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, 2018~~March 31, 2019

~~☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES~~

~~EXCHANGE ACT OF 1934~~

Commission File Number1-11758

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(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)


Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of exchange on which registered	Trading Symbol(s)
Common Stock, $0.01 par value	New York Stock Exchange	MS
Depositary Shares, each representing 1/1,000th interest in a share of Floating Rate Non-Cumulative Preferred Stock, Series A, $0.01 par value	New York Stock Exchange	MS/PA
Depositary Shares, each representing 1/1,000th interest in a share ofFixed-to-Floating RateNon-Cumulative Preferred Stock, Series E, $0.01 par value	New York Stock Exchange	MS/PE
Depositary Shares, each representing 1/1,000th interest in a share ofFixed-to-Floating RateNon-Cumulative Preferred Stock, Series F, $0.01 par value	New York Stock Exchange	MS/PF
Depositary Shares, each representing 1/1,000th interest in a share of 6.625% Non-Cumulative Preferred Stock, Series G, $0.01 par value	New York Stock Exchange	MS/PG
Depositary Shares, each representing 1/1,000th interest in a share ofFixed-to-Floating RateNon-Cumulative Preferred Stock, Series I, $0.01 par value	New York Stock Exchange	MS/PI
Depositary Shares, each representing 1/1,000th interest in a share ofFixed-to-Floating RateNon-Cumulative Preferred Stock, Series K, $0.01 par value	New York Stock Exchange	MS/PK
Global Medium-Term Notes, Series A, Fixed RateStep-Up Senior Notes Due 2026 of Morgan Stanley Finance LLC (and Registrant’s guarantee with respect thereto)	New York Stock Exchange	MS/26C
Market Vectors ETNs due March 31, 2020 (two issuances)	NYSE Arca, Inc.	URR/DDR
Market Vectors ETNs due April 30, 2020 (two issuances)	NYSE Arca, Inc.	CNY/INR
Morgan Stanley Cushing^® MLP High Income Index ETNs due March 21, 2031	NYSE Arca, Inc.	MLPY

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, 2018,~~April 30, 2019, there were ~~1,744,789,709~~1,682,234,555 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

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Available Information

We file annual, quarterly and current reports, proxy statements and other information with the 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 (“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~~Gover-nance 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 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

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Management’s
		Discussion and Analysis of Financial Condition and Results of Operations

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Introduction

Morgan Stanley 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” 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~~the definition 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 foreign exchange and commodities. Lending ~~services~~activities include originating ~~and/or purchasing~~ corporate loans, commercial ~~and residential~~ mortgage lending, ~~asset-backed~~providing secured lending facilities and extending financing ~~extended~~ to ~~equities~~sales and ~~commodities customers and municipalities.~~trading customers. Other activities include investments and research.

Wealth Managementprovides a comprehensive array of financial services and solutions to individual investors and small tomedium-sized businesses and institutions covering brokerage and investment advisory ~~services,~~services; financial and wealth planning ~~services,~~services; annuity and insurance ~~products, credit~~products; securities-based lending, residential real estate loans and other lending ~~products,~~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~~served 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,” “Business—Competition,” “Business—Supervision and ~~Regulation”~~Regulation,” and “Risk Factors” in the ~~2017~~2018 Form10-K, and “Liquidity and Capital ~~Resources”~~Resources—Regulatory Requirements” herein.


		1		~~June 2018~~March 2019 Form 10-Q


~~Management’s Discussion and Analysis~~

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Management’s Discussion and Analysis

Executive Summary

Overview of Financial Results

Consolidated Results

Net Revenues

($ in millions)

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Net Income Applicable to Morgan Stanley

($ in millions)

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Earnings per Common Share¹

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1.	For the calculation of basic and diluted EPS, see Note 15 to the financial statements.

We reported net revenues of ~~$10,610~~$10,286 million in the quarter ended ~~June 30, 2018~~March 31, 2019 (“current quarter,” or ~~“2Q 2018”~~“1Q 2019”), compared with ~~$9,503~~$11,077 million in the quarter ended ~~June 30, 2017~~March 31, 2018 (“prior year quarter,” or ~~“2Q 2017”~~“1Q 2018”). For the current quarter, net income applicable to Morgan Stanley was ~~$2,437~~$2,429 million, or ~~$1.30~~$1.39 per diluted common share, compared with ~~$1,757~~$2,668 million or ~~$0.87~~$1.45 per diluted common share, in the prior year quarter.

We reported net revenues of $21,687 million in the six months ended June 30, 2018 (“current year period,” or “YTD 2018”), compared with $19,248 million in the six months ended June 30, 2017 (“prior year period,” or “YTD 2017”). For the current year period, net income applicable to Morgan Stanley was $5,105 million, or $2.75 per diluted common share, compared with $3,687 million, or $1.87 per diluted common share, in the prior year period.


~~June 2018 Form 10-Q~~		2


~~Management’s Discussion and Analysis~~

Non-interest Expenses¹

($ in millions)

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1.	The percentages on the bars in the ~~charts~~chart represent the contribution of compensation ~~expense~~and benefits expenses andnon-compensation ~~expense~~expenses to ~~the total.~~totalnon-interest expenses.

Compensation and benefits expenses of ~~$4,621~~$4,651 million in ~~the~~ current quarter ~~and $9,535 million in the current year period each increased 9%~~decreased 5% from ~~$4,252~~$4,914 million in the prior year quarter, ~~and $8,718 million in the prior year period. These results~~ primarily ~~reflected increases~~due to decreases in discretionary incentive compensation ~~mainly driven by higher revenues, as well as salaries, across all business segments,~~and the formulaic payout to Wealth Management representatives, ~~and amortization of deferred cash and equity awards.~~both driven by lower revenues. These ~~increases~~decreases were partially offset by ~~a decrease~~increases in the fair value of investments to which certain deferred compensation plans are ~~referenced.~~referenced and higher salaries.

•

Non-compensation expenses were $2,680 million in the current quarter compared with $2,743 million in the prior year quarter, representing a 2% decrease. This decrease was primarily due to lower litigation and volume-related expenses, partially offset by increased investment in technology.

~~Non-compensation~~ expenses were $2,880 million in the current quarter and $5,623 million in the current year period compared with $2,609 million in the prior year quarter and $5,080 million in the prior year period, representing a 10% and an 11% increase, respectively. These increases were primarily a result of higher volume-related expenses and the gross presentation of certain expenses due to the adoption of the accounting update~~Revenue from Contracts with Customers~~ ~~(see Notes 2 and 19 to the financial statements for further information).~~

Income Taxes

The current quarter ~~and current year period included~~includes intermittent net discrete tax benefits of ~~$88~~$101 million, primarily associated with the remeasurement of reserves and related interest due to new information ~~pertaining~~with regard to ~~the resolution of~~ multi-jurisdiction tax ~~examinations and other matters. The prior year quarter and prior year period included intermittent tax provisions of $4 million and $18 million, respectively.~~examinations. For further information, see “Supplemental Financial Information and Disclosures—Income Tax Matters” herein.


March 2019 Form 10-Q		32		~~June 2018 Form 10-Q~~


~~Management’s Discussion and Analysis~~

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Management’s Discussion and Analysis

Selected Financial Information and Other Statistical Data


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
$ in millions	2018			2017			2018			2017			2019		2018
Income from continuing operations applicable to Morgan Stanley	$	2,439		$	1,762		$	5,109		$	3,714		$	2,429	$	2,670
Income (loss) from discontinued operations applicable to Morgan Stanley		(2	)		(5	)		(4	)		(27	)		—		(2	)
Net income applicable to Morgan Stanley		2,437			1,757			5,105			3,687			2,429		2,668
Preferred stock dividends and other		170			170			263			260			93		93
Earnings applicable to Morgan Stanley common shareholders	$	2,267		$	1,587		$	4,842		$	3,427		$	2,336	$	2,575
Expense efficiency ratio¹		70.7%			72.2%			69.9%			71.7%			71.3%		69.1%
ROE²		13.0%			9.1%			13.9%			9.9%			13.1%		14.9%
ROTCE²		14.9%			10.4%			16.0%			11.4%			14.9%		17.2%


in millions, except per share and employee data	At June 30, 2018		At December 31, 2017			At March 31, 2019		At December 31, 2018
GLR³	$	226,322	$	192,660	$	233,148	$	249,735
Loans⁴	$	112,113	$	104,126	$	116,197	$	115,579
Total assets	$	875,875	$	851,733	$	875,964	$	853,531
Deposits	$	172,802	$	159,436	$	179,731	$	187,820
Borrowings	$	192,244	$	192,582	$	190,691	$	189,662
Common shares outstanding						1,686		1,700
Common shareholders’ equity	$	70,589	$	68,871	$	72,204	$	71,726
Common shares outstanding		1,750		1,788
Tangible common shareholders’ equity²					$	63,434	$	62,879
Book value per common share⁵	$	40.34	$	38.52	$	42.83	$	42.20
Tangible book value per common share^{2, 5}					$	37.62	$	36.99
Worldwide employees		58,010		57,633		60,469		60,348

At June 30,
2018 At December 31,
2017
Capital ratios⁶

Common Equity Tier 1 capital ratio
15.8% 16.5%
Tier 1 capital ratio
18.1% 18.9%
Total capital ratio
20.6% 21.7%
Tier 1 leverage ratio
8.2% 8.3%
SLR⁷
6.4% 6.5%


	At March 31, 2019		At December 31, 2018
Capital ratios⁶
Common Equity Tier 1 capital		16.7%		16.9%
Tier 1 capital		19.0%		19.2%
Total capital		21.6%		21.8%
Tier 1 leverage		8.4%		8.4%
SLR		6.5%		6.5%

1.	The expense efficiency ratio represents totalnon-interest expense as a percentage of net revenues.

2.	Represents anon-GAAP measure. See “SelectedNon-GAAP Financial Information” herein.

3.	For a discussion of the GLR, see “Liquidity and Capital Resources—Liquidity Risk Management Framework—Global Liquidity Reserve” herein.

4.	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).

5.	Book value per common share ~~equals~~and tangible book value per common share equal common shareholders’ equity and tangible common shareholders’ equity, respectively, divided by common shares outstanding.

~~Beginning in~~At March 31, 2019 and December 31 2018, our ~~risk based~~risk-based capital ratios are based on the Standardized Approach ~~fullyphased-in~~ ~~rules. At December 31, 2017, our risk based 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.~~

7.	~~The SLR became effective as a capital standard on January 1, 2018. For a discussion of the SLR,~~ see “Liquidity and Capital Resources—Regulatory Requirements” herein.

Business Segment Results

Net Revenues by Segment^{1, 2}

($ in millions)

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~~June 2018 Form 10-Q~~		4


~~Management’s Discussion and Analysis~~

Net Income Applicable to Morgan Stanley by Segment^{1, 3}

($ in millions)

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1.	The percentages on the bars in the charts represent the contribution of each business segment to the ~~total. Amounts do~~total of the applicable financial category and may not ~~necessarily~~ total to 100% due to intersegment ~~eliminations, where applicable.~~eliminations.

The total amount of Net Revenues by Segment ~~also~~ includes intersegment eliminations of ~~$(120)~~$(103) million and ~~$(75)~~$(115) million in the current quarter and prior year quarter, ~~respectively, and $(235) million and $(149) million in the current year period and prior year period,~~ respectively.

3.	The total amount of Net Income Applicable to Morgan Stanley by Segment ~~also~~ includes intersegment eliminations of $2$(2) million in the ~~prior year period.~~current quarter.

Institutional Securities net revenues of ~~$5,714~~$5,196 million in the current quarter ~~and $11,814 million in the current year period increased 20%~~decreased 15% from the prior year quarter, ~~and 19% from the prior year period~~ primarily reflecting ~~higher~~lower revenues from both sales and trading and Investment ~~banking revenues.~~banking.

Wealth Management net revenues ~~of $4,325 million in the current quarter and $8,699 million in the current year period increased 4%~~were relatively unchanged from the prior year ~~quarter and 6% from the prior year period primarily reflecting growth in Asset management revenues.~~quarter.

Investment Management net revenues of ~~$691~~$804 million in the current quarter ~~and $1,409 million in the current year period~~ increased 4%12% from the prior year quarter, ~~and 11% from the prior year period~~ primarily reflecting higher revenues from ~~Asset management.~~Investments.


		3		March 2019 Form 10-Q

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Management’s Discussion and Analysis

Net Revenues by Region^{1, 2}

($ in millions)

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1.	For a discussion of how the geographic breakdown ~~for~~of net revenues is determined, see Note 1918 to the financial statements.

2.	The percentages on the bars in the charts represent the contribution of each region to the total.


		5		~~June 2018 Form 10-Q~~


~~Management’s Discussion and Analysis~~

SelectedNon-GAAP Financial Information

We prepare our financial statements using U.S. 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, analysts, investors and ~~analysts~~other stakeholders 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.~~in the following tables.

~~Reconciliations from U.S. GAAP toNon-GAAP~~ ~~Consolidated Financial Measures~~


Reconciliations from U.S. GAAP toNon-GAAP Consolidated Financial Measures
	Three Months Ended March 31,
$ in millions, except per share data	2019			2018
Net income applicable to Morgan Stanley	$	2,429		$	2,668
Impact of adjustments		(101	)		—
Adjusted net income applicable to MorganStanley—non-GAAP¹	$	2,328		$	2,668
Earnings per diluted common share	$	1.39		$	1.45
Impact of adjustments		(0.06	)		—
Adjusted earnings per diluted commonshare—non-GAAP¹	$	1.33		$	1.45
Effective income tax rate		16.5%			20.9%
Impact of adjustments		3.4%			—%
Adjusted effective income taxrate—non-GAAP¹		19.9%			20.9%

$ in millions, except Three Months Ended
June 30, Six Months Ended
June 30,
per share data 2018 2017 2018 2017
Net income applicable to Morgan Stanley
$ 2,437 $ 1,757 $ 5,105 $ 3,687
Impact of adjustments
(88 ) 4 (88 ) 18
Adjusted net income applicable to MorganStanley—non-GAAP¹
$ 2,349 1,761 $ 5,017 3,705
Earnings per diluted common share
$ 1.30 $ 0.87 $ 2.75 $ 1.87
Impact of adjustments
(0.05 ) — (0.05 ) 0.01
Adjusted earnings per diluted common share—non-GAAP¹
$ 1.25 $ 0.87 $ 2.70 $ 1.88
Effective income tax rate
20.6% 32.0% 20.7% 30.5%
Impact of adjustments
2.8% (0.1)% 1.4% (0.4)%
Adjusted effective income taxrate—non-GAAP¹
23.4% 31.9% 22.1% 30.1%

Average Monthly Balance

At
June 30,
2018

At
December 31,
2017

Three Months
Ended June 30,

Six Months
Ended June 30,

$ in millions 2018 2017 2018 2017
Tangible Equity

U.S. GAAP

Morgan Stanley shareholders’ equity
$ 79,109 $ 77,391 $ 78,432 $ 78,436 $ 77,960 $ 77,836
Less: Goodwill and net intangible assets
(9,022 ) (9,042 ) (9,076 ) (9,194 ) (9,049 ) (9,227 )
Morgan Stanley tangible shareholders’equity—non-GAAP
$ 70,087 $ 68,349 $ 69,356 $ 69,242 $ 68,911 $ 68,609
U.S. GAAP

Common equity
$ 70,589 $ 68,871 $ 69,912 $ 69,916 $ 69,440 $ 69,459
Less: Goodwill and net intangible assets
(9,022 ) (9,042 ) (9,076 ) (9,194 ) (9,049 ) (9,227 )
Tangible commonequity—non-GAAP
$ 61,567 $ 59,829 $ 60,836 $ 60,722 $ 60,391 $ 60,232

~~ConsolidatedNon-GAAP~~ ~~Financial Measures~~

Three Months Ended
June 30,    Six Months Ended
June 30,
$ in billions 2018    2017    2018    2017
Average common equity


Unadjusted
$ 69.9    $ 69.9    $ 69.4    $ 69.5
Adjusted¹
69.9    69.9    69.4    69.5
ROE²


Unadjusted
13.0%    9.1%    13.9%    9.9%
Adjusted^{1, 3}
12.5%    9.1%    13.7%    9.9%
Average tangible common equity


Unadjusted
$ 60.8    $ 60.7    $ 60.4    $ 60.2
Adjusted¹
60.8    60.7    60.4    60.2
ROTCE²


Unadjusted
14.9%    10.4%    16.0%    11.4%
Adjusted^{1, 3}
14.3%    10.5%    15.7%    11.4%

At June 30,
2018

At December 31,
2017

Tangible book value per common share⁴
   $             35.19    $ 33.46


$ in millions	At March 31, 2019			At December 31, 2018
Tangible equity
U.S. GAAP
Morgan Stanley shareholders’ equity	$	80,724		$	80,246
Less: Goodwill and net intangible assets		(8,770	)		(8,847	)
Tangible Morgan Stanley shareholders’equity—non-GAAP	$	71,954		$	71,399
U.S. GAAP
Common shareholders’ equity	$	72,204		$	71,726
Less: Goodwill and net intangible assets		(8,770	)		(8,847	)
Tangible common shareholders’ equity—non-GAAP	$	63,434		$	62,879


~~June 2018~~March 2019 Form 10-Q		64


~~Management’s Discussion and Analysis~~

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Management’s Discussion and Analysis

ConsolidatedNon-GAAP Financial Measures


	Average Monthly Balance Three Months Ended March 31,
$ in millions	2019			2018
Tangible equity
Morgan Stanley shareholders’ equity	$	80,115		$	77,507
Less: Goodwill and net intangible assets		(8,806	)		(9,043	)
Tangible Morgan Stanley shareholders’ equity	$	71,309		$	68,464
Common shareholders’ equity	$	71,595		$	68,987
Less: Goodwill and net intangible assets		(8,806	)		(9,043	)
Tangible common shareholders’ equity	$	62,789		$	59,944


	Three Months Ended March 31,
$ in billions	2019		2018
Average common equity
Unadjusted	$	71.6	$	69.0
Adjusted¹		71.5		69.0
ROE²
Unadjusted		13.1%		14.9%
Adjusted^{1, 3}		12.5%		14.9%
Average tangible common equity
Unadjusted	$	62.8	$	59.9
Adjusted¹		62.7		59.9
ROTCE²
Unadjusted		14.9%		17.2%
Adjusted^{1, 3}		14.2%		17.2%

Non-GAAP Financial Measures by Business Segment


	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
$ in billions	2018		2017		2018		2017			2019		2018
Pre-tax profit margin⁵
Pre-tax margin⁴
Institutional Securities		32%		30%		33%		32%			31%		35%
Wealth Management		27%		25%		27%		25%			27%		27%
Investment Management		20%		21%		20%		19%			22%		21%
Consolidated		29%		28%		30%		28%			29%		31%
Average common equity⁶
Average common equity⁵									Average common equity⁵
Institutional Securities	$	40.8	$	40.2	$	40.8	$	40.2		$	40.4	$	40.8
Wealth Management		16.8		17.2		16.8		17.2			18.2		16.8
Investment Management		2.6		2.4		2.6		2.4			2.5		2.6
Parent Company		9.7		10.1		9.2		9.7
Parent											10.5		8.8
Consolidated average common equity	$	69.9	$	69.9	$	69.4	$	69.5		$	71.6	$	69.0
Average tangible common equity⁶
Average tangible common equity⁵									Average tangible common equity⁵
Institutional Securities	$	40.1	$	39.6	$	40.1	$	39.6		$	39.9	$	40.1
Wealth Management		9.2		9.3		9.2		9.3			10.2		9.2
Investment Management		1.7		1.6		1.7		1.6			1.5		1.7
Parent Company		9.8		10.2		9.4		9.7
Parent											11.2		8.9
Consolidated average tangible common equity	$	60.8	$	60.7	$	60.4	$	60.2		$	62.8	$	59.9	��
ROE^{2, 7}
ROE^{2, 6}									ROE^{2, 6}
Institutional Securities		13.0%		8.5%		14.1%		9.9%			12.9%		15.2%
Wealth Management		20.0%		14.6%		20.7%		14.6%			19.8%		21.3%
Investment Management		15.7%		16.3%		17.5%		13.7%			21.9%		19.3%
Consolidated		13.0%		9.1%		13.9%		9.9%			13.1%		14.9%
ROTCE^{2, 7}
ROTCE^{2, 6}									ROTCE^{2, 6}
Institutional Securities		13.2%		8.7%		14.3%		10.1%			13.0%		15.5%
Wealth Management		36.6%		27.0%		37.8%		27.0%			35.6%		38.9%
Investment Management		24.5%		24.1%		27.4%		20.2%			35.3%		30.3%
Consolidated		14.9%		10.4%		16.0%		11.4%			14.9%		17.2%

Adjusted amounts exclude intermittent net discrete tax provisions (benefits). ~~Income~~We consider certain income tax consequences associated with employee share-based awards ~~are~~ recognized in Provision for income taxes in the income statements ~~but~~to be recurring-type (“Recurring”) discrete tax items, as we anticipate some level of conversion activity each quarter. Accordingly, these Recurring discrete tax provisions (benefits) are ~~excluded from~~not part of the adjustment for 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.

ROE and ROTCE ~~equal~~represent annualized 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.~~respectively. When excluding intermittent net discrete tax provisions (benefits), both the numerator and average denominator are adjusted.

3.	The calculations used in determining ~~the Firm’s~~our “ROE and ROTCE Targets” referred to ~~below~~in the following section 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.

6.5.	Average common equity and average tangible common equity for each business segment are determined using our Required Capital framework (see “Liquidity and Capital Resources—Regulatory Requirements—Attribution of Average Common Equity According to the Required Capital Framework” herein).

7.6.	The calculation of ~~the~~ ROE and ROTCE by segment uses ~~the annualized~~ net income applicable to Morgan Stanley by segment less preferred dividends allocated to each segment as a percentage of average common equity and average tangible common equity, respectively, allocated to each segment.


		5		March 2019 Form 10-Q

LOGO

Management’s Discussion and Analysis

Return on Equity and Tangible Common Equity Targets

~~In January 2018, we~~We have established an ROE Target of 10% to 13% ~~for the medium term, which is equivalent to~~and an ROTCE Target of 11.5% to 14.5%.

Our ROE and ROTCE 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~~outsized legal expenses or penalties and the ability to maintain a reduced level of expenses; and capital levels. For further information on our ROE and ROTCE Targets and related assumptions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—Return on Equity and Tangible Common Equity Targets” in the ~~2017~~2018 Form10-K.

Business Segments

Substantially all of our operating revenues and operating expenses are directly attributable to ~~the~~our 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 an overview of the components of our business segments, net revenues, compensation expense and income taxes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments” in the ~~2017~~2018 Form10-K.

With respect to Institutional Securities sales and trading activities, Commodities products and Other also includes Trading revenues from managing derivative counterparty credit risk on behalf of clients, in addition to results from the centralized management of our fixed income derivative counterparty exposures.


