
The following tables present information about the Firm’s AFS securities, which are carried at fair value, and HTM securities, which are carried at amortized cost. The net unrealized gains or losses on AFS securities are reported on anafter-tax basis as a component of AOCI.
AFS and HTM Securities
At June 30, 2017 | At March 31, 2018 | |||||||||||||||||||||||||||||||
$ in millions | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||
AFS debt securities | ||||||||||||||||||||||||||||||||
AFS securities | ||||||||||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 21,580 | $ | — | $ | 417 | $ | 21,163 | $ | 30,032 | $ | — | $ | 833 | $ | 29,199 | ||||||||||||||||
U.S. agency securities1 | 21,714 | 36 | 200 | 21,550 | 22,084 | 32 | 504 | 21,612 | ||||||||||||||||||||||||
Total U.S. government and agency securities | 43,294 | 36 | 617 | 42,713 | 52,116 | 32 | 1,337 | 50,811 | ||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
Commercial mortgage-backed securities: | ||||||||||||||||||||||||||||||||
Agency | 1,536 | 2 | 42 | 1,496 | ||||||||||||||||||||||||||||
Non-agency | 1,578 | 11 | 9 | 1,580 | ||||||||||||||||||||||||||||
Agency CMBS | 1,302 | 2 | 59 | 1,245 | ||||||||||||||||||||||||||||
Non-agency CMBS | 857 | 2 | 17 | 842 | ||||||||||||||||||||||||||||
Corporate bonds | 1,586 | 13 | 8 | 1,591 | 1,346 | — | 28 | 1,318 | ||||||||||||||||||||||||
Collateralized loan obligations | 560 | 1 | — | 561 | ||||||||||||||||||||||||||||
FFELP student loan asset-backed securities2 | 2,549 | 7 | 15 | 2,541 | ||||||||||||||||||||||||||||
CLO | 351 | 1 | — | 352 | ||||||||||||||||||||||||||||
FFELP student loan ABS2 | 2,173 | 15 | 7 | 2,181 | ||||||||||||||||||||||||||||
Total corporate and other debt | 7,809 | 34 | 74 | 7,769 | 6,029 | 20 | 111 | 5,938 | ||||||||||||||||||||||||
Total AFS debt securities | 51,103 | 70 | 691 | 50,482 | ||||||||||||||||||||||||||||
AFS equity securities | 15 | — | 9 | 6 | ||||||||||||||||||||||||||||
Total AFS securities | 51,118 | 70 | 700 | 50,488 | 58,145 | 52 | 1,448 | 56,749 | ||||||||||||||||||||||||
HTM securities | ||||||||||||||||||||||||||||||||
U.S. government securities: | ||||||||||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | 8,463 | 9 | 216 | 8,256 | 11,817 | — | 490 | 11,327 | ||||||||||||||||||||||||
U.S. agency securities1 | 12,501 | 10 | 193 | 12,318 | 11,747 | — | 477 | 11,270 | ||||||||||||||||||||||||
Total U.S. government and agency securities | 20,964 | 19 | 409 | 20,574 | 23,564 | — | 967 | 22,597 | ||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
Commercial mortgage-backed securities: | ||||||||||||||||||||||||||||||||
Non-agency | 124 | — | 1 | 123 | ||||||||||||||||||||||||||||
Total corporate and other debt | 124 | — | 1 | 123 | ||||||||||||||||||||||||||||
Non-agency CMBS | 328 | — | 6 | 322 | ||||||||||||||||||||||||||||
Total HTM securities | 21,088 | 19 | 410 | 20,697 | 23,892 | — | 973 | 22,919 | ||||||||||||||||||||||||
Total Investment securities | $ | 72,206 | $ | 89 | $ | 1,110 | $ | 71,185 | ||||||||||||||||||||||||
Total investment securities | $ | 82,037 | $ | 52 | $ | 2,421 | $ | 79,668 |
At December 31, 2016 | At December 31, 2017 | |||||||||||||||||||||||||||||||
$ in millions | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||
AFS debt securities | ||||||||||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 28,371 | $ | 1 | $ | 545 | $ | 27,827 | $ | 26,842 | $ | — | $ | 589 | $ | 26,253 | ||||||||||||||||
U.S. agency securities1 | 22,348 | 14 | 278 | 22,084 | 22,803 | 28 | 247 | 22,584 | ||||||||||||||||||||||||
Total U.S. government and agency securities | 50,719 | 15 | 823 | 49,911 | 49,645 | 28 | 836 | 48,837 | ||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
Commercial mortgage-backed securities: | ||||||||||||||||||||||||||||||||
Agency | 1,850 | 2 | 44 | 1,808 | ||||||||||||||||||||||||||||
Non-agency | 2,250 | 11 | 16 | 2,245 | ||||||||||||||||||||||||||||
Auto loan asset-backed securities | 1,509 | 1 | 1 | 1,509 | ||||||||||||||||||||||||||||
Agency CMBS | 1,370 | 2 | 49 | 1,323 | ||||||||||||||||||||||||||||
Non-agency CMBS | 1,102 | — | 8 | 1,094 | ||||||||||||||||||||||||||||
Corporate bonds | 3,836 | 7 | 22 | 3,821 | 1,379 | 5 | 12 | 1,372 | ||||||||||||||||||||||||
Collateralized loan obligations | 540 | — | 1 | 539 | ||||||||||||||||||||||||||||
FFELP student loan asset-backed securities2 | 3,387 | 5 | 61 | 3,331 | ||||||||||||||||||||||||||||
CLO | 398 | 1 | — | 399 | ||||||||||||||||||||||||||||
FFELP student loan ABS2 | 2,165 | 15 | 7 | 2,173 | ||||||||||||||||||||||||||||
Total corporate and other debt | 13,372 | 26 | 145 | 13,253 | 6,414 | 23 | 76 | 6,361 | ||||||||||||||||||||||||
Total AFS debt securities | 64,091 | 41 | 968 | 63,164 | 56,059 | 51 | 912 | 55,198 | ||||||||||||||||||||||||
AFS equity securities | 15 | — | 9 | 6 | 15 | — | 10 | 5 | ||||||||||||||||||||||||
Total AFS securities | 64,106 | 41 | 977 | 63,170 | 56,074 | 51 | 922 | 55,203 | ||||||||||||||||||||||||
HTM securities | ||||||||||||||||||||||||||||||||
U.S. government securities: | ||||||||||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | 5,839 | 1 | 283 | 5,557 | 11,424 | — | 305 | 11,119 | ||||||||||||||||||||||||
U.S. agency securities1 | 11,083 | 1 | 188 | 10,896 | 11,886 | 7 | 220 | 11,673 | ||||||||||||||||||||||||
Total U.S. government and agency securities | 23,310 | 7 | 525 | 22,792 | ||||||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||
Non-agency CMBS | 289 | 1 | 1 | 289 | ||||||||||||||||||||||||||||
Total HTM securities | 16,922 | 2 | 471 | 16,453 | 23,599 | 8 | 526 | 23,081 | ||||||||||||||||||||||||
Total Investment securities | $ | 81,028 | $ | 43 | $ | 1,448 | $ | 79,623 | ||||||||||||||||||||||||
Total investment securities | $ | 79,673 | $ | 59 | $ | 1,448 | $ | 78,284 |
1. | U.S. agency securities consist mainly of agency-issued debt, agency mortgage pass-through pool securities and |
2. |
|
Notes to Consolidated Financial Statements (Unaudited) |
Investment Securities in an Unrealized Loss Position
At March 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
At June 30, 2017 | Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total |
|
| ||||||||||||||||||||||||||||||||||||||||||||
$ in millions | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||||||||||||||
AFS debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||
AFS securities | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 21,163 | $ | 417 | $ | — | $ | — | $ | 21,163 | $ | 417 | $ | 25,041 | $ | 711 | $ | 3,958 | $ | 122 | $ | 28,999 | $ | 833 | ||||||||||||||||||||||||
U.S. agency securities | 11,890 | 199 | 99 | 1 | 11,989 | 200 | 12,634 | 402 | 2,417 | 102 | 15,051 | 504 | ||||||||||||||||||||||||||||||||||||
Total U.S. government and agency securities | 33,053 | 616 | 99 | 1 | 33,152 | 617 | 37,675 | 1,113 | 6,375 | 224 | 44,050 | 1,337 | ||||||||||||||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Agency | 1,063 | 42 | — | — | 1,063 | 42 | ||||||||||||||||||||||||||||||||||||||||||
Non-agency | 370 | 6 | 406 | 3 | 776 | 9 | ||||||||||||||||||||||||||||||||||||||||||
Agency CMBS | 910 | 59 | — | — | 910 | 59 | ||||||||||||||||||||||||||||||||||||||||||
Non-agency CMBS | 309 | 7 | 242 | 10 | 551 | 17 | ||||||||||||||||||||||||||||||||||||||||||
Corporate bonds | 592 | 8 | — | — | 592 | 8 | 809 | 13 | 383 | 15 | 1,192 | 28 | ||||||||||||||||||||||||||||||||||||
FFELP student loan asset-backed securities | 1,580 | 15 | — | — | 1,580 | 15 | ||||||||||||||||||||||||||||||||||||||||||
FFELP student loan ABS | 1,006 | 7 | — | — | 1,006 | 7 | ||||||||||||||||||||||||||||||||||||||||||
Total corporate and other debt | 3,605 | 71 | 406 | 3 | 4,011 | 74 | 3,034 | 86 | 625 | 25 | 3,659 | 111 | ||||||||||||||||||||||||||||||||||||
Total AFS debt securities | 36,658 | 687 | 505 | 4 | 37,163 | 691 | ||||||||||||||||||||||||||||||||||||||||||
AFS equity securities | — | — | 6 | 9 | 6 | 9 | ||||||||||||||||||||||||||||||||||||||||||
Total AFS securities | 36,658 | 687 | 511 | 13 | 37,169 | 700 | 40,709 | 1,199 | 7,000 | 249 | 47,709 | 1,448 | ||||||||||||||||||||||||||||||||||||
HTM securities | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities | 7,043 | 216 | — | — | 7,043 | 216 | 6,585 | 177 | 4,742 | 313 | 11,327 | 490 | ||||||||||||||||||||||||||||||||||||
U.S. agency securities | 10,573 | 193 | — | — | 10,573 | 193 | 4,404 | 119 | 6,866 | 358 | 11,270 | 477 | ||||||||||||||||||||||||||||||||||||
Total U.S. government and agency securities | 17,616 | 409 | — | — | 17,616 | 409 | 10,989 | 296 | 11,608 | 671 | 22,597 | 967 | ||||||||||||||||||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-agency | 91 | 1 | — | — | 91 | 1 | ||||||||||||||||||||||||||||||||||||||||||
Total corporate and other debt | 91 | 1 | — | — | 91 | 1 | ||||||||||||||||||||||||||||||||||||||||||
Non-agency CMBS | 220 | 6 | — | — | 220 | 6 | ||||||||||||||||||||||||||||||||||||||||||
Total HTM securities | 17,707 | 410 | — | — | 17,707 | 410 | 11,209 | 302 | 11,608 | 671 | 22,817 | 973 | ||||||||||||||||||||||||||||||||||||
Total Investment securities | $ | 54,365 | $ | 1,097 | $ | 511 | $ | 13 | $ | 54,876 | $ | 1,110 | ||||||||||||||||||||||||||||||||||||
Total investment securities | $ | 51,918 | $ | 1,501 | $ | 18,608 | $ | 920 | $ | 70,526 | $ | 2,421 |
At December 31, 2017 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
$ in millions | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||
AFS debt securities | ||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||
U.S. Treasury securities | $ | 21,941 | $ | 495 | $ | 4,287 | $ | 94 | $ | 26,228 | $ | 589 | ||||||||||||
U.S. agency securities | 12,673 | 192 | 2,513 | 55 | 15,186 | 247 | ||||||||||||||||||
Total U.S. government and agency securities | 34,614 | 687 | 6,800 | 149 | 41,414 | 836 | ||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||
Agency CMBS | 930 | 49 | — | — | 930 | 49 | ||||||||||||||||||
Non-agency CMBS | 257 | 1 | 559 | 7 | 816 | 8 | ||||||||||||||||||
Corporate bonds | 316 | 3 | 389 | 9 | 705 | 12 | ||||||||||||||||||
FFELP student loan ABS | 984 | 7 | — | — | 984 | 7 | ||||||||||||||||||
Total corporate and other debt | 2,487 | 60 | 948 | 16 | 3,435 | 76 | ||||||||||||||||||
Total AFS debt securities | 37,101 | 747 | 7,748 | 165 | 44,849 | 912 | ||||||||||||||||||
AFS equity securities | — | — | 5 | 10 | 5 | 10 | ||||||||||||||||||
Total AFS securities | 37,101 | 747 | 7,753 | 175 | 44,854 | 922 | ||||||||||||||||||
HTM securities | ||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||
U.S. Treasury securities | 6,608 | 86 | 4,512 | 219 | 11,120 | 305 | ||||||||||||||||||
U.S. agency securities | 2,879 | 24 | 7,298 | 196 | 10,177 | 220 | ||||||||||||||||||
Total U.S. government and agency securities | 9,487 | 110 | 11,810 | 415 | 21,297 | 525 | ||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||
Non-agency CMBS | 124 | 1 | — | — | 124 | 1 | ||||||||||||||||||
Total HTM securities | 9,611 | 111 | 11,810 | 415 | 21,421 | 526 | ||||||||||||||||||
Total investment securities | $ | 46,712 | $ | 858 | $ | 19,563 | $ | 590 | $ | 66,275 | $ | 1,448 |
Notes to Consolidated Financial Statements (Unaudited) |
At December 31, 2016 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
$ in millions | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||
AFS debt securities | ||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||
U.S. Treasury securities | $ | 25,323 | $ | 545 | $ | — | $ | — | $ | 25,323 | $ | 545 | ||||||||||||
U.S. agency securities | 16,760 | 278 | 125 | — | 16,885 | 278 | ||||||||||||||||||
Total U.S. government and agency securities | 42,083 | 823 | 125 | — | 42,208 | 823 | ||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||
Commercial mortgage-backed securities: | ||||||||||||||||||||||||
Agency | 1,245 | 44 | — | — | 1,245 | 44 | ||||||||||||||||||
Non-agency | 763 | 11 | 594 | 5 | 1,357 | 16 | ||||||||||||||||||
Auto loan asset-backed securities | 659 | 1 | 123 | — | 782 | 1 | ||||||||||||||||||
Corporate bonds | 2,050 | 21 | 142 | 1 | 2,192 | 22 | ||||||||||||||||||
Collateralized loan obligations | 178 | — | 239 | 1 | 417 | 1 | ||||||||||||||||||
FFELP student loan asset-backed securities | 2,612 | 61 | — | — | 2,612 | 61 | ||||||||||||||||||
Total corporate and other debt | 7,507 | 138 | 1,098 | 7 | 8,605 | 145 | ||||||||||||||||||
Total AFS debt securities | 49,590 | 961 | 1,223 | 7 | 50,813 | 968 | ||||||||||||||||||
AFS equity securities | 6 | 9 | — | — | 6 | 9 | ||||||||||||||||||
Total AFS securities | 49,596 | 970 | 1,223 | 7 | 50,819 | 977 | ||||||||||||||||||
HTM securities | ||||||||||||||||||||||||
U.S. government and agency securities: | ||||||||||||||||||||||||
U.S. Treasury securities | 5,057 | 283 | — | — | 5,057 | 283 | ||||||||||||||||||
U.S. agency securities | 10,612 | 188 | — | — | 10,612 | 188 | ||||||||||||||||||
Total HTM securities | 15,669 | 471 | — | — | 15,669 | 471 | ||||||||||||||||||
Total Investment securities | $ | 65,265 | $ | 1,441 | $ | 1,223 | $ | 7 | $ | 66,488 | $ | 1,448 |
|
As discussed in Note 2 to the consolidated financial statements in the 2016 Form10-K, AFS and HTM securities with a current fair value less than their amortized cost are analyzed as part of the Firm’s ongoing assessment of temporarily versus other-than-temporarily impaired at the individual security level.
The Firm believes there are no securities in an unrealized loss position that are other-than-temporarily-impaired at June 30,other-than-temporarily impaired after performing the analysis described in Note 2 to the financial statements in the 2017 and December 31, 2016 for the reasons discussed herein.
Form 10-K. For AFS debt securities, the Firm does not intend to sell the securities and is not likely to be required to sell the securities prior to recovery of amortized cost basis. ForFurthermore, for AFS and HTM debt securities, the securities have not experienced credit losses as the net unrealized losses reported in the previous table are primarily due to higher interest rates since those securities were purchased.
Additionally, the Firm does not expect to experience a credit loss based on consideration of the relevant information (as discussed in Note 2 to the consolidated financial statements in the 2016 Form10-K), including for U.S. government and agency securities, the existence of an explicit and implicit guarantee provided by the U.S. government. The risk of credit loss on securities in an unrealized loss position is considered minimal because the Firm’s U.S. government and agency securities, as well as asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”) and collateralized loan obligations (“CLOs”), are highly rated and because corporate bonds are all investment grade.
For AFS equity securities, the Firm has the intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in market value.
See Note 12 for additional information on securities issued by VIEs, including U.S. agency mortgage-backed securities,non-agency CMBS, auto loan ABS, CLO and FFELP student loan ABS.
Investment Securities by Contractual Maturity
At June 30, 2017 | At March 31, 2018 | |||||||||||||||||||||||
$ in millions | Amortized Cost | Fair Value | Annualized Average Yield | Amortized Cost | Fair Value | Annualized Average Yield | ||||||||||||||||||
AFS debt securities | ||||||||||||||||||||||||
AFS securities | ||||||||||||||||||||||||
U.S. government and agency securities: | U.S. government and agency securities: |
| ||||||||||||||||||||||
U.S. Treasury securities: | ||||||||||||||||||||||||
Due within 1 year | $ | 3,798 | $ | 3,786 | 0.9% | $ | 6,153 | $ | 6,132 | 0.9% | ||||||||||||||
After 1 year through 5 years | 13,090 | 12,923 | 1.2% | 19,385 | 18,906 | 1.6% | ||||||||||||||||||
After 5 years through 10 years | 4,692 | 4,454 | 1.4% | 4,494 | 4,161 | 1.4% | ||||||||||||||||||
Total | 21,580 | 21,163 | 30,032 | 29,199 | ||||||||||||||||||||
U.S. agency securities: | ||||||||||||||||||||||||
Due within 1 year | 43 | 42 | 1.1% | |||||||||||||||||||||
After 1 year through 5 years | 1,899 | 1,883 | 1.0% | |||||||||||||||||||||
After 5 years through 10 years | 1,555 | 1,506 | 1.8% | |||||||||||||||||||||
After 10 years | 18,587 | 18,181 | 2.0% | |||||||||||||||||||||
Total | 22,084 | 21,612 | ||||||||||||||||||||||
Total U.S. government and agency securities | 52,116 | 50,811 | 1.6% | |||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||
Agency CMBS: | ||||||||||||||||||||||||
Due within 1 year | 19 | 19 | 1.3% | |||||||||||||||||||||
After 1 year through 5 years | 431 | 430 | 1.3% | |||||||||||||||||||||
After 5 years through 10 years | 47 | 47 | 1.2% | |||||||||||||||||||||
After 10 years | 805 | 749 | 1.6% | |||||||||||||||||||||
Total | 1,302 | 1,245 |
At June 30, 2017 | At March 31, 2018 | |||||||||||||||||||||||
$ in millions | Amortized Cost | Fair Value | Annualized Average Yield | Amortized | Fair Value | Annualized Average Yield | ||||||||||||||||||
U.S. agency securities: | ||||||||||||||||||||||||
Due within 1 year | $ | 539 | $ | 539 | 0.3% | |||||||||||||||||||
After 1 year through 5 years | 3,696 | 3,693 | 0.7% | |||||||||||||||||||||
After 5 years through 10 years | 760 | 762 | 2.0% | |||||||||||||||||||||
After 10 years | 16,719 | 16,556 | 1.8% | |||||||||||||||||||||
Total | 21,714 | 21,550 | ||||||||||||||||||||||
Total U.S. government and agency securities | 43,294 | 42,713 | 1.4% | |||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||
Commercial mortgage-backed securities: |
| |||||||||||||||||||||||
Agency: | ||||||||||||||||||||||||
Due within 1 year | 49 | 49 | 1.1% | |||||||||||||||||||||
After 1 year through 5 years | 241 | 240 | 1.5% | |||||||||||||||||||||
After 5 years through 10 years | 383 | 385 | 1.2% | |||||||||||||||||||||
After 10 years | 863 | 822 | 1.6% | |||||||||||||||||||||
Total | 1,536 | 1,496 | ||||||||||||||||||||||
Non-agency: | ||||||||||||||||||||||||
Non-agency CMBS: | ||||||||||||||||||||||||
After 5 years through 10 years | 36 | 35 | 2.5% | $ | 36 | $ | 35 | 2.5% | ||||||||||||||||
After 10 years | 1,542 | 1,545 | 2.1% | 821 | 807 | 1.9% | ||||||||||||||||||
Total | 1,578 | 1,580 | 857 | 842 | ||||||||||||||||||||
Corporate bonds: | ||||||||||||||||||||||||
Due within 1 year | 36 | 36 | 1.2% | 97 | 97 | 1.6% | ||||||||||||||||||
After 1 year through 5 years | 1,219 | 1,225 | 2.4% | 1,175 | 1,150 | 2.4% | ||||||||||||||||||
After 5 years through 10 years | 331 | 330 | 2.4% | 74 | 71 | 2.5% | ||||||||||||||||||
Total | 1,586 | 1,591 | 1,346 | 1,318 | ||||||||||||||||||||
Collateralized loan obligations: | ||||||||||||||||||||||||
CLO: | ||||||||||||||||||||||||
After 5 years through 10 years | 362 | 362 | 1.5% | 153 | 153 | 1.5% | ||||||||||||||||||
After 10 years | 198 | 199 | 2.4% | 198 | 199 | 2.4% | ||||||||||||||||||
Total | 560 | 561 | 351 | 352 | ||||||||||||||||||||
FFELP student loan asset-backed securities: | ||||||||||||||||||||||||
FFELP student loan ABS: | ||||||||||||||||||||||||
After 1 year through 5 years | 57 | 56 | 0.8% | 48 | 47 | 0.8% | ||||||||||||||||||
After 5 years through 10 years | 536 | 532 | 0.8% | 390 | 388 | 0.8% | ||||||||||||||||||
After 10 years | 1,956 | 1,953 | 1.1% | 1,735 | 1,746 | 1.1% | ||||||||||||||||||
Total | 2,549 | 2,541 | 2,173 | 2,181 | ||||||||||||||||||||
Total corporate and other debt | 7,809 | 7,769 | 1.6% | 6,029 | 5,938 | 1.6% | ||||||||||||||||||
Total AFS debt securities | 51,103 | 50,482 | 1.4% | |||||||||||||||||||||
AFS equity securities | 15 | 6 | — % | |||||||||||||||||||||
Total AFS securities | 51,118 | 50,488 | 1.4% | 58,145 | 56,749 | 1.6% | ||||||||||||||||||
HTM securities | ||||||||||||||||||||||||
U.S. government securities: | ||||||||||||||||||||||||
U.S. Treasury securities: | ||||||||||||||||||||||||
Due within 1 year | 300 | 300 | 0.7% | 2,027 | 2,012 | 1.2% | ||||||||||||||||||
After 1 year through 5 years | 4,837 | 4,831 | 1.5% | 3,952 | 3,871 | 1.8% | ||||||||||||||||||
After 5 years through 10 years | 2,599 | 2,472 | 1.6% | 5,112 | 4,807 | 1.9% | ||||||||||||||||||
After 10 years | 727 | 653 | 2.3% | 726 | 637 | 2.3% | ||||||||||||||||||
Total | 8,463 | 8,256 | 11,817 | 11,327 | ||||||||||||||||||||
U.S. agency securities: | ||||||||||||||||||||||||
After 5 years through 10 years | 34 | 33 | 1.9% | |||||||||||||||||||||
After 10 years | 12,501 | 12,318 | 2.4% | 11,713 | 11,237 | 2.6% | ||||||||||||||||||
Total | 12,501 | 12,318 | 11,747 | 11,270 | ||||||||||||||||||||
Total U.S. government and agency | ||||||||||||||||||||||||
securities | 23,564 | 22,597 | 2.2% | |||||||||||||||||||||
Corporate and other debt: | ||||||||||||||||||||||||
Commercial mortgage-backed securities: |
| |||||||||||||||||||||||
Non-agency: | ||||||||||||||||||||||||
Non-agency CMBS: | ||||||||||||||||||||||||
After 1 year through 5 years | 41 | 41 | 3.7% | 92 | 92 | 3.6% | ||||||||||||||||||
After 5 years through 10 years | 83 | 82 | 3.8% | 217 | 212 | 3.9% | ||||||||||||||||||
Total | 124 | 123 | ||||||||||||||||||||||
After 10 years | 19 | 18 | 4.1% | |||||||||||||||||||||
Total corporate and other debt | 328 | 322 | 3.8% | |||||||||||||||||||||
Total HTM securities | 21,088 | 20,697 | 2.1% | 23,892 | 22,919 | 2.2% | ||||||||||||||||||
Total Investment securities | $ | 72,206 | $ | 71,185 | 1.6% | |||||||||||||||||||
Total investment securities | $ | 82,037 | $ | 79,668 | 1.8% |
63 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
Gross Realized Gains and Losses on Sales of AFS Securities
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Gross realized gains | $ | 23 | $ | 71 | $ | 27 | $ | 85 | ||||||||
Gross realized (losses) | (9 | ) | (1 | ) | (11 | ) | (3 | ) | ||||||||
Total | $ | 14 | $ | 70 | $ | 16 | $ | 82 |
Gross realized gains and losses are recognized in Other revenues in the consolidated income statements.