March 2019 Form 10-Q		76		~~June 2018 Form 10-Q~~


~~Management’s Discussion and Analysis~~

LOGO

Management’s Discussion and Analysis

Institutional Securities

Income Statement Information


	Three Months Ended June 30,								Three Months Ended March 31,
$ in millions	2018			2017			% Change		2019			2018			% Change
Revenues
Investment banking	$	1,699		$	1,413			20%	$	1,151		$	1,513			(24)%
Trading		3,128			2,725			15%		3,130			3,643			(14)%
Investments		89			37			141%		81			49			65%
Commissions and fees		674			630			7%		621			744			(17)%
Asset management		102			89			15%		107			110			(3)%
Other		168			126			33%		222			136			63%
Totalnon-interest revenues		5,860			5,020			17%		5,312			6,195			(14)%
Interest income		2,195			1,243			77%		3,056			1,804			69%
Interest expense		2,341			1,501			56%		3,172			1,899			67%
Net interest		(146	)		(258	)		43%		(116	)		(95	)		(22)%
Net revenues		5,714			4,762			20%		5,196			6,100			(15)%
Compensation and benefits		1,993			1,667			20%		1,819			2,160			(16)%
Non-compensation expenses		1,909			1,652			16%		1,782			1,828			(3)%
Totalnon-interest expenses		3,902			3,319			18%		3,601			3,988			(10)%
Income from continuing operations before income taxes		1,812			1,443			26%		1,595			2,112			(24)%
Provision for income taxes		323			413			(22)%		190			449			(58)%
Income from continuing operations		1,489			1,030			45%		1,405			1,663			(16)%
Income (loss) from discontinued operations, net of income taxes		(2	)		(5	)		60%		—			(2	)		100%
Net income		1,487			1,025			45%		1,405			1,661			(15)%
Net income applicable to noncontrolling interests		30			33			(9)%		34			34			—%
Net income applicable to Morgan Stanley	$	1,457		$	992			47%	$	1,371		$	1,627			(16)%

Six Months Ended
June 30,
$ in millions 2018 2017 % Change
Revenues

Investment banking
$ 3,212 $ 2,830 13%
Trading
6,771 5,737 18%
Investments
138 103 34%
Commissions and fees
1,418 1,250 13%
Asset management
212 180 18%
Other
304 299 2%
Totalnon-interest revenues
12,055 10,399 16%
Interest income
3,999 2,367 69%
Interest expense
4,240 2,852 49%
Net interest
(241 ) (485 ) 50%
Net revenues
11,814 9,914 19%
Compensation and benefits
4,153 3,537 17%
Non-compensation expenses
3,737 3,204 17%
Totalnon-interest expenses
7,890 6,741 17%
Income from continuing operations before income taxes
3,924 3,173 24%
Provision for income taxes
772 872 (11)%
Income from continuing operations
3,152 2,301 37%
Income (loss) from discontinued operations, net of income taxes
(4 ) (27 ) 85%
Net income
3,148 2,274 38%
Net income applicable to noncontrolling interests
64 68 (6)%
Net income applicable to Morgan Stanley
$ 3,084 $ 2,206 40%


~~June 2018 Form 10-Q~~		8


~~Management’s Discussion and Analysis~~

Investment Banking

Investment Banking Revenues

Three Months Ended
June 30,
$ in millions 2018 2017    % Change
Advisory
$ 618 $ 504    23%
Underwriting:

Equity
541 405    34%
Fixed income
540 504    7%
Total underwriting
1,081 909    19%
Total investment banking
$ 1,699 $ 1,413    20%


	Six Months Ended June 30,						Three Months Ended March 31,
$ in millions	2018		2017		% Change		2019		2018		% Change
Advisory	$	1,192	$	1,000		19%	$	406	$	574		(29)%
Underwriting:
Equity		962		795		21%		339		421		(19)%
Fixed income		1,058		1,035		2%		406		518		(22)%
Total underwriting		2,020		1,830		10%
Total investment banking	$	3,212	$	2,830		13%
Total Underwriting								745		939		(21)%
Total Investment banking							$	1,151	$	1,513		(24)%

Investment Banking Volumes


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
$ in billions	2018		2017		2018		2017		2019		2018
Completed mergers and acquisitions¹	$	325	$	212	$	488	$	375	$	187	$	170
Equity and equity-related offerings^{2, 3}		16		20		37		30		14		22
Fixed income offerings^{2, 4}		61		70		116		145		54		58

Source: Refinitiv (formerly Thomson Reuters Financial & Risk), data as of ~~July 2, 2018.~~April 1, 2019. 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, change in value, or change in ~~the value~~timing of ~~a transaction.~~certain transactions.

1.	~~Amounts include~~Includes transactions of $100 million or more. ~~Completed mergers and acquisitions volumes are based~~Based on full credit to each of the advisors in a transaction.

2.	~~Equity and equity-related offerings and fixed income offerings are based~~Based on full credit for single book managers and equal credit for joint book managers.

3.	~~Amounts include~~Includes Rule 144A issuances and registered public offerings of common stock and convertible securities and rights offerings.

~~Amounts include~~Includes Rule 144A and publicly registered issuances,non-convertible preferred stock, mortgage-backed and asset-backed securities, and taxable municipal debt. ~~Amounts include publicly registered and Rule 144A issuances. Amounts exclude~~Excludes 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 $1,699~~$1,151 million in the current quarter decreased 24%, reflecting lower results in both our advisory and ~~$3,212 million in the current year period increased 20% and 13% from the comparable prior year periods. The adoption of the accounting update~~~~Revenue from Contracts with Customers~~ had the effect of increasing the revenues reported in investment banking by approximately $101 million in the current quarter and $161 million in the current year period compared with the prior year periods (see Notes 2 and 19 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:underwriting businesses.

Advisory revenues ~~increased~~decreased in the current quarter ~~and current year period~~ primarily ~~reflecting higher volumes~~due to the effect of ~~completed M&A activity (see Investment Banking Volumes table), partially offset by~~ lower fee realizations.

Equity underwriting revenues ~~increased~~decreased in the current quarter primarily as a result of ~~higher fee realizations~~lower volumes. Revenues decreased primarily in initial public offerings,follow-ons and ~~convertibles. In the current year period, equity underwriting revenues increased due to higher equity market volumes (see Investment Banking Volumes table).~~convertible issuances, partially offset by an increase in secondary block share trades.

Fixed income underwriting revenues ~~increased~~decreased in the current quarter ~~primarily~~ due to ~~higher~~the effect of lower fee realizations and lower volumes. Revenues decreased primarily innon-investment grade loan fees. ~~Fixed income underwriting revenues in the current year period were relatively unchanged from the prior year period.~~

See “Investment Banking Volumes” herein.


		7		March 2019 Form 10-Q

LOGO

Management’s Discussion and Analysis

Sales and Trading Net Revenues

By Income Statement Line Item

   Three Months Ended
June 30,
$ in millions    2018    2017    % Change
Trading
   $ 3,128    $ 2,725    15%
Commissions and fees
   674    630    7%
Asset management
   102    89    15%
Net interest
   (146 )    (258 )    43%
Total
   $ 3,758    $ 3,186    18%

   Six Months Ended
June 30,
$ in millions    2018    2017    % Change
Trading
   $ 6,771    $ 5,737    18%
Commissions and fees
   1,418    1,250    13%
Asset management
   212    180    18%
Net interest
   (241 )    (485 )    50%
Total
   $ 8,160    $ 6,682    22%


		9		~~June 2018 Form 10-Q~~


~~Management’s Discussion and Analysis~~


	Three Months Ended
	March 31,
$ in millions	2019			2018			% Change
Trading	$	3,130		$	3,643			(14	)%
Commissions and fees		621			744			(17	)%
Asset management		107			110			(3	)%
Net interest		(116	)		(95	)		(22	)%
Total	$	3,742		$	4,402			(15	)%

By Business

   Three Months Ended
June 30,
$ in millions    2018    2017    % Change
Equity
   $ 2,470    $ 2,155    15%
Fixed income
   1,389    1,239    12%
Other
   (101 )    (208 )    51%
Total
   $ 3,758    $ 3,186    18%


									Three Months Ended March 31,
	Six Months Ended June 30,								Three Months Ended March 31,
$ in millions	2018			2017			% Change		2019		2018			% Change
Equity	$	5,028		$	4,171			21%	$	2,015	$	2,558			(21)%
Fixed income		3,262			2,953			10%		1,710		1,873			(9)%
Other		(130	)		(442	)		71%		17		(29	)		159%
Total	$	8,160		$	6,682			22%	$	3,742	$	4,402			(15)%

Sales and Trading Revenues—Equity and Fixed Income


										Three Months Ended
										March 31, 2019
	Three Months Ended June 30, 2018													Net
$ in millions	Trading		Fees¹		Net Interest²			Total		Trading		Fees¹		Interest²			Total
Financing	$	1,373	$	89	$	(192	)	$	1,270	$	1,115	$	98	$	(258	)	$	955
Execution services		661		605		(66	)		1,200		551		553		(44	)		1,060
Total Equity	$	2,034	$	694	$	(258	)	$	2,470	$	1,666	$	651	$	(302	)	$	2,015
Total Fixed Income	$	1,299	$	83	$	7		$	1,389
Total Fixed income										$	1,727	$	78	$	(95	)	$	1,710

Three Months Ended
June 30, 2017
$ in millions Trading Fees¹ Net
Interest² Total
Financing
$ 1,166 $ 88 $ (227 ) $ 1,027
Execution services
601 580 (53 ) 1,128
Total Equity
$ 1,767 $ 668 $ (280 ) $ 2,155
Total Fixed income
$ 1,114 $ 48 $ 77 $ 1,239

Six Months Ended
June 30, 2018
$ in millions Trading Fees¹ Net
Interest² Total
Financing
$ 2,607 $ 196 $ (338 ) $ 2,465
Execution services
1,452 1,269 (158 ) 2,563
Total Equity
$ 4,059 $ 1,465 $ (496 ) $ 5,028
Total Fixed Income
$ 3,014 $ 166 $ 82 $ 3,262


										Three Months Ended
										March 31, 2018
	Six Months Ended June 30, 2017													Net
$ in millions	Trading		Fees¹		Net Interest²			Total		Trading		Fees¹		Interest²			Total
Financing	$	2,097	$	177	$	(415	)	$	1,859	$	1,234	$	107	$	(146	)	$	1,195
Execution services		1,265		1,148		(101	)		2,312		791		664		(92	)		1,363
Total Equity	$	3,362	$	1,325	$	(516	)	$	4,171	$	2,025	$	771	$	(238	)	$	2,558
Total Fixed income	$	2,712	$	102	$	139		$	2,953	$	1,715	$	83	$	75		$	1,873

1.	Includes Commissions and fees and Asset management revenues.

2.	~~Funding~~Includes funding costs, which are allocated to the businesses based on funding ~~usage and are included in Net interest.~~usage.

As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Net Revenues by Segment” in the ~~2017~~2018 Form~~Form~~ 10-K, we manage each of the sales and trading businesses based on its aggregate net 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 418 to the financial statements.

~~Sales and Trading Net Revenues during the Current Quarter~~

Equity

Equity sales and trading net revenues of ~~$2,470~~$2,015 million in the current quarter ~~increased 15%~~decreased 21% from the prior year quarter, reflecting ~~higher~~lower results in both our financing ~~businesses~~ and execution ~~services.~~services businesses.

Financing ~~revenues increased~~decreased from the prior year quarter, primarily due to ~~higher~~lower average client balances, which resulted in lower Trading and Net interest revenues. Additionally, Net interest revenues decreased due to higher funding costs attributable to higher rates and changes in funding ~~mix which resulted in increased Trading and Net interest revenues.~~mix.

Execution services ~~increased~~decreased from the prior year quarter, ~~primarily~~ reflecting ~~higher~~lower Trading revenues ~~driven by effective~~as a result of less favorable inventory management and lower client activity in ~~derivative~~derivatives products. In addition, Commissions and fees ~~increased from higher~~decreased due to lower client activity in cash equities products.

Fixed Income

Fixed income net revenues of ~~$1,389~~$1,710 million in the current quarter were ~~12% higher~~9% lower than the prior year quarter, primarily driven by lower revenues in global macro products and lower Net interest revenues due to higher ~~results~~funding costs, partially offset by higher revenues in credit products and commodities products and ~~other and credit products, partially offset by lower results in global macro products.~~other.

Global macro products revenues decreased ~~as higher client activity was more than offset by~~reflecting unfavorable inventory management ~~results in foreign exchange and emerging markets products.~~while the level of client activity remained consistent.

Credit products Trading revenues increased primarily in corporate credit products driven by higher client activity, partially offset by lower client activity in securitized products.

Commodities products and ~~Net interest~~Other Trading revenues increased primarily as a result of ~~increased~~gains from client structuring activity within derivatives counterparty credit risk management and effective inventory management in commodities, partially offset by decreased client activity in ~~lending products,~~structured transactions within commodities.

Other

Other sales and trading net gains of $17 million in the current quarter increased from the prior year quarter, primarily due to an increase in the fair value of investments to which certain deferred compensation plans are referenced, partially offset by ~~the impact of credit spread widening~~higher losses on ~~inventory.~~

Commodities products and Other increased primarily due to increased client trading activity across commodities products and higher Trading revenues principally from a reduction in counterparty credit risk.hedges associated with corporate loans.


~~June 2018~~March 2019 Form 10-Q		108


Management’s Discussion and Analysis

~~Other~~

Other sales and trading net losses of $101 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 corporate loan activity.

~~Sales and Trading Net Revenues during the Current Year Period~~

~~Equity~~

Equity sales and trading net revenues of $5,028 million in the current year period increased 21% from the prior year period, reflecting higher results in both our financing businesses and execution services.

~~Financing revenues increased from the prior year period, primarily due to higher average client balances and changes in funding mix which resulted in increased Trading and Net interest revenues.~~

Execution services increased from the prior year period, primarily reflecting higher Trading revenues driven by effective inventory management and higher client activity in derivative products. In addition, Commissions and fees increased from higher client activity in cash equities products.

~~Fixed Income~~

~~Fixed income net revenues of $3,262 million in the current year period were 10% higher than the prior year period, primarily driven by higher results in commodities products and other.~~

~~Global macro and Credit products revenues remained relatively unchanged from the prior year period.~~

Commodities products and Other increased primarily due to increased Commodities structured transactions and client flow and higher Trading revenues principally from a reduction in counterparty credit risk.

~~Other~~

Other sales and trading net losses of $130 million in the current year period decreased from the prior year period, primarily reflecting higher revenues on economic hedges related to our long-term debt and lower losses associated with corporate loan hedging activity.

Investments, Other Revenues,Non-interest Expenses, and Income Tax Items

Investments

Net investment gains of ~~$89~~$81 million in the current quarter ~~and $138 million in the current year period~~ increased from the prior year ~~periods, primarily~~quarter as a result of higher revenues driven by a fund distribution and gains on ~~business-related investments, partially offset by lower results from~~ real estate limited partnership investments.

Other Revenues

Other revenues of ~~$168~~$222 million in the current quarter ~~and $304 million in the current year period~~ increased from the prior year ~~periods,~~quarter, primarily reflecting ~~the recovery of a previously charged off energy industry related loan and improved results from other equity method investments. These results were~~highermark-to-market gains on held for sale loans, partially offset by ~~losses associated withheld-for-sale~~ ~~corporate loans compared with gains in the respective prior year periods.~~lower results from certain equity method investments.

Non-interest Expenses

Non-interest expenses of ~~$3,902~~$3,601 million in the current quarter ~~increased~~decreased from the prior year quarter, reflecting a ~~20% increase~~16% decrease in Compensation and benefits expenses and a ~~16% increase~~3% decrease in~~Non-compensation~~ ~~expenses.Non-interest~~ ~~expenses of $7,890 million in the current year period increased from the prior year period reflecting a 17% increase in both Compensation and benefits expenses and~~Non-compensation expenses.

Compensation and benefits expenses ~~increased~~decreased in the current quarter, ~~and current year period,~~ primarily due to ~~increases~~decreases in discretionary incentive compensation driven by ~~higher~~lower revenues, ~~as well as amortization of deferred cash and equity awards and salaries,~~ partially offset by ~~a decrease~~increases in the fair value of investments to which certain deferred compensation plans are ~~referenced.~~referenced and higher salaries.

•

~~Non-compensation~~ expenses increased in the current quarter and current year period, primarily due to higher volume-related expenses and the gross presentation of certain expenses due to the adoption of the accounting update~~Revenue from Contracts with Customers~~ (see Notes 2 and 19 to the financial statements for further information). In addition, in the current year period, the results were partially offset by the reversal of a portion of previously recorded provisions related to U.K. VAT matters.

Non-compensation expenses decreased in the current quarter, primarily due to lower litigation and volume-related expenses, partially offset by increased investment in technology and higher professional service expenses.

Income Tax Items

The current quarter includes intermittent net discrete tax benefits of $101 million. For further information, see “Supplemental Financial Information and Disclosures—Income Tax Matters” herein.


		119		~~June 2018~~March 2019 Form 10-Q


Management’s Discussion and Analysis

~~Income Tax Items~~

The effective tax rate in the current quarter and current year period is lower compared with the prior year periods primarily as a result of the enactment of the U.S. Tax Cuts and Jobs Act (“Tax Act”). For a discussion of the Tax Act, see “Supplemental Financial Information and Disclosures—Income Tax Matters” herein.

In both the current quarter and current year period, we recognized in Provision for income taxes an intermittent net discrete tax benefit of $97 million, primarily associated with new information pertaining to the resolution of multi-jurisdiction tax examinations and other matters.


~~June 2018 Form 10-Q~~		12


~~Management’s Discussion and Analysis~~

Wealth Management

Income Statement Information

Three Months Ended
June 30,
$ in millions 2018 2017 % Change
Revenues

Investment banking
$ 114 $ 135 (16)%
Trading
135 207 (35)%
Investments
3 1 200%
Commissions and fees
442 424 4%
Asset management
2,514 2,302 9%
Other
74 73 1%
Totalnon-interest revenues
3,282 3,142 4%
Interest income
1,320 1,114 18%
Interest expense
277 105 164%
Net interest
1,043 1,009 3%
Net revenues
4,325 4,151 4%
Compensation and benefits
2,356 2,297 3%
Non-compensation expenses
812 797 2%
Totalnon-interest expenses
3,168 3,094 2%
Income from continuing
operations before income taxes
1,157 1,057 9%
Provision for income taxes
281 392 (28)%
Net income applicable to Morgan Stanley
$ 876 $ 665 32%

Six Months Ended
June 30,
$ in millions 2018 2017 % Change
Revenues

Investment banking
$ 254 $ 280 (9)%
Trading
244 445 (45)%
Investments
3 2 50%
Commissions and fees
940 864 9%
Asset management
5,009 4,486 12%
Other
137 129 6%
Totalnon-interest revenues
6,587 6,206 6%
Interest income
2,600 2,193 19%
Interest expense
488 190 157%
Net interest
2,112 2,003 5%
Net revenues
8,699 8,209 6%
Compensation and benefits
4,806 4,614 4%
Non-compensation expenses
1,576 1,565 1%
Totalnon-interest expenses
6,382 6,179 3%
Income from continuing operations before income taxes
2,317 2,030 14%
Provision for income taxes
527 718 (27)%
Net income applicable to Morgan Stanley
$ 1,790 $ 1,312 36%


	Three Months Ended March 31,
$ in millions	2019		2018		% Change
Revenues
Investment banking	$	109	$	140		(22)%
Trading		302		109		177%
Investments		1		—		N/M
Commissions and fees		406		498		(18)%
Asset management		2,361		2,495		(5)%
Other		80		63		27%
Totalnon-interest revenues		3,259		3,305		(1)%
Interest income		1,413		1,280		10%
Interest expense		283		211		34%
Net interest		1,130		1,069		6%
Net revenues		4,389		4,374		—%
Compensation and benefits		2,462		2,450		—%
Non-compensation expenses		739		764		(3)%
Totalnon-interest expenses		3,201		3,214		—%
Income from continuing operations before income taxes		1,188		1,160		2%
Provision for income taxes		264		246		7%
Net income applicable to Morgan Stanley	$	924	$	914		1%

Financial Information and Statistical Data


$ in billions	At June 30, 2018		At December 31, 2017
					At March 31,		At December 31,
$ in billions, except employee data					2019		2018
Client assets	$	2,411	$	2,373	$	2,476	$	2,303
Fee-based client assets¹	$	1,084	$	1,045	$	1,116	$	1,046
Fee-based client assets as a percentage of total client assets		45%		44%		45%		45%
Client liabilities²	$	82	$	80	$	82	$	83
Investment securities portfolio	$	59.7	$	59.2	$	71.3	$	68.6
Loans and lending commitments	$	80.7	$	77.3	$	83.6	$	82.9
Wealth Management representatives		15,632		15,712		15,708		15,694


	Three Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2019		2018
Per representative:
Annualized revenues ($ in thousands)³	$	1,105	$	1,052	$	1,118	$	1,115
Client assets ($ in millions)⁴	$	154	$	142	$	158	$	151
Fee-based asset flows ($ in billions)⁵	$	15.3	$	19.9	$	14.8	$	18.2

	Six Months Ended June 30,
	2018		2017
Per representative:
Annualized revenues ($ in thousands)³	$	1,110	$	1,041
Client assets ($ in millions)⁴	$	154	$	142
Fee-based asset flows ($ in billions)⁵	$	33.5	$	38.7

1.	Fee-based client assets represent the amount of assets in client accounts where the ~~basis of payment~~fee for services is ~~a fee~~ calculated based on those assets.

2.	Client liabilities include securities-based and tailored lending, residential real estate loans and margin lending.

3.	~~Annualized revenues~~Revenues per representative equal Wealth Management’s annualized net revenues divided by the average ~~representative headcount.~~number of representatives.

4.	Client assets per representative equal totalperiod-end client assets divided byperiod-end ~~representative headcount.~~number of representatives.

For a description of the Inflows and Outflows included withinFee-based asset flows, ~~include net new~~see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Wealth~~fee-based~~Management—Fee-Based ~~assets, net account transfers, dividends, interest and client fees and exclude~~Client Assets” in the 2018 Form10-K. Excludes institutional cash management-related activity.

Transactional Revenues


	Three Months Ended March 31,
$ in millions	2019		2018		% Change
Investment banking	$	109	$	140		(22)%
Trading		302		109		177%
Commissions and fees		406		498		(18)%
Total	$	817	$	747		9%
Transactional revenues as a % of Net revenues		19%		17%

Net Revenues

Transactional Revenues

Transactional revenues of $817 million in the current quarter increased 9% from the prior year quarter as a result of higher Trading revenues, partially offset by lower Commissions and fees and Investment banking revenues.

Investment banking revenues decreased in the current quarter primarily due to lower revenues from structured products issuances.

Trading revenues increased in the current quarter primarily due to gains related to investments associated with certain employee deferred compensation plans compared with losses in the prior year quarter.

Commissions and fees decreased in the current quarter primarily due to decreased client activity in equities.

Asset Management

Asset management revenues of $2,361 million in the current quarter decreased 5% from the prior year quarter primarily reflecting lowerfee-based client assets levels at the beginning of the current quarter due to fourth quarter market depreciation, partially offset by positive net flows.

See“Fee-Based Client Assets—Rollforwards” herein.


March 2019 Form 10-Q		1310		~~June 2018 Form 10-Q~~


Management’s Discussion and Analysis

~~Transactional Revenues~~

   Three Months Ended
June 30,
$ in millions    2018    2017    % Change
Investment banking
   $ 114    $ 135    (16)%
Trading
   135    207    (35)%
Commissions and fees
   442    424    4%
Total
   $ 691    $ 766    (10)%
Transactional revenues as a % of Net revenues
   16%    18%

   Six Months Ended
June 30,
$ in millions    2018    2017    % Change
Investment banking
   $ 254    $ 280    (9)%
Trading
   244    445    (45)%
Commissions and fees
   940    864    9%
Total
   $ 1,438    $ 1,589    (10)%
Transactional revenues as a % of Net revenues
   17%    19%

~~Net Revenues~~

~~Transactional Revenues~~

Transactional revenues of $691 million in the current quarter and $1,438 million in the current year period decreased 10% from the respective prior year periods primarily as a result of lower Trading and Investment banking revenues, partially offset by higher Commissions and fees.

~~Investment banking revenues decreased in the current quarter and current year period primarily due to lower revenues from equity and structured products issuances.~~

Trading revenues decreased in the current quarter and current year period primarily as a result of lower gains related to investments associated with certain employee deferred compensation plans and lower fixed income revenue driven by product mix.