6. Collateralized Transactions
The Firm enters into securities purchased under agreements to resell, securities sold under agreements to repurchase, securities borrowed and securities loaned transactions to, among other things, acquire securities to cover short positions and settle other securities obligations, to accommodate customers’ needs and to finance its inventory positions. For further discussion of the Firm’s collateralized transactions, see Note 6 to the consolidated financial statements in the 20162017 Form10-K.
Offsetting of Certain Collateralized Transactions
At June 30, 2017 | ||||||||||||||||||||
$ in millions | Gross Amounts | Amounts Offset | Net Amounts Presented | Amounts Not Offset1 | Net Amounts | |||||||||||||||
Assets | ||||||||||||||||||||
Securities purchased under agreements to resell | $ | 161,364 | $ | (63,956 | ) | $ | 97,408 | $ | (89,731 | ) | $ | 7,677 | ||||||||
Securities borrowed | 140,136 | (13,414 | ) | 126,722 | (121,668 | ) | 5,054 | |||||||||||||
Liabilities | ||||||||||||||||||||
Securities sold under agreements to repurchase | $ | 114,653 | $ | (63,956 | ) | $ | 50,697 | $ | (44,980 | ) | $ | 5,717 | ||||||||
Securities loaned | 30,276 | (13,414 | ) | 16,862 | (16,632 | ) | 230 | |||||||||||||
Not subject to legally enforceable master netting agreements2 |
| |||||||||||||||||||
Securities purchased under agreements to resell |
| $ | 7,010 | |||||||||||||||||
Securities borrowed | 1,224 | |||||||||||||||||||
Securities sold under agreements to repurchase |
| 5,222 | ||||||||||||||||||
Securities loaned | 183 |
At December 31, 2016 | At March 31, 2018 | |||||||||||||||||||||||||||||||||||||||
$ in millions | Gross Amounts | Amounts Offset | Net Amounts Presented | Amounts Not Offset1 | Net Amounts | Gross Amounts | Amounts Offset | Net Amounts Presented | Amounts Not Offset1 | Net Amounts | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 182,888 | $ | (80,933 | ) | $ | 101,955 | $ | (93,365 | ) | $ | 8,590 | $ | 185,498 | $ | (105,252 | ) | $ | 80,246 | $ | (74,843 | ) | $ | 5,403 | ||||||||||||||||
Securities borrowed | 129,934 | (4,698 | ) | 125,236 | (118,974 | ) | 6,262 | 149,347 | (13,512 | ) | 135,835 | (132,271 | ) | 3,564 | ||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | $ | 135,561 | $ | (80,933 | ) | $ | 54,628 | $ | (47,933 | ) | $ | 6,695 | $ | 156,827 | $ | (105,252 | ) | $ | 51,575 | $ | (45,207 | ) | $ | 6,368 | ||||||||||||||||
Securities loaned | 20,542 | (4,698 | ) | 15,844 | (15,670 | ) | 174 | 27,068 | (13,512 | ) | 13,556 | (13,336 | ) | 220 | ||||||||||||||||||||||||||
Not subject to legally enforceable master netting agreements2 |
| |||||||||||||||||||||||||||||||||||||||
Net amounts for which master netting agreements are not in place or may not be legally enforceable | Net amounts for which master netting agreements are not in place or may not be legally enforceable |
| ||||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | Securities purchased under agreements to resell |
| $ | 7,765 | Securities purchased under agreements to resell |
| $ | 5,212 | ||||||||||||||||||||||||||||||||
Securities borrowed | 2,591 | 669 | ||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | Securities sold under agreements to repurchase |
| 6,500 | Securities sold under agreements to repurchase |
| 5,118 | ||||||||||||||||||||||||||||||||||
Securities loaned | 154 | 194 |
At December 31, 2017 | ||||||||||||||||||||
$ in millions | Gross Amounts | Amounts Offset | Net Amounts Presented | Amounts Not Offset1 | Net Amounts | |||||||||||||||
Assets | ||||||||||||||||||||
Securities purchased under agreements to resell | $ | 199,044 | $ | (114,786 | ) | $ | 84,258 | $ | (78,009 | ) | $ | 6,249 | ||||||||
Securities borrowed | 133,431 | (9,421 | ) | 124,010 | (119,358 | ) | 4,652 | |||||||||||||
Liabilities | ||||||||||||||||||||
Securities sold under agreements to repurchase | $ | 171,210 | $ | (114,786 | ) | $ | 56,424 | $ | (48,067 | ) | $ | 8,357 | ||||||||
Securities loaned | 23,014 | (9,422 | ) | 13,592 | (13,271 | ) | 321 | |||||||||||||
Net amounts for which master netting agreements are not in place or may not be legally enforceable |
| |||||||||||||||||||
Securities purchased under agreements to resell |
| $ | 5,687 | |||||||||||||||||
Securities borrowed | 572 | |||||||||||||||||||
Securities sold under agreements to repurchase |
| 6,945 | ||||||||||||||||||
Securities loaned | 307 |
1. | Amounts relate to master netting agreements that have been determined by the Firm to be legally enforceable in the event of default but where certain other criteria are not met in accordance with applicable offsetting accounting guidance. |
|
For information related to offsetting of derivatives, see Note 4.
Maturities and Collateral Pledged
Gross Secured Financing Balances by Remaining Contractual Maturity
At June 30, 2017 | At March 31, 2018 | |||||||||||||||||||||||||||||||||||||||
$ in millions | Overnight and | Less 30 Days | 30-90 Days | Over 90 Days | Total | Overnight and Open | Less than 30 Days | 30-90 Days | Over 90 Days | Total | ||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase1 | $ | 29,403 | $ | 26,884 | $ | 18,896 | $ | 39,470 | $ | 114,653 | ||||||||||||||||||||||||||||||
Securities loaned1 | 16,447 | 1,656 | 1,833 | 10,340 | 30,276 | |||||||||||||||||||||||||||||||||||
Gross amount of secured financing included in the offsetting disclosure | $ | 45,850 | $ | 28,540 | $ | 20,729 | $ | 49,810 | $ | 144,929 | ||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | $ | 39,192 | $ | 49,822 | $ | 27,926 | $ | 39,887 | $ | 156,827 | ||||||||||||||||||||||||||||||
Securities loaned | 16,869 | 603 | 2,045 | 7,551 | 27,068 | |||||||||||||||||||||||||||||||||||
Total included in the offsetting disclosure | $ | 56,061 | $ | 50,425 | $ | 29,971 | $ | 47,438 | $ | 183,895 | ||||||||||||||||||||||||||||||
Trading liabilities— Obligation to return securities received as collateral | 21,481 | — | — | — | 21,481 | 18,136 | — | 610 | — | 18,746 | ||||||||||||||||||||||||||||||
Total | $ | 67,331 | $ | 28,540 | $ | 20,729 | $ | 49,810 | $ | 166,410 | $ | 74,197 | $ | 50,425 | $ | 30,581 | $ | 47,438 | $ | 202,641 |
At December 31, 2017 | ||||||||||||||||||||
$ in millions | Overnight and Open | Less than 30 Days | 30-90 Days | Over 90 Days | Total | |||||||||||||||
Securities sold under agreements to repurchase | $ | 41,332 | $ | 66,593 | $ | 28,682 | $ | 34,603 | $ | 171,210 | ||||||||||
Securities loaned | 12,130 | 873 | 1,577 | 8,434 | 23,014 | |||||||||||||||
Total included in the offsetting disclosure | $ | 53,462 | $ | 67,466 | $ | 30,259 | $ | 43,037 | $ | 194,224 | ||||||||||
Trading liabilities— Obligation to return securities received as collateral | 22,555 | — | — | — | 22,555 | |||||||||||||||
Total | $ | 76,017 | $ | 67,466 | $ | 30,259 | $ | 43,037 | $ | 216,779 |
Gross Secured Financing Balances by Class of Collateral Pledged
$ in millions | At March 31, 2018 | At December 31, | ||||||
Securities sold under agreements to repurchase |
| |||||||
U.S. government and agency securities | $ | 37,361 | $ | 43,346 | ||||
State and municipal securities | 1,643 | 2,451 | ||||||
Other sovereign government obligations | 78,844 | 87,141 | ||||||
ABS | 2,204 | 1,130 | ||||||
Corporate and other debt | 10,063 | 7,737 | ||||||
Corporate equities | 25,893 | 28,497 | ||||||
Other | 819 | 908 | ||||||
Total | $ | 156,827 | $ | 171,210 | ||||
Securities loaned | ||||||||
U.S. government and agency securities | $ | 6 | $ | 81 | ||||
Other sovereign government obligations | 14,077 | 9,489 | ||||||
Corporate and other debt | 28 | 14 | ||||||
Corporate equities | 12,770 | 13,174 | ||||||
Other | 187 | 256 | ||||||
Total | $ | 27,068 | $ | 23,014 | ||||
Total included in the offsetting disclosure | $ | 183,895 | $ | 194,224 | ||||
Trading liabilities—Obligation to return securities received as collateral |
| |||||||
Corporate equities | $ | 18,746 | $ | 22,555 | ||||
Total | $ | 202,641 | $ | 216,779 |
March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
At December 31, 2016 | ||||||||||||||||||||
$ in millions | Overnight and | Less 30 Days | 30-90 Days | Over 90 Days | Total | |||||||||||||||
Securities sold under agreements to repurchase1 | $ | 41,549 | $ | 36,703 | $ | 24,648 | $ | 32,661 | $ | 135,561 | ||||||||||
Securities loaned1 | 9,487 | 851 | 2,863 | 7,341 | 20,542 | |||||||||||||||
Gross amount of secured financing included in the offsetting disclosure | $ | 51,036 | $ | 37,554 | $ | 27,511 | $ | 40,002 | $ | 156,103 | ||||||||||
Trading liabilities— Obligation to return securities received as collateral | 20,262 | — | — | — | 20,262 | |||||||||||||||
Total | $ | 71,298 | $ | 37,554 | $ | 27,511 | $ | 40,002 | $ | 176,365 |
|
Gross Secured Financing Balances by Class of Collateral Pledged
$ in millions | At June 30, 2017 | At December 31, | ||||||
Securities sold under agreements to repurchase1 |
| |||||||
U.S. government and agency securities | $ | 28,512 | $ | 56,372 | ||||
State and municipal securities | 157 | 1,363 | ||||||
Other sovereign government obligations | 51,498 | 42,790 | ||||||
Asset-backed securities | 1,549 | 1,918 | ||||||
Corporate and other debt | 5,083 | 9,086 | ||||||
Corporate equities | 26,599 | 23,152 | ||||||
Other | 1,255 | 880 | ||||||
Total securities sold under agreements to repurchase | $ | 114,653 | $ | 135,561 | ||||
Securities loaned1 | ||||||||
Other sovereign government obligations | 13,599 | 4,762 | ||||||
Corporate and other debt | 124 | 73 | ||||||
Corporate equities | 16,375 | 15,693 | ||||||
Other | 178 | 14 | ||||||
Total securities loaned | $ | 30,276 | $ | 20,542 | ||||
Gross amount of secured financing included in the offsetting disclosure | $ | 144,929 | $ | 156,103 | ||||
Trading liabilities—Obligation to return securities received as collateral |
| |||||||
Corporate equities | 21,472 | 20,247 | ||||||
Other | 9 | 15 | ||||||
Total Trading liabilities—Obligation to return securities received as collateral | $ | 21,481 | $ | 20,262 | ||||
Total | $ | 166,410 | $ | 176,365 |
|
Assets Pledged
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Carrying value of trading assets loaned or pledged1 | $ | 42,053 | $ | 41,358 | ||||
Carrying value of loans pledged (gross of allowance for loan losses)1 | 3,876 | — | ||||||
Total | $ | 45,929 | $ | 41,358 |
|
The Firm pledges its trading assets and loans to collateralize securities sold under agreements to repurchase, securities loaned, other secured financings and derivatives. Counterparties may or may not have the right to sell or repledge the collateral.
Pledged financial instruments that can be sold or repledged by the secured party are identified as Trading assets (pledged to various parties) in the consolidated balance sheets. Pledged financial instruments that cannot be sold or repledged by the secured party are shown in the previous table.
Carrying Value of Assets Loaned or Pledged without Counterparty Right to Sell or Repledge | ||||||||
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Trading assets | $ | 34,590 | $ | 31,324 | ||||
Loans (gross of allowance for loan losses) | 342 | 228 | ||||||
Total | $ | 34,932 | $ | 31,552 |
Collateral Received
The Firm receives collateral in the form of securities in connection with securities purchased under agreements to resell, securities borrowed, securities-for-securities transactions, derivative transactions, customer margin loans and securities-based lending. In many cases, the Firm is permitted to sell or repledge these securities held as collateral and use the securities to secure securities sold under agreements to repurchase, to enter into securities lending and derivative transactions or for delivery to counterparties to cover short positions.
The Firm also receives securities as collateral in connection with certainsecurities-for-securities transactions. In instances where the Firm is the lender and permitted to sell or repledge these securities, it reports the fair value of the collateral received and the related obligation to return the collateral included in Trading assets and Trading liabilities, respectively, in its consolidated balance sheets.
Fair Value of Collateral Received with Right to Sell or Repledge
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Collateral received with right to sell or repledge | $ | 556,203 | $ | 561,239 | ||||
Collateral that was sold or repledged | 429,029 | 430,911 |
|
Fair Value of Collateral Received with Right to Sell or Repledge | ||||||||
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Collateral received with right to sell or repledge | $ | 597,886 | $ | 599,244 | ||||
Collateral that was sold or repledged | 471,985 | 475,113 |
Customer Margin Lending and Other
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Net customer receivables representing margin loans | $ | 27,744 | $ | 24,359 | $ | 34,382 | $ | 32,112 |
The Firm engages inprovides margin lending to clients that allowsarrangements which allow the client to borrow against the value of qualifying securities. Margin loans are included within Customer and other receivables in the consolidated balance sheets. Under these agreements and transactions, the Firm receives collateral, including U.S.
government and agency securities, other sovereign government obligations, corporate and other debt, and corporate equities. Customer receivables generated from margin lending activities are collateralized by customer-owned securities held by the Firm. The Firm monitors required margin levels and established credit terms daily and, pursuant to such guidelines, requires customers to deposit additional collateral, or reduce positions, when necessary.
For a further discussion of the Firm’s margin lending activities, see Note 6 to the consolidated financial statements in the 20162017 Form10-K.
The Firm has additional secured liabilities. For a further discussion of other secured financings, see Note 10.
Cash and Securities Deposited with Clearing Organizations or Segregated
Restricted Cash and Segregated Securities | Restricted Cash and Segregated Securities | |||||||||||||||
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Restricted cash | $ | 35,291 | $ | 34,231 | ||||||||||||
Segregated securities1 | $ | 20,351 | $ | 23,756 | 18,917 | 20,549 | ||||||||||
Other assets—Cash deposited with clearing organizations or segregated under federal and other regulations or requirements | 30,171 | 33,979 | ||||||||||||||
Total | $ | 50,522 | $ | 57,735 | $ | 54,208 | $ | 54,780 |
1. | Securities segregated under federal regulations for the Firm’s U.S. broker-dealers are sourced from Securities purchased under agreements to resell and Trading assets in the |
7. Loans, Lending Commitments and Allowance for Credit Losses
Loans
The Firm’s loans held for investment are recorded at amortized cost, and its loans held for sale are recorded at the lower of cost or fair value in the consolidated balance sheets. For a further description of these loans, refer to Note 7 to the consolidated financial statements in the 20162017 Form10-K. See Note 3 for further information regarding Loans and lending commitments held at fair value. See Note 11 for details of current commitments to lend in the future.
Loans by Type | ||||||||||||
At March 31, 2018 | ||||||||||||
$ in millions | Loans Held for Investment | Loans Held for Sale | Total Loans | |||||||||
Corporate loans | $ | 31,903 | $ | 12,000 | $ | 43,903 | ||||||
Consumer loans | 26,877 | — | 26,877 | |||||||||
Residential real estate loans | 26,566 | 33 | 26,599 | |||||||||
Wholesale real estate loans | 10,021 | 1,978 | 11,999 | |||||||||
Total loans, gross | 95,367 | 14,011 | 109,378 | |||||||||
Allowance for loan losses | (243 | ) | — | (243 | ) | |||||||
Total loans, net | $ | 95,124 | $ | 14,011 | $ | 109,135 |
Loans Held for Investment and Held for Sale by Loan Type
At June 30, 2017 | ||||||||||||
$ in millions | Loans Held for Investment | Loans Held for Sale | Total Loans | |||||||||
Corporate loans | $ | 26,831 | $ | 9,394 | $ | 36,225 | ||||||
Consumer loans | 26,354 | — | 26,354 | |||||||||
Residential real estate loans | 25,646 | 60 | 25,706 | |||||||||
Wholesale real estate loans | 8,482 | 1,178 | 9,660 | |||||||||
Total loans, gross | 87,313 | 10,632 | 97,945 | |||||||||
Allowance for loan losses | (306 | ) | — | (306 | ) | |||||||
Total loans, net | $ | 87,007 | $ | 10,632 | $ | 97,639 |
65 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
At December 31, 2016 | ||||||||||||
$ in millions | Loans Held for Investment | Loans Held for Sale | Total Loans | |||||||||
Corporate loans | $ | 25,025 | $ | 10,710 | $ | 35,735 | ||||||
Consumer loans | 24,866 | — | 24,866 | |||||||||
Residential real estate loans | 24,385 | 61 | 24,446 | |||||||||
Wholesale real estate loans | 7,702 | 1,773 | 9,475 | |||||||||
Total loans, gross | 81,978 | 12,544 | 94,522 | |||||||||
Allowance for loan losses | (274 | ) | — | (274 | ) | |||||||
Total loans, net | $ | 81,704 | $ | 12,544 | $ | 94,248 |
Loans toNon-U.S. Borrowers
At December 31, 2017 | ||||||||||||
$ in millions | Loans Held for Investment | Loans Held for Sale | Total Loans | |||||||||
Corporate loans | $ | 29,754 | $ | 9,456 | $ | 39,210 | ||||||
Consumer loans | 26,808 | — | 26,808 | |||||||||
Residential real estate loans | 26,635 | 35 | 26,670 | |||||||||
Wholesale real estate loans | 9,980 | 1,682 | 11,662 | |||||||||
Total loans, gross | 93,177 | 11,173 | 104,350 | |||||||||
Allowance for loan losses | (224 | ) | — | (224 | ) | |||||||
Total loans, net | $ | 92,953 | $ | 11,173 | $ | 104,126 |
$ in millions | At 2017 | At December 31, 2016 | ||||||
Loans, net of allowance | $ | 8,725 | $ | 9,388 |
Loans by Interest Rate Type
Loans by Interest Rate Type | ||||||||
$ in millions | At March 31, | At December 31, 2017 | ||||||
Fixed | $ | 14,252 | $ | 13,339 | ||||
Floating or adjustable | 94,883 | 90,787 | ||||||
Total loans, net | $ | 109,135 | $ | 104,126 |
$ in millions | At 2017 | At December 31, 2016 | ||||||
Fixed | $ | 12,696 | $ | 11,895 | ||||
Floating or adjustable | $ | 84,943 | $ | 82,353 |
Loans to Non-U.S. Borrowers | ||||||||||
$ in millions | At March 31, | At December 31, 2017 | ||||||||
Loans, net | $ | 16,110 | $ | 9,977 |
Credit Quality
For a further discussion about the Firm’s evaluation of credit transactions and monitoring and credit quality indicators, see Note 7 to the consolidated financial statements in the 2016 Form10-K.
|
Loans Held for Investment before Allowance by Credit Quality
At June 30, 2017 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real | Total | |||||||||||||||
Pass | $ | 25,321 | $ | 26,351 | $ | 25,598 | $ | 7,975 | $ | 85,245 | ||||||||||
Special mention | 416 | 3 | — | 192 | 611 | |||||||||||||||
Substandard | 1,025 | — | 48 | 315 | 1,388 | |||||||||||||||
Doubtful | 69 | — | — | — | 69 | |||||||||||||||
Loss | — | — | — | — | — | |||||||||||||||
Total | $ | 26,831 | $ | 26,354 | $ | 25,646 | $ | 8,482 | $ | 87,313 |
At December 31, 2016 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real | Total | |||||||||||||||
Pass | $ | 23,409 | $ | 24,853 | $ | 24,345 | $ | 7,294 | $ | 79,901 | ||||||||||
Special mention | 288 | 13 | — | 218 | 519 | |||||||||||||||
Substandard | 1,259 | — | 40 | 190 | 1,489 | |||||||||||||||
Doubtful | 69 | — | — | — | 69 | |||||||||||||||
Loss | — | — | — | — | — | |||||||||||||||
Total | $ | 25,025 | $ | 24,866 | $ | 24,385 | $ | 7,702 | $ | 81,978 |
Allowance for Credit Losses and Impaired Loans
Foras well as factors considered by the Firm in determining the allowance for loan losses and impairments, see Notes 2 and 7 to the consolidated financial statements in the 20162017 Form10-K.
Impaired Loans Before Allowance by Product Type
At June 30, 2017 | ||||||||||||
$ in millions | Corporate | Residential Real | Total | |||||||||
With allowance | $ | 141 | $ | — | $ | 141 | ||||||
Without allowance1 | 122 | 35 | 157 | |||||||||
Unpaid principal balance2 | 273 | 36 | 309 | |||||||||
At December 31, 2016 | ||||||||||||
$ in millions | Corporate | Residential Real | Total | |||||||||
With allowance | $ | 104 | $ | — | $ | 104 | ||||||
Without allowance1 | 206 | 35 | 241 | |||||||||
Unpaid principal balance2 | 316 | 38 | 354 |
Loans Held for Investment before Allowance by Credit Quality | ||||||||||||||||||||
At March 31, 2018 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real Estate | Wholesale Real Estate | Total | |||||||||||||||
Pass | $ | 31,327 | $ | 26,872 | $ | 26,492 | $ | 9,126 | $ | 93,817 | ||||||||||
Special mention | 162 | 5 | — | 460 | 627 | |||||||||||||||
Substandard | 405 | — | 74 | 435 | 914 | |||||||||||||||
Doubtful | 9 | — | — | — | 9 | |||||||||||||||
Loss | — | — | — | — | — | |||||||||||||||
Total | $ | 31,903 | $ | 26,877 | $ | 26,566 | $ | 10,021 | $ | 95,367 |
At December 31, 2017 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real Estate | Wholesale Real Estate | Total | |||||||||||||||
Pass | $ | 29,166 | $ | 26,802 | $ | 26,562 | $ | 9,480 | $ | 92,010 | ||||||||||
Special mention | 188 | 6 | — | 200 | 394 | |||||||||||||||
Substandard | 393 | — | 73 | 300 | 766 | |||||||||||||||
Doubtful | 7 | — | — | — | 7 | |||||||||||||||
Loss | — | — | — | — | — | |||||||||||||||
Total | $ | 29,754 | $ | 26,808 | $ | 26,635 | $ | 9,980 | $ | 93,177 |
The following loans and lending commitments have been evaluated for a specific allowance. All remaining loans and lending commitments are assessed under the inherent allowance methodology.