~~Commissions and fees increased in the current quarter and current year period primarily as a result of increased client transactions in alternative products, and options and futures.~~

~~Asset Management~~

Asset management revenues of $2,514 million in the current quarter and $5,009 million in the current year period increased 9% and 12%, respectively, primarily due to the effect of market appreciation and net positive flows on the respective beginning of period~~fee-based~~ ~~client assets balances on which billings are generally based.~~

~~See“Fee-Based~~ ~~Client Assets Rollforwards” herein.~~

Net Interest

Net interest of ~~$1,043~~$1,130 million in the current quarter ~~and $2,112 million in~~increased 6% from the ~~current~~prior year ~~period increased 3% and 5%, respectively,~~quarter primarily as a result of higher ~~Loan balances. In the current quarter~~interest rates on loans and ~~current year period,~~cash management activities and higher investment securities balances, partially offset by the effect of higher ~~interest rates on Loans and Investment securities was essentially offset by higher average~~ interest rates on Deposits due to changes in ~~our deposit~~funding mix.

In addition, we centralized certain internal treasury activities as of January 1, 2019, which partially offset the increases in Interest income and Interest expense compared with the prior year quarter. This impact is expected to continue in future periods. The effect on Net interest income was not significant in the current quarter, nor is it expected to be for the full year 2019.

Non-interest Expenses

Non-interest expenses of ~~$3,168~~$3,201 million inwere relatively unchanged from the ~~current quarter and $6,382 million in the current~~prior year ~~period increased 2% and 3%, respectively, primarily as a result of higher Compensation and benefits expenses.~~quarter.

Compensation and benefits expenses increased inmodestly from the ~~current~~prior year quarter, ~~and current year period primarily due to the formulaic payout to Wealth Management representatives linked to higher revenues and~~reflecting increases ~~in salaries, partially offset by decreases~~ in the fair value of investments to which certain deferred compensation plans are ~~referenced.~~referenced and salaries, offset by decreases in the formulaic payout to Wealth Management representatives linked to lower revenues and theroll-off of certain merger-related employee retention loans.

Non-compensation expenses ~~were relatively unchanged in both the current quarter~~decreased due to lower consulting fees and ~~current year period.~~deposit insurance expenses.

~~Income Tax Items~~

The effective tax rate in the current quarter and current year period is lower compared with the prior year periods primarily as a result of the enactment of the Tax Act. For a discussion of the Tax Act, see “Supplemental Financial Information and Disclosures—Income Tax Matters” herein.


~~June 2018 Form 10-Q~~		14


~~Management��s Discussion and Analysis~~

Fee-Based Client Assets

~~For a description offee-based~~ client assets, including descriptions of 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—Wealth~~Management—Fee-Based~~ ~~Client Assets” in the 2017 Form10-K.~~

~~Fee-Based~~ ~~Client Assets~~ Rollforwards


$ in billions	At March 31, 2018		Inflows		Outflows		Market Impact		At June 30, 2018		At December 31, 2018		Inflows		Outflows			Market Impact			At March 31, 2019
Separately managed¹	$	260	$	9	$	(5)	$	3	$	267	$	279	$	14	$	(5	)	$	(12	)	$	276
Unified managed		254		12		(8)		1		259
Mutual fund advisory		20		—		(1)		1		20
Unified managed²												257		13		(11	)		24			283
Advisor		147		8		(8)		2		149		137		8		(9	)		11			147
Portfolio manager		356		20		(12)		3		367		353		19		(14	)		33			391
Subtotal	$	1,037	$	49	$	(34)	$	10	$	1,062	$	1,026	$	54	$	(39	)	$	56		$	1,097
Cash management		21		6		(5)		—		22		20		4		(5	)		—			19
Totalfee-based client assets	$	1,058	$	55	$	(39)	$	10	$	1,084	$	1,046	$	58	$	(44	)	$	56		$	1,116

$ in billions
At
March 31,
2017
Inflows Outflows Market
Impact
At
June 30,
2017

Separately managed¹
$ 230 $ 8 $ (7) $ 6 $ 237
Unified managed
217 13 (7) 5 228
Mutual fund advisory
21 — (1) 1 21
Advisor
133 10 (8) 3 138
Portfolio manager
305 23 (11) 4 321
Subtotal
$ 906 $ 54 $ (34) $ 19 $ 945
Cash management
21 2 (6) — 17
Totalfee-based client assets
$ 927 $ 56 $ (40) $ 19 $ 962


$ in billions	At December 31, 2017		Inflows		Outflows		Market Impact		At June 30, 2018		At December 31, 2017		Inflows		Outflows			Market Impact			At March 31, 2018
Separately managed¹	$	252	$	18	$	(10)	$	7	$	267	$	252	$	10	$	(6	)	$	4		$	260
Unified managed		250		25		(16)		—		259
Mutual fund advisory		21		1		(2)		—		20
Unified managed²												271		14		(9	)		(2	)		274
Advisor		149		16		(16)		—		149		149		9		(9	)		(2	)		147
Portfolio manager		353		39		(22)		(3)		367		353		21		(12	)		(6	)		356
Subtotal	$	1,025	$	99	$	(66)	$	4	$	1,062	$	1,025	$	54	$	(36	)	$	(6	)	$	1,037
Cash management		20		11		(9)		—		22		20		4		(3	)		—			21
Totalfee-based client assets	$	1,045	$	110	$	(75)	$	4	$	1,084	$	1,045	$	58	$	(39	)	$	(6	)	$	1,058

$ in billions
At
December 31,
2016
Inflows Outflows Market
Impact
At
June 30,
2017

Separately managed¹
$ 222 $ 16 $ (11) $ 10 $ 237
Unified managed
204 25 (15) 14 228
Mutual fund advisory
21 1 (3) 2 21
Advisor
125 19 (14) 8 138
Portfolio manager
285 42 (21) 15 321
Subtotal
$ 857 $ 103 $ (64) $ 49 $ 945
Cash management
20 5 (8) — 17
Totalfee-based client assets
$ 877 $ 108 $ (72) $ 49 $ 962

Average Fee Rates³


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
Fee rate in bps	2018		2017		2018		2017		2019		2018
Separately managed		16		17		16		16		14		16
Unified managed		97		98		98		98
Mutual fund advisory		120		118		120		118
Unified managed²										101		99
Advisor		84		84		85		85		88		85
Portfolio manager		96		96		96		97		96		96
Subtotal		77		77		76		76		74		76
Cash management		6		6		6		6		6		6
Totalfee-based client assets		75		75		75		75		73		75

1.	Includesnon-custody account values reflecting priorquarter-end balances due to a lag in the reporting of asset values by third-party custodians.

2.	Includes Mutual fund advisory accounts. Prior periods have been recast to conform to the current presentation.

3.	The calculation of average fee rates was changed in the current quarter to more closely align with the recognition of the related fee revenue. Prior period rates were not changed due to immateriality.

For a description offee-based client assets and rollforward items in the previous tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—WealthManagement—Fee-Based Client Assets” in the 2018 Form10-K.


~~Management’s Discussion and Analysis~~

LOGO

Management’s Discussion and Analysis

Investment Management

Income Statement Information

Three Months Ended
June 30,
$ in millions 2018 2017 % Change
Revenues

Trading
$ 16 $ (3 ) N/M
Investments
55 125 (56)%
Asset management
610 539 13%
Other
3 4 (25)%
Totalnon-interest revenues
684 665 3%
Interest income
17 1 N/M
Interest expense
10 1 N/M
Net interest
7 — N/M
Net revenues
691 665 4%
Compensation and benefits
272 288 (6)%
Non-compensation expenses
279 235 19%
Totalnon-interest expenses
551 523 5%
Income from continuing operations before income taxes
140 142 (1)%
Provision for income taxes
36 41 (12)%
Net income
104 101 3%
Net income (loss) applicable to noncontrolling interests
— 1 N/M
Net income applicable to Morgan Stanley
$ 104 $ 100 4%

Six Months Ended
June 30,
$ in millions 2018 2017 % Change
Revenues

Trading
$ 21 $ (14 ) N/M
Investments
132 223 (41)%
Asset management
1,236 1,056 17%
Other
13 8 63%
Totalnon-interest revenues
1,402 1,273 10%
Interest income
18 2 N/M
Interest expense
11 1 N/M
Net interest
7 1 N/M
Net revenues
1,409 1,274 11%
Compensation and benefits
576 567 2%
Non-compensation expenses
545 462 18%
Totalnon-interest expenses
1,121 1,029 9%
Income from continuing operations before income taxes
288 245 18%
Provision for income taxes
55 71 (23)%
Net income
233 174 34%
Net income (loss) applicable to noncontrolling interests
2 7 (71)%
Net income applicable to Morgan Stanley
$ 231 $ 167 38%


	Three Months Ended March 31,
$ in millions	2019			2018		% Change
Revenues
Trading	$	(3	)	$	5		(160)%
Investments		191			77		148%
Asset management		617			626		(1)%
Other		3			10		(70)%
Totalnon-interest revenues		808			718		13%
Interest income		4			1		N/M
Interest expense		8			1		N/M
Net interest		(4	)		—		N/M
Net revenues		804			718		12%
Compensation and benefits		370			304		22%
Non-compensation expenses		260			266		(2)%
Totalnon-interest expenses		630			570		11%
Income from continuing operations before income taxes		174			148		18%
Provision for income taxes		33			19		74%
Net income		141			129		9%
Net income applicable to noncontrolling interests		5			2		150%
Net income applicable to Morgan Stanley	$	136		$	127		7%

Net Revenues

Investments

Investments gains of ~~$55~~$191 million in the current quarter ~~and $132 million in the current year period compared with $125 million in~~increased 148% from the prior year quarter ~~and $223 million in the prior year period, respectively. These decreases reflect the absence~~primarily as a result of ~~realized investment gains in an infrastructure fund, as well as the reversal of previously accrued~~higher carried interest in certain Asia private equity ~~funds, primarily due to losses associated with weakening Asia-Pacific currencies.~~and infrastructure funds.

Asset Management

Asset management revenues of ~~$610~~$617 million in the current quarter ~~and $1,236 million in~~were relatively unchanged from the ~~current~~prior year ~~period increased 13% and 17%, respectively, primarily~~quarter, as ~~a result of higher~~ average AUM ~~across all asset classes.~~ and average fee rates remained stable.

See ~~“AUM Rollforwards”~~“Assets Under Management or Supervision” herein.

~~The adoption of the accounting update~~~~Revenue from Contracts with Customers~~ had the effect of increasing Asset management revenues due to the gross presentation of distribution fees. This increase (approximately $44 million in the current year period) was partially offset by the delayed recognition of certain performance fees not in the form of carried interest until they are no longer probable of reversing. For 2018, the recognition of a greater portion of these revenues is expected to occur in the fourth quarter based on current fee arrangements. See Notes 2 and 19 to the financial statements for further details.

Non-interest Expenses

Non-interest expenses of ~~$551~~$630 million in the current quarter increased 11% from the prior year quarter primarily as a result of higher compensation and ~~$1,121 million in the current year period increased 5% and 9%, respectively, primarily due to higherNon-compensation~~benefits expenses.

Compensation and benefits expenses ~~decreased~~increased in the current quarter primarily due to ~~decreases in~~ deferred compensation associated with carried ~~interest and the fair value of investments to which certain deferred compensation plans are referenced. Compensation and benefits~~interest.

Non-compensation expenses were relatively unchanged ~~in the current year period.~~

•

~~Non-compensation~~ ~~expenses increased in the current quarter and current year period primarily as a result of the gross presentation of distribution fees due to the adoption of the accounting update~~~~Revenue~~ from ~~Contracts with Customers~~~~along with higher fee sharing on increased AUM balances. See “Asset Management” above.~~


~~June 2018 Form 10-Q~~		16


~~Management’s Discussion and Analysis~~

~~Income Tax Items~~

~~The effective tax rate in the current quarter and current year period is lower compared with~~ the prior year ~~periods primarily as a result of the enactment of the Tax Act. For a discussion of the Tax Act, see “Supplemental Financial Information and Disclosures—Income Tax Matters” herein.~~quarter.

Assets Under Management or Supervision

Rollforwards


$ in billions	At December 31, 2018		Inflows		Outflows			Market Impact		Other			At March 31, 2019
Equity	$	103	$	9	$	(8	)	$	16	$	—		$	120
Fixed income		68		6		(7	)		1		—			68
Alternative/Other		128		5		(4	)		5		(1	)		133
Long-term AUM subtotal		299		20		(19	)		22		(1	)		321
Liquidity		164		343		(348	)		1		(1	)		159
Total AUM	$	463	$	363	$	(367	)	$	23	$	(2	)	$	480
Shares of minority stake assets		7												6


$ 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

1.	Includes the impact of the Mesa West Capital, LLC acquisition.

Average AUM


	Three Months Ended March 31,
$ in billions	2019		2018
Equity	$	113	$	109
Fixed income		68		73
Alternative/Other		131		129
Long-term AUM subtotal		312		311
Liquidity		163		163
Total AUM	$	475	$	474
Shares of minority stake assets		6		7

Average Fee Rates


	Three Months Ended March 31,
Fee rate in bps	2019		2018
Equity		76		76
Fixed income		32		35
Alternative/Other		68		68
Long-term AUM		63		63
Liquidity		17		18
Total AUM		47		47

For a description of the asset classes and rollforward items in the ~~following~~previous tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Investment Management—Assets Under Management or Supervision” in the ~~2017~~2018 Form10-K.

~~AUM Rollforwards~~

$ in billions
At
March 31,
2018
Inflows Outflows Market
Impact Other¹
At
June 30,
2018

Equity
$ 109 $ 10 $ (7 ) $ 3 $ (1 ) $ 114
Fixed income
72 7 (7 ) (1 ) (2 ) 69
Alternative/Other
131 6 (4 ) 1 (2 ) 132
Long-term AUM subtotal
312 23 (18 ) 3 (5 ) 315
Liquidity
157 375 (373 ) 1 (1 ) 159
Total AUM
$ 469 $ 398 $ (391 ) $ 4 $ (6 ) $ 474
Shares of minority stake assets
7 7
$ in billions
At
March 31,
2017
Inflows Outflows Market
Impact Other¹
At
June 30,
2017

Equity
$ 87 $ 6 $ (5 ) $ 5 $ 1 $ 94
Fixed income
62 8 (6 ) 1 1 66
Alternative/Other
119 6 (6 ) 3 (1 ) 121
Long-term AUM subtotal
268 20 (17 ) 9 1 281
Liquidity
153 308 (308 ) — 1 154
Total AUM
$ 421 $ 328 $ (325 ) $ 9 $ 2 $ 435
Shares of minority stake assets
7 8

$ in billions
At
December 31,
2017
Inflows Outflows Market
Impact Other¹
At
June 30,
2018

Equity
$ 105 $ 20 $ (14 ) $ 3 $ — $ 114
Fixed income
73 14 (16 ) (1 ) (1 ) 69
Alternative/Other
128 11 (9 ) 1 1 132
Long-term AUM subtotal
306 45 (39 ) 3 — 315
Liquidity
176 700 (717 ) 1 (1 ) 159
Total AUM
$ 482 $ 745 $ (756 ) $ 4 $ (1 ) $ 474
Shares of minority stake assets
7 7
$ in billions
At
December 31,
2016
Inflows Outflows Market
Impact Other¹
At
June 30,
2017

Equity
$ 79 $ 11 $ (10 ) $ 13 $ 1 $ 94
Fixed income
60 13 (11 ) 2 2 66
Alternative/Other
115 13 (10 ) 4 (1 ) 121
Long-term AUM subtotal
254 37 (31 ) 19 2 281
Liquidity
163 636 (646 ) — 1 154
Total AUM
$ 417 $ 673 $ (677 ) $ 19 $ 3 $ 435
Shares of minority stake assets
8 8

1.	~~Includes distributions and foreign currency impact for all periods and the impact of the Mesa West Capital, LLC acquisition in the current year period.~~

~~Average AUM~~

   Three Months Ended
June 30,    Six Months Ended
June 30,
$ in billions    2018    2017    2018    2017
Equity
   $ 111    $ 91    $ 110    $ 87
Fixed income
   71    64    72    63
Alternative/Other
   131    120    130    119
Long-term AUM subtotal
   313    275    312    269
Liquidity
   161    153    163    155
Total AUM
   $ 474    $ 428    $ 475    $ 424
Shares of minority stake assets
   7    8    7    8

~~Average Fee Rate~~

   Three Months Ended
June 30,    Six Months Ended
June 30,
Fee rate in bps    2018    2017    2018    2017
Equity
   77    73    76    74
Fixed income
   33    33    34    33
Alternative/Other
   67    70    67    70
Long-term AUM
   63    62    63    63
Liquidity
   18    17    18    18
Total AUM
   47    46    47    46


~~Management’s Discussion and Analysis~~

LOGO

Management’s Discussion and Analysis

Supplemental Financial Information and

Disclosures

Income Tax Matters

Effective Tax Rate from Continuing Operations


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2018		2017		2018		2017
$ in millions									2019			2018
U.S. GAAP		20.6%		32.0%		20.7%		30.5%		16.5	%		20.9	%
Adjusted effective incometax rate—non-GAAP¹		23.4%		31.9%		22.1%		30.1%		19.9	%		20.9	%
Net discrete tax provisions/(benefits)
Recurring²									$	(107	)	$	(147	)
Intermittent³									$	(101	)	$	—

Adjusted ~~amounts exclude~~effective income tax rate is anon-GAAP measure that excludes 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 onnon-GAAP measures, see “SelectedNon-GAAP Financial Information” herein.

We consider certain income tax consequences associated with employeeshare-based awards recognized in Provision for income taxes in the income statements to be Recurring discrete tax items as we anticipate some level of conversion activity each quarter. Accordingly, these Recurring discrete tax provisions (benefits) are not part of the adjustment for intermittent net discrete tax provisions (benefits).

3.	Includes all tax provisions (benefits) that have been determined to be discrete, other than Recurring items as defined above.

~~Adjusted amounts exclude an~~The current quarter includes intermittent net discrete tax ~~benefit of $88 million in the current quarter and current year period,~~benefits primarily associated with the remeasurement of reserves and related interest due to new information ~~pertaining~~with regard to ~~the resolution of~~ multi-jurisdiction tax ~~examinations and other matters. Intermittent net discrete tax provisions were $4 million and $18 million in the prior year quarter and prior year period, respectively.~~

The effective tax rates include recurring-type discrete tax benefits associated with employee share-based payments of $17 million and $16 million in the current quarter and prior year quarter, respectively. The effective tax rates include recurring-type discrete tax benefits associated with employee share-based payments of $164 million and $128 million in the current year period and prior year period, respectively.

The effective tax rate reflects our current assumptions, estimates and interpretations related to the 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 a~~one-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 income tax 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 Form~~10-K).~~examinations.

U.S. Bank Subsidiaries

Our U.S. bank subsidiaries, Morgan Stanley Bank N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA”) (collectively, “U.S. Bank Subsidiaries”) accept deposit accounts, provide loans to a variety of customers, from large corporate and institutional clients to high net worth individuals, and invest in securities. The lending activities in the Institutional Securities business segment primarily include loans and lending commitments to corporate clients. The lending activities in the Wealth Management business segment primarily ~~include:~~include securities-based lending, which allows clients to borrow money against the value of qualifying ~~securities;~~securities, and residential real estate loans.

We expect our lending activities to continue to grow through further market penetration of ~~the~~our client base. For a further discussion of our credit risks, see “Quantitative and Qualitative Disclosures about ~~Market~~ Risk—~~Risk Management—~~Credit Risk.” For a further discussion about loans and lending commitments, see Notes 7 and 11 to the financial statements.

U.S. Bank Subsidiaries’ Supplemental Financial Information¹


$ in billions	At June 30, 2018		At December 31, 2017			At March 31, 2019		At December 31, 2018
Assets	$	200.5	$	185.3		$	210.3	$	216.9
Investment securities portfolio:
Investment securities—AFS		41.3		42.0			44.5		45.5
Investment securities—HTM		18.8		17.5			27.8		23.7
Total investment securities	$	60.1	$	59.5		$	72.3	$	69.2
Deposits²	$	172.6	$	159.1		$	179.1	$	187.1
Wealth Management
Securities-based lending and other loans³	$	43.6	$	41.2
Residential real estate loans		26.4		26.7

Wealth Management Loans					Wealth Management Loans
Securities-based lending and other³						$	43.5	$	44.7
Residential real estate							28.0		27.5
Total	$	70.0	$	67.9		$	71.5	$	72.2
Institutional Securities
Corporate loans	$	26.7	$	24.2
Wholesale real estate loans		14.5		12.2

Institutional Securities Loans⁴					Institutional Securities Loans⁴
Corporate⁵:
Corporate relationship and event-driven lending						$	7.4	$	7.4
Secured lending facilities							19.3		17.5
Securities-based lending and other							5.6		6.0
Commercial and residential real estate							11.8		10.5
Total	$	41.2	$	36.4		$	44.1	$	41.4

1.	Amounts exclude transactions ~~with~~between the bank subsidiaries, as well as deposits from the Parent Company and ~~between the bank subsidiaries.~~affiliates.

2.	For further information on deposits, see “Liquidity and Capital Resources—Funding Management—Unsecured Financing” herein.

3.	Other loans primarily include tailored lending.

4.
~~June 2018 Form 10-Q~~		18		Prior periods have been conformed to the current presentation.

5.
~~Management’s Discussion and Analysis~~		For a further discussion of Corporate loans in the Institutional Securities business segment, see “Credit Risk—Institutional Securities Corporate Loans” herein.

Accounting Development Updates

The Financial Accounting Standards Board has issued certain accounting updates that apply to 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 financial statements.

The following accounting ~~updates are~~update is currently being evaluated to determine the potential impact of adoption:

•

~~Leases.~~ This accounting update requires lessees to recognize in the balance sheet all leases with terms exceeding one year, which results in the recognition of a right of use asset and corresponding lease liability, including for those leases that we currently classify as operating leases. The accounting for leases where we are the lessor is largely unchanged.

The right of use asset and lease liability will initially be measured using the present value of the remaining rental payments. This change to the accounting for leases where we are lessee requires modifications to our lease accounting systems and determining the present value of the remaining rental payments. Key aspects of the latter include concluding upon the discount rate and determining whether to include~~non-lease~~ components in rental payments. Currently, we plan to adopt this accounting update as of the effective date, January 1, 2019. Based upon our current population of leases, we expect the right of use asset and corresponding lease liability to be less than 1% of our total assets.

•

Financial Instruments–Credit Losses. This accounting update impacts the impairment model for certain financial assets measured at amortized cost by requiring a CECL methodology to estimate expected credit losses over the entire life of the financial asset, recorded at inception or purchase. CECL will replace the loss model currently applicable to loans held for investment, HTM securities and other receivables carried at amortized ~~cost.~~cost, such as employee loans.

The update also eliminates the concept of other-than-temporary impairment for AFS securities. Impairments on AFS securities will be required to be recognized in earnings through an allowance, when the fair value is less than amortized cost and a credit loss exists or the securities are expected to be sold before recovery of amortized cost.

~~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~~

March 2019 Form 10-Q

~~where the CECL models will be applied. This update is effective as of January 1, 2020 with early adoption permitted as of January 1, 2019.~~

LOGO

Management’s Discussion and Analysis

The update also eliminates the concept of other-than-temporary impairment for AFS securities. Impairments on AFS securities will be required to be recognized in earnings through an allowance when the fair value is less than amortized cost and a credit loss exists or the securities are expected to be sold before recovery of amortized cost.

For certain portfolios, we have determined that there are no expected credit losses, for example based on collateral arrangements for lending and financing transactions such as for Securities borrowed, Securities purchased under agreements to resell and certain other portfolios. Also, we have a zero loss expectation for certain financial assets based on the credit quality of the borrower or issuer such as U.S. government and agency securities.

We expect the following portfolios to be primarily impacted: employee loans, commercial real estate, corporate and residential real estate. The models we expect to use for these portfolios in the future are in the process of being tested. Based on preliminary analyses and estimates, we do not expect the increase in the allowance for credit losses resulting from the adoption of this standard will be significant to our financial statements. The ultimate impact will depend upon macroeconomic conditions, forecasts and our portfolios at the adoption date. This update is effective as of January 1, 2020.

Critical Accounting Policies

Our financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions (see Note 1 to the financial statements). We believe that of our significant accounting policies (see Note 2 to the financial statements in the ~~2017~~2018 Form10-K and Note 2 to the 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 the ~~2017~~2018 Form10-K.

Liquidity and Capital Resources

Senior management, with oversight by the ~~Asset and~~ Asset/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~~Our Treasury department, Firm Risk Committee, ~~Asset and~~ Asset/Liability Management Committee, and other committees and control groups assist in evaluating, monitoring and controlling the impact that our business activities have on our balance sheet, liquidity and capital structure. Liquidity and capital matters are reported regularly to the Board and the Risk Committee of the Board.

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 orand 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.

Total Assets by Business Segment


	At March 31, 2019
$ in millions		IS		WM		IM		Total
Assets
Cash and cash equivalents¹	$	66,685	$	13,952	$	45	$	80,682
Trading assets at fair value		262,249		52		2,517		264,818
Investment securities		26,619		71,325		—		97,944
Securities purchased under agreements to resell		87,061		9,509		—		96,570
Securities borrowed		138,710		181		—		138,891
Customer and other receivables		36,314		15,732		621		52,667
Loans, net of allowance²		44,742		71,450		5		116,197
Other assets³		13,390		12,696		2,109		28,195
Total assets	$	675,770	$	194,897	$	5,297	$	875,964


~~Management’s Discussion and Analysis~~

LOGO

Management’s Discussion and Analysis

~~Total Assets by Business Segment~~


	At June 30, 2018								At December 31, 2018
$ in millions	IS		WM		IM		Total			IS		WM		IM		Total
Assets
Cash and cash equivalents¹	$	66,624	$	14,891	$	74	$	81,589	$	69,526	$	17,621	$	49	$	87,196
Trading assets at fair value		262,743		78		3,617		266,438		263,870		60		2,369		266,299
Investment securities		22,204		59,744		—		81,948		23,273		68,559		—		91,832
Securities purchased under agreements to resell		79,509		14,419		—		93,928		80,660		17,862		—		98,522
Securities borrowed		153,062		186		—		153,248		116,207		106		—		116,313
Customer and other receivables		43,664		17,467		583		61,714		35,777		16,865		656		53,298
Loans, net of allowance²		42,071		70,037		5		112,113		43,380		72,194		5		115,579
Other assets³		14,011		9,227		1,659		24,897		13,734		9,125		1,633		24,492
Total assets	$	683,888	$	186,049	$	5,938	$	875,875	$	646,427	$	202,392	$	4,712	$	853,531

	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

IS—Institutional Securities

WM—Wealth Management

IM—Investment Management

1.	Cash and cash equivalents includes Cash and due from banks, Interest bearing deposits with banks and Restricted cash.

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 Goodwill, Intangible assets, premises, equipment, software, other investments, ROU assets related to leases and deferred tax assets.

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 ~~$875.9~~$876 billion at ~~June 30, 2018~~March 31, 2019 from ~~$851.7~~$854 billion at December 31, ~~2017,~~2018, primarily ~~driven by increases~~due to ~~support client activity in~~higher Securities borrowed and Securities purchased under agreements to resell in the Institutional Securities business segment as a result of higherperiod-end client balances and ~~Loans across all segments.~~ Trading assets within the Institutional Securities business segment declined due to reductions in Equities inventory to support increased demand and changes in client positioning. The decrease in Trading assets resulted in greater liquidity, as reflectedliabilities. These increases were partially offset by ~~increases inGLR-eligible~~lower Securities purchased under agreements to resell ~~Investment securities~~within the Wealth Management business segment as a result of lower Deposits.

Liquidity Risk Management Framework

The core components of our Liquidity Risk Management Framework are the Required Liquidity Framework, Liquidity Stress Tests and ~~Cash~~the GLR, which support our target liquidity profile. For a further discussion about the Firm’s Required Liquidity Framework and ~~cash equivalents.~~Liquidity Stress Tests, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Risk Management Framework” in the 2018 Form10-K.

At March 31, 2019 and December 31, 2018, we maintained sufficient liquidity to meet current and contingent funding obligations as modeled in our Liquidity Stress Tests.

Global Liquidity Reserve

We maintain sufficient liquidity reserves to cover daily funding needs and to meet strategic liquidity targets sized by

the Required Liquidity Framework and Liquidity Stress Tests. For a further ~~information regarding~~discussion of our GLR, see ~~“Global~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Risk Management Framework—Global Liquidity Reserve” ~~herein.~~in the 2018 Form10-K.

GLR by Type of Investment


$ in millions	At March 31, 2019		At December 31, 2018
Cash deposits with banks¹	$	11,457	$	10,441
Cash deposits with central banks¹		34,170		36,109
Unencumbered highly liquid securities:
U.S. government obligations		105,425		119,138
U.S. agency and agency mortgage-backed securities		42,228		41,473
Non-U.S. sovereign obligations²		36,341		39,869
Other investment grade securities		3,527		2,705
Total	$	233,148	$	249,735

1.	Included in Cash and due from banks and Interest bearing deposits with banks in the balance sheets.

2.	Primarily composed of unencumbered Japanese, U.K., Brazilian and French government obligations.

GLR Managed by Bank andNon-Bank Legal Entities


$ in millions	At March 31, 2019		At December 31, 2018		Average Daily Balance Three Months Ended March 31, 2019
Bank legal entities
Domestic	$	80,296	$	88,809	$	80,670
Foreign		5,492		4,896		4,672
Total Bank legal entities		85,788		93,705		85,342
Non-Bank legal entities
Domestic:
Parent Company		52,086		64,262		62,283
Non-Parent Company		40,807		40,936		39,980
Total Domestic		92,893		105,198		102,263
Foreign		54,467		50,832		54,820
TotalNon-Bank legal entities		147,360		156,030		157,083
Total	$	233,148	$	249,735	$	242,425

Regulatory Liquidity Framework

Liquidity Coverage Ratio

We and our U.S. Bank Subsidiaries are subject to LCR requirements, including a requirement to calculate each entity’s LCR on each business day. The requirements are designed to ensure that banking organizations have sufficient HQLA to cover net cash outflows arising from significant stress over 30 calendar days, thus promoting the short-term resilience of the liquidity risk profile of banking organizations.


		15		March 2019 Form 10-Q

LOGO

Management’s Discussion and Analysis

The regulatory definition of HQLA is substantially the same as our GLR. GLR includes cash placed at institutions other than central banks that is considered an inflow for LCR purposes. HQLA includes a portion of cash placed at central banks, certain unencumbered investment grade corporate bonds and publicly traded common equities, which do not meet the definition of our GLR.

Based on our daily calculations, we and our U.S. Bank Subsidiaries are compliant with the minimum required LCR of 100%.

HQLA by Type of Asset and LCR


	Average Daily Balance Three Months Ended
$ in millions	March 31, 2019		December 31, 2018
HQLA
Cash deposits with central banks	$	37,070	$	44,225
Securities¹		155,713		150,792
Total	$	192,783	$	195,017
LCR		150%		145%

1.	Primarily includes U.S. Treasuries, U.S. agency mortgage-backed securities, sovereign bonds and investment grade corporate bonds.

The increase in the LCR in the current quarter is due to a reduction in net outflows (i.e., the denominator of the ratio) primarily driven by higher cash inflows from Securities borrowed and Securities purchased under agreements to resell, and due to certainsecurities-for-securities transactions.

Net Stable Funding Ratio

The Basel Committee on Banking Supervision (“Basel Commit-tee”) has previously finalized the NSFR framework. In May 2016, the U.S. banking agencies issued a proposal to implement the NSFR in the U.S. however, a final rule has not yet been issued in the U.S. 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 the 2018 Form 10-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 include our equity capital, borrowings, securities sold under agreements to repurchase, 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 Re-sources—Funding Management—Secured Financing” in the 2018 Form 10-K.

~~Collateralized Financing Transactions~~HQLA by Type of Asset and LCR

$ in millions    At
June 30,
2018    At
December 31,
2017
Securities purchased under agreements to resell and Securities borrowed
   $           247,176    $           208,268
Securities sold under agreements to repurchase and Securities loaned
   $ 63,370    $ 70,016
Securities received as collateral¹
   $ 8,209    $ 13,749

Average Daily Balance
Three Months Ended

$ in millions
June 30,
2018
   December 31,
2017
Securities purchased under agreements to resell and Securities borrowed
   $ 227,527    $ 214,343
Securities sold under agreements to repurchase and Securities loaned
   $ 64,404    $ 66,879


	Average Daily Balance Three Months Ended
$ in millions	March 31, 2019		December 31, 2018
HQLA
Cash deposits with central banks	$	37,070	$	44,225
Securities¹		155,713		150,792
Total	$	192,783	$	195,017
LCR		150%		145%

1.	~~Included in Trading assets in the balance sheets.~~Primarily includes U.S. Treasuries, U.S. agency mortgage-backed securities, sovereign bonds and investment grade corporate bonds.

~~See Note 2 to the financial statements~~The increase in the ~~2017 Form10-K~~LCR in the current quarter is due to a reduction in net outflows (i.e., the denominator of the ratio) primarily driven by higher cash inflows from Securities borrowed and ~~Note 6~~Securities purchased under agreements to ~~the financial statements for more details on collateralized financing~~resell, and due to certainsecurities-for-securities transactions.

Net Stable Funding Ratio

The Basel Committee on Banking Supervision (“Basel Commit-tee”) has previously finalized the NSFR framework. In ~~addition~~May 2016, the U.S. banking agencies issued a proposal to implement the ~~collateralized financing transactions shown~~NSFR in the previous table, we also engage in financing transactions collateralized by customer-owned securities, which are segregated in accordance with regulatory requirements. Receivables under these financing transactions, primarily margin loans, are included in Customer and other receivablesU.S. however, a final rule has not yet been issued in the ~~balance sheets, and payables under these financing transactions, primarily to prime brokerage customers, are included in Customer and other payables in~~U.S. For an additional discussion of the balance sheets. 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 GLR, which support our target liquidity profile. For further discussion about the Firm’s Required Liquidity Framework and Liquidity Stress Tests,NSFR, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Liquidity ~~Risk Management Framework”~~Framework—Net Stable Funding Ratio” in the ~~2017~~2018 Form10-K.

Funding Management


~~June 2018 Form 10-Q~~		20


~~Management’s Discussion and Analysis~~

~~At June 30, 2018 and December 31, 2017, we maintained sufficient liquidity to meet current and contingent funding obligations as modeled in our Liquidity Stress Tests.~~

~~Global Liquidity Reserve~~Secured Financing

~~We maintain sufficient global liquidity reserves pursuant to our Required Liquidity Framework.~~ For ~~further~~a discussion of our ~~GLR,~~secured financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital ~~Resources—Liquidity Risk Management Framework—Global Liquidity Reserve”~~Re-sources—Funding Management—Secured Financing” in the ~~2017~~2018 Form10-K.

~~GLR by Type of Investment~~

$ in millions    At
June 30,
2018    At
December 31,
2017
Cash deposits with banks¹
   $ 10,345    $ 7,167
Cash deposits with central banks¹
   33,948    33,791
Unencumbered highly liquid securities:

U.S. government obligations
   88,979    73,422
U.S. agency and agency mortgage-backed securities
   59,143    55,750
Non-U.S. sovereign obligations²
   31,157    19,424
Other investment grade securities
   2,750    3,106
Total
   $         226,322    $         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 Japanese, U.K., German, Brazilian and French government obligations.~~

~~GLR Managed by Bank andNon-Bank~~ ~~Legal Entities~~

At
June 30,
2018

At
December 31,
2017
Average Daily
Balance
Three Months Ended
$ in millions June 30, 2018
Bank legal entities

Domestic
$ 76,667 $ 70,364 $ 70,962
Foreign
4,365 4,756 4,144
Total Bank legal entities
81,032 75,120 75,106
Non-Bank legal entities

Domestic:

Parent Company
63,401 41,642 55,887
Non-Parent Company
31,652 35,264 32,307
Total Domestic
95,053 76,906 88,194
Foreign
50,237 40,634 50,650
TotalNon-Bank legal entities
145,290 117,540 138,844
Total
$ 226,322 $ 192,660 $ 213,950

~~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 requirements are designed to ensure that banking organizations have sufficient HQLA to cover net cash outflows arising from significant stress over 30 calendar days, thus promoting the short-term resilience of the liquidity risk profile of banking organizations. Based on our daily calculations, we and our U.S. Bank Subsidiaries are compliant with the minimum required LCR of 100%.

The Firm’s calculations are based on our current understanding of the LCR and other factors, which may be subject to change as we receive additional clarification and implementation guidance from regulators relating to the LCR, and as the interpretation of the LCR evolves over time.

HQLA by Type of Asset and LCR


	Average Daily Balance Three Months Ended				Average Daily Balance Three Months Ended
$ in millions	June 30, 2018		March 31, 2018		March 31, 2019		December 31, 2018
HQLA
Cash deposits with central banks	$	38,456	$	33,350	$	37,070	$	44,225
Securities¹		128,268		125,015		155,713		150,792
Total	$	166,724	$	158,365	$	192,783	$	195,017
LCR		128%		121%		150%		145%

1.	Primarily includes U.S. ~~Treasuries;~~Treasuries, U.S. agency mortgage-backed ~~securities;~~securities, sovereign ~~bonds;~~bonds and investment grade corporate ~~bonds; and publicly traded common equities.~~bonds.

The increase in the LCR in the current quarter is due to ~~increased HQLA resulting~~a reduction in net outflows (i.e., the denominator of the ratio) primarily driven by higher cash inflows from ~~changes in the composition of assets within the Institutional~~ Securities ~~business segment.~~

The regulatory definition of HQLA is substantially the same as our GLR. GLR includes cash placed at institutions other than central banks that is considered an inflow for LCR purposes. HQLA includes a portion of cash placed at central banks,borrowed and Securities purchased under agreements to resell, and due to certain ~~unencumbered investment grade corporate bonds and publicly traded common equities, which do not meet the definition of our GLR.~~securities-for-securities transactions.

Net Stable Funding Ratio

The ~~objective of the 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.~~


		21		~~June 2018 Form 10-Q~~


~~Management’s Discussion and Analysis~~

~~The~~ Basel Committee on Banking Supervision (“Basel ~~Committee”~~Commit-tee”) has previously finalized the NSFR framework. In May 2016, the U.S. banking agencies issued a proposal to implement the NSFR in the U.S., which would apply to us and our U.S. Bank Subsidiaries. Our preliminary estimates, based on the current proposal, indicate that actions will be necessary to meet the requirement, which we would expect to 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 however, a final rule ~~to differ materially from estimates.~~has not yet been issued in the U.S. 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 the ~~2017~~2018 Form 10-K.

Funding Management

We fund our balance sheet on a global basis through diverse sources. These sources ~~may~~ include our equity capital, borrowings, securities sold under agreements to repurchase, 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—~~Re-sources—Funding Management—Secured Financing” in the ~~2017~~2018 Form10-K.

~~At June 30,~~Collateralized Financing Transactions


$ in millions	At March 31, 2019		At December 31, 2018
Securities purchased under agreements to resell and Securities borrowed	$	235,461	$	214,835
Securities sold under agreements to repurchase and Securities loaned	$	60,456	$	61,667
Securities received as collateral¹	$	5,426	$	7,668


	Average Daily Balance Three Months Ended
$ in millions	March 31, 2019		December 31, 2018
Securities purchased under agreements to resell and Securities borrowed		$ 219,062		$ 213,974
Securities sold under agreements to repurchase and Securities loaned		$ 58,965		$ 57,677

1.	Securities received as collateral are included in Trading assets in the balance sheets.

See Note 2 to the financial statements in the 2018 Form10-Kand ~~December 31, 2017,~~Note 6 to the ~~weighted average maturity of~~financial statements for more details on collateralized financing transactions.

In addition to the collateralized financing transactions shown in the previous table, we engage in financing transactions collateralized by customer-owned securities, which are segregated in accordance with regulatory requirements. Receivables under these financing transactions, primarily margin loans, are included in Customer and other receivables in the balance sheets, and payables under these financing transactions, primarily to prime brokerage customers, are included in Customer and other payables in the balance sheets. Our risk exposure on these transactions is mitigated by collateral maintenance policies that limit our ~~secured financing of less liquid assets was greater than 120 days.~~credit exposure to customers and liquidity reserves held against this risk exposure.

Unsecured Financing

For a discussion of our unsecured financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Funding Management—Unsecured Financing” in the ~~2017~~2018 Form10-K.


March 2019 Form 10-Q		16

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Management’s Discussion and Analysis

Deposits


$ in millions	At June 30, 2018		At December 31, 2017		At March 31, 2019		At December 31, 2018
Savings and demand deposits:
Brokerage sweep deposits¹	$	130,698	$	135,946		$ 127,678		$ 141,255
Savings and other		9,038		8,541		15,523		13,642
Total Savings and demand deposits		139,736		144,487		143,201		154,897
Time deposits²		33,066		14,949
Time deposits						36,530		32,923
Total	$	172,802	$	159,436		$ 179,731		$ 187,820

1.	~~Represents~~Amounts represent 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 Wealth Management clients and are considered to have stable,low-cost funding characteristics. Total deposits at ~~June 30, 2018 increased~~March 31, 2019 decreased compared with December 31, ~~2017, primarily~~2018, due to a decrease in Brokerage sweep deposits driven by redeployment of client cash partially offset by increases in Time deposits and Savings and other deposits ~~partially offset~~driven by ~~a reduction in Brokerage sweep deposits due to client deployment~~promotional offerings.

Borrowings by Remaining Maturity at March 31, 2019¹


$ in millions	Parent Company		Subsidiaries		Total
Original maturities of one year or less	$	—	$	1,498	$	1,498
Original maturities greater than one year
2019	$	14,187	$	3,937	$	18,124
2020		15,690		4,082		19,772
2021		21,256		3,936		25,192
2022		14,952		2,322		17,274
2023		11,624		2,642		14,266
Thereafter		75,346		19,219		94,565
Total	$	153,055	$	36,138	$	189,193
Total Borrowings	$	153,055	$	37,636	$	190,691
Maturities over next 12 months²						26,068

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 of ~~cash into investments and typical seasonal client tax payments. In the current quarter we initiated a redesign~~$190,691 million as of ~~our Brokerage sweep deposit program, resulting in approximately $10 billion in incremental deposits in higher balance accounts, which partially offset the reductions noted since~~March 31, 2019 were relatively unchanged compared with $189,662 million at December 31, ~~2017. As we make additional adjustments in the third quarter of 2018, we anticipate a similar amount of incremental deposits.~~2018.

~~Borrowings~~

We believe that accessing debt investors through multiple distribution channels helps provide consistent access to the unsecured markets. In addition, the issuance of borrowings with original maturities greater than one year allows us to reduce reliance on short-term credit sensitive instruments. Borrowings 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.

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 also engage in, and may continue to engage in, repurchases of our borrowings in the ordinary course of business.


~~June 2018 Form 10-Q~~		22


~~Management’s Discussion and Analysis~~

~~Borrowings by Remaining Maturity at June 30, 2018~~¹

$ in millions    Parent
Company    Subsidiaries    Total
Original maturities of one year or less
   $ —    $ 2,329    $ 2,329
Original maturities greater than one year


2018
   $ 3,652    $ 2,436    $ 6,088
2019
   21,497    4,095    25,592
2020
   18,781    2,400    21,181
2021
   21,294    2,984    24,278
2022
   14,969    1,874    16,843
Thereafter
   80,964    14,969    95,933
Total
   $ 161,157    $ 28,758    $ 189,915
Total Borrowings
   $       161,157    $       31,087    $       192,244
Maturities over next 12 months²

   $ 17,330

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 of $192,244 million as of June 30, 2018 remained relatively unchanged compared with $192,582 million at December 31, 2017.~~

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. When determining credit ratings, rating agencies consider company-specific 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 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 U.S. Bank Subsidiaries’ Senior Unsecured Ratings at April 30, 2019


	Parent Company ~~and MSBNA Senior Unsecured Ratings at July 31, 2018~~

	~~Parent Company~~
	Short-Term Debt	Long-Term 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~~	Positive
S&P Global Ratings	A-2	BBB+	Stable

	~~Stable~~
		17		March 2019 Form 10-Q

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Management’s Discussion and Analysis


	MSBNA
	Short-Term Debt	Long-Term Debt	Rating Outlook
Fitch Ratings, Inc.	F1	A+		Stable
Moody’s Investors Service, Inc.	P-1	A1		Stable
S&P Global Ratings	A-1	A+	Stable


	MSPBNA
	Short-Term Debt	Long-Term Debt	Rating Outlook
Moody’s Investors Service, Inc.	P-1	A1	Stable
S&P Global Ratings	A-1	A+	Stable

Incremental Collateral or Terminating Payments

In connection with certain OTC ~~trading agreements~~derivatives 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 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~~ See Note 4 to the financial statements for additional ~~collateral or termination payments~~information on OTC derivatives 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 S&P Global Ratings. The following table shows the future potential collateral amounts and termination payments that could be called or required by counterparties and clearing organizations in the event of~~one-notch~~ or~~two-notch~~ ~~downgrade scenarios, from the lowest of Moody’s ratings or S&P Global Ratings, based on the relevant contractual downgrade triggers.~~contain such contingent features.

~~Incremental Collateral or Terminating Payments upon Potential Future Rating Downgrade~~

$ in millions
At
June 30,
2018
   At
December 31,
2017
One-notch downgrade
   $                 828    $ 822
Two-notch downgrade
   596    596

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,~~other things, the magnitude of the downgrade, the rating relative to peers, the


		23		~~June 2018 Form 10-Q~~


~~Management’s Discussion and Analysis~~

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~~guidelines. In the future, we 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 Repurchases

Three Months
Ended June 30,

Six Months
Ended June 30,

$ in millions
2018 2017 2018 2017
Repurchases of common stock under our share repurchase program
$ 1,250 $ 500 $ 2,500 $ 1,250


	Three Months Ended March 31,
in millions, except for per share data	2019		2018
Repurchases	$	1,180	$	1,250
Number of shares		28		22
Average price per share	$	42.19	$	55.98

From time to time we repurchase our outstanding common stock ~~including~~ as part of our ~~share repurchase program. On April 18, 2018, we entered into~~Share Repurchase Program. A portion of common stock repurchases in the current quarter was conducted under a sales plan with Mitsubishi UFJ Financial Group, Inc. (“MUFG”), whereby MUFG ~~sells~~sold shares of the Firm’s common stock to us, as part of our ~~share repurchase program.~~Share Repurchase Program. The sales plan ~~which began to be executed in the current quarter,~~ is only intended to maintain MUFG’s ownership percentage below 24.9% in order to comply with MUFG’s passivity commitments to the Board of Governors of the Federal Reserve System (“Federal Reserve”) and ~~will have~~has no impact on the strategic alliance between MUFG and us, including ~~the~~our joint ventures in Japan. For a description of our ~~share repurchase program,~~Share Repurchase Program, see “Unregistered Sales of Equity Securities and Use of Proceeds.”

For a description of our capital plan, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans and Stress Tests.”