Impaired Loans and Lending Commitments before Allowance | ||||||||||||
At March 31, 2018 | ||||||||||||
$ in millions | Corporate | Residential Real Estate | Total | |||||||||
Loans | ||||||||||||
With allowance | $ | 15 | $ | — | $ | 15 | ||||||
Without allowance1 | 69 | 49 | 118 | |||||||||
UPB | 95 | 51 | 146 | |||||||||
Lending Commitments | ||||||||||||
Without allowance1 | $ | 226 | $ | — | $ | 226 | ||||||
At December 31, 2017 | ||||||||||||
$ in millions | Corporate | Residential Real Estate | Total | |||||||||
Loans | ||||||||||||
With allowance | $ | 16 | $ | — | $ | 16 | ||||||
Without allowance1 | 118 | 45 | 163 | |||||||||
UPB | 146 | 46 | 192 | |||||||||
Lending Commitments | ||||||||||||
Without allowance1 | $ | 199 | $ | — | $ | 199 |
1. | At |
|
Select Loan Information by Region
At June 30, 2017 | ||||||||||||||||
$ in millions | Americas | EMEA | Asia- Pacific | Total | ||||||||||||
Impaired loans | $ | 279 | $ | 9 | $ | 10 | $ | 298 | ||||||||
Allowance for loan losses | 274 | 30 | 2 | 306 | ||||||||||||
At December 31, 2016 | ||||||||||||||||
$ in millions | Americas | EMEA | Asia- Pacific | Total | ||||||||||||
Impaired loans | $ | 320 | $ | 9 | $ | 16 | $ | 345 | ||||||||
Allowance for loan losses | 245 | 28 | 1 | 274 |
EMEA—Europe, Middle East and Africa
Allowance for Credit Losses on Lending Activities
Loans—Current Year Period
Allowance for Loan Losses Rollforward
Impaired Loans and Allowance by Region | ||||||||||||||||
At March 31, 2018 | ||||||||||||||||
$ in millions | Americas | EMEA | Asia | Total | ||||||||||||
Impaired loans | $ | 129 | $ | — | $ | 4 | $ | 133 | ||||||||
Allowance for loan losses | 199 | $ | 42 | $ | 2 | $ | 243 | |||||||||
At December 31, 2017 | ||||||||||||||||
$ in millions | Americas | EMEA | Asia | Total | ||||||||||||
Impaired loans | $ | 160 | $ | 9 | $ | 10 | $ | 179 | ||||||||
Allowance for loan losses | 194 | 27 | 3 | 224 |
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
December 31, 2016 | $ | 195 | $ | 4 | $ | 20 | $ | 55 | $ | 274 | ||||||||||
Recoveries | 1 | — | — | — | 1 | |||||||||||||||
Provision for (release of) loan losses1 | 14 | — | 1 | 14 | 29 | |||||||||||||||
Other | 1 | — | — | 1 | 2 | |||||||||||||||
June 30, 2017 | $ | 211 | $ | 4 | $ | 21 | $ | 70 | $ | 306 |
Loan Loss Allowance by Impairment Methodology
At June 30, 2017 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
Inherent | $ | 142 | $ | 4 | �� | $ | 21 | $ | 70 | $ | 237 | |||||||||
Specific | 69 | — | — | — | 69 | |||||||||||||||
Total | $ | 211 | $ | 4 | $ | 21 | $ | 70 | $ | 306 |
Loans by Impairment Methodology2
At June 30, 2017 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
Inherent | $ | 26,568 | $ | 26,354 | $ | 25,611 | $ | 8,482 | $ | 87,015 | ||||||||||
Specific | 263 | — | 35 | — | 298 | |||||||||||||||
Total | $ | 26,831 | $ | 26,354 | $ | 25,646 | $ | 8,482 | $ | 87,313 |
|
|
|
Loans—Prior Year Period
Allowance for Loan Losses Rollforward
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
December 31, 2015 | $ | 166 | $ | 5 | $ | 17 | $ | 37 | $ | 225 | ||||||||||
Provision for (release of) loan losses1 | 116 | (1 | ) | 1 | 12 | 128 | ||||||||||||||
Other2 | (30 | ) | — | — | — | (30 | ) | |||||||||||||
June 30, 2016 | $ | 252 | $ | 4 | $ | 18 | $ | 49 | $ | 323 |
Loan Loss Allowance by Impairment Methodology
At June 30, 2016 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
Inherent | $ | 147 | $ | 4 | $ | 18 | $ | 49 | $ | 218 | ||||||||||
Specific | 105 | — | — | — | 105 | |||||||||||||||
Total | $ | 252 | $ | 4 | $ | 18 | $ | 49 | $ | 323 |
Loans by Impairment Methodology3
At June 30, 2016 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
Inherent | $ | 23,604 | $ | 23,337 | $ | 22,638 | $ | 7,415 | $ | 76,994 | ||||||||||
Specific | 582 | — | 30 | — | 612 | |||||||||||||||
June 30, 2016 | $ | 24,186 | $ | 23,337 | $ | 22,668 | $ | 7,415 | $ | 77,606 |
|
|
|
Commitments—Current Year Period
Allowance for Lending Commitments Rollforward
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
December 31, 2016 | $ | 185 | $ | 1 | $ | — | $ | 4 | $ | 190 | ||||||||||
Provision for (release of) lending commitments1 | (3 | ) | — | — | (1 | ) | (4 | ) | ||||||||||||
June 30, 2017 | $ | 182 | $ | 1 | $ | — | $ | 3 | $ | 186 |
Lending Commitments Allowance by Impairment Methodology
At June 30, 2017 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
Inherent | $ | 179 | $ | 1 | $ | — | $ | 3 | $ | 183 | ||||||||||
Specific | 3 | — | — | — | 3 | |||||||||||||||
Total | $ | 182 | $ | 1 | $ | — | $ | 3 | $ | 186 |
Lending Commitments by Impairment Methodology2
At June 30, 2017 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
Inherent | $ | 62,339 | $ | 6,005 | $ | 346 | $ | 409 | $ | 69,099 | ||||||||||
Specific | 229 | — | — | — | 229 | |||||||||||||||
Total | $ | 62,568 | $ | 6,005 | $ | 346 | $ | 409 | $ | 69,328 |
|
|
Commitments—Prior Year Period
Allowance for Lending Commitments Rollforward
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
December 31, 2015 | $ | 180 | $ | 1 | $ | — | $ | 4 | $ | 185 | ||||||||||
Provision for lending commitments1 | 1 | — | — | 2 | 3 | |||||||||||||||
Other | — | (1 | ) | — | — | (1 | ) | |||||||||||||
June 30, 2016 | $ | 181 | $ | — | $ | — | $ | 6 | $ | 187 |
Lending Commitments Allowance by Impairment Methodology
At June 30, 2016 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
Inherent | $ | 173 | $ | — | $ | — | $ | 6 | $ | 179 | ||||||||||
Specific | 8 | — | — | — | 8 | |||||||||||||||
Total | $ | 181 | $ | — | $ | — | $ | 6 | $ | 187 |
|
Lending Commitments by Impairment Methodology2
At June 30, 2016 | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
Inherent | $ | 63,120 | $ | 5,264 | $ | 327 | $ | 496 | $ | 69,207 | ||||||||||
Specific | 64 | — | — | — | 64 | |||||||||||||||
Total | $ | 63,184 | $ | 5,264 | $ | 327 | $ | 496 | $ | 69,271 |
|
|
Troubled Debt Restructurings
Troubled Debt Restructurings | ||||||||
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Loans | $ | 52 | $ | 51 | ||||
Lending commitments | 25 | 28 | ||||||
Allowance for loan losses and lending commitments | 6 | 10 |
Impaired loans and lending commitments classified as held for investment within corporate loans include troubled debt restructuringsTDRs as shown in the followingprevious table.
Troubled Debt Restructurings
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Loans | $ | 58 | $ | 67 | ||||
Lending commitments | 21 | 14 | ||||||
Allowance for loan losses | 8 | — |
These restructurings typically include modifications of interest rates, collateral requirements, other loan covenants and payment extensions.
Employee Loans
March 2018 Form 10-Q | 66 |
Notes to Consolidated Financial Statements (Unaudited) |
Allowance for Loan Losses Rollforward | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
December 31, 2017 | $ | 126 | $ | 4 | $ | 24 | $ | 70 | $ | 224 | ||||||||||
Provision (release) | 6 | — | (1 | ) | 14 | 19 | ||||||||||||||
Other | (1 | ) | — | — | 1 | — | ||||||||||||||
March 31, 2018 | $ | 131 | $ | 4 | $ | 23 | $ | 85 | $ | 243 | ||||||||||
Inherent | $ | 126 | $ | 4 | $ | 23 | $ | 85 | $ | 238 | ||||||||||
Specific | 5 | — | — | — | 5 |
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
December 31, 2016 | $ | 195 | $ | 4 | $ | 20 | $ | 55 | $ | 274 | ||||||||||
Recoveries | 1 | — | — | — | 1 | |||||||||||||||
Provision (release) | 13 | — | — | 9 | 22 | |||||||||||||||
March 31, 2017 | $ | 209 | $ | 4 | $ | 20 | $ | 64 | $ | 297 | ||||||||||
Inherent | $ | 142 | $ | 4 | $ | 20 | $ | 64 | $ | 230 | ||||||||||
Specific | 67 | — | — | — | 67 |
Allowance for Lending Commitments Rollforward | ||||||||||||||||||||
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
December 31, 2017 | $ | 194 | $ | 1 | $ | — | $ | 3 | $ | 198 | ||||||||||
Provision (release) | 7 | — | — | — | 7 | |||||||||||||||
Other | — | — | — | — | — | |||||||||||||||
March 31, 2018 | $ | 201 | $ | 1 | $ | — | $ | 3 | $ | 205 | ||||||||||
Inherent | $ | 200 | $ | 1 | $ | — | $ | 3 | $ | 204 | ||||||||||
Specific | 1 | — | — | — | 1 |
$ in millions | Corporate | Consumer | Residential Real | Wholesale Real Estate | Total | |||||||||||||||
December 31, 2016 | $ | 185 | $ | 1 | $ | — | $ | 4 | $ | 190 | ||||||||||
Provision (release) | 3 | — | — | — | 3 | |||||||||||||||
March 31, 2017 | $ | 188 | $ | 1 | $ | — | $ | 4 | $ | 193 | ||||||||||
Inherent | $ | 186 | $ | 1 | $ | — | $ | 4 | $ | 191 | ||||||||||
Specific | 2 | — | — | — | 2 |
Employee Loans | ||||||||
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Balance | $ | 3,687 | $ | 4,185 | ||||
Allowance for loan losses | (75 | ) | (77 | ) | ||||
Balance, net | $ | 3,612 | $ | 4,108 | ||||
Repayment term range, in years | 1 to 20 | 1 to 20 |
Employee loans are granted in conjunction with a program established in the Wealth Management business segment to retain and recruit certain employees.employees, are full recourse and generally require periodic repayments. These loans are recorded in Customer and other receivables in the consolidated balance sheets. These loans are full recourse, generally require periodic payments and have repayment terms ranging from 1 to 20 years. The Firm establishes an allowance for loan amounts it does not consider recoverable, and the related provision is recorded in Compensation and benefits expense.
Employee Loans
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Balance | $ | 4,323 | $ | 4,804 | ||||
Allowance for loan losses | (83 | ) | (89 | ) | ||||
Balance, net | $ | 4,240 | $ | 4,715 |
Overview
The Firm’sEquity method investments accounted for under the equity method of accounting (see Note 1 to the consolidated financial statementsother than certain investments in the 2016 Form10-K)funds are summarized below and included in Other assets—Other investmentsassets in the consolidated balance sheets. Income (loss) from equity method investments issheets with related income or loss included in Other revenues in the consolidated income statements. See the Measured Based on Net Asset Value table in Note 3 for the carrying value of the Firm’s fund interests, which are comprised of general and limited partnership interests, as well as any related performance fees in the form of carried interest.
Equity Method Investment Balances
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Investments | $ | 2,760 | $ | 2,837 | $ | 2,662 | $ | 2,623 |
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | ||||||||||||||||||
Income (loss) | $ | (9 | ) | $ | (14 | ) | $ | — | $ | 1 | $ | 50 | $ | 9 |
Japanese Securities Joint Venture
Included in the equity method investments is the Firm’s 40% voting interest (“40% interest”) in Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (“MUMSS”). Mitsubishi UFJ Financial Group, Inc. (“MUFG”) holds a 60% voting interest. The Firm accounts for its equity method investment in MUMSS within the Institutional Securities business segment. The Firm records income from its 40% interest in MUMSS within Other revenues in the consolidated income statements.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Income from investment in MUMSS | $ | 23 | $ | 23 | $ | 71 | $ | 57 |
In addition to MUMSS, the Firm held other equity method investments that were not individually significant.
Deposits
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Savings and demand deposits | $ | 141,087 | $ | 154,559 | ||||
Time deposits1 | 3,826 | 1,304 | ||||||
Total2 | $ | 144,913 | $ | 155,863 | ||||
Deposits subject to FDIC insurance | $ | 120,991 | $ | 127,992 | ||||
Time deposits that equal or exceed the FDIC insurance limit | $ | 2 | $ | 46 |
Three Months Ended March 31, | ||||||||
$ in millions | 2018 | 2017 | ||||||
Income from investment in MUMSS | $ | 56 | $ | 48 |
67 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
Deposits
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Savings and demand deposits | $ | 138,358 | $ | 144,487 | ||||
Time deposits | 22,066 | 14,949 | ||||||
Total | $ | 160,424 | $ | 159,436 | ||||
Deposits subject to FDIC insurance | $ | 129,968 | $ | 127,017 | ||||
Time deposits that equal or exceed the FDIC insurance limit | $ | 10 | $ | 38 |
Time Deposit Maturities at June 30, 2017
$ in millions | Savings and Demand Deposits | Time Deposits1 | ||||||
Demand | $ | 141,047 | $ | — | ||||
2017 | — | 2,925 | ||||||
2018 | — | 672 | ||||||
2019 | — | 105 | ||||||
2021 | — | 8 | ||||||
Thereafter | — | 116 |
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The vast majority of deposits in Morgan Stanley Bank, N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA”) (collectively, “U.S. Bank Subsidiaries”) are sourced from Wealth Management customer accounts.
$ in millions | At March 31, 2018 | |||
2018 | $ | 13,164 | ||
2019 | 4,803 | |||
2020 | 2,257 | |||
2021 | 747 | |||
2022 | 418 | |||
Thereafter | 677 |
10. Long-Term Borrowings and Other Secured Financings
Long-Term Borrowings
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Original maturities of one year or less | $ | 1,256 | $ | 1,519 | ||||||||||||
Original maturities greater than one year | ||||||||||||||||
Senior | $ | 173,761 | $ | 154,472 | $ | 183,712 | $ | 180,835 | ||||||||
Subordinated | 10,351 | 10,303 | 9,996 | 10,228 | ||||||||||||
Total | $ | 184,112 | $ | 164,775 | $ | 193,708 | $ | 191,063 | ||||||||
Weighted average stated maturity, in years | 6.5 | 5.9 | ||||||||||||||
Total borrowings | $ | 194,964 | $ | 192,582 | ||||||||||||
Weighted average stated maturity, in years1 | 6.6 | 6.6 |
During the current year period and prior year period, the Firm issued notes with a principal amount of approximately $33.5 billion and $20.6 billion, respectively, and approximately $17.8 billion and $15.9 billion, respectively, in aggregate long-term borrowings matured or were retired.
1. | Includes only borrowings with original maturities greater than one year. |
Other Secured Financings
Other secured financings include the liabilities related to pledged commodities, certain ELNs, transfers of financial assets that are accounted for as financings rather than sales, consolidated VIEs where the Firm is deemed to be the primary beneficiary pledged commodities, certain equity-linked notes and other secured borrowings. These liabilities are generally payable from the cash flows of the related assets accounted for as Trading assets.Seeassets. See Note 12 for further information on Otherother secured financings related to VIEs and securitization activities.
Other Secured Financings by Original Maturity and Type
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Secured Financings | ||||||||||||||||
Original maturities: | ||||||||||||||||
Greater than one year | $ | 11,005 | $ | 9,404 | $ | 8,159 | $ | 8,685 | ||||||||
One year or less | 4,996 | 1,429 | 1,406 | 2,034 | ||||||||||||
Failed sales1 | 641 | 285 | 710 | 552 | ||||||||||||
Total | $ | 16,642 | $ | 11,118 | $ | 10,275 | $ | 11,271 |
1. | For more information on failed sales, see Note 12. |
11. Commitments, Guarantees and Contingencies
Commitments
The Firm’s commitments are summarized in the following table by years to maturity. 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 at June 30, 2017 | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Lending: | ||||||||||||||||||||
Corporate1 | $ | 13,478 | $ | 28,417 | $ | 45,187 | $ | 3,806 | $ | 90,888 | ||||||||||
Consumer | 5,998 | 4 | — | 4 | 6,006 | |||||||||||||||
Residential real estate | 35 | 25 | 84 | 238 | 382 | |||||||||||||||
Wholesale real estate | 232 | 266 | 8 | 67 | 573 | |||||||||||||||
Forward-starting secured financing receivables2 | 70,023 | — | — | — | 70,023 | |||||||||||||||
Underwriting | 1,024 | — | — | — | 1,024 | |||||||||||||||
Investment activities | 569 | 197 | 22 | 259 | 1,047 | |||||||||||||||
Letters of credit and other financial guarantees | 156 | 1 | 1 | 41 | 199 | |||||||||||||||
Total | $ | 91,515 | $ | 28,910 | $ | 45,302 | $ | 4,415 | $ | 170,142 |
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Years to Maturity at March 31, 2018 | ||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | |||||||||||||||
Lending: | ||||||||||||||||||||
Corporate | $ | 14,447 | $ | 43,086 | $ | 46,618 | $ | 7,454 | $ | 111,605 | ||||||||||
Consumer | 6,598 | — | 8 | 3 | 6,609 | |||||||||||||||
Residential real estate | 5 | 64 | 33 | 259 | 361 | |||||||||||||||
Wholesale real estate | 183 | 833 | 25 | — | 1,041 | |||||||||||||||
Forward-starting secured financing receivables | 85,399 | — | — | 1,177 | 86,576 | |||||||||||||||
Underwriting | 344 | — | — | — | 344 | |||||||||||||||
Investment activities | 527 | 96 | 62 | 230 | 915 | |||||||||||||||
Letters of credit and other financial guarantees | 195 | — | 1 | 41 | 237 | |||||||||||||||
Total | $ | 107,698 | $ | 44,079 | $ | 46,747 | $ | 9,164 | $ | 207,688 | ||||||||||
Corporate lending commitments participated to third parties |
| $ | 6,877 | |||||||||||||||||
Forward-starting secured financing receivables settled within three business days |
| $ | 72,754 |
For a further description of these commitments, refer to Note 12 to the consolidated financial statements in the 20162017 Form 10-K.
March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
Guarantees
Obligations under Guarantee Arrangements at June 30, 2017March 31, 2018
Maximum Potential Payout/Notional | Maximum Potential Payout/Notional | |||||||||||||||||||||||||||||||||||||||
Years to Maturity | Years to Maturity | |||||||||||||||||||||||||||||||||||||||
$ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | Less than 1 | 1-3 | 3-5 | Over 5 | Total | ||||||||||||||||||||||||||||||
Credit derivatives | $ | 133,654 | $ | 92,988 | $ | 96,431 | $ | 27,743 | $ | 350,816 | $ | 81,715 | $ | 69,986 | $ | 58,118 | $ | 39,251 | $ | 249,070 | ||||||||||||||||||||
Other credit contracts | 27 | — | 13 | 129 | 169 | — | 2 | — | 127 | 129 | ||||||||||||||||||||||||||||||
Non-credit derivatives | 1,560,514 | 918,800 | 331,073 | 572,502 | 3,382,889 | 1,903,988 | 1,196,331 | 379,171 | 639,749 | 4,119,239 | ||||||||||||||||||||||||||||||
Standby letters of credit and other financial guarantees issued1 | 779 | 856 | 1,147 | 5,153 | 7,935 | 806 | 1,114 | 1,272 | 4,903 | 8,095 | ||||||||||||||||||||||||||||||
Market value guarantees | 39 | 65 | 70 | — | 174 | 40 | 62 | 58 | — | 160 | ||||||||||||||||||||||||||||||
Liquidity facilities | 3,229 | — | — | — | 3,229 | 3,367 | — | — | — | 3,367 | ||||||||||||||||||||||||||||||
Whole loan sales guarantees | — | — | 2 | 23,278 | 23,280 | — | 1 | 1 | 23,223 | 23,225 | ||||||||||||||||||||||||||||||
Securitization representations and warranties | — | — | — | 57,547 | 57,547 | — | — | — | 60,861 | 60,861 | ||||||||||||||||||||||||||||||
General partner guarantees | 34 | 44 | 313 | 13 | 404 | 33 | 52 | 324 | 27 | 436 |
$ in millions | Carrying Amount (Asset)/ Liability | Collateral/ Recourse | Carrying Amount (Asset)/ Liability | Collateral/ Recourse | ||||||||||||
Credit derivatives2 | $ | (1,730 | ) | $ | — | $ | (1,587 | ) | $ | — | ||||||
Other credit contracts | 4 | — | 20 | — | ||||||||||||
Non-credit derivatives2 | 45,076 | — | 45,314 | — | ||||||||||||
Standby letters of credit and other financial guarantees issued1 | (186 | ) | 6,560 | (182 | ) | 6,588 | ||||||||||
Market value guarantees | 1 | 4 | — | — | ||||||||||||
Liquidity facilities | (5 | ) | 5,503 | (5 | ) | 5,475 | ||||||||||
Whole loan sales guarantees | 8 | — | 8 | — | ||||||||||||
Securitization representations and warranties | 90 | — | 91 | — | ||||||||||||
General partner guarantees | 44 | — | 59 | — |
1. | These amounts include certain issued standby letters of credit participated to third parties, totaling $0.7 billion of notional and collateral/recourse, due to the nature of the Firm’s obligations under these arrangements. |
2. | 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 4. |
The Firm also has obligations under certain guarantee arrangements, including contracts and indemnification agreements, that contingently require the Firm to make payments to the guaranteed party based on changes in an underlying measure (such as an interest or foreign exchange rate, security or commodity price, an index, or the occurrence ornon-occurrence of a specified event) related to an asset, liability or equity security of a guaranteed party. Also included as guarantees are contracts that contingently require the Firm 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.
In certain situations, collateral may be held by the Firm for those contracts that meet the definition of a guarantee. Generally, the Firm sets collateral requirements by counterparty so that the collateral covers various transactions and products and is not allocated specifically to individual contracts. Also, the Firm may recover amounts related to the underlying asset delivered to the Firm under the derivative contract.
For more information on the nature of the obligation and related business activity for market value guarantees, liquidity facilities, whole loan sales guarantees and general partner guarantees related to certain investment management funds, as well as the other products in the previous table, see Note 12 to the consolidated financial statements in the 20162017 Form10-K.
Other Guarantees and Indemnities
In the normal course of business, the Firm provides guarantees and indemnifications in a variety of transactions. These provisions generally are standard contractual terms. Certain of these guarantees and indemnifications related to indemnities, exchange/clearinghouse member guarantees and merger and acquisition guarantees are described in Note 12 to the consolidated financial statements in the 20162017 Form10-K.
In addition, in the ordinary course of business, the Firm guarantees the debt and/or certain trading obligations (including obligations associated with derivatives, foreign exchange contracts and the settlement of physical commodities) of certain subsidiaries. These guarantees generally are entity or product specific and are required by investors or trading counterparties. The activities of the Firm’s subsidiaries covered by these guarantees (including any related debt or trading obligations) are included in the consolidated financial statements.
Finance Subsidiary
The Parent Company fully and unconditionally guarantees the securities issued by Morgan Stanley Finance LLC, a 100%-owned finance subsidiary.
Contingencies
Legal. In addition to the matters described below, in the normal course of business, the Firm has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litiga-
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tion,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
69 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
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 are in financial distress. These actions have included, but are not limited to, residential mortgage and credit-crisis relatedcredit crisis-related matters.
Over the last several years, the level of litigation and investigatory activity (both formal and informal) by governmental and self-regulatory agencies has increased materially in the financial services industry. As a result, the Firm expects that it will continue to be the subject of elevated claims for damages and other relief and, while the Firm has identified below any individual proceedings where the Firm believes a material loss to be reasonably possible and reasonably estimable, there can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are not yet determined to be probable or possible and reasonably estimable losses.
The Firm contests liability and/or the amount of damages as appropriate in each pending matter. Where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the Firm can reasonably estimate the amount of that loss, the Firm accrues the estimated loss by a charge to income.
In many proceedings and investigations, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. In addition, even where a loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is not always possible to reasonably estimate the size of the possible loss or range of loss.
For certain legal proceedings and investigations, the Firm cannot reasonably estimate such losses, particularly for proceedings and investigations where the factual record is being developed or contested or where plaintiffs or governmentalgovernment entities seek substantial or indeterminate damages, restitution, disgorgement or penalties. Numerous issues may need to be resolved, including through potentially lengthy discovery and determination of important factual matters, determination of issues related to class certification and the calculation of damages or other relief, and by addressing novel or unsettled legal questions relevant to the proceedings or investigations in question, before a loss or additional loss or range of loss or additional range of loss can be reasonably estimated for a proceeding or investigation.
For certain other legal proceedings and investigations, the Firm can estimate reasonably possible losses, additional
losses, ranges of loss or ranges of additional loss in excess of amounts accrued, but does not believe, based on current knowledge and after consultation with counsel, that such losses will have a material adverse effect on the Firm’s consolidated financial statements as a whole, other than the matters referred to in the following paragraphs.
On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against the Firm, styledChina Development Industrial Bank v. Morgan Stanley & Co. Incorporated et alal.., which is pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY”). The complaint relates to a $275 million credit default swapCDS referencing the super senior portion of the STACK2006-1 CDO. The complaint asserts claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that the Firm misrepresented the risks of the STACK2006-1 CDO to CDIB, and that the Firm knew that the assets backing the CDO were of poor quality when it entered into the credit default swapCDS 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,CDS, rescission of CDIB’s obligation to pay an additional $12 million, punitive damages, equitable relief, fees and costs. On February 28, 2011, the court denied the Firm’s motion to dismiss the complaint. Based on currently available information, the Firm believes it could incur a loss in this action of up to approximately $240 million pluspre- and post-judgment interest, fees and costs.
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 Trust2007-4SL and Mortgage Pass-Through Certificates, Series2007-4SL against the Firm styledMorganStanley Mortgage Loan Trust 2006-14SL, et al. v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc., pending in the Supreme Court of NY. 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 August 16, 2013, the court granted in part and denied in part the Firm’s motion to dismiss the complaint. On August 16, 2016, the Firm moved for summary judgment and the plaintiffs moved for partial summary judgment. Based on currently available informa-
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tion, the Firm believes that it could incur a loss in this action of up to approximately $527 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands that it did not repurchase, pluspre- and post-judgment interest, fees and costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.
On May 3, 2013, plaintiffs inDeutscheZentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al.filed a complaint against the Firm, certain affiliates, and other defendants in the Supreme Court of NY. The complaint 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 Firm to plaintiff was approximately $644$634 million. The complaint alleges causes of action against the Firm for common law fraud, fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and seeks, among other things, compensatory and punitive damages. On June 10, 2014, the court granted in part and denied in part the Firm’s motion to dismiss the complaint. On June 20, 2017 the Appellate Division First Department, affirmed the lower court’s June 10, 2014 order. On July 28,October 3, 2017, the Firm filed aAppellate Division denied the Firm’s motion for leave to appeal that decision to the New York Court of Appeals. At March 25, 2017,2018, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $237$211 million, and the certificates had incurred
March 2018 Form 10-Q | 70 |
Notes to Consolidated Financial Statements (Unaudited) |
actual losses of approximately $87$89 million. Based on currently available information, the Firm believes it could incur a loss in this action up to the difference between the $237$211 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Firm, or upon sale, pluspre- and post-judgment interest, fees and costs. The Firm may be entitled to be indemnified for some of these losses.
On July 8, 2013, U.S. Bank National Association, in its capacity as trustee, filed a complaint against the Firm styledU.S. Bank National Association, solely in its capacity as Trustee of the Morgan Stanley Mortgage Loan Trust2007-2AX (MSM2007-2AX) v. Morgan Stanley Mortgage Capital Holdings LLC, asSuccessor-by-Merger to Morgan Stanley MortgageCapital Inc. andGreenPoint Mortgage Funding,Funding, Inc., pending in the Supreme Court of NY. 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 $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 22,
2013, the Firm filed a motion to dismiss the complaint, which was granted in part and denied in part on November 24, 2014. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $240 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands that it did not repurchase, pluspre- and post-judgment interest, fees and costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.
On December 30, 2013, Wilmington Trust Company, in its capacity as trustee for Morgan Stanley Mortgage LoanTrust 2007-12, filed a complaint against the Firm styledWilmington Trust Company v. MorganStanley Mortgage Capital Holdings LLC et al., pending in the Supreme Court of NY. 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 $516 million, breached various representations and warranties. The complaint seeks, among other relief, unspecified damages, attorneys’ fees, interest and costs. On February 28, 2014, the defendants filed a motion to dismiss the complaint, which was granted in part and denied in part on June 14, 2016. The plaintiff filed a notice of appeal of that order on August 17, 2016, and the appeal was fully briefed on May 5, 2017. On July 11, 2017, the Appellate Division First Department affirmed in part and reversed in part the trial court’s order that granted in part the Firm’s motion to dismiss. On September 26, 2017, the Appellate Division denied plaintiff’s motion for leave to appeal to the New York Court of Appeals. Based on currently available information, the Firm believes
that it could incur a loss in this action of up to approximately $152 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands that it did not repurchase, plus attorney’s fees, costs and interest, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.
On April 28, 2014, Deutsche Bank National Trust Company, in its capacity as trustee for Morgan Stanley Structured Trust I2007-1, filed a complaint against the Firm styledDeutsche Bank National Trust Companyv. Morgan Stanley Mortgage Capital Holdings LLC, pending in the United States District Court for the Southern District of New York. 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 $735 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 compensatory and/or rescissory damages, interest and costs. On April 3, 2015, the court granted in part and denied in part the Firm’s motion to dismiss the complaint. On May 8, 2017, the Firm moved for summary judgment. Based on currently available
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information, the Firm believes that it could incur a loss in this action of up to approximately $292 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands that it did not repurchase, pluspre- and post-judgment interest, fees and costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.
On September 19, 2014, Financial Guaranty Insurance Company (“FGIC”) filed a complaint against the Firm in the Supreme Court of NY, styledFinancial Guaranty Insurance Company v. Morgan Stanley ABS Capital I Inc. et al.relating to a securitization issued by Basket of Aggregated Residential NIMS2007-1 Ltd. The complaint asserts claims for breach of contract and alleges, among other things, that the net interest margin securities (“NIMS”) in the trust breached various representations and warranties. FGIC issued a financial guaranty policy with respect to certain notes that had an original balance of approximately $475 million. The complaint seeks, among other relief, specific performance of the NIMS breach remedy procedures in the transaction documents, unspecified damages, reimbursement of certain payments made pursuant to the transaction documents, attorneys’ fees and interest. On November 24, 2014, the Firm filed a motion to dismiss the complaint, which the court denied on January 19, 2017. On February 24, 2017, the Firm filed a notice of appeal of the court’s order.denial of its motion to dismiss the complaint and perfected its appeal on November 22, 2017. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $126 million, the unpaid balance of these notes, pluspre- and post-judgment interest, fees and costs, as well as claim payments that FGIC has made and will make in the future.
On September 23, 2014, FGIC filed a complaint against the Firm in the Supreme Court of NY styledFinancial Guaranty Insurance Company v. Morgan Stanley ABS Capital I Inc. et al.al. relating to the Morgan Stanley ABS Capital I Inc. Trust2007-NC4. The complaint asserts claims for breach of contract and fraudulent inducement and alleges, among other things, that the loans in the trust breached various representations and warranties and defendants made untrue statements and material omissions to induce FGIC to issue a financial guaranty policy on certain classes of certificates that had an original balance of approximately $876 million. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, compensatory, consequential and punitive damages, attorneys’ fees and interest. On January 23, 2017, the court denied the Firm’s motion to dismiss the complaint. On February 24, 2017, the Firm filed a notice of appeal of the court’s order.order and perfected its appeal on November 22, 2017. Based on currently available information, the Firm believes
71 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
that it could incur a loss in this action of up to approximately $277 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase
demands from a certificate holder and FGIC that the Firm did not repurchase, pluspre- and post-judgment interest, fees and costs, as well as claim payments that FGIC has made and will make in the future. In addition, plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.
On January 23, 2015, Deutsche Bank National Trust Company, in its capacity as trustee, filed a complaint against the Firm styledDeutsche Bank National Trust Company solely in its capacity as Trustee of the Morgan Stanley ABS Capital I Inc. Trust2007-NC4 v. Morgan Stanley Mortgage Capital Holdings LLC asSuccessor-by-Merger to Morgan Stanley Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc., pending in the Supreme Court of NY. 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 $1.05 billion, breached various representations and warranties. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, compensatory, consequential, rescissory, equitable and punitive damages, attorneys’ fees, costs and other related expenses, and interest. On December 11, 2015, the court granted in part and denied in part the Firm’s motion to dismiss the complaint. On February 11, 2016, plaintiff filed a notice of appeal of that order, and the appeal was fully briefed on August 19, 2016. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $277 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands from a certificate holder and a monoline insurer that the Firm did not repurchase, pluspre- and post-judgment interest, fees and costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.
In matters styledCase number 15/3637 andCase number 15/4353,, the Dutch Tax Authority (“Dutch Authority”) is challenging, in the Dutch Tax TribunalDistrict Court in Amsterdam, the priorset-off by the Firm of approximately €124 million (plus(approximately $152 million) plus accrued interest)interest of withholding tax credits against the Firm’s corporation tax liabilities for the tax years 2007 to 2013. The Dutch Authority alleges that the Firm was not entitled to receive the withholding tax credits on the basis, inter alia, that a Firm subsidiary did not hold legal title to certain securities subject to withholding tax on the relevant dates. The Dutch Authority has also alleged that the Firm failed to provide certain information to the Dutch Authority and keep adequate books
and records. The Firm does not agree with these allegations. A hearing regardingtook place in this matter has been scheduled on September 19, 2017. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately €124 million (plus(approximately $152 million) plus accrued interest).interest. On April 26, 2018, the District Court in Amsterdam issued a decision in matters styledCase number 15/3637 andCase number 15/4353 dismissing the Dutch Authority’s claims. The Dutch Authority has until June 7, 2018 to file any appeal.
|
12. Variable12.Variable Interest Entities and Securitization Activities
Overview
For a discussion of the Firm’s VIEs, the determination and structure of VIEs and securitization activities, see Note 13 to the consolidated financial statements in the 20162017 Form10-K.
Consolidated VIEs
Assets and Liabilities by Type of Activity
Assets and Liabilities by Type of Activity | ||||||||||||||||
At March 31, 2018 | At December 31, 2017 | |||||||||||||||
$ in millions | VIE Assets | VIE Liabilities | VIE Assets | VIE Liabilities | ||||||||||||
OSF | $ | 361 | $ | 1 | $ | 378 | $ | 3 | ||||||||
MABS1 | 234 | 197 | 249 | 210 | ||||||||||||
Other2 | 2,718 | 1,131 | 1,174 | 250 | ||||||||||||
Total | $ | 3,313 | $ | 1,329 | $ | 1,801 | $ | 463 |
At June 30, 2017 | At December 31, 2016 | |||||||||||||||
$ in millions | VIE Assets | VIE Liabilities | VIE Assets | VIE Liabilities | ||||||||||||
Credit-linked notes | $ | 200 | $ | — | $ | 501 | $ | — | ||||||||
Other structured financings | 426 | 5 | 602 | 10 | ||||||||||||
Asset-backed securitizations1 | 34 | 22 | 397 | 283 | ||||||||||||
Other2 | 1,164 | 258 | 910 | 25 | ||||||||||||
Total | $ | 1,824 | $ | 285 | $ | 2,410 | $ | 318 |
OSF—Other structured financings
1. |
|
2. | Other primarily includes investment funds, certain operating entities, |
March 2018 Form 10-Q | 72 |
Notes to Consolidated Financial Statements (Unaudited) |
Assets and Liabilities by Balance Sheet Caption
At March 31, | At December 31, | |||||||||||||||
$ in millions | At June 30, 2017 | At December 31, 2016 | 2018 | 2017 | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Cash and due from banks | $ | 87 | $ | 74 | $ | 103 | $ | 69 | ||||||||
Restricted cash | 223 | 222 | ||||||||||||||
Trading assets at fair value | 785 | 1,295 | 2,345 | 833 | ||||||||||||
Customer and other receivables | 12 | 13 | 21 | 19 | ||||||||||||
Goodwill | 18 | 18 | 18 | 18 | ||||||||||||
Intangible assets | 166 | 177 | 149 | 155 | ||||||||||||
Other assets | 756 | 833 | 454 | 485 | ||||||||||||
Total | $ | 1,824 | $ | 2,410 | $ | 3,313 | $ | 1,801 | ||||||||
Liabilities | ||||||||||||||||
Other secured financings at fair value | $ | 249 | $ | 289 | ||||||||||||
Other secured financings | $ | 1,305 | $ | 438 | ||||||||||||
Other liabilities and accrued expenses | 36 | 29 | 24 | 25 | ||||||||||||
Total | $ | 285 | $ | 318 | $ | 1,329 | $ | 463 |
Consolidated VIE assets and liabilities are presented in the previous tables after intercompany eliminations. TheMost assets owned by many consolidated VIEs cannot be removed unilaterally by the Firm and are not generally available to the Firm. TheMost related liabilities issued by many consolidated VIEs are
non-recourse to the Firm. In certain other consolidated VIEs, the Firm either has the unilateral right to remove assets or provides additional recourse through derivatives such as total return swaps, guarantees or other forms of involvement.
In general, the Firm’s exposure to loss in consolidated VIEs is limited to losses that would be absorbed on the VIE’sVIE net assets recognized in its financial statements, net of amounts absorbed by third-party variable interest holders.
Noncontrolling Interests and Additional Maximum Exposure to LossesSelect Information Related to Consolidated VIEs
At March 31, | At December 31, | |||||||||||||||
$ in millions | At June 30, 2017 | At December 31, 2016 | 2018 | 2017 | ||||||||||||
Noncontrolling interests | $ | 206 | $ | 228 | $ | 494 | $ | 189 | ||||||||
Maximum exposure to losses1 | — | 78 |
|
Non-consolidated VIEs
The following tables include allnon-consolidated VIEs in which the Firm has determined that its maximum exposure to loss is greater than specific thresholds or meets certain other criteria and exclude exposure to loss from liabilities due to immateriality. Most of the VIEs included in the following tables are sponsored by unrelated parties; the Firm’s involvement generally is the result of its secondary market-making activities, securities held in its Investment securities portfolio (see Note 5) and certain investments in funds.
Non-consolidated VIE Assets, Maximum and Carrying Value of Exposure to Loss
Non-consolidated VIEs | ||||||||||||||||||||
At March 31, 2018 | ||||||||||||||||||||
$ in millions | MABS | CDO | MTOB | OSF | Other | |||||||||||||||
VIE assets (UPB) | $ | 76,854 | $ | 14,445 | $ | 5,439 | $ | 3,307 | $ | 19,959 | ||||||||||
Maximum exposure to loss |
| |||||||||||||||||||
Debt and equity interests | $ | 9,075 | $ | 2,163 | $ | 81 | $ | 1,589 | $ | 4,654 | ||||||||||
Derivative and other contracts | — | — | 3,367 | — | 2,317 | |||||||||||||||
Commitments, guarantees and other | 882 | 902 | — | 161 | 327 | |||||||||||||||
Total | $ | 9,957 | $ | 3,065 | $ | 3,448 | $ | 1,750 | $ | 7,298 | ||||||||||
Carrying value of exposure to loss—Assets |
| |||||||||||||||||||
Debt and equity interests | $ | 9,075 | $ | 2,163 | $ | 51 | $ | 1,185 | $ | 4,654 | ||||||||||
Derivative and other contracts | — | — | 5 | — | 111 | |||||||||||||||
Total | $ | 9,075 | $ | 2,163 | $ | 56 | $ | 1,185 | $ | 4,765 |
At June 30, 2017 | At December 31, 2017 | |||||||||||||||||||||||||||||||||||||||
$ in millions | MABS | CDO | MTOB | OSF | Other | MABS | CDO | MTOB | OSF | Other | ||||||||||||||||||||||||||||||
VIE assets (unpaid principal balance) | $ | 78,818 | $ | 8,598 | $ | 5,337 | $ | 3,526 | $ | 34,823 | ||||||||||||||||||||||||||||||
VIE assets (UPB) | $ | 89,288 | $ | 9,807 | $ | 5,306 | $ | 3,322 | $ | 31,934 | ||||||||||||||||||||||||||||||
Maximum exposure to loss | Maximum exposure to loss |
| Maximum exposure to loss |
| ||||||||||||||||||||||||||||||||||||
Debt and equity interests | $ | 8,482 | $ | 1,703 | $ | 52 | $ | 1,503 | $ | 5,528 | $ | 10,657 | $ | 1,384 | $ | 80 | $ | 1,628 | $ | 4,730 | ||||||||||||||||||||
Derivative and other contracts | — | — | 3,229 | — | 25 | — | — | 3,333 | — | 1,686 | ||||||||||||||||||||||||||||||
Commitments, guarantees and other | 805 | 1,468 | — | 174 | 337 | 1,214 | 668 | — | 164 | 433 | ||||||||||||||||||||||||||||||
Total | $ | 9,287 | $ | 3,171 | $ | 3,281 | $ | 1,677 | $ | 5,890 | $ | 11,871 | $ | 2,052 | $ | 3,413 | $ | 1,792 | $ | 6,849 | ||||||||||||||||||||
Carrying value of exposure to loss—Assets | Carrying value of exposure to loss—Assets |
| Carrying value of exposure to loss—Assets |
| ||||||||||||||||||||||||||||||||||||
Debt and equity interests | $ | 8,482 | $ | 1,703 | $ | 52 | $ | 1,098 | $ | 5,528 | $ | 10,657 | $ | 1,384 | $ | 43 | $ | 1,202 | $ | 4,730 | ||||||||||||||||||||
Derivative and other contracts | — | — | 5 | — | 52 | — | — | 5 | — | 184 | ||||||||||||||||||||||||||||||
Total | $ | 8,482 | $ | 1,703 | $ | 57 | $ | 1,098 | $ | 5,580 | $ | 10,657 | $ | 1,384 | $ | 48 | $ | 1,202 | $ | 4,914 |
MTOB—Municipal | tender option bonds |
73 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
At December 31, 2016 | ||||||||||||||||||||
$ in millions | MABS | CDO | MTOB | OSF | Other | |||||||||||||||
VIE assets (unpaid principal balance) | $ | 101,916 | $ | 11,341 | $ | 4,857 | $ | 4,293 | $ | 39,077 | ||||||||||
Maximum exposure to loss |
| |||||||||||||||||||
Debt and equity interests | $ | 11,243 | $ | 1,245 | $ | 50 | $ | 1,570 | $ | 4,877 | ||||||||||
Derivative and other contracts | — | — | 2,812 | — | 45 | |||||||||||||||
Commitments, guarantees and other | 684 | 99 | — | 187 | 228 | |||||||||||||||
Total | $ | 11,927 | $ | 1,344 | $ | 2,862 | $ | 1,757 | $ | 5,150 | ||||||||||
Carrying value of exposure to loss—Assets |
| |||||||||||||||||||
Debt and equity interests | $ | 11,243 | $ | 1,245 | $ | 49 | $ | 1,183 | $ | 4,877 | ||||||||||
Derivative and other contracts | — | — | 5 | — | 18 | |||||||||||||||
Total | $ | 11,243 | $ | 1,245 | $ | 54 | $ | 1,183 | $ | 4,895 |
MABS—Mortgage- and asset-backed securitizations
CDO—Collateralized debt obligations, including collateralized loan obligations
MTOB—Municipal tender option bonds
OSF—Other structured financings
Non-consolidated VIE Mortgage- and Asset-Backed Securitization Assets
At June 30, 2017 | At December 31, 2016 | |||||||||||||||
$ in millions | Unpaid Principal Balance | Debt and Equity Interests | Unpaid Principal Balance | Debt and Equity Interests | ||||||||||||
Residential mortgages | $ | 9,106 | $ | 524 | $ | 4,775 | $ | 458 | ||||||||
Commercial mortgages | 49,504 | 2,614 | 54,021 | 2,656 | ||||||||||||
U.S. agency collateralized mortgage obligations | 13,243 | 2,745 | 14,796 | 2,758 | ||||||||||||
Other consumer or commercial loans | 6,965 | 2,599 | 28,324 | 5,371 | ||||||||||||
Total | $ | 78,818 | $ | 8,482 | $ | 101,916 | $ | 11,243 |
The Firm’s maximum exposure to loss presented abovein the previous table often differs from the carrying value of the variable interests held by the Firm. The maximum exposure to loss presented abovein the previous table is dependent on the nature of the Firm’s variable interest in the VIEsVIE and is limited to the notional amounts of certain liquidity facilities, other credit support, total return swaps, written put options, and the fair value of certain other derivatives and investments the Firm has made in the VIEs.VIE. Liabilities issued by VIEs generally arenon-recourse to the Firm. Where notional amounts are utilized in quantifying the maximum exposure related to derivatives, such amounts do not reflect fair value write-downs already recorded by the Firm.
The Firm’s maximum exposure to loss presented abovein the previous table does not include the offsetting benefit of any financial instruments that the Firm may utilize to hedge these risks associated with its variable interests. In addition, the Firm’s maximum exposure to loss presented abovein the previous table is not reduced by the amount of collateral held as part of a transaction with the VIE or any party to the VIE directly against a specific exposure to loss.
Non-consolidated VIEs Mortgage- and Asset-Backed Securitization Assets
At March 31, 2018 | At December 31, 2017 | |||||||||||||||
$ in millions | UPB | Debt and Equity Interests | UPB | Debt and Equity Interests | ||||||||||||
Residential mortgages | $ | 13,564 | $ | 782 | $ | 15,636 | $ | 1,272 | ||||||||
Commercial mortgages | 35,886 | 1,934 | 46,464 | 2,331 | ||||||||||||
U.S. agency collateralized mortgage obligations | 14,405 | 3,150 | 16,223 | 3,439 | ||||||||||||
Other consumer or commercial loans | 12,999 | 3,209 | 10,965 | 3,615 | ||||||||||||
Total | $ | 76,854 | $ | 9,075 | $ | 89,288 | $ | 10,657 |
Securitization transactions generally involve VIEs. Primarily as a result of its secondary market-making activities, the Firm owned additional VIE assets mainly issued by securitization SPEs for which the maximum exposure to loss is less than specific thresholds. These additional assets totaled $11.9 billion and $11.7 billion at June 30, 2017 and December 31, 2016, respectively.
Additional VIE Assets Owned
$ in millions | At March 31,
2018 | At December 31,
2017 | ||||||
VIE assets | $ | 12,314 | $ | 11,318 |
These assets were either retained in connection with transfers of assets by the Firm, acquired in connection with secondary market-making activities, held as AFS securities in its Investment securities portfolio (see Note 5), or held as investments in funds. At June 30, 2017March 31, 2018 and December 31, 2016,2017, these assets consisted of securities backed by residential mortgage loans, commercial mortgage loans or other consumer loans, such as credit card receivables, automobile loans and student loans, CDOs or CLOs, and investment funds.
The Firm’s primary risk exposure is to the securities issued by the SPESPEs owned by the Firm, with the highest risk on the most subordinate class of beneficial interests. These assets generally are included in Trading assets—Corporate and other debt, Trading assets—Investments or AFS securities within its Investment securities portfolio and are measured at fair value (see Note 3). The Firm does not provide additional support in these transactions through contractual facilities, such as liquidity facilities, guarantees or similar derivatives. The Firm’s maximum exposure to loss generally equals the fair value of the assets owned.
|
Transactions with SPEs in which the Firm, acting as principal, transferred financial assets with continuing involvement and received sales treatment are shown in the following tables.