Common Stock Dividend Announcement


Announcement date	~~July 18, 2018~~	April 17, 2019
Amount per share		$0.30
Date to be paid	~~August~~	May 15, ~~2018~~2019
Shareholders of record as of	~~July 31, 2018~~	April 30, 2019

~~Preferred Stock~~

Preferred Stock Dividend Announcement



Announcement date	~~June~~	March 15, ~~2018~~2019
Date paid	~~July 16, 2018~~	April 15, 2019
Shareholders of record as of	~~June~~	March 29, ~~2018~~2019

For additional information on common and preferred stock, see Note 14 to the financial statements.

~~Regulatory Requirements~~Off-Balance Sheet Arrangements and Contractual Obligations

~~Regulatory Capital Framework~~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 Risk—Credit Risk—Loans and Lending Commitments.”


March 2019 Form 10-Q		18

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Management’s Discussion and Analysis

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 2018 Form10-K.

Regulatory Requirements

Regulatory Capital Framework

We are ~~a financial holding company (“FHC”)~~an FHC under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and are subject to the regulation and oversight of the Federal Reserve. The Federal Reserve establishes capital requirements for us, including “well-capitalized” standards, and evaluates our compliance with such capital requirements. The OCC establishes similar capital requirements and standards for our U.S. Bank Subsidiaries. For us to remain an FHC, we must remain well-capitalized in accordance with standards established by the Federal Reserve and our U.S. Bank Subsidiaries must remain well-capitalized in accordance with standards established by the OCC. For additional information on regulatory capital requirements for our U.S. Bank Subsidiaries, see Note 13 to the financial statements.

Regulatory capital requirements established by the Federal Reserve 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 (“Dodd-Frank Act”).

Regulatory Capital Requirements

We are required to maintain minimum risk-based ~~and~~capital, leverage-based capital ~~ratios under the regulatory capital requirements.~~and total loss-absorbing capacity (“TLAC”) ratios. For more information, ~~on our regulatory capital requirements,~~ see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Capital Requirements” in the ~~2017~~2018 Form10-K. For additional information on TLAC, see Total Loss-Absorbing Capacity herein.

~~Risk-based~~Risk-Based 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 AOCI and investments in the capital instruments of unconsolidated financial institutions.


~~June 2018 Form 10-Q~~		24


~~Management’s Discussion and Analysis~~

In addition to the minimum risk-based capital ratio requirements, ~~by 2019~~ we ~~will be~~are subject to the following ~~buffers:~~buffers in 2019:

A greater than 2.5% Common Equity Tier 1 capital conservation buffer;

The Common Equity Tier 1G-SIB capital surcharge, currently at 3%; and

Up to a 2.5% Common Equity Tier 1 CCyB, currently set by U.S. banking agencies at zero.

In ~~2017 and~~ 2018, each of ~~the~~these buffers ~~is 50% and~~was 75%~~, respectively,~~ of the fullyphased-in 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 the ~~2017~~2018 Form10-K.

Our risk-based capital ratios for purposes of determining regulatory compliance are the lower of the 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”). The credit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWA using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, our ratios for determining regulatory compliance 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.~~

~~Leverage-based~~Leverage-Based Regulatory Capital. Minimum leverage-based capital requirements include a Tier 1 leverage ratio and an SLR. ~~The SLR became effective as a capital standard on January 1, 2018.~~ We are required to maintain a Tier 1 SLR of ~~3% as well as~~5%, inclusive of an enhanced SLR capital buffer of at least 2% ~~(for a total of at least 5%)~~ in order to avoid potential limitations on capital distributions, including dividends and stock repurchases, and discretionary bonus payments to executive officers.


		19		March 2019 Form 10-Q

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Management’s Discussion and Analysis

Regulatory Capital Ratios


	At June 30, 2018
			FullyPhased-In				At March 31, 2019
$ in millions	Required Ratio		Standardized		Advanced		Required Ratio¹		Standardized		Advanced
Risk-based capital
Common Equity Tier 1 capital			$	61,352	$	61,352			$	63,344	$	63,344
Tier 1 capital				70,017		70,017				71,910		71,910
Total capital				79,681		79,425				81,570		81,284
Total RWA				387,414		369,383				378,420		366,353
Common Equity Tier 1 capital ratio		8.6%		15.8%		16.6%		10.0%		16.7%		17.3%
Tier 1 capital ratio		10.1%		18.1%		19.0%		11.5%		19.0%		19.6%
Total capital ratio		12.1%		20.6%		21.5%		13.5%		21.6%		22.2%
Leverage-based capital
Adjusted average assets¹			$	852,726		N/A
Adjusted average assets²									$	855,192		N/A
Tier 1 leverage ratio		4.0%		8.2%		N/A		4.0%		8.4%		N/A
Supplementary leverage exposure²				N/A		1,096,953
Supplementary leverage exposure³										N/A	$	1,104,264
SLR		5.0%		N/A		6.4%		5.0%		N/A		6.5%


		At December 31, 2017
				Transitional³				Pro Forma Fully Phased-In				At December 31, 2018
$ in millions		Required Ratio		Standardized		Advanced		Standardized		Advanced		Required Ratio¹		Standardized		Advanced
Risk-based capital
Common Equity
Tier 1 capital				$	61,134	$	61,134	$	60,564	$	60,564
Common Equity Tier 1 capital														$	62,086	$	62,086
Tier 1 capital					69,938		69,938		69,120		69,120				70,619		70,619
Total capital					80,275		80,046		79,470		79,240				80,052		79,814
Total RWA					369,578		350,212		377,241		358,324				367,309		363,054
Common Equity Tier 1 capital ratio			7.3%		16.5%		17.5%		16.1%		16.9%		8.6%		16.9%		17.1%
Tier 1 capital ratio			8.8%		18.9%		20.0%		18.3%		19.3%		10.1%		19.2%		19.5%
Total capital ratio			10.8%		21.7%		22.9%		21.1%		22.1%		12.1%		21.8%		22.0%
Leverage-based capital	Leverage-based capital
Adjusted average assets¹				$	842,270		N/A	$	841,756		N/A
Adjusted average assets²														$	843,074		N/A
Tier 1 leverage ratio			4.0%		8.3%		N/A		8.2%		N/A		4.0%		8.4%		N/A
Supplementary leverage exposure²					N/A		1,082,683		N/A		1,082,170
Pro forma SLR			5.0%		N/A		6.5%		N/A		6.4%
Supplementary leverage exposure³															N/A	$	1,092,672
SLR													5.0%		N/A		6.5%

1.	Required ratios are inclusive of any buffers applicable as of the date presented. For 2018, the minimum required regulatory capital ratios for risk-based capital are under the transitional rules.

Adjusted average assets represents the denominator of the Tier 1 leverage ratio and is composed of the average daily balance of consolidatedon-balance sheet assets under U.S. GAAP during the ~~current quarter~~quarters ended March 31, 2019 and ~~the quarter ended~~ December 31, ~~2017,~~2018, adjusted for disallowed goodwill, intangible assets, certain deferred tax assets, certain investments in the capital instruments of unconsolidated financial institutions and other capital deductions.

2.3.

Supplementary leverage exposure is the sum of Adjusted average assets used in the Tier 1 leverage ratio and other adjustments, primarily (i) potential future exposure for derivative exposures,gross-up for cash collateral netting where qualifying criteria are not met, and the effective notional principal amount of sold credit protection offset by qualifying purchased credit protection; (ii) the counterparty credit risk for repo-style transactions; and (iii) the credit equivalent amount foroff-balance sheet exposures.

3.	~~Regulatory compliance was determined based on capital ratios calculated under transitional rules until December 31, 2017.~~

~~At December 31, 2017, the pro forma fullyphased-in~~ ~~estimated amounts and the pro forma estimated SLR utilized 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 were~~


		25		~~June 2018 Form 10-Q~~


~~Management’s Discussion and Analysis~~

~~non-GAAP~~ ~~financial measures as the related capital rules were not yet effective at December 31, 2017. These estimates were based on our understanding of the capital rules and other factors at the time.~~

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 fully~~phased-in~~ ~~estimates as of December 31, 2017, which are equivalent to amounts calculated as of June 30, 2018.~~

~~FullyPhased-In~~ ~~Regulatory~~ Capital

$ in millions
At
June 30, 2018

At
December 31, 2017¹

Common Equity Tier 1 capital

Common stock and surplus
$ 11,824 $ 14,354
Retained earnings
61,835 57,577
AOCI
(3,070 ) (3,060 )
Regulatory adjustments and deductions:

Net goodwill
(6,682 ) (6,599 )
Net intangible assets (other than goodwill and mortgage servicing assets)
(2,329 ) (2,446 )
Other adjustments and deductions²
(226 ) 738
Total Common Equity Tier 1 capital
$ 61,352 $ 60,564
Additional Tier 1 capital

Preferred stock
$ 8,520 $ 8,520
Noncontrolling interests
501 415
Other adjustments and deductions
(1 ) (23 )
Additional Tier 1 capital
$ 9,020 $ 8,912
Deduction for investments in covered funds
(355 ) (356 )
Total Tier 1 capital
$ 70,017 $ 69,120
Standardized Tier 2 capital

Subordinated debt
$ 9,141 $ 9,839
Noncontrolling interests
118 98
Eligible allowance for credit losses
444 423
Other adjustments and deductions
(39 ) (10 )
Total Standardized Tier 2 capital
$ 9,664 $ 10,350
Total Standardized capital
$ 79,681 $ 79,470
Advanced Tier 2 capital

Subordinated debt
$ 9,141 $ 9,839
Noncontrolling interests
118 98
Eligible credit reserves
188 193
Other adjustments and deductions
(39 ) (10 )
Total Advanced Tier 2 capital
$ 9,408 $ 10,120
Total Advanced capital
$ 79,425 $ 79,240

~~FullyPhased-In~~ ~~Regulatory Capital Rollforward~~

$ in millions Six Months Ended
June 30, 2018
Common Equity Tier 1 capital

Common Equity Tier 1 capital at December 31, 2017¹
$ 60,564
Change related to the following items:

Value of shareholders’ common equity
1,718
Net goodwill
(83 )
Net intangible assets (other than goodwill and mortgage servicing assets)
117
Other adjustments and deductions²
(964 )
Common Equity Tier 1 capital at June 30, 2018
$ 61,352
Additional Tier 1 capital

Additional Tier 1 capital at December 31, 2017¹
$ 8,912
Change related to the following items:

Noncontrolling interests
86
Other adjustments and deductions
22
Additional Tier 1 capital at June 30, 2018
9,020
Deduction for investments in covered funds at December 31, 2017¹
(356 )
Change in deduction for investments in covered funds
1
Deduction for investments in covered funds at June 30, 2018
(355 )
Tier 1 capital at June 30, 2018
$ 70,017
Standardized Tier 2 capital

Tier 2 capital at December 31, 2017¹
$ 10,350
Change related to the following items:

Eligible allowance for credit losses
21
Other changes, adjustments and deductions³
(707 )
Standardized Tier 2 capital at June 30, 2018
$ 9,664
Total Standardized capital at June 30, 2018
$ 79,681
Advanced Tier 2 capital

Tier 2 capital at December 31, 2017¹
$ 10,120
Change related to the following items:

Eligible credit reserves
(5 )
Other changes, adjustments and deductions³
(707 )
Advanced Tier 2 capital at June 30, 2018
$ 9,408
Total Advanced capital at June 30, 2018
$ 79,425


$ in millions	At March 31, 2019			At December 31, 2018			Change
Common Equity Tier 1 capital
Common stock and surplus	$	8,616		$	9,843		$	(1,227	)
Retained earnings		66,061			64,175			1,886
AOCI		(2,473	)		(2,292	)		(181	)
Regulatory adjustments and deductions:
Net goodwill		(6,655	)		(6,661	)		6
Net intangible assets (other than goodwill and mortgage servicing assets)		(2,084	)		(2,158	)		74
Other adjustments and deductions¹		(121	)		(821	)		700
Total Common Equity Tier 1 capital	$	63,344		$	62,086		$	1,258
Additional Tier 1 capital
Preferred stock	$	8,520		$	8,520		$	—
Noncontrolling interests		475			454			21
Additional Tier 1 capital	$	8,995		$	8,974		$	21
Deduction for investments in covered funds		(429	)		(441	)		12
Total Tier 1 capital	$	71,910		$	70,619		$	1,291
Standardized Tier 2 capital
Subordinated debt	$	9,087		$	8,923		$	164
Noncontrolling interests		112			107			5
Eligible allowance for credit losses		470			440			30
Other adjustments and deductions		(9	)		(37	)		28
Total Standardized Tier 2 capital	$	9,660		$	9,433		$	227
Total Standardized capital	$	81,570		$	80,052		$	1,518
Advanced Tier 2 capital
Subordinated debt	$	9,087		$	8,923		$	164
Noncontrolling interests		112			107			5
Eligible credit reserves		184			202			(18	)
Other adjustments and deductions		(9	)		(37	)		28
Total Advanced Tier 2 capital	$	9,374		$	9,195		$	179
Total Advanced capital	$	81,284		$	79,814		$	1,470

1.	~~The pro forma fullyphased-in~~ ~~estimates as of December 31, 2017 arenon-GAAP~~ ~~financial measures as the related capital rules were not yet effective at December 31, 2017.~~

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 other netafter-taxadjustments 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.~~


~~June 2018~~March 2019 Form 10-Q		2620


~~Management’s Discussion and Analysis~~

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Management’s Discussion and Analysis

~~FullyPhased-In~~RWA Rollforward

   Six Months Ended
June 30, 2018¹
$ in millions    Standardized    Advanced
Credit risk RWA

Balance at December 31, 2017²
   $ 301,946    $ 170,754
Change related to the following items:

Derivatives
   (1,584 )    2,153
Securities financing transactions
   2,558    1,120
Securitizations
   (599 )    (2,103 )
Investment securities
   (435 )    384
Commitments, guarantees and loans
   16,870    19,132
Cash
   783    420
Equity investments
   1,824    1,933
Other credit risk³
   685    901
Total change in credit risk RWA
   $ 20,102    $ 23,940
Balance at June 30, 2018
   $ 322,048    $ 194,694
Market risk RWA

Balance at December 31, 2017²
   $ 75,295    $ 74,907
Change related to the following items:

Regulatory VaR
   435    435
Regulatory stressed VaR
   (2,634 )    (2,634 )
Incremental risk charge
   1,986    1,986
Comprehensive risk measure
   (2,035 )    (1,752 )
Specific risk:

Non-securitizations
   (3,018 )    (3,018 )
Securitizations
   (4,663 )    (4,663 )
Total change in market risk RWA
   $ (9,929 )    $ (9,646 )
Balance at June 30, 2018
   $ 65,366    $ 65,261
Operational risk RWA

Balance at December 31, 2017²
   $ N/A    $ 112,663
Change in operational risk RWA
   N/A    (3,235 )
Balance at June 30, 2018
   $ N/A    $ 109,428
Total RWA
   $ 387,414    $     369,383

~~Regulatory~~


	At March 31, 2019¹
$ in millions	Standardized				Advanced
Credit risk RWA
Balance at December 31, 2018	$	305,531			$	190,595
Change related to the following items:
Derivatives		2,095				7,246
Securities financing transactions		8,269				2,353
Securitizations		358				402
Investment securities		1,503				2,616
Commitments, guarantees and loans		2,067				1,648
Cash		(610	)			(361	)
Equity investments		369				390
Other credit risk²		4,105				4,263
Total change in credit risk RWA	$	18,156			$	18,557
Balance at March 31, 2019	$	323,687			$	209,152
Market risk RWA
Balance at December 31, 2018	$	61,778			$	61,857
Change related to the following items:
Regulatory VaR		(610	)			(610	)
Regulatory stressed VaR		(2,934	)			(2,934	)
Incremental risk charge		(4,980	)			(4,980	)
Comprehensive risk measure		96				55
Specific risk:
Non-securitizations		1,141				1,141
Securitizations		242				242
Total change in market risk RWA	$	(7,045	)		$	(7,086	)
Balance at March 31, 2019	$	54,733		��	$	54,771
Operational risk RWA
Balance at December 31, 2018		N/A			$	110,602
Change in operational risk RWA		N/A				(8,172	)
Balance at March 31, 2019		N/A			$	102,430
Total RWA	$	378,420			$	366,353

Regulatory

VaR—VaR for regulatory capital requirements

1.	The RWA for each category ~~in the table~~ reflects bothon- andoff-balance sheet exposures, where appropriate.

2.	~~The pro forma fullyphased-in~~ ~~estimates as of December 31, 2017 arenon-GAAP~~ ~~financial measures as the related capital rules were not yet effective at December 31, 2017.~~

3.	Amount reflects assets not in a defined category,non-material portfolios of exposures and unsettled transactions, as applicable.

Credit risk RWA increased in the current ~~year period~~quarter under the Standardized and Advanced Approaches primarily due to increased exposures in ~~corporate lending within~~Securities financing transactions and Derivatives, and an increase in Other credit risk mainly driven by the ~~Institutional Securities business segment.~~Firm’s adoption of theLeases accounting update on January 1, 2019. Under the Advanced Approach, the increased derivatives exposure also led to increased RWA related to CVA.

Market risk RWA decreased in the current ~~year period~~quarter under the Standardized and Advanced Approaches primarily due to ~~decreases~~a decrease in ~~both securitization andnon-securitization~~ ~~standardized specific~~the Incremental risk ~~charges~~charge driven by reduced exposures and improved hedging in ~~residential mortgage-backed securities and equity derivatives, respectively.~~credit products.

The decrease in operational risk RWA under the Advanced Approach in the current ~~year period~~quarter reflects a continued reduction in the ~~frequency and~~ magnitude of internal losses ~~related to transactional execution and litigation~~ utilized in the operational risk capital ~~model.~~model related to litigation.

Total Loss-Absorbing Capacity ~~Long-Term Debt and Clean Holding Company Requirements~~

~~On December 15, 2016, the~~. The Federal Reserve ~~adopted a final rule fortop-tier~~ ~~BHCs of U.S.G-SIB~~ ~~(“covered BHC”), including the Parent Company, that establishes~~has established external TLAC, long-term debt (“LTD”) and clean holding company ~~requirements. The final rule contains~~requirements fortop-tier BHCs of U.S.G-SIBs (“covered BHCs”), including the Parent Company. These requirements include 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~~A covered BHC is required to ~~be in compliance with all requirements~~maintain minimum levels 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~~external TLAC ~~leverage-based requirements,~~and eligible LTD, as well as certain ~~other technical changes~~TLAC buffer requirements. Failure to maintain the TLAC ~~rule. For a further discussion of the enhanced SLR, see “Regulatory Developments—Proposed Modifications~~buffers would result in restrictions on capital distributions and discretionary bonus payments to ~~the Enhanced SLR~~executive officers.

Required and ~~to the SLR Applicable to Our U.S. Bank Subsidiaries” herein.~~Actual TLAC and Eligible LTD Ratios


	At March 31, 2019
$ in millions	Required Ratio¹			Actual Amount/Ratio
Total Loss-Absorbing Capacity
External TLAC²					$ 198,965
External TLAC as a % of RWA		21.5	%		52.6%
External TLAC as a % of leverage exposure		9.5	%		18.0%
Eligible LTD³					$ 120,983
Eligible LTD as a % of RWA		9.0	%		32.0%
Eligible LTD as a % of leverage exposure		4.5	%		11.0%

1.	Required ratios are inclusive of any buffers applicable as of the date presented.

2.	External TLAC consists of Common Equity Tier 1 capital and Additional Tier 1 capital (each excluding any noncontrolling minority interests), as well as eligible LTD.

3.	Consists of TLAC-eligible LTD reduced by 50% for amounts of unpaid principal due to be paid in more than one year but less than two years from March 31, 2019.

For a further discussion of TLAC and ~~LTD~~related 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~~Regulatory Capital Requirements” in the ~~2017 Form10-K.~~ For discussions about the interaction between the SPOE resolution strategy and the TLAC and LTD requirements, see “Business—Supervision and Regulation—Financial Holding Company—Resolution and Recovery Planning” and “Risk Factors—Legal, Regulatory and Compliance Risk” in the 20172018 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 BHCs, including us, which form part of the Federal Reserve’s annual CCAR framework.

We submitted our ~~2018~~2019 Capital Plan (“Capital Plan”) andcompany-run stress test results to the Federal Reserve on April 5, ~~2018. On June 21, 2018,~~2019. We expect that the Federal Reserve ~~published summary results~~will provide its response to our 2019 Capital Plan by June 30, 2019. There could be a range of potential outcomes to our Capital Plan whereby the ~~Dodd-Frank Act supervisory stress tests of each large BHC, including us.~~Federal Reserve could object to, or otherwise require us to modify, such plan. See “Risk Factors”


		2721		~~June 2018~~March 2019 Form 10-Q


~~Management’s Discussion and Analysis~~

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Management’s Discussion and Analysis

~~On June 28,~~in the 2018 ~~the~~Form10-K. The Federal Reserve ~~published~~is expected to publish summary results of the CCAR and ~~we received a conditional non-objection to our Capital Plan, where the only condition was that our capital distributions not exceed the greater~~Dodd-Frank Act supervisory stress tests of the actual distributions we made over the previous four calendar quarters or the annualized average of actual distributions over the previous eight calendar quarters. Our 2018 Capital Plan includes the repurchase of up to $4.7 billion of outstanding common stock for the period beginning July 1, 2018 througheach large BHC, including us, by June 30, ~~2019, and an increase in our quarterly common stock dividend~~2019. We are required to $0.30 per share from the current $0.25 per share, beginning with the common stock dividend announced on July 18, 2018. The total amount of expected 2018 capital distributions is consistent with the $6.8 billion of actual dividends and gross share repurchases included in our 2017 Capital Plan. 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 21, 2018 on our Investor Relations website.~~tests. In addition, we must submit the results ofour ~~mid-cyclecompany-run~~mid-cycle company-run stress ~~stress~~ test to the Federal Reserve by October 5, ~~2018~~2019 and disclose a summary of the results ~~between October 5, 2018 and November 4, 2018.~~

~~The Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), which was enacted on May 24, 2018, modifies certain aspects~~within 30 days of the stress-testing process applicable to BHCs, including us. The Federal Reserve has not yet taken actions to modify its stress-testing rules applicable to us in response to EGRRCPA, which becomes effective, in relevant part, in November 2019.

~~Each of our U.S. Bank Subsidiaries is also currently required to conduct an annual stress test. MSBNA and MSPBNA submitted their 2018 annualcompany-run~~ ~~stress tests to the OCC on April 5, 2018 and published a summary of their stress test results on June 21, 2018.~~

EGRRCPA also eliminates the statutory requirement for banks with less than $250 billion of total assets, which includes both of our U.S. Bank Subsidiaries, to conduct stress-testing, effective November 2019. The OCC provided guidance in July 2018 that MSPBNA, as a national bank with less than $100 billion of total consolidated assets, would be immediately exempted from~~company-run~~ ~~stress-testing requirements.~~submission date.

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 the ~~2017~~2018 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 under the Required Capital framework, as well as each business segment’s relative contribution to our total Required Capital.

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 common equity. We generally hold Parent Company common equity for prospective regulatory requirements, organic growth, acquisitions and other capital needs.

~~The estimation and attribution of common equity to the business segments are based on the fullyphased-in~~ ~~regulatory capital 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 unless a significant business change occurs (e.g., acquisition or disposition). ~~Differences~~We define the difference between ~~available and Required Capital are attributed to Parent Company~~our total average common equity ~~during~~and the ~~year.~~sum of the average common equity amounts allocated to our business segments as Parent common equity. We generally hold Parent common equity for prospective regulatory requirements, organic growth, acquisitions and other capital needs.