Transfers of Assets with Continuing Involvement
At March 31, 2018 | ||||||||||||||||||||||||||||||||
At June 30, 2017 | ||||||||||||||||||||||||||||||||
$ in millions | Residential | Commercial Mortgage Loans | U.S. Agency Collateralized Mortgage Obligations | Credit- Other1 | RML | CML | U.S. Agency CMO | CLN and Other1 | ||||||||||||||||||||||||
SPE assets (unpaid principal balance)2 | $ | 17,692 | $ | 53,764 | $ | 12,337 | $ | 11,831 | ||||||||||||||||||||||||
SPE assets (UPB)2 | $ | 14,978 | $ | 59,607 | $ | 14,751 | $ | 16,823 | ||||||||||||||||||||||||
Retained interests | Retained interests |
| ||||||||||||||||||||||||||||||
Investment grade3 | $ | — | $ | 140 | $ | 710 | $ | 5 | ||||||||||||||||||||||||
Investment grade | $ | — | $ | 324 | $ | 825 | $ | 5 | ||||||||||||||||||||||||
Non-investment grade (fair value) | 3 | 86 | — | 643 | 1 | 107 | — | 308 | ||||||||||||||||||||||||
Total | $ | 3 | $ | 226 | $ | 710 | $ | 648 | $ | 1 | $ | 431 | $ | 825 | $ | 313 | ||||||||||||||||
Interests purchased in the secondary market (fair value) | Interests purchased in the secondary market (fair value) |
| Interests purchased in the secondary market (fair value) |
| ||||||||||||||||||||||||||||
Investment grade | $ | 4 | $ | 92 | $ | 66 | $ | — | $ | — | $ | 112 | $ | 71 | $ | — | ||||||||||||||||
Non-investment grade | 17 | 71 | — | — | 16 | 57 | — | 15 | ||||||||||||||||||||||||
Total | $ | 21 | $ | 163 | $ | 66 | $ | — | $ | 16 | $ | 169 | $ | 71 | $ | 15 | ||||||||||||||||
Derivative assets (fair value) | $ | 1 | $ | — | $ | — | $ | 32 | $ | — | $ | — | $ | — | $ | 191 | ||||||||||||||||
Derivative liabilities (fair value) | — | — | — | 307 | — | — | — | 119 |
At December 31, 2016 | ||||||||||||||||
$ in millions | Residential | Commercial Mortgage Loans | U.S. Agency Collateralized Mortgage Obligations | Credit- Other1 | ||||||||||||
SPE assets (unpaid principal balance)2 | $ | 19,381 | $ | 43,104 | $ | 11,092 | $ | 11,613 | ||||||||
Retained interests (fair value) |
| |||||||||||||||
Investment grade | $ | — | $ | 22 | $ | 375 | $ | — | ||||||||
Non-investment grade | 4 | 79 | — | 826 | ||||||||||||
Total | $ | 4 | $ | 101 | $ | 375 | $ | 826 | ||||||||
Interests purchased in the secondary market (fair value) |
| |||||||||||||||
Investment grade | $ | — | $ | 30 | $ | 26 | $ | — | ||||||||
Non-investment grade | 23 | 75 | — | — | ||||||||||||
Total | $ | 23 | $ | 105 | $ | 26 | $ | — | ||||||||
Derivative assets (fair value) | $ | — | $ | 261 | $ | — | $ | 89 | ||||||||
Derivative liabilities (fair value) | — | — | — | 459 |
March 2018 Form 10-Q | 74 |
Notes to Consolidated Financial Statements (Unaudited) |
At December 31, 2017 | ||||||||||||||||
$ in millions | RML | CML | U.S. Agency CMO | CLN and Other1 | ||||||||||||
SPE assets(UPB)2 | $ | 15,555 | $ | 62,744 | $ | 11,612 | $ | 17,060 | ||||||||
Retained interests | ||||||||||||||||
Investment grade | $ | — | $ | 293 | $ | 407 | $ | 4 | ||||||||
Non-investment grade (fair value) | 1 | 98 | — | 478 | ||||||||||||
Total | $ | 1 | $ | 391 | $ | 407 | $ | 482 | ||||||||
Interests purchased in the secondary market (fair value) |
| |||||||||||||||
Investment grade | $ | — | $ | 94 | $ | 439 | $ | — | ||||||||
Non-investment grade | 16 | 66 | — | 4 | ||||||||||||
Total | $ | 16 | $ | 160 | $ | 439 | $ | 4 | ||||||||
Derivative assets (fair value) | $ | 1 | $ | — | $ | — | $ | 226 | ||||||||
Derivative liabilities (fair value) | — | — | — | 85 |
RML—Residential mortgage loans
CML—Commercial mortgage loans
1. | Amounts include CLO transactions managed by unrelated third parties. |
2. | Amounts include assets transferred by unrelated transferors. |
|
At June 30, 2017 | ||||||||||||
$ in millions | Level 2 | Level 3 | Total | |||||||||
Retained interests (fair value) | ||||||||||||
Investment grade | $ | 729 | $ | 5 | $ | 734 | ||||||
Non-investment grade | 4 | 728 | 732 | |||||||||
Total | $ | 733 | $ | 733 | $ | 1,466 | ||||||
Interests purchased in the secondary market (fair value) |
| |||||||||||
Investment grade | $ | 155 | $ | 7 | $ | 162 | ||||||
Non-investment grade | 75 | 13 | 88 | |||||||||
Total | $ | 230 | $ | 20 | $ | 250 | ||||||
Derivative assets (fair value) | $ | 33 | $ | — | $ | 33 | ||||||
Derivative liabilities (fair value) | 131 | 176 | 307 | |||||||||
At December 31, 2016 | ||||||||||||
$ in millions | Level 2 | Level 3 | Total | |||||||||
Retained interests (fair value) | ||||||||||||
Investment grade | $ | 385 | $ | 12 | $ | 397 | ||||||
Non-investment grade | 14 | 895 | 909 | |||||||||
Total | $ | 399 | $ | 907 | $ | 1,306 | ||||||
Interests purchased in the secondary market (fair value) |
| |||||||||||
Investment grade | $ | 56 | $ | — | $ | 56 | ||||||
Non-investment grade | 84 | 14 | 98 | |||||||||
Total | $ | 140 | $ | 14 | $ | 154 | ||||||
Derivative assets (fair value) | $ | 348 | $ | 2 | $ | 350 | ||||||
Derivative liabilities (fair value) | 98 | 361 | 459 |
Fair Value at March 31, 2018 | ||||||||||||
$ in millions | Level 2 | Level 3 | Total | |||||||||
Retained interests | ||||||||||||
Investment grade | $ | 831 | $ | 5 | $ | 836 | ||||||
Non-investment grade | 13 | 403 | 416 | |||||||||
Total | $ | 844 | $ | 408 | $ | 1,252 | ||||||
Interests purchased in the secondary market |
| |||||||||||
Investment grade | $ | 182 | $ | 1 | $ | 183 | ||||||
Non-investment grade | 52 | 36 | 88 | |||||||||
Total | $ | 234 | $ | 37 | $ | 271 | ||||||
Derivative assets | $ | 50 | $ | 141 | $ | 191 | ||||||
Derivative liabilities | 114 | 5 | 119 | |||||||||
Fair Value at December 31, 2017 | ||||||||||||
$ in millions | Level 2 | Level 3 | Total | |||||||||
Retained interests | ||||||||||||
Investment grade | $ | 407 | $ | 4 | $ | 411 | ||||||
Non-investment grade | 22 | 555 | 577 | |||||||||
Total | $ | 429 | $ | 559 | $ | 988 | ||||||
Interests purchased in the secondary market |
| |||||||||||
Investment grade | $ | 531 | $ | 2 | $ | 533 | ||||||
Non-investment grade | 57 | 29 | 86 | |||||||||
Total | $ | 588 | $ | 31 | $ | 619 | ||||||
Derivative assets | $ | 78 | $ | 149 | $ | 227 | ||||||
Derivative liabilities | 81 | 4 | 85 |
Transferred assets are carried at fair value prior to securitization, and any changes in fair value are recognized in the consolidated income statements. The Firm may act as underwriter of the beneficial interests issued by these securitization vehicles. Investment banking underwriting net revenues are recognized in connection with these transactions. The Firm may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are generally carried at fair value in the consolidated balance sheets with changes in fair value recognized in the consolidated income statements.
Proceeds from New Securitization Transactions and Sales of Loans
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended
March 31, | ||||||||||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | ||||||||||||||||||
New transactions1 | $ | 4,750 | $ | 4,163 | $ | 10,747 | $ | 6,876 | $ | 6,134 | $ | 5,997 | ||||||||||||
Retained interests | 529 | 502 | 959 | 1,133 | 481 | 430 | ||||||||||||||||||
Sales of corporate loans to CLO SPEs1,2 | 239 | — | 418 | 31 | ||||||||||||||||||||
Sales of corporate loans to CLO SPEs1, 2 | 94 | 179 |
1. | Net gains on new transactions and sales of corporate loans to CLO entities at the time of the sale were not material for all periods presented. |
2. | Sponsored bynon-affiliates. |
The Firm has provided, or otherwise agreed to be responsible for, representations and warranties regarding certain assets transferred in securitization transactions sponsored by the Firm (see Note 11).
|
The Firm also enters into transactions in which it sells equity securities and contemporaneously enters into bilateral OTC equity derivatives with the purchasers of the securities, through which it retains the exposure to the securities as shown in the following table.
Carrying and Fair Value of Assets Sold andwith Retained Interest Exposure
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31,
2018 | At December 31,
2017 | ||||||||||||
Carrying value of assets derecognized at the time of sale and gross cash proceeds | $ | 14,817 | $ | 11,209 | $ | 26,800 | $ | 19,115 | ||||||||
Fair value | ||||||||||||||||
Assets sold | 14,710 | 11,301 | $ | 26,566 | $ | 19,138 | ||||||||||
Derivative assets recognized in the consolidated balance sheets | 33 | 128 | ||||||||||||||
Derivative liabilities recognized in the consolidated balance sheets | 140 | 36 | ||||||||||||||
Derivative assets recognized in the balance sheets | 2 | 176 | ||||||||||||||
Derivative liabilities recognized in the balance sheets | 236 | 153 |
Failed Sales
For transfers that fail to meet the accounting criteria for a sale, the Firm continues to recognize the assets in Trading assets at fair value, and the Firm recognizes the associated liabilities in Other secured financings at fair value in the consolidated balance sheets (see Note 10).
The assets transferred to certain unconsolidated VIEs in transactions accounted for as failed sales cannot be removed unilaterally by the Firm and are not generally available to the Firm. The related liabilities are alsonon-recourse to the Firm. In certain other failed sale transactions, the Firm has the right to remove assets or provides additional recourse through derivatives such as total return swaps, guarantees or other forms of involvement.
Carrying Value of Assets and Liabilities Related to Failed Sales
At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | |||||||||||||||||||||||||||||
$ in millions | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||||
Failed sales | $ | 641 | $ | 641 | $ | 285 | $ | 285 | $ | 710 | $ | 710 | $ | 552 | $ | 552 |
75 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
Regulatory Capital Framework and Requirements
For a discussion of the Firm’s regulatory capital framework, see Note 14 to the consolidated financial statements in the 2016 2017Form10-K.
Regulatory Capital Requirements
The Firm is required to maintain minimum risk-based and leverage capital ratios under the regulatory capital requirements. A summary of the calculations of regulatory capital,
risk-weighted assets (“RWAs”) RWA and transition provisions follows.
Regulatory Capital
The Firm’s binding risk-based capital ratios for purposes of determining regulatory purposescompliance are the lower of the capital ratios computed under (i) the (i) standardized approaches for calculating credit risk RWAs and market risk RWAs (the “StandardizedRWA (“Standardized Approach”) and (ii) the applicable advanced approaches for calculating credit risk, market risk and operational risk RWAs (the “AdvancedRWA (“Advanced Approach”).
Minimum risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital.capital (which includes Tier 2 capital). Certain adjustments to and deductions from capital are required for purposes of determining these ratios, such as goodwill, intangible assets, certain deferred tax assets, other amounts in AOCI and investments in the capital instruments of unconsolidated financial institutions. Certain of these adjustments and deductions are also subject to transitional provisions.
In addition to the minimum risk-based capital ratio requirements, on a fullyphased-in basis by 2019 the Firm will be subject to:to the following buffers:
A greater than 2.5% Common Equity Tier 1 capital conservation buffer;
The Common Equity Tier 1 global systemically important bankG-SIB capital surcharge, currently at 3%; and
Up to a 2.5% Common Equity Tier 1 countercyclical capital buffer,CCyB, currently set by U.S. banking regulatorsagencies at zero (collectively, the “buffers”).zero.
In 2017 thephase-in amount forand 2018, each of the buffers is 50% and 75%, respectively, of the fullyphased-in buffer requirement.2019 requirement noted above. Failure to maintain the buffers will result in restrictions on the Firm’s ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers.
The methods for calculating each of the Firm’s risk-based capital ratios will change through January 1, 2022 as aspects of the capital rules are phased in. These changes may result in differences in the Firm’s reported capital ratios from one reporting period to the next that are independent of changes to its capital base, asset composition,off-balance sheet exposures or risk profile.
For a further discussion of the Firm’s calculation of risk-based capital ratios, see Note 14 to the consolidated financial statements in the 20162017 Form10-K.
|
The Firm’s Regulatory Capital and Capital Ratios
At June 30, 2017March 31, 2018 and December 31, 2016,2017, the Firm’s binding ratios are based on the AdvancedStandardized Approach transitional rules.
Regulatory Capital
At June 30, 2017 | At March 31, 2018 | |||||||||||||||||||||||
$ in millions | Amount | Ratio | Minimum Capital Ratio1 | Amount | Ratio | Required Ratio1 | ||||||||||||||||||
Common Equity Tier 1 capital | $ | 61,604 | 16.6 | % | 7.3% | $ | 60,568 | 15.5% | 8.6% | |||||||||||||||
Tier 1 capital | 70,380 | 19.0 | % | 8.8% | 69,213 | 17.7% | 10.1% | |||||||||||||||||
Total capital | 81,025 | 21.9 | % | 10.8% | 79,363 | 20.3% | 12.1% | |||||||||||||||||
Tier 1 leverage2 | — | 8.5 | % | 4.0% | ||||||||||||||||||||
Total RWAs | $ | 370,679 | N/A | N/A | ||||||||||||||||||||
Adjusted average assets3 | 828,365 | N/A | N/A | |||||||||||||||||||||
Total RWA | 390,390 | N/A | N/A | |||||||||||||||||||||
Tier 1 leverage | 69,213 | 8.2% | 4.0% | |||||||||||||||||||||
Adjusted average assets2 | 846,868 | N/A | N/A | |||||||||||||||||||||
SLR3 | 69,213 | 6.3% | 5.0% | |||||||||||||||||||||
Supplementary leverage exposure | 1,091,518 | N/A | N/A | |||||||||||||||||||||
At December 31, 2017 | ||||||||||||||||||||||||
$ in millions | Amount | Ratio | Required Ratio1 | |||||||||||||||||||||
Common Equity Tier 1 capital | $ | 61,134 | 16.5% | 7.3% | ||||||||||||||||||||
Tier 1 capital | 69,938 | 18.9% | 8.8% | |||||||||||||||||||||
Total capital | 80,275 | 21.7% | 10.8% | |||||||||||||||||||||
Total RWA | 369,578 | N/A | N/A | |||||||||||||||||||||
Tier 1 leverage | 69,938 | 8.3% | 4.0% | |||||||||||||||||||||
Adjusted average assets2 | 842,270 | N/A | N/A |
At December 31, 2016 | ||||||||||||
$ in millions | Amount | Ratio | Minimum Capital Ratio1 | |||||||||
Common Equity Tier 1 capital | $ | 60,398 | 16.9 | % | 5.9% | |||||||
Tier 1 capital | 68,097 | 19.0 | % | 7.4% | ||||||||
Total capital | 78,642 | 22.0 | % | 9.4% | ||||||||
Tier 1 leverage2 | — | 8.4 | % | 4.0% | ||||||||
Total RWAs | $ | 358,141 | N/A | N/A | ||||||||
Adjusted average assets3 | 811,402 | N/A | N/A |
N/A—Not Applicable
1. | Percentages represent minimum required regulatory capital ratios under the transitional rules. Regulatory compliance was determined based on capital ratios calculated under the transitional rules until December 31, 2017. |
2. |
|
Adjusted average assets represent the denominator of the Tier 1 leverage ratio and are composed of the average daily balance of consolidatedon-balance sheet assets under U.S. GAAP during the |
3. | The SLR became effective as a capital standard on January 1, 2018. |
U.S. Bank Subsidiaries’ Regulatory Capital and Capital Ratios
The Firm’s U.S. Bank Subsidiaries are subject to similar regulatory capital requirements as the Firm. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on the U.S. Bank Subsidiaries’ and the Firm’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each of the U.S. Bank Subsidiaries must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certainoff-balance sheet items as calculated under regulatory accounting practices.
March 2018 Form 10-Q | 76 |
Notes to Consolidated Financial Statements (Unaudited) |
Each U.S. depository institution subsidiary of the Firm must be well-capitalized in order for the Firm to continue to qualify as a financial holding company and to continue to engage in the broadest range of financial activities permitted
for financial holding companies. Under regulatory capital requirements adopted by the U.S. federal banking agencies, U.S. depository institutions must maintain certain minimum capital ratios in order to be considered well-capitalized. At June 30, 2017March 31, 2018 and December 31, 2016,2017, the Firm’s U.S. Bank Subsidiaries maintained capital at levels sufficiently in excess of the universally mandated well-capitalized requirements to address any additional capital needs and requirements identified by the U.S. federal banking regulators.
At June 30, 2017March 31, 2018 and December 31, 2016,2017, the U.S. Bank Subsidiaries’ binding ratios are based on the Standardized Approach transitional rules.
MSBNA’s Regulatory Capital
At March 31, 2018 | ||||||||||||||||||||||||
$ in millions | Amount | Ratio | Required Ratio1 | |||||||||||||||||||||
Common Equity Tier 1 capital | $ | 15,514 | 19.7% | 6.5% | ||||||||||||||||||||
Tier 1 capital | 15,514 | 19.7% | 8.0% | |||||||||||||||||||||
Total capital | 15,785 | 20.1% | 10.0% | |||||||||||||||||||||
Tier 1 leverage | 15,514 | 11.8% | 5.0% | |||||||||||||||||||||
SLR2 | 9.0% | 6.0% | ||||||||||||||||||||||
At June 30, 2017 | At December 31, 2017 | |||||||||||||||||||||||
$ in millions | Amount | Ratio | Minimum Capital Ratio1 | Amount | Ratio | Required Ratio1 | ||||||||||||||||||
Common Equity Tier 1 capital | $ | 14,526 | 18.5 | % | 6.5% | $ | 15,196 | 20.5% | 6.5% | |||||||||||||||
Tier 1 capital | 14,526 | 18.5 | % | 8.0% | 15,196 | 20.5% | 8.0% | |||||||||||||||||
Total capital | 14,807 | 18.9 | % | 10.0% | 15,454 | 20.8% | 10.0% | |||||||||||||||||
Tier 1 leverage | 14,526 | 12.0 | % | 5.0% | 15,196 | 11.8% | 5.0% | |||||||||||||||||
MSPBNA’s Regulatory Capital | MSPBNA’s Regulatory Capital | |||||||||||||||||||||||
At December 31, 2016 | At March 31, 2018 | |||||||||||||||||||||||
$ in millions | Amount | Ratio | Minimum Capital Ratio1 | Amount | Ratio | Required Ratio1 | ||||||||||||||||||
Common Equity Tier 1 capital | $ | 13,398 | 16.9 | % | 6.5% | $ | 6,382 | 24.2% | 6.5% | |||||||||||||||
Tier 1 capital | 13,398 | 16.9 | % | 8.0% | 6,382 | 24.2% | 8.0% | |||||||||||||||||
Total capital | 14,858 | 18.7 | % | 10.0% | 6,425 | 24.4% | 10.0% | |||||||||||||||||
Tier 1 leverage | 13,398 | 10.5 | % | 5.0% | 6,382 | 9.7% | 5.0% | |||||||||||||||||
SLR2 | 9.3% | 6.0% | ||||||||||||||||||||||
At December 31, 2017 | ||||||||||||||||||||||||
$ in millions | Amount | Ratio | Required Ratio1 | |||||||||||||||||||||
Common Equity Tier 1 capital | $ | 6,215 | 24.4% | 6.5% | ||||||||||||||||||||
Tier 1 capital | 6,215 | 24.4% | 8.0% | |||||||||||||||||||||
Total capital | 6,258 | 24.6% | 10.0% | |||||||||||||||||||||
Tier 1 leverage | 6,215 | 9.7% | 5.0% |
1. |
|
MSPBNA’s Regulatory Capital
At June 30, 2017 | ||||||||||||
$ in millions | Amount | Ratio | Minimum Capital Ratio1 | |||||||||
Common Equity Tier 1 capital | $ | 5,898 | 24.8 | % | 6.5% | |||||||
Tier 1 capital | 5,898 | 24.8 | % | 8.0% | ||||||||
Total capital | 5,938 | 25.0 | % | 10.0% | ||||||||
Tier 1 leverage | 5,898 | 10.3 | % | 5.0% | ||||||||
At December 31, 2016 | ||||||||||||
$ in millions | Amount | Ratio | Minimum Capital Ratio1 | |||||||||
Common Equity Tier 1 capital | $ | 5,589 | 26.1 | % | 6.5% | |||||||
Tier 1 capital | 5,589 | 26.1 | % | 8.0% | ||||||||
Total capital | 5,626 | 26.3 | % | 10.0% | ||||||||
Tier 1 leverage | 5,589 | 10.6 | % | 5.0% |
|
|
U.S. Broker-Dealer Regulatory Capital Requirements
MS&Co. Regulatory Capital
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Net capital | $ | 10,388 | $ | 10,311 | $ | 12,661 | $ | 10,142 | ||||||||
Excess net capital | 8,312 | 8,034 | 10,303 | 8,018 |
Morgan Stanley & Co. LLC (“MS&Co.”) is a registered U.S. broker-dealer and registered futures commission merchant and, accordingly, is subject to the minimum net capital requirements of the U.S. Securities and Exchange Commission (“SEC”)SEC and the U.S. Commodity Futures Trading Commission (“CFTC”). As an Alternative Net Capital broker-dealer under SEC rules, MS&Co. is subject to minimum net capital requirements, which it exceeded as presented in the previous table. In addition to these requirements, MS&Co. is required to meet capital requirements imposed by Appendix E of Rule15c3-1, which are presented in the following table.CFTC. MS&Co. has consistently operated with capital in excess of its regulatory capital requirements.
$ in millions | At June 30, 2017 | At December 31, 2016 | ||||||
Required tentative net capital1 | $ | 1,000 | $ | 1,000 | ||||
Required net capital | 500 | 500 |
|
As an Alternative Net Capital broker-dealer, and in accordance with the market and credit risk standards of Appendix E of SEC Rule 15c3-1, MS&Co. is subject to minimum net capital and tentative net capital requirements. In addition, MS&Co. must notify the SEC if its tentative net capital falls below certain levels. At June 30, 2017March 31, 2018 and December 31, 2016,2017, MS&Co. hadhas exceeded its net capital requirement and has tentative net capital in excess of the minimum and the notification requirements.
MSSB LLC Regulatory Capital
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Net capital | $ | 2,288 | $ | 3,946 | $ | 2,919 | $ | 2,567 | ||||||||
Excess net capital | 2,131 | 3,797 | 2,759 | 2,400 |
Morgan Stanley Smith Barney LLC (“MSSB LLC”)LLC is a registered U.S. broker-dealer and introducing broker for the futures business and, accordingly, is subject to the minimum net capital requirements of the SEC. MSSB LLC has consistently operated with capital in excess of its regulatory capital requirements.
Other Regulated Subsidiaries
Morgan Stanley & Co. International plc (“MSIP”),MSIP, a London-based broker-dealer subsidiary, is subject to the capital requirements of the Prudential Regulation Authority,PRA, and Morgan Stanley MUFG Securities Co., Ltd. (“MSMS”),MSMS, a Tokyo-based broker-dealer subsidiary, is subject to the capital requirements of the Financial Services Agency. MSIP and MSMS have consistently operated with capital in excess of their respective regulatory capital requirements.
Certain other U.S. andnon-U.S. subsidiaries of the Firm are subject to various securities, commodities and banking regulations, and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. These subsidiaries have consistently operated with capital in excess of their local capital adequacy requirements.
77 | March 2018 Form 10-Q |
Notes to Consolidated Financial Statements (Unaudited) |
Dividends and Share Repurchases
Three Months Ended March 31, | ||||||||
$ in millions | 2018 | 2017 | ||||||
Repurchases of common stock under the Firm’s share repurchase program | $ | 1,250 | $ | 750 |
The Firm repurchased approximately $500 million of its outstanding common stock as part of the share repurchase program during the current quarter and $1,250 million during the current year period. The Firm repurchased approximately $625 million during the prior year quarter and $1,250 million in the prior year period.
On June 28, 2017, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) announced that they did not object to the Firm’s 2017 capital planCapital Plan (“Capital Plan”). The Capital Plan includes the share repurchase of up to $5.0 billion of outstanding common stock for the period beginning July 1, 2017 through June 30, 2018, an increase from $3.5 billion in the 2016 Capital Plan. Additionally, the Capital Plan includes an increase in the quarterly common stock dividenddividends of up to $0.25 per share from $0.20 per share, beginning with the common stock dividend declared on July 19, 2017.share.
Preferred Stock
Three Months Ended
March 31, | ||||||||
$ in millions | 2018 | 2017 | ||||||
Dividends declared | $ | 93 | $ | 90 |
For a description of Series A through Series K preferred stock issuances, see Note 15 to the consolidated financial statements in the 20162017 Form10-K. Dividends declared on the Firm’s outstanding preferred stock were $170 million during the current quarter and $156 million during the prior year quarter, and $260 million during the current year period and $234 million during the prior year period. On June 15, 2017, the Firm announced that the Board of Directors (the “Board”) declared a quarterly dividend for preferred stock shareholders of record on June 30, 2017 that was paid on July 17, 2017. The Firm is authorized to issue 30 million shares of preferred stock. The preferred stock has a preference over the common stock upon liquidation. The Firm’s preferred stock qualifies as Tier 1 capital in accordance with regulatory capital requirements (see Note 13).
Series K Preferred Stock.The Series K Preferred Stock offering (net of related issuance costs) in January 2017 resulted in proceeds of approximately $994 million.
|
Preferred Stock Outstanding
$ in millions, except | Shares Outstanding | Liquidation | Carrying Value | |||||||||||||||||||||||||||||
Shares Outstanding | Carrying Value | |||||||||||||||||||||||||||||||
$ in millions, except | At June 30, 2017 | Liquidation | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | Liquidation Preference per Share | At March 31, 2018 | At December 31, 2017 | ||||||||||||||||||||||||
A | 44,000 | $ | 25,000 | $ | 1,100 | $ | 1,100 | 44,000 | $ | 25,000 | $ | 1,100 | $ | 1,100 | ||||||||||||||||||
C1 | 519,882 | 1,000 | 408 | 408 | 519,882 | 1,000 | 408 | 408 | ||||||||||||||||||||||||
E | 34,500 | 25,000 | 862 | 862 | 34,500 | 25,000 | 862 | 862 | ||||||||||||||||||||||||
F | 34,000 | 25,000 | 850 | 850 | 34,000 | 25,000 | 850 | 850 | ||||||||||||||||||||||||
G | 20,000 | 25,000 | 500 | 500 | 20,000 | 25,000 | 500 | 500 | ||||||||||||||||||||||||
H | 52,000 | 25,000 | 1,300 | 1,300 | 52,000 | 25,000 | 1,300 | 1,300 | ||||||||||||||||||||||||
I | 40,000 | 25,000 | 1,000 | 1,000 | 40,000 | 25,000 | 1,000 | 1,000 | ||||||||||||||||||||||||
J | 60,000 | 25,000 | 1,500 | 1,500 | 60,000 | 25,000 | 1,500 | 1,500 | ||||||||||||||||||||||||
K | 40,000 | 25,000 | 1,000 | — | 40,000 | 25,000 | 1,000 | 1,000 | ||||||||||||||||||||||||
Total | Total |
| $ | 8,520 | $ | 7,520 | $ | 8,520 | $ | 8,520 |
1. | Series C is composed of the issuance of 1,160,791 shares of Series C Preferred Stock to MUFG for an aggregate purchase price of $911 million, less the redemption of 640,909 shares of Series C Preferred Stock of $503 million, which were converted to common shares of approximately $705 million. |
Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)1
$ in millions | Foreign Currency Translation Adjustments | AFS Securities | Pensions, Postretirement and Other | DVA | Total | |||||||||||||||
March 31, 2017 | $ | (879 | ) | $ | (504 | ) | $ | (474 | ) | $ | (593 | ) | $ | (2,450 | ) | |||||
OCI during the period1 | 23 | 108 | 4 | (173 | ) | (38 | ) | |||||||||||||
June 30, 2017 | $ | (856 | ) | $ | (396 | ) | $ | (470 | ) | $ | (766 | ) | $ | (2,488 | ) | |||||
March 31, 2016 | $ | (831 | ) | $ | 76 | $ | (373 | ) | $ | (110 | ) | $ | (1,238 | ) | ||||||
OCI during the period1 | 52 | 143 | (5 | ) | 143 | 333 | ||||||||||||||
June 30, 2016 | $ | (779 | ) | $ | 219 | $ | (378 | ) | $ | 33 | $ | (905 | ) | |||||||
December 31, 2016 | $ | (986 | ) | $ | (588 | ) | $ | (474 | ) | $ | (595 | ) | $ | (2,643 | ) | |||||
OCI during the period1 | 130 | 192 | 4 | (171 | ) | 155 | ||||||||||||||
June 30, 2017 | $ | (856 | ) | $ | (396 | ) | $ | (470 | ) | $ | (766 | ) | $ | (2,488 | ) | |||||
December 31, 2015 | $ | (963 | ) | $ | (319 | ) | $ | (374 | ) | $ | — | $ | (1,656 | ) | ||||||
Cumulative adjustment for accounting change related to DVA2 | — | — | — | (312 | ) | (312 | ) | |||||||||||||
OCI during the period1 | 184 | 538 | (4 | ) | 345 | 1,063 | ||||||||||||||
June 30, 2016 | $ | (779 | ) | $ | 219 | $ | (378 | ) | $ | 33 | $ | (905) |
$ in millions | Foreign Currency Translation Adjustments | AFS Securities | Pension, Postretirement and Other | DVA | Total | |||||||||||||||
December 31, 2017 | $ | (767 | ) | $ | (547 | ) | $ | (591 | ) | $ | (1,155 | ) | $ | (3,060 | ) | |||||
Cumulative adjustment for accounting changes2 | (8 | ) | (111 | ) | (124 | ) | (194 | ) | (437 | ) | ||||||||||
OCI during the period | 60 | (410 | ) | 5 | 436 | 91 | ||||||||||||||
March 31, 2018 | $ | (715 | ) | $ | (1,068 | ) | $ | (710 | ) | $ | (913 | ) | $ | (3,406 | ) | |||||
December 31, 2016 | $ | (986 | ) | $ | (588 | ) | $ | (474 | ) | $ | (595 | ) | $ | (2,643 | ) | |||||
OCI during the period | 107 | 84 | — | 2 | 193 | |||||||||||||||
March 31, 2017 | $ | (879 | ) | $ | (504 | ) | $ | (474 | ) | $ | (593 | ) | $ | (2,450 | ) |
1. | Amounts net of tax and noncontrolling interests. |
2. |
|
Period Changes in OCI Components
Three Months Ended June 30, 2017 | ||||||||||||||||||||
$ in millions | Pre-tax gain (loss) | Income tax benefit (provision) | After-tax gain (loss) | Non- controlling | Net | |||||||||||||||
Foreign currency translation adjustments |
| |||||||||||||||||||
OCI activity | $ | 1 | $ | 11 | $ | 12 | $ | (11 | ) | $ | 23 | |||||||||
Reclassified to earnings | — | — | — | — | — | |||||||||||||||
Net OCI | $ | 1 | $ | 11 | $ | 12 | $ | (11 | ) | $ | 23 | |||||||||
Change in net unrealized gains (losses) on AFS securities |
| |||||||||||||||||||
OCI activity | $ | 185 | $ | (68 | ) | $ | 117 | $ | — | $ | 117 | |||||||||
Reclassified to earnings1 | (14 | ) | 5 | (9 | ) | — | (9 | ) | ||||||||||||
Net OCI | $ | 171 | $ | (63 | ) | $ | 108 | $ | — | $ | 108 | |||||||||
Pension, postretirement and other |
| |||||||||||||||||||
OCI activity | $ | 3 | $ | — | $ | 3 | $ | — | $ | 3 | ||||||||||
Reclassified to earnings1 | 1 | — | 1 | — | 1 | |||||||||||||||
Net OCI | 4 | — | 4 | — | 4 | |||||||||||||||
Change in net DVA |
| |||||||||||||||||||
OCI activity | $ | (285 | ) | $ | 99 | $ | (186 | ) | $ | (10 | ) | $ | (176 | ) | ||||||
Reclassified to earnings1 | 4 | (1 | ) | 3 | — | 3 | ||||||||||||||
Net OCI | $ | (281 | ) | $ | 98 | $ | (183 | ) | $ | (10 | ) | $ | (173 | ) |
Three Months Ended June 30, 2016 | ||||||||||||||||||||
$ in millions | Pre-tax gain (loss) | Income tax benefit (provision) | After-tax gain (loss) | Non- controlling | Net | |||||||||||||||
Foreign currency translation adjustments |
| |||||||||||||||||||
OCI activity | $ | 72 | $ | 59 | $ | 131 | $ | 79 | $ | 52 | ||||||||||
Reclassified to earnings | — | — | — | — | — | |||||||||||||||
Net OCI | $ | 72 | $ | 59 | $ | 131 | $ | 79 | $ | 52 | ||||||||||
Change in net unrealized gains (losses) on AFS securities |
| |||||||||||||||||||
OCI activity | $ | 298 | $ | (110 | ) | $ | 188 | $ | — | $ | 188 | |||||||||
Reclassified to earnings1 | (70 | ) | 25 | (45 | ) | — | (45 | ) | ||||||||||||
Net OCI | $ | 228 | $ | (85 | ) | $ | 143 | $ | — | $ | 143 | |||||||||
Pension, postretirement and other |
| |||||||||||||||||||
OCI activity | $ | (5 | ) | $ | — | $ | (5 | ) | $ | — | $ | (5 | ) | |||||||
Reclassified to earnings1 | (1 | ) | 1 | — | — | — | ||||||||||||||
Net OCI | $ | (6 | ) | $ | 1 | $ | (5 | ) | $ | — | $ | (5 | ) | |||||||
Change in net DVA |
| |||||||||||||||||||
OCI activity | $ | 225 | $ | (80 | ) | $ | 145 | $ | 2 | $ | 143 | |||||||||
Reclassified to earnings1 | — | — | — | — | — | |||||||||||||||
Net OCI | $ | 225 | $ | (80 | ) | $ | 145 | $ | 2 | $ | 143 |
Notes to Consolidated Financial Statements (Unaudited) |
Six Months Ended June 30, 2017 | ||||||||||||||||||||
$ in millions | Pre-tax gain (loss) | Income tax benefit (provision) | After-tax gain (loss) | Non- controlling | Net | |||||||||||||||
Foreign currency translation adjustments |
| |||||||||||||||||||
OCI activity | $ | 44 | $ | 118 | $ | 162 | $ | 32 | $ | 130 | ||||||||||
Reclassified to earnings | — | — | — | — | — | |||||||||||||||
Net OCI | $ | 44 | $ | 118 | $ | 162 | $ | 32 | $ | 130 | ||||||||||
Change in net unrealized gains (losses) on AFS securities |
| |||||||||||||||||||
OCI activity | $ | 322 | $ | (120 | ) | $ | 202 | $ | — | $ | 202 | |||||||||
Reclassified to earnings1 | (16 | ) | 6 | (10 | ) | — | (10 | ) | ||||||||||||
Net OCI | $ | 306 | $ | (114 | ) | $ | 192 | $ | — | $ | 192 | |||||||||
Pension, postretirement and other |
| |||||||||||||||||||
OCI activity | $ | 3 | $ | — | $ | 3 | $ | — | $ | 3 | ||||||||||
Reclassified to earnings1 | 1 | — | 1 | — | 1 | |||||||||||||||
Net OCI | 4 | — | 4 | — | 4 | |||||||||||||||
Change in net DVA |
| |||||||||||||||||||
OCI activity | $ | (278 | ) | $ | 98 | $ | (180 | ) | $ | (3 | ) | $ | (177 | ) | ||||||
Reclassified to earnings1 | 8 | (2 | ) | 6 | — | 6 | ||||||||||||||
Net OCI | $ | (270 | ) | $ | 96 | $ | (174 | ) | $ | (3 | ) | $ | (171 | ) |
Components of Period Changes in OCI
Six Months Ended June 30, 20162 | Three Months Ended
March 31, 20181 | |||||||||||||||||||||||||||||||||||||||
$ in millions | Pre-tax gain (loss) | Income tax benefit (provision) | After-tax gain (loss) | Non- controlling | Net | Pre-tax Gain (Loss) | Income Tax Benefit (Provision) | After- tax Gain (Loss) | Non- controlling Interests | Net | ||||||||||||||||||||||||||||||
Foreign currency translation adjustments | Foreign currency translation adjustments |
| Foreign currency translation adjustments |
| ||||||||||||||||||||||||||||||||||||
OCI activity | $ | 143 | $ | 174 | $ | 317 | $ | 133 | $ | 184 | $ | 78 | $ | 39 | $ | 117 | $ | 57 | $ | 60 | ||||||||||||||||||||
Reclassified to earnings | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Net OCI | $ | 143 | $ | 174 | $ | 317 | $ | 133 | $ | 184 | $ | 78 | $ | 39 | $ | 117 | $ | 57 | $ | 60 | ||||||||||||||||||||
Change in net unrealized gains (losses) on AFS securities | Change in net unrealized gains (losses) on AFS securities |
| Change in net unrealized gains (losses) on AFS securities |
| ||||||||||||||||||||||||||||||||||||
OCI activity | $ | 934 | $ | (344 | ) | $ | 590 | $ | — | $ | 590 | $ | (535 | ) | $ | 125 | $ | (410 | ) | $ | — | $ | (410 | ) | ||||||||||||||||
Reclassified to earnings1 | (82 | ) | 30 | (52 | ) | — | (52 | ) | ||||||||||||||||||||||||||||||||
Reclassified to earnings | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Net OCI | $ | 852 | $ | (314 | ) | $ | 538 | $ | — | $ | 538 | $ | (535 | ) | $ | 125 | $ | (410 | ) | $ | — | $ | (410 | ) | ||||||||||||||||
Pension, postretirement and other | Pension, postretirement and other |
| Pension, postretirement and other |
| ||||||||||||||||||||||||||||||||||||
OCI activity | $ | (6 | ) | $ | 3 | $ | (3 | ) | $ | — | $ | (3 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Reclassified to earnings1 | (2 | ) | 1 | (1 | ) | — | (1 | ) | ||||||||||||||||||||||||||||||||
Reclassified to earnings | 6 | (1 | ) | 5 | — | 5 | ||||||||||||||||||||||||||||||||||
Net OCI | $ | (8 | ) | $ | 4 | $ | (4 | ) | $ | — | $ | (4 | ) | $ | 6 | $ | (1 | ) | $ | 5 | $ | — | $ | 5 | ||||||||||||||||
Change in net DVA | Change in net DVA |
| ||||||||||||||||||||||||||||||||||||||
OCI activity | $ | 589 | $ | (215 | ) | $ | 374 | $ | 3 | $ | 371 | $ | 580 | $ | (140 | ) | $ | 440 | $ | 15 | $ | 425 | ||||||||||||||||||
Reclassified to earnings1 | (41 | ) | 15 | (26 | ) | — | (26 | ) | ||||||||||||||||||||||||||||||||
Reclassified to earnings | 15 | (4 | ) | 11 | — | 11 | ||||||||||||||||||||||||||||||||||
Net OCI | $ | 548 | $ | (200 | ) | $ | 348 | $ | 3 | $ | 345 | $ | 595 | $ | (144 | ) | $ | 451 | $ | 15 | $ | 436 | ||||||||||||||||||
Three Months Ended
March 31, 2017 | ||||||||||||||||||||||||||||||||||||||||
$ in millions | Pre-tax Gain (Loss) | Income Tax Benefit (Provision) | After- tax Gain (Loss) | Non- controlling Interests | Net | |||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | Foreign currency translation adjustments |
| ||||||||||||||||||||||||||||||||||||||
OCI activity | $ | 43 | $ | 107 | $ | 150 | $ | 43 | $ | 107 | ||||||||||||||||||||||||||||||
Reclassified to earnings | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Net OCI | $ | 43 | $ | 107 | $ | 150 | $ | 43 | $ | 107 | ||||||||||||||||||||||||||||||
Change in net unrealized gains (losses) on AFS securities | Change in net unrealized gains (losses) on AFS securities |
| ||||||||||||||||||||||||||||||||||||||
OCI activity | $ | 137 | $ | (52 | ) | $ | 85 | $ | — | $ | 85 | |||||||||||||||||||||||||||||
Reclassified to earnings | (2 | ) | 1 | (1 | ) | — | (1 | ) | ||||||||||||||||||||||||||||||||
Net OCI | $ | 135 | $ | (51 | ) | $ | 84 | $ | — | $ | 84 | |||||||||||||||||||||||||||||
Change in net DVA | ||||||||||||||||||||||||||||||||||||||||
OCI activity | $ | 7 | $ | (1 | ) | $ | 6 | $ | 7 | $ | (1 | ) | ||||||||||||||||||||||||||||
Reclassified to earnings | 4 | (1 | ) | 3 | — | 3 | ||||||||||||||||||||||||||||||||||
Net OCI | $ | 11 | $ | (2 | ) | $ | 9 | $ | 7 | $ | 2 |
1. |
|
Cumulative Adjustments to Retained Earnings
$ in millions | Three Months Ended March 31, 2018 | |||
Revenue from contracts with customers | $ | (32 | ) | |
Derivatives and hedging–targeted improvements to accounting for hedging activities | (99 | ) | ||
Reclassification of certain tax effects from AOCI | 443 | |||
Other1 | (6 | ) | ||
Total | $ | 306 | ||
$ in millions | Three Months Ended March 31, 2017 | |||
Improvements to employee share-based payment accounting2 | (30 | ) | ||
Intra-entity transfers of assets other | (5 | ) | ||
Total | $ | (35 | ) |
1. | Other includes the adoption of accounting updates related toRecognition and |
2. |
|
Noncontrolling Interests | ||||||||
$ in millions | At June 30, 2017 | At December 31 2016 | ||||||
Noncontrolling interests | $ | 1,141 | $ | 1,127 |
The increaseAmounts in noncontrolling interests was primarily duethe previous table represent cumulative adjustments related to the increase in net income attributable to noncontrolling interests, partially offset by deconsolidationadoption of certain investment management funds sponsored by the Firm.
Calculation of Basicaccounting updates during the current and Diluted Earnings per Common Share (“EPS”)prior year quarters. See Note 2 for further information.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
in millions, except for per share data | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Basic EPS | ||||||||||||||||
Income from continuing operations | $ | 1,796 | $ | 1,650 | $ | 3,789 | $ | 2,810 | ||||||||
Income (loss) from discontinued operations | (5 | ) | (4 | ) | (27 | ) | (7 | ) | ||||||||
Net income | 1,791 | 1,646 | 3,762 | 2,803 | ||||||||||||
Net income applicable to noncontrolling interests | 34 | 64 | 75 | 87 | ||||||||||||
Net income applicable to Morgan Stanley | 1,757 | 1,582 | 3,687 | 2,716 | ||||||||||||
Less: Preferred stock dividends and other | (170 | ) | (157 | ) | (260 | ) | (235 | ) | ||||||||
Earnings applicable to Morgan Stanley common shareholders | $ | 1,587 | $ | 1,425 | $ | 3,427 | $ | 2,481 | ||||||||
Weighted average common shares outstanding | 1,791 | 1,866 | 1,796 | 1,875 | ||||||||||||
Earnings per basic common share |
| |||||||||||||||
Income from continuing operations | $ | 0.89 | $ | 0.77 | $ | 1.92 | $ | 1.33 | ||||||||
Income (loss) from discontinued operations | — | (0.01 | ) | (0.01 | ) | (0.01 | ) | |||||||||
Earnings per basic common share | $ | 0.89 | $ | 0.76 | $ | 1.91 | $ | 1.32 | ||||||||
Diluted EPS | ||||||||||||||||
Earnings applicable to Morgan Stanley common shareholders | $ | 1,587 | $ | 1,425 | $ | 3,427 | $ | 2,481 | ||||||||
Weighted average common shares outstanding | 1,791 | 1,866 | 1,796 | 1,875 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options and RSUs1 | 39 | 33 | 40 | 32 | ||||||||||||
Weighted average common shares outstanding and common stock equivalents | 1,830 | 1,899 | 1,836 | 1,907 | ||||||||||||
Earnings per diluted common share |
| |||||||||||||||
Income from continuing operations | $ | 0.87 | $ | 0.75 | $ | 1.88 | $ | 1.30 | ||||||||
Income (loss) from discontinued operations | — | — | (0.01 | ) | — | |||||||||||
Earnings per diluted common share | $ | 0.87 | $ | 0.75 | $ | 1.87 | $ | 1.30 | ||||||||
Weighted average antidilutive RSUs and stock options (excluded from the computation of diluted EPS)1 | — | 14 | — | 15 |
Notes to Consolidated Financial Statements (Unaudited) |
Calculation of Basic and Diluted EPS
Three Months Ended
March 31, | ||||||||
in millions, except for per share data | 2018 | 2017 | ||||||
Basic EPS | ||||||||
Income from continuing operations | $ | 2,706 | $ | 1,993 | ||||
Income (loss) from discontinued operations | (2 | ) | (22 | ) | ||||
Net income | 2,704 | 1,971 | ||||||
Net income applicable to noncontrolling interests | 36 | 41 | ||||||
Net income applicable to Morgan Stanley | 2,668 | 1,930 | ||||||
Preferred stock dividends and other | 93 | 90 | ||||||
Earnings applicable to Morgan Stanley common shareholders | $ | 2,575 | $ | 1,840 | ||||
Weighted average common shares outstanding | 1,740 | 1,801 | ||||||
Earnings per basic common share | ||||||||
Income from continuing operations | $ | 1.48 | $ | 1.03 | ||||
Income (loss) from discontinued operations | — | (0.01 | ) | |||||
Earnings per basic common share | $ | 1.48 | $ | 1.02 | ||||
Diluted EPS | ||||||||
Earnings applicable to Morgan Stanley common shareholders | $ | 2,575 | $ | 1,840 | ||||
Weighted average common shares outstanding | 1,740 | 1,801 | ||||||
Effect of dilutive securities: Stock options and RSUs1 | 31 | 41 | ||||||
Weighted average common shares outstanding and common stock equivalents | 1,771 | 1,842 | ||||||
Earnings per diluted common share | ||||||||
Income from continuing operations | $ | 1.46 | $ | 1.01 | ||||
Income (loss) from discontinued operations | (0.01 | ) | (0.01 | ) | ||||
Earnings per diluted common share | $ | 1.45 | $ | 1.00 | ||||
Weighted average antidilutive RSUs and stock options (excluded from the computation of diluted EPS)1 | 1 | — |
1. |
|
16. Interest Income and Interest Expense
Interest income and Interest expense are classified in the income statements based on the nature of the instrument and related market conventions. When included as a component of the instrument’s fair value, interest is included within Trading revenues or Investments revenues. Otherwise, it is included within Interest income or Interest expense.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest income1 | ||||||||||||||||
Investment securities | $ | 304 | $ | 237 | $ | 630 | $ | 473 | ||||||||
Loans | 798 | 680 | 1,546 | 1,327 | ||||||||||||
Interest bearing deposits with banks | 67 | 52 | 122 | 105 | ||||||||||||
Securities purchased under agreements to resell and Securities borrowed2 | 29 | (120 | ) | 10 | (198 | ) | ||||||||||
Trading assets, net of Trading liabilities3 | 491 | 526 | 955 | 1,109 | ||||||||||||
Customer receivables and Other4 | 417 | 292 | 808 | 598 | ||||||||||||
Total interest income | $ | 2,106 | $ | 1,667 | $ | 4,071 | $ | 3,414 | ||||||||
Interest expense1 | ||||||||||||||||
Deposits | $ | 14 | $ | 15 | $ | 25 | $ | 37 | ||||||||
Short-term and Long-term borrowings | 1,067 | 851 | 2,088 | 1,818 | ||||||||||||
Securities sold under agreements to repurchase and Securities loaned5 | 339 | 259 | 587 | 513 | ||||||||||||
Customer payables and Other6 | (65 | ) | (371 | ) | (151 | ) | (766 | ) | ||||||||
Total interest expense | $ | 1,355 | $ | 754 | $ | 2,549 | $ | 1,602 | ||||||||
Net interest | $ | 751 | $ | 913 | $ | 1,522 | $ | 1,812 |
Three Months Ended
March 31, | ||||||||
$ in millions | 2018 | 2017 | ||||||
Interest income | ||||||||
Investment securities | $ | 424 | $ | 326 | ||||
Loans | 938 | 748 | ||||||
Securities purchased under agreements to resell and Securities borrowed1 | 215 | (18 | ) | |||||
Trading assets, net of Trading liabilities | 540 | 463 | ||||||
Customer receivables and Other2 | 743 | 446 | ||||||
Total interest income | $ | 2,860 | $ | 1,965 | ||||
Interest expense | ||||||||
Deposits | $ | 159 | $ | 11 | ||||
Borrowings | 1,138 | 1,022 | ||||||
Securities sold under agreements to repurchase and Securities loaned3 | 402 | 248 | ||||||
Customer payables and Other4 | 186 | (87 | ) | |||||
Total interest expense | $ | 1,885 | $ | 1,194 | ||||
Net interest | $ | 975 | $ | 771 |
1. |
|
Includes fees paid on Securities borrowed. |
|
Includes interest from |
Includes fees received on Securities loaned. |
Includes fees received from prime brokerage customers for stock loan transactions incurred to cover customers’ short positions. |
The Firm sponsors various retirement plans for the majority of its U.S. andnon-U.S.employees. The Firm provides certain other postretirement benefits, primarily health care and life insurance, to eligible U.S. employees.