The Required Capital framework is expected to evolve over time in response to changes in the business and regulatory 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	2018		2017		2018		2017		2019		2018
Institutional Securities	$	40.8	$	40.2	$	40.8	$	40.2	$	40.4	$	40.8
Wealth Management		16.8		17.2		16.8		17.2		18.2		16.8
Investment Management		2.6		2.4		2.6		2.4		2.5		2.6
Parent Company		9.7		10.1		9.2		9.7
Parent										10.5		8.8
Total	$	69.9	$	69.9	$	69.4	$	69.5	$	71.6	$	69.0

1.	Average common equity is anon-GAAP financial measure. See “SelectedNon-GAAP Financial Information” herein.

Resolution and Recovery Planning

Pursuant to the Dodd-Frank Act, we are required to periodically submit to the Federal Reserve and the FDIC 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.


~~June 2018 Form 10-Q~~		28


~~Management’s Discussion and Analysis~~

Our preferred resolution strategy ~~which is set out in our 2017 resolution plan,~~ is an SPOE strategy. ~~The Parent Company has amended and restated its support agreement with its material entities, as defined in our 2017 resolution plan. Under the secured amended and restated support agreement,~~Currently, upon the occurrence of a resolution scenario, the Parent Company would be obligated, under a support agreement with its material entities, 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 entities.

The obligations of the Parent Company under the ~~secured amended and restated~~existing 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 entities 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 ~~addition, on~~further development of our SPOE strategy, we have created a wholly owned, direct subsidiary of the Parent Company, MS Holdings LLC (the “Funding IHC”), to serve as a resolution funding vehicle. We expect that, prior to the submission of our 2019 resolution plan by July 1, ~~2018, MSBNA and MSPBNA each submitted~~2019, the Parent Company will contribute certain of its assets to the ~~FDIC a resolution plan~~Funding IHC and enter into an updated support agreement with the Funding IHC as well as certain other subsidiaries to facilitate the execution of our SPOE strategy. The updated agreement will


March 2019 Form 10-Q		22

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Management’s Discussion and Analysis

obligate the Parent Company to transfer capital and liquidity to the Funding IHC, and that ~~describes its strategy for a rapid~~the Parent Company and/or the Funding IHC will recapitalize and ~~orderly resolution~~provide liquidity to material entities in the event of ~~its~~our material financial distress or failure.

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” and “Risk Factors—Legal, Regulatory and Compliance Risk” in the ~~2017~~2018 Form10-K.

~~Regulatory Developments~~

~~Single-Counterparty Credit Limits~~Contractual Obligations

~~On June 14, 2018, the Federal Reserve finalized rules that establish single-counterparty credit limits (“SCCL”) for large banking organizations. U.S.G-SIBs,~~ ~~including us, are subject to a limit of 15% of Tier 1 capital for aggregate net credit exposures to any “major counterparty” (defined to include other U.S.G-SIBs,~~ ~~foreignG-SIBs,~~ and nonbank systemically important financial institutions supervised by the Federal Reserve). In addition, we are subject to a limit of 25% of Tier 1 capital for aggregate net credit exposures to any other unaffiliated counterparty. We must comply with the final SCCL rules beginning on January 1, 2020.

~~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 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.

On June 5, 2018, the Federal Reserve and the other federal financial regulatory agencies responsible for the Volcker Rule’s implementing regulations released an interagency proposal that would revise certain elements of the Volcker Rule regulations. The proposed changes focus on proprietary trading, including the metrics reporting requirements and certain requirements imposed in connection with permitted market making, underwriting and risk-mitigating hedging activities, including market-making in and underwriting of covered funds. The impact of this proposal on us will not be known with certainty until final rules are issued. For more information about the Volcker Rule, see “Business—Supervision and Regulation—Activities Restrictions under the Volcker Rule” in the 2017 Form~~10-K.~~

~~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 1~~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


		29		~~June 2018 Form 10-Q~~


~~Management’s Discussion and Analysis~~

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.

~~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 us. 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 1~~G-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.S. Department of Labor Conflict of Interest Rule and SEC Standards of Conduct for Investment Professionals~~

The U.S. DOL’s final Conflict of Interest Rule under ERISA went into effect on June 9, 2017. On March 15, 2018, the U.S. Court of Appeals for the Fifth Circuit vacated the Conflict of Interest Rule and accompanying exemptions in their entirety. On June 22, 2018, the Court issued the mandate that makes effective its decision to vacate the rule.

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 proposals, 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.

~~U.K. Withdrawal from the E.U.~~

~~Following the U.K. electorate vote to leave the E.U., the U.K. invoked Article 50 of the Lisbon Treaty on March 29, 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~~


~~June 2018 Form 10-Q~~		30


~~Management’s Discussion and Analysis~~

negotiating its withdrawal agreement with the E.U. For further discussion of the potential impact of the U.K.’s withdrawal from the E.U. on our operations, see “Risk Factors—International Risk” in the 2017 Form~~10-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.”~~

~~Expected Replacement of London Interbank Offered Rate~~

Central banks around the world, including the Federal Reserve, have commissioned working groups of market participants and official sector representatives with the goal 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 actions, 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 our

~~financial assets and liabilities. Such reforms and actions may also require extensive changes to the contracts that govern these LIBOR-based products, as well as our systems and processes.~~

~~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~~about our ~~business and financial results and strategies to mitigate potential exposures,~~contractual obligations, 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”~~Contractual Obligations” in the ~~2017~~2018 Form10-K.

~~Off-Balance~~ ~~Sheet Arrangements and Contractual Obligations~~Regulatory Requirements

~~Off-Balance~~ ~~Sheet Arrangements~~Regulatory Capital Framework

We ~~enter into variousoff-balance~~ ~~sheet arrangements,~~are an FHC under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and are subject to the regulation and oversight of the Federal Reserve. The Federal Reserve establishes capital requirements for us, including ~~through unconsolidated SPEs~~“well-capitalized” standards, and ~~lending-related financial instruments (~~~~e.g.~~~~, guarantees~~evaluates our compliance with such capital requirements. The OCC establishes similar capital requirements and ~~commitments), primarily~~standards for our U.S. Bank Subsidiaries. For us to remain an FHC, we must remain well-capitalized in ~~connection~~accordance with standards established by the ~~Institutional Securities~~Federal Reserve and ~~Investment Management business segments.~~

~~We utilize SPEs primarily~~our U.S. Bank Subsidiaries must remain well-capitalized in ~~connection~~accordance with ~~securitization activities.~~standards established by the OCC. For additional information on regulatory capital requirements for our ~~securitization activities,~~U.S. Bank Subsidiaries, see Note 1213 to the financial statements.

Regulatory Capital Requirements

We are required to maintain minimum risk-based capital, leverage-based capital and total loss-absorbing capacity (“TLAC”) ratios. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Capital Requirements” in the 2018 Form10-K. For additional information on ~~our commitments, obligations under~~TLAC, see Total Loss-Absorbing Capacity herein.

Risk-Based 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 ~~guarantee arrangements~~deferred tax assets, other amounts in AOCI and ~~indemnities, see Note 11~~investments in the capital instruments of unconsolidated financial institutions.

In addition to the ~~financial statements. For further information~~minimum risk-based capital ratio requirements, we are subject to the following buffers in 2019:

A greater than 2.5% Common Equity Tier 1 capital conservation buffer;

The Common Equity Tier 1G-SIB capital surcharge, currently at 3%; and

Up to a 2.5% Common Equity Tier 1 CCyB, currently set by U.S. banking agencies at zero.

In 2018, each of these buffers was 75% of the fullyphased-in 2019 requirement noted above. Failure to maintain the buffers would result in restrictions on our ~~lending commitments,~~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 ~~“Quantitative~~“Management’s Discussion and ~~Qualitative Disclosures~~Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—RegulatoryRequirements—G-SIB Capital Surcharge” in the 2018 Form10-K.

Our risk-based capital ratios for purposes of determining regulatory compliance are the lower of the 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”). The credit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWA using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At March 31, 2019 and December 31, 2018, our ratios for determining regulatory compliance are based on the Standardized Approach rules.

Leverage-Based Regulatory Capital. Minimum leverage-based capital requirements include a Tier 1 leverage ratio and an SLR. We are required to maintain a Tier 1 SLR of 5%, inclusive of an enhanced SLR capital buffer of at least 2% in order to avoid potential limitations on capital distributions, including dividends and stock repurchases, and discretionary bonus payments to executive officers.


		19		March 2019 Form 10-Q

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Management’s Discussion and Analysis

Regulatory Capital Ratios


	At March 31, 2019
$ in millions	Required Ratio¹		Standardized		Advanced
Risk-based capital
Common Equity Tier 1 capital			$	63,344	$	63,344
Tier 1 capital				71,910		71,910
Total capital				81,570		81,284
Total RWA				378,420		366,353
Common Equity Tier 1 capital ratio		10.0%		16.7%		17.3%
Tier 1 capital ratio		11.5%		19.0%		19.6%
Total capital ratio		13.5%		21.6%		22.2%
Leverage-based capital
Adjusted average assets²			$	855,192		N/A
Tier 1 leverage ratio		4.0%		8.4%		N/A
Supplementary leverage exposure³				N/A	$	1,104,264
SLR		5.0%		N/A		6.5%


	At December 31, 2018
$ in millions	Required Ratio¹		Standardized		Advanced
Risk-based capital
Common Equity Tier 1 capital			$	62,086	$	62,086
Tier 1 capital				70,619		70,619
Total capital				80,052		79,814
Total RWA				367,309		363,054
Common Equity Tier 1 capital ratio		8.6%		16.9%		17.1%
Tier 1 capital ratio		10.1%		19.2%		19.5%
Total capital ratio		12.1%		21.8%		22.0%
Leverage-based capital
Adjusted average assets²			$	843,074		N/A
Tier 1 leverage ratio		4.0%		8.4%		N/A
Supplementary leverage exposure³				N/A	$	1,092,672
SLR		5.0%		N/A		6.5%

1.	Required ratios are inclusive of any buffers applicable as of the date presented. For 2018, the minimum required regulatory capital ratios for risk-based capital are under the transitional rules.

Adjusted average assets represents the denominator of the Tier 1 leverage ratio and is composed of the average daily balance of consolidatedon-balance sheet assets under U.S. GAAP during the quarters ended March 31, 2019 and December 31, 2018, adjusted for disallowed goodwill, intangible assets, certain deferred tax assets, certain investments in the capital instruments of unconsolidated financial institutions and other capital deductions.

Regulatory Capital


$ in millions	At March 31, 2019			At December 31, 2018			Change
Common Equity Tier 1 capital
Common stock and surplus	$	8,616		$	9,843		$	(1,227	)
Retained earnings		66,061			64,175			1,886
AOCI		(2,473	)		(2,292	)		(181	)
Regulatory adjustments and deductions:
Net goodwill		(6,655	)		(6,661	)		6
Net intangible assets (other than goodwill and mortgage servicing assets)		(2,084	)		(2,158	)		74
Other adjustments and deductions¹		(121	)		(821	)		700
Total Common Equity Tier 1 capital	$	63,344		$	62,086		$	1,258
Additional Tier 1 capital
Preferred stock	$	8,520		$	8,520		$	—
Noncontrolling interests		475			454			21
Additional Tier 1 capital	$	8,995		$	8,974		$	21
Deduction for investments in covered funds		(429	)		(441	)		12
Total Tier 1 capital	$	71,910		$	70,619		$	1,291
Standardized Tier 2 capital
Subordinated debt	$	9,087		$	8,923		$	164
Noncontrolling interests		112			107			5
Eligible allowance for credit losses		470			440			30
Other adjustments and deductions		(9	)		(37	)		28
Total Standardized Tier 2 capital	$	9,660		$	9,433		$	227
Total Standardized capital	$	81,570		$	80,052		$	1,518
Advanced Tier 2 capital
Subordinated debt	$	9,087		$	8,923		$	164
Noncontrolling interests		112			107			5
Eligible credit reserves		184			202			(18	)
Other adjustments and deductions		(9	)		(37	)		28
Total Advanced Tier 2 capital	$	9,374		$	9,195		$	179
Total Advanced capital	$	81,284		$	79,814		$	1,470

1.	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 other netafter-tax adjustments related to AOCI.


March 2019 Form 10-Q		20

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Management’s Discussion and Analysis

RWA Rollforward


	At March 31, 2019¹
$ in millions	Standardized				Advanced
Credit risk RWA
Balance at December 31, 2018	$	305,531			$	190,595
Change related to the following items:
Derivatives		2,095				7,246
Securities financing transactions		8,269				2,353
Securitizations		358				402
Investment securities		1,503				2,616
Commitments, guarantees and loans		2,067				1,648
Cash		(610	)			(361	)
Equity investments		369				390
Other credit risk²		4,105				4,263
Total change in credit risk RWA	$	18,156			$	18,557
Balance at March 31, 2019	$	323,687			$	209,152
Market risk RWA
Balance at December 31, 2018	$	61,778			$	61,857
Change related to the following items:
Regulatory VaR		(610	)			(610	)
Regulatory stressed VaR		(2,934	)			(2,934	)
Incremental risk charge		(4,980	)			(4,980	)
Comprehensive risk measure		96				55
Specific risk:
Non-securitizations		1,141				1,141
Securitizations		242				242
Total change in market risk RWA	$	(7,045	)		$	(7,086	)
Balance at March 31, 2019	$	54,733		��	$	54,771
Operational risk RWA
Balance at December 31, 2018		N/A			$	110,602
Change in operational risk RWA		N/A				(8,172	)
Balance at March 31, 2019		N/A			$	102,430
Total RWA	$	378,420			$	366,353

Regulatory

VaR—VaR for regulatory capital requirements

1.	The RWA for each category reflects bothon- andoff-balance sheet exposures, where appropriate.

2.	Amount reflects assets not in a defined category,non-material portfolios of exposures and unsettled transactions, as applicable.

Credit risk RWA increased in the current quarter under the Standardized and Advanced Approaches primarily due to increased exposures in Securities financing transactions and Derivatives, and an increase in Other credit risk mainly driven by the Firm’s adoption of theLeases accounting update on January 1, 2019. Under the Advanced Approach, the increased derivatives exposure also led to increased RWA related to CVA.

Market risk RWA decreased in the current quarter under the Standardized and Advanced Approaches primarily due to a decrease in the Incremental risk charge driven by reduced exposures and improved hedging in credit products.

The decrease in operational risk RWA under the Advanced Approach in the current quarter reflects a continued reduction in the magnitude of internal losses utilized in the operational risk capital model related to litigation.

Total Loss-Absorbing Capacity. The Federal Reserve has established external TLAC, long-term debt (“LTD”) and clean holding company requirements fortop-tier BHCs of U.S.G-SIBs (“covered BHCs”), including the Parent Company. These requirements include 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. A covered BHC is required to maintain minimum levels of external TLAC and eligible LTD, as well as certain TLAC buffer requirements. Failure to maintain the TLAC buffers would result in restrictions on capital distributions and discretionary bonus payments to executive officers.

Required and Actual TLAC and Eligible LTD Ratios


	At March 31, 2019
$ in millions	Required Ratio¹			Actual Amount/Ratio
Total Loss-Absorbing Capacity
External TLAC²					$ 198,965
External TLAC as a % of RWA		21.5	%		52.6%
External TLAC as a % of leverage exposure		9.5	%		18.0%
Eligible LTD³					$ 120,983
Eligible LTD as a % of RWA		9.0	%		32.0%
Eligible LTD as a % of leverage exposure		4.5	%		11.0%

1.	Required ratios are inclusive of any buffers applicable as of the date presented.

2.	External TLAC consists of Common Equity Tier 1 capital and Additional Tier 1 capital (each excluding any noncontrolling minority interests), as well as eligible LTD.

3.	Consists of TLAC-eligible LTD reduced by 50% for amounts of unpaid principal due to be paid in more than one year but less than two years from March 31, 2019.

For a further discussion of TLAC and related requirements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Capital Requirements” in the 2018 Form10-K.

Capital Plans and Stress Tests

We submitted our 2019 Capital Plan (“Capital Plan”) andcompany-run stress test results to the Federal Reserve on April 5, 2019. We expect that the Federal Reserve will provide its response to our 2019 Capital Plan by June 30, 2019. 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”


		21		March 2019 Form 10-Q

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Management’s Discussion and Analysis

in the 2018 Form10-K. The Federal Reserve is expected to publish summary results of the CCAR and Dodd-Frank Act supervisory stress tests of each large BHC, including us, by June 30, 2019. We are required to disclose a summary of the results ofour company-run stress tests within 15 days of the date the Federal Reserve discloses the results of the supervisory stress tests. In addition, we must submit the results ofour mid-cycle company-run stress test to the Federal Reserve by October 5, 2019 and disclose a summary of the results within 30 days of the submission date.

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 under the Required Capital framework, as well as each business segment’s relative contribution to our total Required Capital.

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. 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 unless a significant business change occurs (e.g., acquisition or disposition). 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 common equity. We generally hold Parent common equity for prospective regulatory requirements, organic growth, acquisitions and other capital needs.

Average Common Equity Attribution¹


	Three Months Ended March 31,
$ in billions	2019		2018
Institutional Securities	$	40.4	$	40.8
Wealth Management		18.2		16.8
Investment Management		2.5		2.6
Parent		10.5		8.8
Total	$	71.6	$	69.0

1.	Average common equity is anon-GAAP financial measure. See “SelectedNon-GAAP Financial Information” herein.

Resolution and Recovery Planning

Our preferred resolution strategy is an SPOE strategy. Currently, upon the occurrence of a resolution scenario, the Parent Company would be obligated, under a support agreement with its material entities, 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 entities.

The obligations of the Parent Company under the existing 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 entities 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 further development of our SPOE strategy, we have created a wholly owned, direct subsidiary of the Parent Company, MS Holdings LLC (the “Funding IHC”), to serve as a resolution funding vehicle. We expect that, prior to the submission of our 2019 resolution plan by July 1, 2019, the Parent Company will contribute certain of its assets to the Funding IHC and enter into an updated support agreement with the Funding IHC as well as certain other subsidiaries to facilitate the execution of our SPOE strategy. The updated agreement will


March 2019 Form 10-Q		22

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Management’s Discussion and Analysis

obligate the Parent Company to transfer capital and liquidity to the Funding IHC, and that the Parent Company and/or the Funding IHC will recapitalize and provide liquidity to material entities in the event of our material financial distress or failure.

For more information about ~~Market Risk—Risk Management—Credit Risk—Lending Activities Included~~resolution and recovery planning requirements and our activities in ~~Loans~~these areas, including the implications of such activities in a resolution scenario, see “Business—Supervision and ~~Trading Assets.”~~Regulation—Financial Holding Company—Resolution and Recovery Planning” and “Risk Factors—Legal, Regulatory and Compliance Risk” in the 2018 Form10-K.

Contractual Obligations

Regulatory Requirements

Regulatory Capital Framework

We are an FHC under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and are subject to the regulation and oversight of the Federal Reserve. The Federal Reserve establishes capital requirements for us, including “well-capitalized” standards, and evaluates our compliance with such capital requirements. The OCC establishes similar capital requirements and standards for our U.S. Bank Subsidiaries. For us to remain an FHC, we must remain well-capitalized in accordance with standards established by the Federal Reserve and our U.S. Bank Subsidiaries must remain well-capitalized in accordance with standards established by the OCC. For additional information on regulatory capital requirements for our U.S. Bank Subsidiaries, see Note 13 to the financial statements.

Regulatory Capital Requirements

Risk-Based 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 AOCI and investments in the capital instruments of unconsolidated financial institutions.

In addition to the minimum risk-based capital ratio requirements, we are subject to the following buffers in 2019:

A greater than 2.5% Common Equity Tier 1 capital conservation buffer;

The Common Equity Tier 1G-SIB capital surcharge, currently at 3%; and

Up to a 2.5% Common Equity Tier 1 CCyB, currently set by U.S. banking agencies at zero.

In 2018, each of these buffers was 75% of the fullyphased-in 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 the 2018 Form10-K.

Our risk-based capital ratios for purposes of determining regulatory compliance are the lower of the 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”). The credit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWA using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At March 31, 2019 and December 31, 2018, our ratios for determining regulatory compliance are based on the Standardized Approach rules.


		19		March 2019 Form 10-Q

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Management’s Discussion and Analysis

Regulatory Capital Ratios


	At March 31, 2019
$ in millions	Required Ratio¹		Standardized		Advanced
Risk-based capital
Common Equity Tier 1 capital			$	63,344	$	63,344
Tier 1 capital				71,910		71,910
Total capital				81,570		81,284
Total RWA				378,420		366,353
Common Equity Tier 1 capital ratio		10.0%		16.7%		17.3%
Tier 1 capital ratio		11.5%		19.0%		19.6%
Total capital ratio		13.5%		21.6%		22.2%
Leverage-based capital
Adjusted average assets²			$	855,192		N/A
Tier 1 leverage ratio		4.0%		8.4%		N/A
Supplementary leverage exposure³				N/A	$	1,104,264
SLR		5.0%		N/A		6.5%


	At December 31, 2018
$ in millions	Required Ratio¹		Standardized		Advanced
Risk-based capital
Common Equity Tier 1 capital			$	62,086	$	62,086
Tier 1 capital				70,619		70,619
Total capital				80,052		79,814
Total RWA				367,309		363,054
Common Equity Tier 1 capital ratio		8.6%		16.9%		17.1%
Tier 1 capital ratio		10.1%		19.2%		19.5%
Total capital ratio		12.1%		21.8%		22.0%
Leverage-based capital
Adjusted average assets²			$	843,074		N/A
Tier 1 leverage ratio		4.0%		8.4%		N/A
Supplementary leverage exposure³				N/A	$	1,092,672
SLR		5.0%		N/A		6.5%

1.	Required ratios are inclusive of any buffers applicable as of the date presented. For 2018, the minimum required regulatory capital ratios for risk-based capital are under the transitional rules.

Adjusted average assets represents the denominator of the Tier 1 leverage ratio and is composed of the average daily balance of consolidatedon-balance sheet assets under U.S. GAAP during the quarters ended March 31, 2019 and December 31, 2018, adjusted for disallowed goodwill, intangible assets, certain deferred tax assets, certain investments in the capital instruments of unconsolidated financial institutions and other capital deductions.

Regulatory Capital


$ in millions	At March 31, 2019			At December 31, 2018			Change
Common Equity Tier 1 capital
Common stock and surplus	$	8,616		$	9,843		$	(1,227	)
Retained earnings		66,061			64,175			1,886
AOCI		(2,473	)		(2,292	)		(181	)
Regulatory adjustments and deductions:
Net goodwill		(6,655	)		(6,661	)		6
Net intangible assets (other than goodwill and mortgage servicing assets)		(2,084	)		(2,158	)		74
Other adjustments and deductions¹		(121	)		(821	)		700
Total Common Equity Tier 1 capital	$	63,344		$	62,086		$	1,258
Additional Tier 1 capital
Preferred stock	$	8,520		$	8,520		$	—
Noncontrolling interests		475			454			21
Additional Tier 1 capital	$	8,995		$	8,974		$	21
Deduction for investments in covered funds		(429	)		(441	)		12
Total Tier 1 capital	$	71,910		$	70,619		$	1,291
Standardized Tier 2 capital
Subordinated debt	$	9,087		$	8,923		$	164
Noncontrolling interests		112			107			5
Eligible allowance for credit losses		470			440			30
Other adjustments and deductions		(9	)		(37	)		28
Total Standardized Tier 2 capital	$	9,660		$	9,433		$	227
Total Standardized capital	$	81,570		$	80,052		$	1,518
Advanced Tier 2 capital
Subordinated debt	$	9,087		$	8,923		$	164
Noncontrolling interests		112			107			5
Eligible credit reserves		184			202			(18	)
Other adjustments and deductions		(9	)		(37	)		28
Total Advanced Tier 2 capital	$	9,374		$	9,195		$	179
Total Advanced capital	$	81,284		$	79,814		$	1,470

1.	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 other netafter-tax adjustments related to AOCI.


March 2019 Form 10-Q		20

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Management’s Discussion and Analysis

RWA Rollforward


	At March 31, 2019¹
$ in millions	Standardized				Advanced
Credit risk RWA
Balance at December 31, 2018	$	305,531			$	190,595
Change related to the following items:
Derivatives		2,095				7,246
Securities financing transactions		8,269				2,353
Securitizations		358				402
Investment securities		1,503				2,616
Commitments, guarantees and loans		2,067				1,648
Cash		(610	)			(361	)
Equity investments		369				390
Other credit risk²		4,105				4,263
Total change in credit risk RWA	$	18,156			$	18,557
Balance at March 31, 2019	$	323,687			$	209,152
Market risk RWA
Balance at December 31, 2018	$	61,778			$	61,857
Change related to the following items:
Regulatory VaR		(610	)			(610	)
Regulatory stressed VaR		(2,934	)			(2,934	)
Incremental risk charge		(4,980	)			(4,980	)
Comprehensive risk measure		96				55
Specific risk:
Non-securitizations		1,141				1,141
Securitizations		242				242
Total change in market risk RWA	$	(7,045	)		$	(7,086	)
Balance at March 31, 2019	$	54,733		��	$	54,771
Operational risk RWA
Balance at December 31, 2018		N/A			$	110,602
Change in operational risk RWA		N/A				(8,172	)
Balance at March 31, 2019		N/A			$	102,430
Total RWA	$	378,420			$	366,353

Regulatory

VaR—VaR for regulatory capital requirements

1.	The RWA for each category reflects bothon- andoff-balance sheet exposures, where appropriate.

2.	Amount reflects assets not in a defined category,non-material portfolios of exposures and unsettled transactions, as applicable.

Required and Actual TLAC and Eligible LTD Ratios


	At March 31, 2019
$ in millions	Required Ratio¹			Actual Amount/Ratio
Total Loss-Absorbing Capacity
External TLAC²					$ 198,965
External TLAC as a % of RWA		21.5	%		52.6%
External TLAC as a % of leverage exposure		9.5	%		18.0%
Eligible LTD³					$ 120,983
Eligible LTD as a % of RWA		9.0	%		32.0%
Eligible LTD as a % of leverage exposure		4.5	%		11.0%

1.	Required ratios are inclusive of any buffers applicable as of the date presented.

2.	External TLAC consists of Common Equity Tier 1 capital and Additional Tier 1 capital (each excluding any noncontrolling minority interests), as well as eligible LTD.

3.	Consists of TLAC-eligible LTD reduced by 50% for amounts of unpaid principal due to be paid in more than one year but less than two years from March 31, 2019.

Capital Plans and Stress Tests


		21		March 2019 Form 10-Q

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Management’s Discussion and Analysis

Attribution of Average Common Equity According to the Required Capital Framework

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. 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 unless a significant business change occurs (e.g., acquisition or disposition). 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 common equity. We generally hold Parent common equity for prospective regulatory requirements, organic growth, acquisitions and other capital needs.

Average Common Equity Attribution¹


	Three Months Ended March 31,
$ in billions	2019		2018
Institutional Securities	$	40.4	$	40.8
Wealth Management		18.2		16.8
Investment Management		2.5		2.6
Parent		10.5		8.8
Total	$	71.6	$	69.0

1.	Average common equity is anon-GAAP financial measure. See “SelectedNon-GAAP Financial Information” herein.

Resolution and Recovery Planning


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Management’s Discussion and Analysis

Regulatory Developments

Proposed Revisions to the Regulatory Capital Treatment for Investments in Certain Unsecured Debt Instruments Issued byG-SIBs

The Federal Reserve, the OCC and the FDIC have issued a proposed rule that would, among other things, modify the regulatory capital framework for Advanced Approach banking organizations, including us. Such firms would be required to make certain deductions from regulatory capital for their investments in certain unsecured debt instruments (including eligible LTD in the TLAC framework) issued by the Parent Company and other G-SIBs.

Proposed Revisions to Resolution Planning Requirements

The Federal Reserve and the FDIC have issued a proposed rule that would change our resolution planning obligations under the Dodd-Frank Act. The proposed rule would require us to file resolution plans once every two years and would allow us to alternate between submitting a full, detailed resolution plan and a streamlined, targeted resolution plan. The proposed rule also makes certain changes to the information required to be included in our resolution plan.

For a discussion of other regulatory developments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments” in the 2018 Form10-K.

Other Matters

U.K. Withdrawal from the E.U.

Following the U.K. electorate vote to leave the E.U., the U.K. invoked Article 50 of the Lisbon Treaty on March 29, 2017, which triggered atwo-year period during which the U.K. government negotiated a form of withdrawal agreement with the E.U. The U.K. government and the E.U. have agreed to delay the U.K.’s scheduled withdrawal from the E.U. until

October 31, 2019. However, if the U.K. does not hold elections to the European Parliament in accordance with applicable E.U. law and ratify the withdrawal agreement by the applicable deadlines, the U.K.’s withdrawal date would become June 1, 2019. Absent any further changes to this time schedule, the U.K. is expected to leave the E.U. by October 31, 2019 at the latest. Discussions are ongoing within the U.K. Parliament on the negotiated withdrawal agreement and the alternatives to it, and between the U.K. government and the E.U.

For more information on the U.K.’s withdrawal from the E.U., our related preparations and the potential impact on our operations, see “Quantitative and Qualitative Disclosures about Risk—Country Risk” herein, and see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Other Matters” and “Risk Factors—International Risk” in the 2018 Form 10-K.

Expected Replacement of London Interbank Offered Rate and Replacement or Reform of Other Interest Rates

Central banks around the world, including the Federal Reserve, have commissioned working groups of market participants and official sector representatives with the goal of finding suitable replacements for LIBOR and replacements or reforms of other interest rate benchmarks, such as EURIBOR and EONIA (collectively, the “IBORs”).

For a further discussion of the expected replacement of the IBORs and/or reform of interest rate benchmarks, and the related risks and our transition plan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments” and “Risk Factors—Legal, Regulatory and Compliance Risk,” respectively, in the 2018 Form10-K.


		3123		~~June 2018~~March 2019 Form 10-Q


~~Quantitative and Qualitative Disclosures about Market Risk~~

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Quantitative and Qualitative Disclosures about Risk

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 the ~~2017~~2018 Form10-K.

Market Risk

Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, volatilities, 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 our 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 alternative and other funds. For a further discussion of market risk, see “Quantitative and Qualitative Disclosures about ~~Market~~ Risk—~~Risk Management—~~Market Risk” in the ~~2017~~2018 Form~~Form~~ 10-K.

~~Value-at-Risk~~Trading Risks

Value-at-Risk.The statistical technique known as VaR is one of the tools we 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 Risk—Market Risk—~~Risk Management—Market Risk—Sales and~~ Trading ~~and Related Activities—VaR Methodology, Assumptions and Limitations”~~Risks—Value-at-Risk” in the ~~2017~~2018 Form10-K.

We utilize the same VaR model for risk management purposes and for regulatory capital calculations. Our regulators have approved our VaR model 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 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. 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


	Three Months Ended June 30, 2018												Three Months Ended March 31, 2019
$ in millions	Period End			Average			High			Low			Period End			Average			High²		Low²
Interest rate and credit spread	$	32		$	35		$	43		$	29		$	32		$	32		$	39	$	26
Equity price		13			14			17			12			15			16			19		12
Foreign exchange rate		11			9			12			7			15			14			16		11
Commodity price		8			9			12			7			9			10			12		9
Less: Diversification benefit^{1, 2}		(25	)		(26	)		N/	A		N/	A
Less: Diversification benefit¹														(32	)		(32	)		N/A		N/A
Primary Risk Categories	$	39		$	41		$	51		$	35		$	39		$	40		$	48	$	36
Credit Portfolio		14			11			14			9			17			16			18		14
Less: Diversification benefit^{1, 2}		(10	)		(8	)		N/	A		N/	A
Less: Diversification benefit¹														(12	)		(10	)		N/A		N/A
Total Management VaR	$	43		$	44		$	54		$	38		$	44		$	46		$	55	$	42

	Three Months Ended March 31, 2018
$ in millions	Period End			Average			High			Low
Interest rate and credit spread	$	41		$	35		$	46		$	30
Equity price		16			14			17			11
Foreign exchange rate		10			9			13			7
Commodity price		10			9			11			7
Less: Diversification benefit^{1, 2}		(27	)		(25	)		N/	A		N/	A
Primary Risk Categories	$	50		$	42		$	51		$	36
Credit Portfolio		11			10			11			9
Less: Diversification benefit^{1, 2}		(7	)		(6	)		N/	A		N/	A
Total Management VaR	$	54		$	46		$	55		$	40


	Three Months Ended December 31, 2018
$ in millions	Period End			Average			High²		Low²
Interest rate and credit spread	$	38		$	36		$	51	$	25
Equity price		14			13			18		12
Foreign exchange rate		13			13			16		11
Commodity price		13			12			18		7
Less: Diversification benefit¹		(27	)		(30	)		N/A		N/A
Primary Risk Categories	$	51		$	44		$	62	$	34
Credit Portfolio		15			13			16		11
Less: Diversification benefit¹		(9	)		(8	)		N/A		N/A
Total Management VaR	$	57		$	49		$	67	$	39

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 $44 million and $41 million, respectively,~~ decreased from the three-months ended ~~March~~December 31, 2018, primarily as a result of ~~lower market volatility~~reduced interest rate and ~~increased diversification benefit.~~


~~June 2018 Form 10-Q~~		32


~~Risk Disclosures~~

Distribution of VaR Statistics and Net ~~Revenues.~~Revenues

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.


March 2019 Form 10-Q		24

LOGO

Risk Disclosures

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. There were no days ~~in the current year period on which~~with trading losses ~~exceeded VaR.~~

~~The distribution of VaR statistics and net revenues is presented~~ in ~~the following histograms for the Total Trading populations.~~

~~Total Trading.~~~~As shown in the95%/One-Day~~ ~~Management VaR table, the average95%/one-day~~ ~~total Management VaR for the current quarter was $44 million. The following histogram presents the distribution of the daily95%/one-day~~ ~~total Management VaR for~~ the current quarter.

Daily95%/One-Day Total Management VaR for the Current Quarter¹

($ in millions)

LOGO

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.
1.
The average95%/one-day total Management VaR for the current quarter was $46 million.

Daily Net Trading Revenues for the Current Quarter

($ in millions)

LOGO

The previous histogram shows the distribution for the current quarter of daily net trading revenues. Daily net trading revenues include 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. Certain items such as fees, commissions and net

interest income are excluded from daily net trading revenues and the VaR model. Revenues required for Regulatory VaR backtesting further exclude intraday trading.

Non-Trading Risks

We believe that sensitivity analysis is an appropriate representation of ournon-trading risks. The following sensitivity analyses cover substantially all of thenon-trading risk in our portfolio.

~~Exposure Related to Our Own Credit Spread.~~

Credit Spread Risk Sensitivity¹


$ in millions	At June 30, 2018		At March 31, 2018		At March 31, 2019		At December 31, 2018
Derivatives	$	6	$	6	$	6	$	6
Funding liabilities²		32		31		37		34

1.	Amounts represent the ~~increase in value~~potential gain for each 1 bps widening of our credit spread.

2.	Relates to structured note liabilities carried at fair value.

U.S. Bank Subsidiaries’ Net Interest ~~Rate Risk Sensitivity.~~Income Sensitivity Analysis


$ in millions	At March 31, 2019			At December 31, 2018
Basis point change
+200	$	484		$	340
+100		274			182
- 100		(619	)		(428	)

The ~~following~~previous 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.~~activity.


		33		~~June 2018 Form 10-Q~~


~~Risk Disclosures~~

~~U.S. Bank Subsidiaries’ Net Interest Income Sensitivity Analysis~~

$ in millions
At
June 30, 2018

At
March 31, 2018

Basis point change

+200
   $ 531    $ 438
+100
   273    226
-100
   (489 )    (464 )

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, 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 change in sensitivity to interest rates between ~~June 30, 2018~~March 31, 2019 and ~~March~~December 31, 2018 is ~~related to overall~~primarily driven by a flatter yield curve, expectations of deposit pricing and changes in our asset-liability ~~profile and higher market rates.~~profile.


		25		March 2019 Form 10-Q

LOGO

Risk Disclosures

Investments Sensitivity, Including Related Carried Interest


	Loss from 10% Decline
$ in millions	At March 31, 2019		At December 31, 2018
Investments related to Investment Management activities	$	334	$	298
Other investments:
MUMSS		164		165
Other Firm investments		187		179

MUMSS—Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

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~~is 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.~~carried interest. The change in investments sensitivity related to Investment Management activities between December 31, 2018 and March 31, 2019 is primarily the result of higher carried interest.

~~Investments Sensitivity, Including Related Performance Fees~~

       Loss from 10% Decline
$ in millions    At
June 30,
2018    At
March 31,
2018
Investments related to Investment

Management activities
   $ 301    $ 321
Other investments:

MUMSS
   164    172
Other Firm investments
   181    187

~~MUMSS—Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.~~

Equity Market ~~Sensitivity.~~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–~~Risk—Credit Risk” in the ~~2017~~2018 Form10-K. ~~Also, see Notes 7 and 11 to the 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 balance sheets, these loans and lending commitments are carried as held for investment, which are recorded at amortized cost; as held for sale, which are recorded at the lower of cost or fair 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 balance sheets. See Notes 3, 7 and 11 to the financial statements for further information.

Loans and Lending Commitments

At June 30, 2018
$ in millions IS WM IM¹ Total
Corporate loans
$ 16,689 $ 15,688 $ 5 $ 32,382
Consumer loans
— 27,954 — 27,954
Residential real estate loans
— 26,405 — 26,405
Wholesale real estate loans
9,866 — — 9,866
Loans held for investment, gross of allowance
26,555 70,047 5 96,607
Allowance for loan losses
(202 ) (39 ) — (241 )
Loans held for investment, net of allowance
26,353 70,008 5 96,366
Corporate loans
13,366 — — 13,366
Residential real estate loans
1 29 — 30
Wholesale real estate loans
2,351 — — 2,351
Loans held for sale
15,718 29 — 15,747
Corporate loans
8,730 — 22 8,752
Residential real estate loans
1,334 — — 1,334
Wholesale real estate loans
2,703 — 1,130 3,833
Loans held at fair value
12,767 — 1,152 13,919
Total loans
54,838 70,037 1,157 126,032
Lending commitments^{2, 3}
112,833 10,706 173 123,712
Total loans and lending commitments^{2, 3}
$ 167,671 $ 80,743 $ 1,330 $ 249,744

At March 31, 2019

$ in millions

IM¹

Total

Corporate

22,283

16,136

38,424

Consumer

—

27,300

—

27,300

Residential real estate

—

28,037

—

28,037

Commercial real estate

7,764

—

7,764

Loans held for investment, gross of allowance

30,047

71,473

101,525

Allowance for loan losses

(215

)

(44

)

—

(259

)

Loans held for investment, net of allowance

29,832

71,429

101,266

Corporate

12,469

—

12,469

Residential real estate

—

Commercial real estate

2,440

—

2,440

Loans held for sale

14,910

—

14,931

Corporate

8,286

—

8,307

Residential real estate

1,282

—

1,282

Commercial real estate

1,766

—

1,766

Loans held at fair value

11,334

—

11,355

Total loans

56,076

71,450

127,552

Lending commitments²

102,174

12,147

—

114,321

Total loans and lending commitments²

158,250

83,597

241,873


~~June 2018 Form 10-Q~~		34


~~Risk Disclosures~~

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 commitments^{2, 3}
92,588 9,481 — 102,069
Total loans and lending commitments^{2, 3}
$ 139,571 $ 77,333 $ 27 $ 216,931


	At December 31, 2018
$ in millions	IS			WM			IM¹		Total
Corporate	$	20,020		$	16,884		$	5	$	36,909
Consumer		—			27,868			—		27,868
Residential real estate		—			27,466			—		27,466
Commercial real estate³		7,810			—			—		7,810
Loans held for investment, gross of allowance		27,830			72,218			5		100,053
Allowance for loan losses		(193	)		(45	)		—		(238	)
Loans held for investment, net of allowance		27,637			72,173			5		99,815
Corporate		13,886			—			—		13,886
Residential real estate		1			21			—		22
Commercial real estate³		1,856			—			—		1,856
Loans held for sale		15,743			21			—		15,764
Corporate		9,150			—			21		9,171
Residential real estate		1,153			—			—		1,153
Commercial real estate³		601			—			—		601
Loans held at fair value		10,904			—			21		10,925
Total loans		54,284			72,194			26		126,504
Lending commitments²		95,065			10,663			—		105,728
Total loans and lending commitments²	$	149,349		$	82,857		$	26	$	232,232

Investment Management business segment loans are entered into in conjunction with certain investment advisory activities. The increase in fair value loans in the current year period is a result of the consolidation of a fund managed by Mesa West Capital, LLC that primarily invests in commercial real estate loans with remaining maturities of less than 5 years.

Lending commitments represent the notional amount of legally binding obligations to provide funding to clients for lending transactions. Since commitments associated with these business activities may expire unused or may not be utilized to full capacity, they do not necessarily reflect the actual future cash funding requirements.

For syndications led by us, any lending commitments accepted by the borrower but not yet closed are net of amounts syndicated. For syndications that we participate in and do not lead, any lending commitments accepted by the borrower but not yet closed include only the amount that we expect will be allocated from the lead syndicate bank. Due to the nature of our obligations under the commitments, these amounts include certain commitments participated to third parties.

~~Total~~Beginning in 2019, loans ~~and lending commitments increased by approximately $33 billion in the current year period, primarily due~~previously referred to ~~increases in corporate loan 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.~~

~~Allowance for Loans and Lending Commitments Held for Investment~~

$ in millions    At
June 30,
2018    At
December 31,
2017
Loans
   $                 241    $ 224
Lending commitments
   202    198
Total allowance for loans and lending commitments
   $ 443    $ 422

The aggregate allowance for loans and lending commitment losses increased during the current year period, primarily due to overall portfolio changes and qualitative and environmental factors impacting the inherent allowance within the Institutional Securities business segment. See Note 7 to the financial statements for further information.

~~Status of Loans Held for Investment~~

   At June 30, 2018    At December 31, 2017
      IS        WM      IS        WM
Current
   99.6 %    99.9 %    99.5 %    99.9 %
Nonaccrual¹
   0.4 %    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.~~

~~Institutional Securities~~

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 and financing extended to equities and commodities customers and 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 commercialWholesale real estate ~~loans, loans secured by loan pools, corporate loans and secured lines of revolving credit. Credit risk with respect~~are referred 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 financial statements for information about our securitization activities. In addition, the Firm monitors collateral levels against requirements and oversees the administration of the collateral function. See Note 6 to the financial statements for additional information about our collateralized transactions.


		35		~~June 2018 Form 10-Q~~


~~Risk Disclosures~~

~~Institutional Securities Loans and Lending Commitments~~¹

At June 30, 2018
Years to Maturity
$ in millions Less than 1 1-3 3-5 Over 5 Total
Loans

AA
$ — $ 472 $ — $ 20 $ 492
A
712 2,465 1,313 412 4,902
BBB
3,465 6,811 4,690 1,257 16,223
NIG
6,996 11,124 8,824 3,526 30,470
Unrated²
140 124 133 2,354 2,751
Total loans
11,313 20,996 14,960 7,569 54,838
Lending commitments

AAA
— 165 — — 165
AA
3,293 1,037 2,950 350 7,630
A
4,243 17,434 8,165 765 30,607
BBB
2,150 16,094 17,867 728 36,839
NIG
1,691 10,865 14,057 10,928 37,541
Unrated²
1 — 21 29 51
Total lending commitments
11,378 45,595 43,060 12,800 112,833
Total exposure
$ 22,691 $ 66,591 $ 58,020 $ 20,369 $ 167,671

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 commitments
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 department.~~as Commercial real estate.

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—Market Risk” herein.

~~Institutional Securities Loans and Lending Commitments by Industry~~

$ in millions    At June 30,
2018    At
December 31,
2017
Industry

Financials
   $ 30,994    $ 22,112
Real estate
   28,729    28,426
Industrials
   15,256    11,090
Consumer discretionary
   14,252    11,555
Information technology
   13,645    11,862
Consumer Staples
   10,924    8,315
Healthcare
   10,909    9,956
Utilities
   10,187    9,592
Insurance
   9,888    4,739
Energy
   9,720    10,233
Telecommunications services
   5,767    4,172
Materials
   5,398    5,069
Other
   2,002    2,450
Total
   $         167,671    $         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 revolving 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 Hedges—Notional Amounts~~

$ in billions
At
June 30,
2018
   At
December 31,
2017
Single-name and index CDS
   $             13.5    $ 16.6

~~Event-Driven Loans and Lending Commitments~~

At June 30, 2018
Years to Maturity
$ in millions   Less than 1    1-3    3-5    Over 5    Total
Loans
  $ 1,773    $ 838    $ 1,803    $ 1,867    $ 6,281
Lending commitments
613    14,514    2,737    5,018    22,882
Total loans and lending commitments
  $ 2,386    $   15,352    $   4,540    $   6,885    $   29,163

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

~~June 2018 Form 10-Q~~


March 2019 Form 10-Q		26

LOGO

Risk Disclosures

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 balance sheets, these loans and lending commitments are carried as held for investment, which are recorded at amortized cost; as held for sale, which are recorded at the lower of cost or fair 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 balance sheets. Total loans and lending commitments increased by approximately $10 billion primarily due to increases in event-driven lending commitments within the Institutional Securities business segment.

Credit exposure arising 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, industry, facility structure,loan-to-value ratio, debt service ratio, collateral and covenants. 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.

See Notes 3, 7 and 11 to the financial statements for further information.

Allowance for Loans and Lending Commitments Held for Investment


	At		At
	March 31,		December 31,
$ in millions	2019		2018
Loans	$	259	$	238
Lending commitments		211		203
Total allowance for loans and lending commitments	$	470	$	441

The aggregate allowance for loans and lending commitments increased in the current quarter primarily in Institutional Securities as a result of select downgrades within Corporate loans as well as growth in lending commitments. See Notes 7 and 11 to the financial statements for further information.

Status of Loans Held for Investment


	At March 31, 2019						At December 31, 2018
	IS			WM			IS			WM
Current		99.1	%		99.9	%		99.8	%		99.9	%
Nonaccrual¹		0.9	%		0.1	%		0.2	%		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.
~~Risk Disclosures~~

Institutional Securities Loans and Lending Commitments¹


	At March 31, 2019
	Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Loans
AA	$	369	$	52	$	—	$	19	$	440
A		712		1,686		999		264		3,661
BBB		3,101		5,070		4,380		401		12,952
NIG		5,966		15,002		10,348		5,646		36,962
Unrated²		87		26		234		1,714		2,061
Total loans		10,235		21,836		15,961		8,044		56,076
Lending commitments
AAA		90		50		—		—		140
AA		2,520		1,163		2,757		—		6,440
A		9,716		5,539		9,857		428		25,540
BBB		3,259		12,132		21,084		374		36,849
NIG		1,637		10,832		15,833		4,750		33,052
Unrated²		8		—		134		11		153
Total lending commitments		17,230		29,716		49,665		5,563		102,174
Total exposure	$	27,465	$	51,552	$	65,626	$	13,607	$	158,250


	At December 31, 2018
	Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Loans
AA	$	7	$	430	$	—	$	19	$	456
A		565		1,580		858		267		3,270
BBB		3,775		4,697		4,251		495		13,218
NIG		7,151		12,882		9,313		5,889		35,235
Unrated²		88		95		160		1,762		2,105
Total loans		11,586		19,684		14,582		8,432		54,284
Lending commitments
AAA		90		75		—		—		165
AA		2,491		1,177		2,863		—		6,531
A		2,892		6,006		9,895		502		19,295
BBB		2,993		11,825		19,461		638		34,917
NIG		1,681		10,604		16,075		5,751		34,111
Unrated²		8		—		38		—		46
Total lending commitments		10,155		29,687		48,332		6,891		95,065
Total exposure	$	21,741	$	49,371	$	62,914	$	15,323	$	149,349

NIG–Non-investment

grade

1.	Obligor credit ratings are internally determined by CRM.

~~Event-driven~~Unrated loans and lending commitments are ~~associated with~~primarily trading positions that are measured at fair value and risk managed as a ~~particular event or transaction, such as to support client merger, acquisition, recapitalization and project finance activities. Event-driven~~component of market risk. For a further discussion of our market risk, see “Market Risk” herein.