Components of the Net Periodic Benefit Expense (Income) for Pension and Other Postretirement Plans
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended
March 31, | ||||||||||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | ||||||||||||||||||
Service cost, benefits earned during the period | $ | 4 | $ | 4 | $ | 8 | $ | 8 | $ | 4 | $ | 4 | ||||||||||||
Interest cost on projected benefit obligation | 38 | 39 | 75 | 77 | 34 | 37 | ||||||||||||||||||
Expected return on plan assets | (29 | ) | (30 | ) | (58 | ) | (60 | ) | (28 | ) | (29 | ) | ||||||||||||
Net amortization of prior service credit | (4 | ) | (5 | ) | (8 | ) | (9 | ) | — | (4 | ) | |||||||||||||
Net amortization of actuarial loss | 4 | 3 | 8 | 6 | 6 | 4 | ||||||||||||||||||
Net periodic benefit expense (income) | $ | 13 | $ | 11 | $ | 25 | $ | 22 | $ | 16 | $ | 12 |
March 2018 Form 10-Q | 80 |
Notes to Consolidated Financial Statements (Unaudited) |
The Firm is under continuous examination by the Internal Revenue Service (the “IRS”)IRS and other tax authorities in certain countries, such as Japan and the United Kingdom (“U.K.”), and in states in which it has significant business operations, such as New York. The Firm has established a liability for unrecognized tax benefits, and associated interest, if applicable (“tax liabilities”), that it believes is adequate in relation to the potential for additional assessments. Once established, the Firm adjusts such tax liabilities only when new information is available or when an event occurs necessitating a change.
During the fourth quarter of 2017, the Firm agreed to proposed adjustments associated with the expected closure of the IRS field audits for tax years 2006-2008. The Firm expects final closure of these tax years in the second quarter of 2018. The Firm is currently at various levels of field examination with respect to audits by the IRS, as well as New York State and New York City, for tax years 2009-2012 and 2007-2014, respectively.
The Firm believes that the resolution of thesethe above tax matters will not have a material effect on the annual consolidated financial statements, although a resolution could have a material impact onin the consolidated income statements and effective tax rate for any period in which such resolution occurs.
In April 2016,Furthermore, by the end of the first quarter of 2018, the Firm received a notification from the IRS that the Congressional Joint Committee on Taxation approved the final report of an Appeals Office review of matters from tax years 1999-2005, and the Revenue Agent’s Report reflecting agreed closure of the 2006-2008 tax years. In March 2017, the Firm filed claims with the IRS to contest certain items, associated with tax years 1999-2005, the resolution of which is not expected to have a material impact on the annual consolidated financial statements or effective tax rate.
During 2017, the Firm expects to reachreached a conclusion with the U.K. tax authorities on substantially allcertain issues through tax year 2010, the resolution of which isdid not expected to have a material impact on the annual consolidated financial statements or effective tax rate.
The Firm has established a liability for unrecognized tax benefits that it believes is adequate in relation to the potential for additional assessments. Once established, the Firm adjusts liabilities for unrecognized tax benefits only when new information is available or when an event occurs necessitating a change.
|
The Firm expects to receive new information related to a multi-year IRS field audit examination that may prompt a decrease in the Firm’s recorded unrecognized tax benefits over the next 12 months. The potential change in unrecognized tax benefits is not expected to have a material impact on the Firm’s annual consolidated financial statements or effective tax rate, although it could have a material impact on
the Firm’s consolidated income statements and effective tax rate for the period in which such development occurs.
See Note 11 regarding the Dutch Tax Authority’s challenge, in the Dutch Tax TribunalDistrict Court in Amsterdam (matters styledCase number 15/3637andCase number 15/4353), of the Firm’s entitlement to certain withholding tax credits which may impact the balance of unrecognized tax benefits.
It is reasonably possible that significant changes in the balance of unrecognized tax benefits occur within the next 12 months. At this time, however, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits and the impact on the Firm’s effective tax rate over the next 12 months.
19. Segment and Geographic Information
Segment Information
For a discussion about the Firm’s business segments, see Note 21 to the consolidated financial statements in the 20162017 Form10-K.
Selected Financial Information by Business Segment
Three Months Ended June 30, 2017 | ||||||||||||||||||||
$ in millions | IS1 | WM | IM2 | I/E | Total | |||||||||||||||
Totalnon-interest revenues3 | $ | 5,020 | $ | 3,142 | $ | 665 | $ | (75 | ) | $ | 8,752 | |||||||||
Interest income | 1,243 | 1,114 | 1 | (252 | ) | 2,106 | ||||||||||||||
Interest expense | 1,501 | 105 | 1 | (252 | ) | 1,355 | ||||||||||||||
Net interest | (258 | ) | 1,009 | — | — | 751 | ||||||||||||||
Net revenues | $ | 4,762 | $ | 4,151 | $ | 665 | $ | (75 | ) | $ | 9,503 | |||||||||
Income from continuing operations before income taxes | $ | 1,443 | $ | 1,057 | $ | 142 | $ | — | $ | 2,642 | ||||||||||
Provision for income taxes | 413 | 392 | 41 | — | 846 | |||||||||||||||
Income from continuing operations | 1,030 | 665 | 101 | — | 1,796 | |||||||||||||||
Income (loss) from discontinued operations, net of income taxes | (5 | ) | — | — | — | (5 | ) | |||||||||||||
Net income | 1,025 | 665 | 101 | — | 1,791 | |||||||||||||||
Net income applicable to noncontrolling interests | 33 | — | 1 | — | 34 | |||||||||||||||
Net income applicable to Morgan Stanley | $ | 992 | $ | 665 | $ | 100 | $ | — | $ | 1,757 | ||||||||||
Three Months Ended June 30, 2016 | ||||||||||||||||||||
$ in millions | IS4 | WM4 | IM2 | I/E | Total | |||||||||||||||
Totalnon-interest revenues3 | $ | 4,496 | $ | 2,982 | $ | 581 | $ | (63 | ) | $ | 7,996 | |||||||||
Interest income | 966 | 920 | 3 | (222 | ) | 1,667 | ||||||||||||||
Interest expense | 884 | 91 | 1 | (222 | ) | 754 | ||||||||||||||
Net interest | 82 | 829 | 2 | — | 913 | |||||||||||||||
Net revenues | $ | 4,578 | $ | 3,811 | $ | 583 | $ | (63 | ) | $ | 8,909 | |||||||||
Income from continuing operations before income taxes | $ | 1,506 | $ | 859 | $ | 118 | $ | — | $ | 2,483 | ||||||||||
Provision for income taxes | 453 | 343 | 37 | — | 833 | |||||||||||||||
Income from continuing operations | 1,053 | 516 | 81 | — | 1,650 | |||||||||||||||
Income (loss) from discontinued operations, net of income taxes | (4 | ) | — | — | — | (4 | ) | |||||||||||||
Net income | 1,049 | 516 | 81 | — | 1,646 | |||||||||||||||
Net income applicable to noncontrolling interests | 61 | — | 3 | — | 64 | |||||||||||||||
Net income applicable to Morgan Stanley | $ | 988 | $ | 516 | $ | 78 | $ | — | $ | 1,582 |
Six Months Ended June 30, 2017 | ||||||||||||||||||||
$ in millions | IS1 | WM | IM2 | I/E | Total | |||||||||||||||
Totalnon-interest revenues3 | $ | 10,399 | $ | 6,206 | $ | 1,273 | $ | (152 | ) | $ | 17,726 | |||||||||
Interest income | 2,367 | 2,193 | 2 | (491 | ) | 4,071 | ||||||||||||||
Interest expense | 2,852 | 190 | 1 | (494 | ) | 2,549 | ||||||||||||||
Net interest | (485 | ) | 2,003 | 1 | 3 | 1,522 | ||||||||||||||
Net revenues | $ | 9,914 | $ | 8,209 | $ | 1,274 | $ | (149 | ) | $ | 19,248 | |||||||||
Income from continuing operations before income taxes | $ | 3,173 | $ | 2,030 | $ | 245 | $ | 2 | $ | 5,450 | ||||||||||
Provision for income taxes | 872 | 718 | 71 | — | 1,661 | |||||||||||||||
Income from continuing operations | 2,301 | 1,312 | 174 | 2 | 3,789 | |||||||||||||||
Income (loss) from discontinued operations, net of income taxes | (27 | ) | — | — | — | (27 | ) | |||||||||||||
Net income | 2,274 | 1,312 | 174 | 2 | 3,762 | |||||||||||||||
Net income applicable to noncontrolling interests | 68 | — | 7 | — | 75 | |||||||||||||||
Net income applicable to Morgan Stanley | $ | 2,206 | $ | 1,312 | $ | 167 | $ | 2 | $ | 3,687 | ||||||||||
Six Months Ended June 30, 2016 | ||||||||||||||||||||
$ in millions | IS4 | WM4 | IM2 | I/E | Total | |||||||||||||||
Totalnon-interest revenues3 | $ | 8,141 | $ | 5,819 | $ | 1,059 | $ | (130 | ) | $ | 14,889 | |||||||||
Interest income | 2,019 | 1,834 | 4 | (443 | ) | 3,414 | ||||||||||||||
Interest expense | 1,868 | 174 | 3 | (443 | ) | 1,602 | ||||||||||||||
Net interest | 151 | 1,660 | 1 | — | 1,812 | |||||||||||||||
Net revenues | $ | 8,292 | $ | 7,479 | $ | 1,060 | $ | (130 | ) | $ | 16,701 | |||||||||
Income from continuing operations before income taxes | $ | 2,414 | $ | 1,645 | $ | 162 | $ | — | $ | 4,221 | ||||||||||
Provision for income taxes | 728 | 636 | 47 | — | 1,411 | |||||||||||||||
Income from continuing operations | 1,686 | 1,009 | 115 | — | 2,810 | |||||||||||||||
Income (loss) from discontinued operations, net of income taxes | (7 | ) | — | — | — | (7 | ) | |||||||||||||
Net income | 1,679 | 1,009 | 115 | — | 2,803 | |||||||||||||||
Net income (loss) applicable to noncontrolling interests | 100 | — | (13 | ) | — | 87 | ||||||||||||||
Net income applicable to Morgan Stanley | $ | 1,579 | $ | 1,009 | $ | 128 | $ | — | $ | 2,716 |
IS—Institutional Securities
WM—Wealth Management
IM—Investment Management
Three Months Ended March 31, 2018 | ||||||||||||||||||||
$ in millions | IS | WM | IM | I/E | Total | |||||||||||||||
Total non-interest revenues | $ | 6,195 | $ | 3,305 | $ | 718 | $ | (116 | ) | $ | 10,102 | |||||||||
Interest income | 1,804 | 1,280 | 1 | (225 | ) | 2,860 | ||||||||||||||
Interest expense | 1,899 | 211 | 1 | (226 | ) | 1,885 | ||||||||||||||
Net interest | (95 | ) | 1,069 | — | 1 | 975 | ||||||||||||||
Net revenues | $ | 6,100 | $ | 4,374 | $ | 718 | $ | (115 | ) | $ | 11,077 | |||||||||
Income from continuing operations before income taxes | $ | 2,112 | $ | 1,160 | $ | 148 | $ | — | $ | 3,420 | ||||||||||
Provision for income taxes | 449 | 246 | 19 | — | 714 | |||||||||||||||
Income from continuing operations | 1,663 | 914 | 129 | — | 2,706 | |||||||||||||||
Income (loss) from discontinued operations, net of income taxes | (2 | ) | — | — | — | (2 | ) | |||||||||||||
Net income | 1,661 | 914 | 129 | — | 2,704 | |||||||||||||||
Net income applicable to noncontrolling interests | 34 | — | 2 | — | 36 | |||||||||||||||
Net income applicable to Morgan Stanley | $ | 1,627 | $ | 914 | $ | 127 | $ | — | $ | 2,668 | ||||||||||
Three Months Ended March 31, 2017 | ||||||||||||||||||||
$ in millions | IS | WM | IM | I/E | Total | |||||||||||||||
Total non-interest revenues | $ | 5,379 | $ | 3,064 | $ | 608 | $ | (77 | ) | $ | 8,974 | |||||||||
Interest income | 1,124 | 1,079 | 1 | (239 | ) | 1,965 | ||||||||||||||
Interest expense | 1,351 | 85 | — | (242 | ) | 1,194 | ||||||||||||||
Net interest | (227 | ) | 994 | 1 | 3 | 771 | ||||||||||||||
Net revenues | $ | 5,152 | $ | 4,058 | $ | 609 | $ | (74 | ) | $ | 9,745 | |||||||||
Income from continuing operations before income taxes | $ | 1,730 | $ | 973 | $ | 103 | $ | 2 | $ | 2,808 | ||||||||||
Provision for income taxes | 459 | 326 | 30 | — | 815 | |||||||||||||||
Income from continuing operations | 1,271 | 647 | 73 | 2 | 1,993 | |||||||||||||||
Income (loss) from discontinued operations, net of income taxes | (22 | ) | — | — | — | (22 | ) | |||||||||||||
Net income | 1,249 | 647 | 73 | 2 | 1,971 | |||||||||||||||
Net income applicable to noncontrolling interests | 35 | — | 6 | — | 41 | |||||||||||||||
Net income applicable to Morgan Stanley | $ | 1,214 | $ | 647 | $ | 67 | $ | 2 | $ | 1,930 |
I/E—E–Intersegment eliminationsEliminations
Notes to Consolidated Financial Statements (Unaudited) |
|
|
|
|
Total Assets by Business Segment
$ in millions | At June 30, 2017 | At December 31, 2016 | At March 31, 2018 | At December 31, 2017 | ||||||||||||
Institutional Securities | $ | 665,603 | $ | 629,149 | $ | 674,785 | $ | 664,974 | ||||||||
Wealth Management | 170,735 | 181,135 | 177,603 | 182,009 | ||||||||||||
Investment Management | 4,678 | 4,665 | 6,107 | 4,750 | ||||||||||||
Total1 | $ | 841,016 | $ | 814,949 | $ | 858,495 | $ | 851,733 |
1. |
|
Additional Information – Investment Management
Net Unrealized Performance-based Fees
$ in millions | At March 31, 2018 | At December 31, 2017 | ||||||
Net cumulative unrealized performance-based fees at risk of reversing | $ | 441 | $ | 442 |
The Firm’s portion of net cumulative unrealized performance-based fees (for which the Firm is not obligated to pay compensation) are at risk of reversing if the fund performance falls below the stated investment management agreement benchmarks. See Note 11 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received.
Reduction of Fees due to Fee Waivers
Three Months Ended March 31, | ||||||||
$ in millions | 2018 | 2017 | ||||||
Fee waivers | $ | 18 | $ | 23 |
The Firm waives a portion of its fees in the Investment Management business segment from certain registered money market funds that comply with the requirements of Rule 2a-7 of the Investment Company Act of 1940.
Geographic Information
For a discussion about the Firm’s geographic net revenues, see Note 21 to the consolidated financial statements in the 20162017 Form10-K.
Net Revenues by Region
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
$ in millions | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | ||||||||||||||||||
Americas | $ | 6,746 | $ | 6,538 | $ | 13,834 | $ | 12,290 | $ | 8,018 | $ | 7,088 | ||||||||||||
EMEA | 1,606 | 1,312 | 3,095 | 2,441 | 1,708 | 1,489 | ||||||||||||||||||
Asia-Pacific | 1,151 | 1,059 | 2,319 | 1,970 | ||||||||||||||||||||
Net revenues | $ | 9,503 | $ | 8,909 | $ | 19,248 | $ | 16,701 | ||||||||||||||||
Asia | 1,351 | 1,168 | ||||||||||||||||||||||
Total | $ | 11,077 | $ | 9,745 |
20. Revenues from Contracts with Customers
These disclosures are made in accordance with the adoption of the accounting updateRevenue from Contracts with Customers, as such, they relate only to the subset of revenues generated from contracts with customers, which excludes certain revenues primarily reflected in Trading and Interest income.
For a detailed discussion about the Firm’s revenue recognition accounting policies, see Note 2. For further segment and geographic information of the Firm’s total revenues, see Note 19. For a discussion about the Firm’s business segments, see Note 21 to the financial statements in the 2017 Form 10-K.
Customer Contract Revenue by Business Segment
Three Months Ended March 31, 2018 | ||||||||||||||||||||
$ in millions | IS | WM | IM | I/E | Total | |||||||||||||||
Investment banking1 | $ | 1,308 | $ | 140 | $ | — | $ | (19 | ) | $ | 1,429 | |||||||||
Commissions and fees | 744 | 498 | — | (69 | ) | 1,173 | ||||||||||||||
Asset management | 110 | 2,495 | 626 | (39 | ) | 3,192 | ||||||||||||||
Other customer contract revenues2 | 59 | 59 | — | (2 | ) | 116 | ||||||||||||||
Total revenues from contracts with customers3 | $ | 2,221 | $ | 3,192 | $ | 626 | $ | (129 | ) | $ | 5,910 |
1. | Investment banking includes revenues from underwriting equity and fixed income securities and advisory fees. |
2. | Includes Trading and Other revenues from contracts with customers. |
3. | Includes $902 million in total consolidated revenue recognized in the current quarter from services performed over multiple periods related primarily to investment banking advisory fees, and distribution fees. |
Customer Contract Revenue by Region
$ in millions | Three Months Ended March 31, 2018 | |||
Americas | $ | 4,738 | ||
EMEA | 622 | |||
Asia | 550 | |||
Total | $ | 5,910 |
Change in Revenue as a Result of Application of the New Revenue Recognition Standard1
$ in millions | Three Months Ended March 31, 2018 | |||
Investment banking2 | $ | 60 | ||
Commissions and fees | 2 | |||
Asset management | 9 | |||
Other customer contract revenues | 12 | |||
Total change | $ | 83 |
1. | The accounting update requires, among other things, a gross presentation of certain costs that were previously netted against revenues. As a result, the Firm recorded an increase to net revenues and noncompensation expenses of $79 million, which was reported as follows: $72 million in the Institutional Securities business segment; $23 million in the Investment. Management business segment; and $(16) million in Intersegment Eliminations related to intersegment activity. |
2. | The effect of changing to a gross presentation on advisory fees and total underwriting fees within the Institutional Securities business segment in the current quarter was $15 million and $45 million, respectively. |
March 2018 Form 10-Q | 82 |
Notes to Consolidated Financial Statements (Unaudited) |
Balance Sheet Amounts Related to Customer Contracts Revenue
$ in millions | At March 31, 2018 | At January 1, 2018 | ||||||
Customer and other receivables | $ | 2,697 | $ | 2,805 |
Other Liabilities—Contract Liabilities Rollforward
$ in millions | Three Months Ended March 31, 2018 | |||
January 1, 2018 | $ | 155 | ||
Recognized contract liabilities | 184 | |||
Contract liabilities recognized into revenue | (160 | ) | ||
March 31, 2018 | $ | 179 |
Current quarter activity in contract liabilities relates primarily to Wealth Management advisory and managed account fees that are billed in advance and recognized into revenue as the underlying services are provided.
Certain Future Expected Revenues
At March 31, 2018 | ||||||||||||||||||||
$ in millions | 2018 | 2019 | 2020 | Thereafter | Total | |||||||||||||||
Other customer contract revenues1 | $ | 89 | $ | 118 | $ | 95 | $ | 310 | $ | 612 |
1. | Primarily includes commodities-related contracts with customers. |
The previous table presents expected revenues from current obligations to perform services in the future. It excludes the following: revenue subject to potentially significant reversal, revenues from contracts shorter than one year, and revenues from billings that are commensurate with the value of the services performed at each stage of the contract.
The Firm has evaluated subsequent events for adjustment to or disclosure in the consolidated financial statements through the date of this report and has not identified any recordable or disclosable events not otherwise reported in these consolidated financial statements or the notes thereto.
83 | March 2018 Form 10-Q |
Financial Data Supplement (Unaudited) Average Balances and Interest Rates and Net Interest Income |
Three Months Ended June 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
$ in millions | Average Daily | Interest | Annualized Average | Average Daily | Interest | Annualized Average Rate | ||||||||||||||||||
Interest earning assets1 | ||||||||||||||||||||||||
Investment securities2 | $ | 74,855 | $ | 304 | 1.6 | % | $ | 78,233 | $ | 237 | 1.2 | % | ||||||||||||
Loans2 | 96,230 | 798 | 3.3 | 89,344 | 680 | 3.1 | ||||||||||||||||||
Interest bearing deposits with banks2 | 19,555 | 67 | 1.4 | 29,250 | 52 | 0.7 | ||||||||||||||||||
Securities purchased under agreements to resell and Securities borrowed3: | ||||||||||||||||||||||||
U.S. | 129,845 | 140 | 0.4 | 157,223 | (64 | ) | (0.2 | ) | ||||||||||||||||
Non-U.S. | 90,200 | (111 | ) | (0.5 | ) | 82,863 | (56 | ) | (0.3 | ) | ||||||||||||||
Trading assets, net of Trading liabilities4: | ||||||||||||||||||||||||
U.S. | 60,963 | 476 | 3.1 | 49,914 | 459 | 3.7 | ||||||||||||||||||
Non-U.S. | 3,409 | 15 | 1.8 | 12,447 | 67 | 2.2 | ||||||||||||||||||
Customer receivables and Other5: | ||||||||||||||||||||||||
U.S. | 48,330 | 292 | 2.4 | 46,144 | 233 | 2.0 | ||||||||||||||||||
Non-U.S. | 25,863 | 125 | 1.9 | 21,655 | 59 | 1.1 | ||||||||||||||||||
Total | $ | 549,250 | $ | 2,106 | 1.5 | % | $ | 567,073 | $ | 1,667 | 1.2 | % | ||||||||||||
Interest bearing liabilities1 | ||||||||||||||||||||||||
Deposits2 | $ | 146,982 | $ | 14 | — | % | $ | 154,835 | $ | 15 | — | % | ||||||||||||
Short-term and Long-term borrowings2, 6 | 180,918 | 1,067 | 2.4 | 164,061 | 851 | 2.1 | ||||||||||||||||||
Securities sold under agreements to repurchase and Securities loaned7: | ||||||||||||||||||||||||
U.S. | 35,066 | 245 | 2.8 | 31,412 | 141 | 1.8 | ||||||||||||||||||
Non-U.S. | 36,974 | 94 | 1.0 | 31,729 | 118 | 1.5 | ||||||||||||||||||
Customer payables and Other8: | ||||||||||||||||||||||||
U.S. | 130,814 | (98 | ) | (0.3 | ) | 126,988 | (335 | ) | (1.1 | ) | ||||||||||||||
Non-U.S. | 64,135 | 33 | 0.2 | 65,603 | (36 | ) | (0.2 | ) | ||||||||||||||||
Total | $ | 594,889 | $ | 1,355 | 0.9 | $ | 574,628 | $ | 754 | 0.5 | ||||||||||||||
Net interest income and net interest rate spread | $ | 751 | 0.6 | % | $ | 913 | 0.7 | % |
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||||||||
Average | Annualized | Average | Annualized | |||||||||||||||||||||||||||||||
Daily | Average | Daily | Average | |||||||||||||||||||||||||||||||
$ in millions | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||||||||||||
Interest earning assets1 | ||||||||||||||||||||||||||||||||||
Investment securities2 | $ | 80,532 | $ | 424 | 2.1 | % | $ | 80,693 | $ | 326 | 1.6 | % | ||||||||||||||||||||||
Loans2 | 104,407 | 938 | 3.6 | 95,364 | 748 | 3.2 | ||||||||||||||||||||||||||||
Securities purchased under agreements to resell and Securities borrowed3: | ||||||||||||||||||||||||||||||||||
U.S. | 124,172 | 309 | 1.0 | 124,809 | 77 | 0.2 | ||||||||||||||||||||||||||||
Non-U.S. | 87,581 | (94 | ) | (0.4 | ) | 97,415 | (95 | ) | (0.4 | ) | ||||||||||||||||||||||||
Trading assets, net of Trading liabilities4: | ||||||||||||||||||||||||||||||||||
U.S. | 53,488 | 487 | 3.7 | 54,498 | 445 | 3.3 | ||||||||||||||||||||||||||||
Non-U.S. | 5,059 | 53 | 4.2 | 3,201 | 18 | 2.3 | ||||||||||||||||||||||||||||
Customer receivables and Other5: | ||||||||||||||||||||||||||||||||||
U.S. | 71,382 | 542 | 3.1 | 68,918 | 336 | 2.0 | ||||||||||||||||||||||||||||
Non-U.S. | 34,131 | 201 | 2.4 | 24,851 | 110 | 1.8 | ||||||||||||||||||||||||||||
Total | $ | 560,752 | $ | 2,860 | 2.1 | % | $ | 549,749 | $ | 1,965 | 1.4 | % | ||||||||||||||||||||||
Interest bearing liabilities1 | ||||||||||||||||||||||||||||||||||
Deposits2 | $ | 159,948 | $ | 159 | 0.4 | % | $ | 153,674 | $ | 11 | — | % | ||||||||||||||||||||||
Borrowings2, 6 | 194,558 | 1,138 | 2.4 | 171,000 | 1,022 | 2.4 | ||||||||||||||||||||||||||||
Securities sold under agreements to repurchase and Securities loaned7: | ||||||||||||||||||||||||||||||||||
U.S. | 25,009 | 286 | 4.6 | 33,900 | 172 | 2.1 | ||||||||||||||||||||||||||||
Non-U.S. | 40,675 | 116 | 1.2 | 39,774 | 76 | 0.8 | ||||||||||||||||||||||||||||
Customer payables and Other8: | ||||||||||||||||||||||||||||||||||
U.S. | 121,438 | 49 | 0.2 | 121,923 | (86 | ) | (0.3 | ) | ||||||||||||||||||||||||||
Non-U.S. | 69,646 | 137 | 0.8 | 58,556 | (1 | ) | — | |||||||||||||||||||||||||||
Total | $ | 611,274 | $ | 1,885 | 1.3 | % | $ | 578,827 | $ | 1,194 | 0.8 | % | ||||||||||||||||||||||
Net interest income and net interest rate spread | $ | 975 | 0.8 | % | $ | 771 | 0.6 | % |
|
Six Months Ended June 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
$ in millions | Average Daily | Interest | Annualized Average | Average Daily | Interest | Annualized Average Rate | ||||||||||||||||||
Interest earning assets1 | ||||||||||||||||||||||||
Investment securities2 | $ | 77,758 | $ | 630 | 1.6 | % | $ | 76,999 | $ | 473 | 1.2 | % | ||||||||||||
Loans2 | 95,799 | 1,546 | 3.3 | 87,979 | 1,327 | 3.0 | ||||||||||||||||||
Interest bearing deposits with banks2 | 19,928 | 122 | 1.2 | 30,514 | 105 | 0.7 | ||||||||||||||||||
Securities purchased under agreements to resell and Securities borrowed3: | ||||||||||||||||||||||||
U.S. | 128,775 | 216 | 0.3 | 154,488 | (126 | ) | (0.2 | ) | ||||||||||||||||
Non-U.S. | 92,354 | (206 | ) | (0.4 | ) | 84,499 | (72 | ) | (0.2 | ) | ||||||||||||||
Trading assets, net of Trading liabilities4: | ||||||||||||||||||||||||
U.S. | 58,390 | 922 | 3.2 | 48,827 | 957 | 4.0 | ||||||||||||||||||
Non-U.S. | 2,630 | 33 | 2.5 | 13,386 | 152 | 2.3 | ||||||||||||||||||
Customer receivables and Other5: | ||||||||||||||||||||||||
U.S. | 48,173 | 586 | 2.5 | 47,400 | 468 | 2.0 | ||||||||||||||||||
Non-U.S. | 25,664 | 222 | 1.7 | 22,092 | 130 | 1.2 | ||||||||||||||||||
Total | $ | 549,471 | $ | 4,071 | 1.5 | % | $ | 566,184 | $ | 3,414 | 1.2 | % | ||||||||||||
Interest bearing liabilities1 | ||||||||||||||||||||||||
Deposits2 | $ | 150,309 | $ | 25 | — | % | $ | 156,893 | $ | 37 | — | % | ||||||||||||
Short-term and Long-term borrowings2, 6 | 175,937 | 2,088 | 2.4 | 162,059 | 1,818 | 2.3 | ||||||||||||||||||
Securities sold under agreements to repurchase and Securities loaned7: | ||||||||||||||||||||||||
U.S. | 35,199 | 417 | 2.4 | 31,635 | 271 | 1.7 | ||||||||||||||||||
Non-U.S. | 37,654 | 170 | 0.9 | 28,144 | 242 | 1.7 | ||||||||||||||||||
Customer payables and Other8: | ||||||||||||||||||||||||
U.S. | 130,836 | (183 | ) | (0.3 | ) | 125,943 | (704 | ) | (1.1 | ) | ||||||||||||||
Non-U.S. | 60,160 | 32 | 0.1 | 65,055 | (62 | ) | (0.2 | ) | ||||||||||||||||
Total | $ | 590,095 | $ | 2,549 | 0.9 | $ | 569,729 | $ | 1,602 | 0.6 | ||||||||||||||
Net interest income and net interest rate spread | $ | 1,522 | 0.6 | % | $ | 1,812 | 0.6 | % |
1. |
|
2. | Amounts include primarily U.S. balances. |
3. | Includes fees paid on Securities borrowed. |
4. | Trading assets, net of Trading liabilities excludenon-interest earning assets andnon-interest bearing liabilities, such as equity securities. |
5. | Includes interest from |
6. | The Firm also issues structured notes that have coupon or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities, which are recorded within Trading revenues (see Note 3 to the |
7. | Includes fees received on Securities loaned. The annualized average rate was calculated using (a) interest expense incurred on all securities sold under agreements to repurchase and securities loaned transactions, whether or not such transactions were reported in the balance sheets and (b) net average on-balance sheet balances, which exclude certain securities-for-securities transactions. |
8. | Includes fees received from prime brokerage customers for stock loan transactions incurred to cover customers’ short positions. |
Financial Data Supplement (Unaudited) Rate/Volume Analysis |
Effect of Volume and Rate Changes on Net Interest Income
Three Months Ended March 31, 2018 versus | ||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2017 | ||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2017versusThree Months Ended June 30, 2016 | Six Months Ended June 30, 2017versusSix Months Ended June 30, 2016 | |||||||||||||||||||||||||||||||||||||||
Increase (decrease) due to change in: | Increase (decrease) due to change in: | Increase (Decrease) Due to Change in: | ||||||||||||||||||||||||||||||||||||||
$ in millions | Volume | Rate | Net Change | Volume | Rate | Net Change | Volume | Rate | Net Change | |||||||||||||||||||||||||||||||
Interest earning assets | ||||||||||||||||||||||||||||||||||||||||
Investment securities | $ | (10 | ) | $ | 77 | $ | 67 | $ | 5 | $ | 152 | $ | 157 | $ | (1 | ) | $ | 99 | $ | 98 | ||||||||||||||||||||
Loans | 52 | 66 | 118 | 118 | 101 | 219 | 71 | 119 | 190 | |||||||||||||||||||||||||||||||
Interest bearing deposits with banks | (17 | ) | 32 | 15 | (37 | ) | 54 | 17 | ||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell and Securities borrowed: | ||||||||||||||||||||||||||||||||||||||||
U.S. | 11 | 193 | 204 | 20 | 322 | 342 | — | 232 | 232 | |||||||||||||||||||||||||||||||
Non-U.S. | (5 | ) | (50 | ) | (55 | ) | (7 | ) | (127 | ) | (134 | ) | 10 | (9 | ) | 1 | ||||||||||||||||||||||||
Trading assets, net of Trading liabilities: | ||||||||||||||||||||||||||||||||||||||||
U.S. | 101 | (84 | ) | 17 | 186 | (221 | ) | (35 | ) | (8 | ) | 50 | 42 | |||||||||||||||||||||||||||
Non-U.S. | (49 | ) | (3 | ) | (52 | ) | (122 | ) | 3 | (119 | ) | 10 | 25 | 35 | ||||||||||||||||||||||||||
Customer receivables and Other: | ||||||||||||||||||||||||||||||||||||||||
U.S. | 11 | 48 | 59 | 8 | 110 | 118 | 12 | 194 | 206 | |||||||||||||||||||||||||||||||
Non-U.S. | 11 | 55 | 66 | 21 | 71 | 92 | 41 | 50 | 91 | |||||||||||||||||||||||||||||||
Change in interest income | $ | 105 | $ | 334 | $ | 439 | $ | 192 | $ | 465 | $ | 657 | $ | 135 | $ | 760 | $ | 895 | ||||||||||||||||||||||
Interest bearing liabilities | ||||||||||||||||||||||||||||||||||||||||
Deposits | $ | (1 | ) | $ | — | $ | (1 | ) | $ | (2 | ) | $ | (10 | ) | $ | (12 | ) | $ | — | $ | 148 | $ | 148 | |||||||||||||||||
Short-term and Long-term borrowings | 88 | 128 | 216 | 156 | 114 | 270 | ||||||||||||||||||||||||||||||||||
Borrowings | 141 | (25 | ) | 116 | ||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase and Securities loaned: | ||||||||||||||||||||||||||||||||||||||||
U.S. | 16 | �� | 88 | 104 | 31 | 115 | 146 | (45 | ) | 159 | 114 | |||||||||||||||||||||||||||||
Non-U.S. | 19 | (43 | ) | (24 | ) | 82 | (154 | ) | (72 | ) | 2 | 38 | 40 | |||||||||||||||||||||||||||
Customer payables and Other: | ||||||||||||||||||||||||||||||||||||||||
U.S. | (10 | ) | 247 | 237 | (26 | ) | 547 | 521 | — | 135 | 135 | |||||||||||||||||||||||||||||
Non-U.S. | 1 | 68 | 69 | 5 | 89 | 94 | — | 138 | 138 | |||||||||||||||||||||||||||||||
Change in interest expense | $ | 113 | $ | 488 | $ | 601 | $ | 246 | $ | 701 | $ | 947 | $ | 98 | $ | 593 | $ | 691 | ||||||||||||||||||||||
Change in net interest income | $ | (8 | ) | $ | (154 | ) | $ | (162 | ) | $ | (54 | ) | $ | (236 | ) | $ | (290 | ) | $ | 37 | $ | 167 | $ | 204 |
Glossary of Common Acronyms |
2017 Form 10-K—Annual Report on Form 10-K for year ended December 31, 2017 filed with the SEC
ABS—Asset-backed securities
AFS—Available-for-sale
AML—Anti-money laundering
AOCI—Accumulated other comprehensive income (loss)
AUM—Assets under management or supervision
BHC—Bank holding company
bps—Basis points; one basis point equals 1/100th of 1%
CCAR—Comprehensive Capital Analysis and Review
CCyB—Countercyclical capital buffer
CDO—Collateralized debt obligations, including collateralized loan obligations
CDS—Credit default swaps
CECL—Current expected credit loss
CFTC—U.S. Commodity Futures Trading Commission
CLN—Credit-linked notes
CLO—Collateralized loan obligations
CMBS—Commercial mortgage-backed securities
CMO—Collateralized mortgage obligations
CVA—Credit valuation adjustment
DVA—Debt valuation adjustment
EBITDA—Earnings before interest, taxes, depreciation and amortization
ELN—Equity-linked notes
EMEA—Europe, Middle East and Africa
EPS—Earnings per common share
ERISA—Employee Retirement Income Security Act of 1974
E.U.—European Union
FDIC—Federal Deposit Insurance Corporation
FFELP—Family Education Loan Program
FVA—Funding valuation adjustment
GLR—Global liquidity reserve
G-SIB—Global systemically important banks
HQLA—High-quality liquid assets
HTM—Held-to-maturity
I/E—Intersegment eliminations
IM—Investment Management
IRS—Internal Revenue Service
IS—Institutional Securities
LCR—Liquidity coverage ratio, as adopted by the U.S. banking agencies
LIBOR—London Interbank Offered Rate
M&A—Merger, acquisition and restructuring transaction
MSBNA—Morgan Stanley Bank, N.A.
MS&Co.—Morgan Stanley & Co. LLC
MSIP—Morgan Stanley & Co. International plc
MSMS—Morgan Stanley MUFG Securities Co., Ltd.
MSPBNA—Morgan Stanley Private Bank, National Association
MSSB LLC—Morgan Stanley Smith Barney LLC
MUFG—Mitsubishi UFJ Financial Group, Inc.
MUMSS—Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
MWh—Megawatt hour
N/A—Not Applicable
NAV—Net asset value
N/M—Not Meaningful
Non-GAAP—Non-generally accepted accounting principles
NSFR—Net stable funding ratio, as proposed by the U.S. banking agencies
OCC—Office of the Comptroller of the Currency
OCI—Other comprehensive income (loss)
OTC—Over-the-counter
PRA—Prudential Regulation Authority
RMBS—Residential mortgage-backed securities
ROE—Return on average common equity
ROTCE—Return on average tangible common equity
RSU—Restricted stock units
RWA—Risk-weighted assets
SEC—U.S. Securities and Exchange Commission
SLR—Supplementary leverage ratio
S&P—Standard & Poor’s
SPE—Special purpose entity
SPOE—Single point of entry
March 2018 Form 10-Q | 86 |
Glossary of Common Acronyms |
TDR—Troubled debt restructuring
TLAC—Total loss-absorbing capacity
U.K.—United Kingdom
UPB—Unpaid principal balance
U.S.—United States of America
U.S. DOL—U.S. Department of Labor
U.S. GAAP—Accounting principles generally accepted in the United States of America
VaR—Value-at-Risk
VAT—Value-added tax
VIE—Variable interest entities
WACC—Implied weighted average cost of capital
WM—Wealth Management
87 | March 2018 Form 10-Q |
The following new matters and developments have occurred since previously reporting certain matters in the Firm’s Annual Report on2017 Form10-K for the year ended December 31, 2016 (the “Form10-K”) and the Firm’s Quarterly Report on Form10-Q for the quarterly period ended March 31, 2017 (the “First Quarter Form10-Q”). 10-K. See also the disclosures set forth under “Legal Proceedings” in Part I, Item 3 of the 2017 Form10-K and Part II, Item 1 of the First Quarter Form10-Q. 10-K.
Residential Mortgage and Credit Crisis Related Matters
On April 13, 2017,March 8, 2018, the Appellate Division, First Department,court denied plaintiff’sthe Firm’s renewed motion for leave to appeal todismiss the New York Court of Appealsnotification claims inFederal Housing Finance Agency,Deutsche Bank National Trust Company, as ConservatorTrustee for the Federal Home Loan Mortgage Corporation, on behalf of the Trustee of the Morgan Stanley ABS Capital I Inc. Trust, Series2007-NC1 (MSAC2007-NC1) v. Morgan Stanley ABS Capital I, Inc.
On April 13, 2017,March 8, 2018, the Appellate Division, First Department, deniedcourt granted plaintiff’s motion for leave to appealamend its complaint to the New York Court of Appealsinclude failure to notify claims inFederal Housing Finance Agency,Deutsche Bank National Trust Company, solely in its capacity as ConservatorTrustee for the Federal Home Loan Mortgage Corporation, on behalf of the Trustee of the Morgan Stanley ABS Capital I Inc. Trust, Series2007-NC3 (MSAC2007-NC3) v. Morgan Stanley ABS Capital I Inc.
On April 21, 2017 the parties toMorgan Stanley Mortgage Loan Trust 2006-13ARX v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interestSuccessor-by-Merger to Morgan Stanley Mortgage Capital Inc. reachedOn March 19, 2018, the Firm filed an agreement in principleanswer to settle the litigation.plaintiff’s amended complaint.
On May 8, 2017, the Firm moved for summary judgment inDeutsche Bank National Trust Company v. Morgan Stanley Mortgage Capital Holdings LLC.
On May 12, 2017, plaintiff filed a notice of appeal of the decision and order by the Supreme Court of the State of New York, which granted the Firm’s motion to dismiss the amended complaint inRoyal Park Investments SA/NV v. Morgan Stanley et al.
On May 30, 2017,March 9, 2018, the parties inMorgan Stanley Mortgage Loan Trust2006-4SL, et al. v. Morgan Stanley Mortgage Capital Inc. andMorgan Stanley Mortgage Loan Trust 2006-10SL, 2006-14SL, et al. v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to MorganStanley Mortgage Capital Inc.Inc reached an agreement in principle. entered into agreements to settle the litigation.litigation, which are subject to court approval.
On June 20, 2017,April 4, 2018, the Appellate Division, First Department, affirmed the order granting in part and denying in part the Firm’s motion to dismissparties inDeutsche Zentral-Genossenschaftsbank AG et al.Bank National Trust Company, solely in its capacity as trustee for Morgan Stanley Structured Trust I 2007-1 v. Morgan Stanley et al. On July 28, 2017, the Firm filed a motion for leave to appeal that decision to the New York Court of Appeals.
Following the reversal on appeal of the Court’s order granting defendants’ motion to dismiss on November 17, 2016, on June 15, 2017, plaintiffs in Phoenix Light SF Limited, et al. v. Morgan Stanley, et al. filed a second amended complaint. On July 7, 2017, the court so-ordered a stipulation of partial discontinuance dismissing claims relating to certificates having an original face value of approximately $76 million.
On July 11, 2017, the Appellate Division, First Department, affirmed in part and reversed in part, an order granting in part and denying in part the Firm’s motion to dismiss inWilmington Trust Company v. MorganStanley Mortgage Capital Holdings LLC et al. filed a stipulation voluntarily dismissing the action, with prejudice, pursuant to a settlement.
European Matters
On July 17, 2017, the court in Parma, Italy presiding over the criminal trial against certain present and former employees ofMarch 30, 2018, the Firm relatedfiled its defense to the bankruptcy of Parmalat in 2003 issued a decision acquitting the present and former employees of all of the charges pending against them.
On May 31, 2017, Land Salzburg received parliamentary approval for the resolution of all claims in the actions styledLand Salzburg v. Morgan Stanley & Co. International plc andMorgan Stanley Capital Services LLC and Morgan Stanley & Co. International plc v. Land Salzburg.
On July 3, 2017, the Firm was informed thatclaim brought by the public prosecutor for the Court of Accounts for the Republic of Italy filed a claim against the Firm styled Case No. 2012/00406/MNV, which is pending in the Regional Prosecutor’s Office at the Judicial Section of the Court of Auditors for Lazio, Italy. The claim relates to certain derivative transactions between the Republic of Italy and the Firm. The transactions were originally entered into between 1999 and 2005, and were terminated in December 2011 and January 2012. The claim alleges, inter alia, that the Firm was acting as an agent of the Republic of Italy, that the derivative transactions were improper and that the termination of the transactions was also improper and asserts claims for damages through an administrative process against the Firm for €2.76 billion. The Firm does not agree with these allegations.matter styledCase number 2012/00406/MNV. A hearing regarding this matter has been scheduled forwas held on April 19, 2018. The timing of a decision is uncertain.
InOn March 20, 2018, the hearing on the parties’ final submissions inBanco Popolare Societá Cooperativa v. Morgan Stanley & Co. International plc & otherswas adjourned to May 17, 2018.
On April 26, 2018, the District Court in Amsterdam issued a decision in matters styledCase number 15/3637 andCase number 15/4353, dismissing the Dutch Tax Authority’s claims. The Dutch Tax Authority (“Dutch Authority”) ishas until June 7, 2018 to file any appeal.
challenging in the Dutch Tax Tribunal in Amsterdam the priorset-off by the Firm of approximately €124 million (plus accrued interest) of withholding tax credits against the Firm’s corporation tax liabilities for the tax years 2007 to 2013. The Dutch Authority alleges that the Firm was not entitled to receive the withholding tax credits on the basis, inter alia, that a Firm subsidiary did not hold legal title to certain securities subject to withholding tax on the relevant dates. The Dutch Authority has also alleged that the Firm failed to provide certain information to the Dutch Authority and keep adequate books and records. The Firm does not agree with these allegations. A hearing regarding this matter has been scheduled on September 19, 2017.
Other
Beginning in February of 2016, the Firm was named as a defendant in multiple purported antitrust class actions now consolidated into a single proceeding in the United States District Court for the Southern District of New York styledIn Re: Interest Rate Swaps Antitrust Litigation. Plaintiffs allege, inter alia, that the Firm, together with a number of other financial institution defendants violated United States and
New York state antitrust laws from 2008 through December of 2016 in connection with their alleged efforts to prevent the development of electronic exchange-based platforms for interest rates swaps trading. Complaints were filed both on behalf of a purported class of investors who purchased interest rates swaps from defendants, as well as on behalf of two swap execution facilities that allegedly were thwarted by the defendants in their efforts to develop such platforms. The consolidated complaints seek, among other relief, certification of the investor class of plaintiffs and treble damages. On July 28, 2017, the court granted in part and denied in part the defendants’ motion to dismiss the complaints.
On June 2, 2015, the Firm submitted to the Environmental Protection Agency (“EPA”) a self-disclosure that certain reformulated blendstock the Firm blended and sold during 2013 and 2014 potentially did not meet the applicable volatile organic compound reduction standards of the EPA’s Phase II Reformulated Gasoline standard. On July 7, 2017, the EPA made a settlement demand of approximately $1 million. Further discussions between the parties are ongoing.
Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth the information with respect to purchases made by or on behalf of the Firm of its common stock during the quarterly periodcurrent quarter ended June 30, 2017.March 31, 2018.
Issuer Purchases of Equity Securities
$ in millions, except per share data | Total Number of Shares | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly | Approximate Shares that May Yet be Purchased | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1 | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||||||||||||||||
Month #1 (April 1, 2017—April 30, 2017) | ||||||||||||||||||||||||||||||||
Month #1 (January 1, 2018—January 31, 2018) | ||||||||||||||||||||||||||||||||
Share Repurchase Program2 | 1,050,000 | $ | 43.04 | 1,050,000 | $ | 455 | 3,466,000 | $ | 57.14 | 3,466,000 | $ | 2,302 | ||||||||||||||||||||
Employee transactions3 | 1,049,776 | $ | 40.86 | — | — | 10,078,944 | $ | 55.81 | — | — | ||||||||||||||||||||||
Month #2 (May 1, 2017—May 31, 2017) | ||||||||||||||||||||||||||||||||
Month #2 (February 1, 2018—February 28, 2018) | ||||||||||||||||||||||||||||||||
Share Repurchase Program2 | 5,728,000 | $ | 42.89 | 5,728,000 | $ | 209 | 10,170,000 | $ | 54.81 | 10,170,000 | $ | 1,745 | ||||||||||||||||||||
Employee transactions3 | 82,728 | $ | 43.36 | — | — | 838,924 | $ | 56.86 | — | — | ||||||||||||||||||||||
Month #3 (June 1, 2017—June 30, 2017) | ||||||||||||||||||||||||||||||||
Month #3 (March 1, 2018—March 31, 2018) | ||||||||||||||||||||||||||||||||
Share Repurchase Program2 | 4,765,281 | $ | 43.89 | 4,765,281 | $ | 5,000 | 8,691,835 | $ | 56.89 | 8,691,835 | $ | 1,250 | ||||||||||||||||||||
Employee transactions3 | 29,687 | $ | 42.57 | — | — | 142,392 | $ | 56.05 | — | — | ||||||||||||||||||||||
Quarter ended at June 30, 2017 | ||||||||||||||||||||||||||||||||
Quarter ended at March 31, 2018 | ||||||||||||||||||||||||||||||||
Share Repurchase Program2 | 11,543,281 | $ | 43.32 | 11,543,281 | $ | 5,000 | 22,327,835 | $ | 55.98 | 22,327,835 | $ | 1,250 | ||||||||||||||||||||
Employee transactions3 | 1,162,191 | $ | 41.09 | — | — | 11,060,260 | $ | 55.89 | — | — |
1. | Share purchases under publicly announced programs are made pursuant to open-market purchases, Rule10b5-1 plans or privately negotiated transactions (including with employee benefit plans) as market conditions warrant and at prices the Firm deems appropriate and may be suspended at any time. As previously announced, on April 18, 2018, the Firm entered into a sales plan with Mitsubishi UFJ Financial Group, Inc. (“MUFG”) and Morgan Stanley & Co. LLC (“MS&Co.”) whereby MUFG will sell shares of the Firm’s common stock to the Firm, through its agent MS&Co., as part of the Company’s share repurchase program (as defined below). The sales plan is only intended to maintain MUFG’s ownership percentage below 24.9% in order to comply with MUFG’s passivity commitments to the Federal Reserve and will have no impact on the strategic alliance between MUFG and the Firm, including the joint venture in Japan. |
2. | The Firm’s Board of Directors has authorized the repurchase of the Firm’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 Firm are subject to regulatory approval. On June 28, 2017, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) announced that they did not object to our 2017 capital plan, which included a share repurchase of up to $5.0 billion of the Firm’s outstanding common stock during the period beginning July 1, 2017 through June 30, 2018. During the |
3. | Includes shares acquired by the Firm in satisfaction of the tax withholding obligations on stock-based awards |
89 | March 2018 Form 10-Q |
Under the supervision and with the participation of the Firm’s management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the Firm’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
No change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
An exhibit index has been filed as part of this Report on pageE-1.
Morgan Stanley
Quarter Ended March 31, 2018
Exhibit No. | Description | |
10.1 | ||
12 | ||
15 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101 | Interactive data files pursuant to Rule 405 of Regulation S-T (unaudited): (i) the Consolidated Income Statements—Three Months Ended March 31, 2018 and 2017, (ii) the Consolidated Comprehensive Income Statements—Three Months Ended March 31, 2018 and 2017, (iii) the Consolidated Balance Sheets—at March 31, 2018 and December 31, 2017, (iv) the Consolidated Statements of Changes in Total Equity—Three Months Ended March 31, 2018 and 2017, (v) the Consolidated Cash Flow Statements—Three Months Ended March 31, 2018 and 2017, and (vi) Notes to Consolidated Financial Statements. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MORGAN STANLEY (Registrant) | ||
By: | ||
Jonathan Pruzan Executive Vice President and Chief Financial Officer | ||
By: | ||
Paul C. Wirth Deputy Chief Financial Officer |
Date: August 3, 2017May 4, 2018
Morgan Stanley
Quarter Ended June 30, 2017
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E-1