		27		March 2019 Form 10-Q

LOGO

Risk Disclosures

Institutional Securities Loans and Lending Commitments by Industry


$ in millions	At March 31, 2019		At December 31, 2018
Industry
Financials	$	34,152	$	32,655

Real estate		26,666		24,133

Healthcare		17,348		10,158

Communications services		12,427		11,244

Industrials		11,398		13,701

Energy		9,774		9,847

Utilities		9,360		9,856

Information technology		9,086		9,896

Consumer discretionary		8,087		8,314

Consumer staples		7,583		7,921

Materials		7,033		5,969

Insurance		3,637		3,744

Other		1,699		1,911

Total		$ 158,250		$ 149,349

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. We also purchase a variety of loans in the secondary market. Our 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- or long-term collateralized lines of credit and term loans with various types of collateral, including residential real estate, commercial real estate, corporate and financial assets. These collateralized loans and lending commitments generally provide for overcollateralization. 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. The Firm monitors collateral levels against the requirements of lending agreements. See Note 12 to the financial statements for information about our securitization activities.

Institutional Securities Corporate Loans¹


$ in millions	At March 31, 2019		At December 31, 2018
Corporate relationship and event-driven lending²	$	13,248	$	13,317

Secured lending facilities³		22,388		21,408

Securities-based lending and other⁴		7,402		8,331

Total Corporate	$	43,038	$	43,056

1.	Amounts include loans held for investment, loans held for sale and loans measured at fair value. Loans at fair value are included in Trading assets in the balance sheets.

2.	Relationship and event-driven loans typically consist of revolving lines of credit, term loans and bridge loans. ~~The increase in~~For additional information on event-driven loans, see “Institutional Securities Event-Driven Loans and Lending Commitments” herein.

3.	Secured lending ~~commitments~~facilities includes loans provided to clients to warehouse loans secured by underlying real estate and other assets.

4.	Securities-based lending and other includes financing extended to sales and trading customers and corporate loans purchased in the ~~current year period is primarily due to an increase inheld-for-sale~~ ~~commitments driven by client M&A transactions.~~secondary market. ~~Wealth Management~~

Institutional Securities Event-Driven Loans and Lending Commitments


	At March 31, 2019
	Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Loans	$	2,010	$	307	$	476	$	1,784	$	4,577

Lending commitments		7,594		2,816		3,192		2,436		16,038

Total loans and lending commitments	$	9,604	$	3,123	$	3,668	$	4,220	$	20,615


	At December 31, 2018
	Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Loans	$	2,582	$	287	$	656	$	1,618	$	5,143

Lending commitments		1,506		2,456		2,877		3,658		10,497

Total loans and lending commitments	$	4,088	$	2,743	$	3,533	$	5,276	$	15,640

Event-driven loans and lending commitments, which comprise a portion of corporate loans and lending commitments within the Institutional Securities business segment, are associated with a particular event or transaction, such as to support client merger, acquisition, recapitalization or project finance activities. Event-driven loans and lending commitments typically consist of revolving lines of credit, term loans and bridge loans. Amounts may fluctuate as they are transaction-specific, the timing and size of which can vary from period to period.

~~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 Liquidity Access Line 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 the 2017 Form~~10-K.~~

Wealth Management Loans and Lending Commitments


	At June 30, 2018											At March 31, 2019
	Contractual Years to Maturity											Contractual 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
Securities-based lending and other loans¹	$	36,299	$	4,485	$	1,642	$	1,195	$	43,621
Securities-based lending and other loans												$	36,455	$	3,352	$	2,467	$	1,138	$	43,412

Residential real estate loans		—		27		6		26,383		26,416			1		29		—		28,008		28,038

Total loans	$	36,299	$	4,512	$	1,648	$	27,578	$	70,037		$	36,456	$	3,381	$	2,467	$	29,146	$	71,450

Lending commitments		8,596		1,735		99		276		10,706			9,872		1,619		378		278		12,147

Total loans and lending commitments	$	44,895	$	6,247	$	1,747	$	27,854	$	80,743		$	46,328	$	5,000	$	2,845	$	29,424	$	83,597

Securities-based lending—LAL platform loans											Securities-based lending—LAL platform loans									$	32,731


	At December 31, 2017											At December 31, 2018
	Contractual Years to Maturity											Contractual 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
Securities-based lending and other loans¹	$	34,389	$	3,687	$	1,899	$	1,231	$	41,206
Securities-based lending and other loans												$	38,144	$	3,573	$	2,004	$	1,006	$	44,727

Residential real estate loans		—		24		15		26,607		26,646			—		30		1		27,436		27,467

Total loans	$	34,389	$	3,711	$	1,914	$	27,838	$	67,852		$	38,144	$	3,603	$	2,005	$	28,442	$	72,194

Lending commitments		7,253		1,827		120		281		9,481			9,197		1,151		42		273		10,663

Total loans and lending commitments	$	41,642	$	5,538	$	2,034	$	28,119	$	77,333		$	47,341	$	4,754	$	2,047	$	28,715	$	82,857

Securities-based lending—LAL platform loans											Securities-based lending—LAL platform loans									$	33,247

1.	~~The Liquidity Access Line platform had an outstanding loan balance of $33.4 billion and $32.2 billion at June 30, 2018 and December 31, 2017, respectively.~~
March 2019 Form 10-Q		28

LOGO

Risk Disclosures

The principal Wealth Management lending activities include securities-based lending and residential real estate loans.

Securities-based lending provided to our clients is primarily conducted through our Liquidity Access Line (“LAL”) platform. For more information about our securities-based lending and residential real estate loans, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk—Wealth Management” in the 2018 Form10-K.

For the current ~~year period, loans~~quarter, Loans and ~~lending~~Lending commitments associated with the Wealth Management business segment ~~lending activities increased by approximately 4%, primarily due to growth in securities-based lending and other loans.~~were relatively unchanged.

~~Lending Activities Included in~~ Customer and Other Receivables

Margin Loans


	At June 30, 2018						At March 31, 2019
$ in millions	IS		WM		Total		IS		WM		Total
Net customer receivables representing margin loans	$	21,026	$	11,785	$	32,811
Customer receivables representing margin loans							$	16,800	$	10,627	$	27,427


	At December 31, 2017						At December 31, 2018
$ in millions	IS		WM		Total		IS		WM		Total
Net customer receivables representing margin loans	$	19,977	$	12,135	$	32,112
Customer receivables representing margin loans							$	14,842	$	11,383	$	26,225

The Institutional Securities and Wealth Management business segments provide margin lending arrangements, which allow customers 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. Amounts may fluctuate from period to period as overall client balances change as a result of market levels, client positioning and leverage.

Employee Loans


$ in millions	At June 30, 2018			At December 31, 2017			At March 31, 2019			At December 31, 2018
Employee loans:
Balance	$	3,564		$	4,185		$	3,011		$	3,415
Allowance for loan losses		(74	)		(77	)		(64	)		(63	)
Balance, net	$	3,490		$	4,108		$	2,947		$	3,352
Repayment term range, in years		1 to 20			1 to 20			1 to 20			1 to 20

Employee loans are ~~generally~~ granted in conjunction with a program established primarily to ~~retain and~~ recruit certain ~~employees,~~Wealth Management representatives, 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~~

Derivatives

Fair Value of ~~our employee loans.~~OTC Derivative Assets

~~Credit Exposure—Derivatives~~


	Counterparty Credit Rating¹
$ in millions	AAA			AA			A			BBB			NIG			Total
At March 31, 2019
<1 year	$	353		$	6,123		$	38,006		$	12,809		$	5,577		$	62,868

1-3 years		387			2,222			23,295			8,452			6,346			40,702

3-5 years		533			2,112			11,960			5,162			2,826			22,593

Over 5 years		3,662			11,190			79,733			34,492			12,249			141,326

Total, gross	$	4,935		$	21,647		$	152,994		$	60,915		$	26,998		$	267,489

Counterparty netting		(1,851	)		(13,737	)		(124,569	)		(44,232	)		(16,326	)		(200,715	)

Cash and securities collateral		(2,889	)		(6,115	)		(22,866	)		(11,830	)		(7,691	)		(51,391	)

Total, net	$	195		$	1,795		$	5,559		$	4,853		$	2,981		$	15,383


	Counterparty Credit Rating¹
$ in millions	AAA			AA			A			BBB			NIG			Total
At December 31, 2018

<1 year	$	878		$	7,430		$	38,718		$	15,009		$	7,183		$	69,218

1-3 years		664			2,362			22,239			10,255			7,097			42,617

3-5 years		621			2,096			11,673			6,014			2,751			23,155

Over 5 years		3,535			9,725			67,166			36,087			11,112			127,625

Total, gross	$	5,698		$	21,613		$	139,796		$	67,365		$	28,143		$	262,615

Counterparty netting		(2,325	)		(13,771	)		(113,045	)		(49,658	)		(16,681	)		(195,480	)

Cash and securities collateral		(3,214	)		(5,766	)		(21,931	)		(12,702	)		(8,269	)		(51,882	)

Total, net	$	159		$	2,076		$	4,820		$	5,005		$	3,193		$	15,253


$ in millions	At March 31, 2019		At December 31, 2018
Industry
Utilities	$	4,472	$	4,324

Financials		4,108		4,480

Industrials		1,110		1,335

Healthcare		916		787

Regional governments		916		779

Information technology		758		695

Not-for-profit organizations		630		583

Communication services		395		373

Sovereign governments		367		385

Energy		350		199

Consumer discretionary		311		188

Real estate		285		283

Materials		275		275

Insurance		181		235

Consumer staples		161		216

Other		148		116

Total		$ 15,383	$	15,253

1.	Obligor credit ratings are determined internally by CRM.


		29		March 2019 Form 10-Q

LOGO

Risk Disclosures

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~~


		37		~~June 2018 Form 10-Q~~


~~Risk Disclosures~~

~~of the purchase or sale of positions in related securities and financial instruments, including a variety of derivative products (~~~~e.g.~~~~, futures, forwards, swaps and options).~~ For ~~a discussion of our credit exposure and related credit derivative contracts,~~more information on derivatives, see “Quantitative and Qualitative ~~disclosures~~Disclosures about ~~Market Risk–Risk Management–~~Risk—Credit ~~Risk–Credit Exposure–~~Risk—Derivatives” in the ~~2017~~2018 Form~~10-K.~~10-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 OTC Derivative Assets at Fair Value~~

Credit Rating
$ in millions AAA AA A BBB NIG Total
At June 30, 2018

< 1 year
$ 599 $ 7,435 $ 40,004 $ 14,284 $ 7,828 $ 70,150
1-3 years
739 3,785 23,108 8,246 6,507 42,385
3-5 years
760 2,579 14,910 4,951 2,638 25,838
Over 5 years
4,461 10,459 73,771 35,558 11,509 135,758
Total, gross
$ 6,559 $ 24,258 $ 151,793 $ 63,039 $ 28,482 $ 274,131
Counterparty Netting
(3,328 ) (15,944 ) (124,298 ) (44,666 ) (15,405 ) (203,641 )
Cash and Securities collateral
(2,918 ) (6,066 ) (23,179 ) (12,924 ) (9,401 ) (54,488 )
Total, net
$ 313 $ 2,248 $ 4,316 $ 5,449 $ 3,676 $ 16,002

Credit Rating¹
$ in millions AAA AA A BBB NIG 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.	~~Prior period amounts have been revised to conform to the current presentation.~~

~~OTC Derivative Products at Fair Value, Net of Collateral, by Industry~~

$ in millions    At
June 30,
2018    At
December 31,
2017
Industry

Utilities
   $ 4,670    $ 4,382
Financials
   4,078    3,330
Energy
   1,040    646
Industrials
   965    1,124
Regional governments
   899    1,005
Healthcare
   733    882
Information technology
   631    715
Not-for-profit organizations
   553    703
Sovereign governments
   548    1,084
Consumer discretionary
   461    464
Real estate
   320    374
Materials
   303    329
Insurance
   254    206
Consumer staples
   228    161
Other
   319    270
Total
   $             16,002    $             15,675

~~For additional information on derivative instruments, including credit derivatives, 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 Management–~~Risk—Country ~~Risk Exposure”~~Risk” in the ~~2017~~2018 Form10-K.

Our sovereign exposures consist of financial ~~instruments~~contracts and obligations entered into with sovereign and local governments. Ournon-sovereign exposures consist of financial ~~instruments~~contracts and obligations entered into primarily with corporations and financial institutions. ~~The following table shows our 10 largestnon-U.S.~~ ~~country risk net exposures at June 30, 2018.~~ Index credit derivatives are included in the following 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/~~receivable or payable for that reference entity. Where credit risk crosses multiple jurisdictions, for example, a CDS purchased from an issuer in a specific


~~June 2018 Form 10-Q~~		38


~~Risk Disclosures~~

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~~row based on the country of the CDS issuer. Further, the notional amount of the CDS adjusted for the fair value of the ~~receivable/~~receivable or payable is reflected in the Net Inventory ~~column~~row based on the country of the underlying reference entity.

Top ~~Ten~~10Non-U.S. Country Exposures at ~~June 30, 2018~~March 31, 2019

United Kingdom
$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $               562    $ 1,087    $ 1,649
Net Counterparty Exposure²
   110    10,174      10,284
Loans
   —    2,476    2,476
Lending Commitments
   —    6,191    6,191
Exposure before Hedges
   672    19,928    20,600
Hedges³
   (356 )    (1,619 )    (1,975 )
Net Exposure
   $ 316    $ 18,309    $ 18,625
Japan
$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $ 4,868    $ 301    $ 5,169
Net Counterparty Exposure²
   77    3,575    3,652
Loans
   —    —    —
Lending Commitments
   —    —    —
Exposure before Hedges
   4,945    3,876    8,821
Hedges³
   (118 )    (115 )    (233 )
Net Exposure
   $ 4,827    $ 3,761    $ 8,588
Spain
$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $ (1,225 )    $ (98 )    $ (1,323 )
Net Counterparty Exposure²
   —    110    110
Loans
   —    2,704    2,704
Lending Commitments
   —    5,679    5,679
Exposure before Hedges
   (1,225 )    8,395    7,170
Hedges³
   —    (189 )    (189 )
Net Exposure
   $ (1,225 )    $ 8,206    $ 6,981
Germany

$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $ 61    $ 439    $ 500
Net Counterparty Exposure²
   519    1,941    2,460
Loans
   —    1,310    1,310
Lending Commitments
   —    3,629    3,629
Exposure before Hedges
   580    7,319    7,899
Hedges³
   (509 )    (1,098 )    (1,607 )
Net Exposure
   $ 71    $ 6,221    $ 6,292
Brazil

$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $ 4,275    $ 85    $ 4,360
Net Counterparty Exposure²
   —    312    312
Loans
   —    73    73
Lending Commitments
   —    320    320
Exposure before Hedges
   4,275    790    5,065
Hedges³
   (11 )    (19 )    (30 )
Net Exposure
   $ 4,264    $ 771    $ 5,035


United Kingdom
$ in millions	Sovereigns			Non-sovereigns			Total

Net inventory¹	$	(719	)	$	317		$	(402	)

Net counterparty exposure²		1			9,526			9,527

Loans		—			2,840			2,840

Lending commitments		—			4,610			4,610

Exposure before hedges		(718	)		17,293			16,575

Hedges³		(312	)		(1,381	)		(1,693	)

Net exposure	$	(1,030	)	$	15,912		$	14,882

Netherlands

$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $ (293 )    $ 104    $ (189 )
Net Counterparty Exposure²
   —    712    712
Loans
   —    1,852    1,852
Lending Commitments
   —    1,641    1,641
Exposure before Hedges
   (293 )    4,309    4,016
Hedges³
   (20 )    (264 )    (284 )
Net Exposure
   $ (313 )    $ 4,045    $     3,732
China

$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $ 432    $ 765    $ 1,197
Net Counterparty Exposure²
   203    147    350
Loans
   —    1,241    1,241
Lending Commitments
   —    657    657
Exposure before Hedges
   635    2,810    3,445
Hedges³
   (49 )    (10 )    (59 )
Net Exposure
   $ 586    $ 2,800    $ 3,386
France
$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $ (220 )    $ (115 )    $ (335 )
Net Counterparty Exposure²
   —    2,034    2,034
Loans
   —    186    186
Lending Commitments
   —    2,092    2,092
Exposure before Hedges
   (220 )    4,197    3,977
Hedges³
   (50 )    (671 )    (721 )
Net Exposure
   $ (270 )    $ 3,526    $ 3,256
Canada
$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $ (500 )    $ 214    $ (286 )
Net Counterparty Exposure²
   32    1,869    1,901
Loans
   —    58    58
Lending Commitments
   —    1,433    1,433
Exposure before Hedges
   (468 )    3,574    3,106
Hedges³
   —    (262 )    (262 )
Net Exposure
   $ (468 )    $ 3,312    $ 2,844
Italy

$ in millions    Sovereigns    Non-sovereigns    Total
Net Inventory¹
   $ 1,286    $ 374    $ 1,660
Net Counterparty Exposure²
   (8 )    451    443
Loans
   —    125    125
Lending Commitments
   —    418    418
Exposure before Hedges
   1,278    1,368    2,646
Hedges³
   7    (76 )    (69 )
Net Exposure
   $ 1,285    $ 1,292    $ 2,577


Japan
$ in millions	Sovereigns			Non-sovereigns			Total

Net inventory¹	$	4,533		$	81		$	4,614

Net counterparty exposure²		61			3,057			3,118

Loans		—			316			316

Exposure before hedges		4,594			3,454			8,048

Hedges³		(117	)		(115	)		(232	)

Net exposure	$	4,477		$	3,339		$	7,816


Germany
$ in millions	Sovereigns			Non-sovereigns			Total

Net inventory¹	$	328		$	160		$	488

Net counterparty exposure²		170			1,938			2,108

Loans		—			1,063			1,063

Lending commitments		—			3,198			3,198

Exposure before hedges		498			6,359			6,857

Hedges³		(268	)		(1,051	)		(1,319	)

Net exposure	$	230		$	5,308		$	5,538


Brazil
$ in millions	Sovereigns			Non-sovereigns			Total

Net inventory¹	$	4,846		$	95		$	4,941

Net counterparty exposure²		—			232			232

Loans		—			40			40

Lending commitments		—			269			269

Exposure before hedges		4,846			636			5,482

Hedges³		(12	)		(18	)		(30	)

Net exposure	$	4,834		$	618		$	5,452


Spain
$ in millions	Sovereigns			Non-sovereigns			Total

Net inventory¹	$	(857	)	$	(62	)	$	(919	)

Net counterparty exposure²		—			204			204

Loans		—			3,675			3,675

Lending commitments		—			1,684			1,684

Exposure before hedges		(857	)		5,501			4,644

Hedges³		—			(128	)		(128	)

Net exposure	$	(857	)	$	5,373		$	4,516


Australia
$ in millions	Sovereigns			Non-sovereigns			Total

Net inventory¹	$	1,932		$	495		$	2,427

Net counterparty exposure²		4			451			455

Loans		—			95			95

Lending commitments		—			796			796

Exposure before hedges		1,936			1,837			3,773

Hedges³		—			(104	)		(104	)

Net exposure	$	1,936		$	1,733		$	3,669


China
$ in millions	Sovereigns			Non-sovereigns			Total

Net inventory¹	$	200		$	869		$	1,069

Net counterparty exposure²		113			180			293

Loans		—			1,242			1,242

Lending commitments		—			1,150			1,150

Exposure before hedges		313			3,441			3,754

Hedges³		(112	)		(40	)		(152	)

Net exposure	$	201		$	3,401		$	3,602


March 2019 Form 10-Q		30

LOGO

Risk Disclosures



Canada
$ in millions	Sovereigns			Non-sovereigns			Total

Net inventory¹	$	(367	)	$	111		$	(256	)

Net counterparty exposure²		41			1,811			1,852

Loans		—			91			91

Lending commitments		—			1,800			1,800

Exposure before hedges		(326	)		3,813			3,487

Hedges³		—			(171	)		(171	)

Net exposure	$	(326	)	$	3,642		$	3,316


Netherlands
$ in millions	Sovereigns			Non-sovereigns			Total
Net inventory¹	$	(204	)	$	156		$	(48	)
Net counterparty exposure²		—			709			709
Loans		—			1,427			1,427
Lending commitments		—			1,385			1,385
Exposure before hedges		(204	)		3,677			3,473
Hedges³		(32	)		(229	)		(261	)
Net exposure	$	(236	)	$	3,448		$	3,212

India
$ in millions	Sovereigns			Non-sovereigns			Total
Net inventory¹	$	1,500		$	633		$	2,133
Net counterparty exposure²		—			599			599
Lending commitments		—			95			95
Exposure before hedges		1,500			1,327			2,827
Net exposure	$	1,500		$	1,327		$	2,827

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~~the fair value of any receivable or payable).

Net counterparty exposure (~~i.e~~e.g.., repurchase transactions, securities lending and OTC derivatives) takes into consideration legally enforceable master netting agreements and collateral. Net counterparty exposure is net of the benefit of collateral received. For more information, see “Additional Information—Top 10Non-U.S. Country Exposures” herein.

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.~~exposures. 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—~~“Quantitative and Qualitative Disclosures about Risk—Credit Risk—Derivatives” ~~herein.~~in the 2018 Form10-K.


		39		~~June 2018 Form 10-Q~~

Additional Information—Top 10Non-U.S. Country Exposures


~~Risk Disclosures~~

~~As a market maker, we may transact in CDS positions to facilitate client trading. Exposures related to single-name~~Single-Name and ~~index credit derivatives for those countries shown in the previous table were as follows:~~

Index Credit Derivatives Included in Net Inventory

$ in millions    At
June 30,
2018
Gross purchased protection
   $ (78,476 )
Gross written protection
           76,933
Net exposure
   $ (1,543 )

~~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.~~


$ in millions	At March 31, 2019
Gross purchased protection	$	(61,098	)
Gross written protection		57,463
Net exposure	$	(3,635	)

Benefit of Collateral Received against Net Counterparty ~~Credit~~ Exposure


$ in millions		At AtMarch 31, ~~June 30,~~ ~~2018~~2019
Counterparty credit exposure	Collateral¹
Germany	~~Belgium~~Germany and ~~Germany~~Italy	$	~~9,409~~10,110
United Kingdom	U.K., U.S. and ~~Japan~~Italy		~~9,039~~8,661
Other	France, Japan ~~France~~ and ~~Spain~~U.S.		~~15,213~~11,150

1.	Collateral primarily consists of cash and government obligations.

Country Risk Exposures Related to the U.K.

At ~~June 30, 2018,~~March 31, 2019, our country risk exposures in the U.K. included net exposures of ~~$18,625~~$14,882 million as shown in the Top ~~Ten~~10 Country Exposures table, and overnight deposits of ~~$6,236~~$7,605 million. The ~~$18,309~~$15,912 million of exposures tonon-sovereigns were diversified across both names and sectors. Of these exposures, ~~$5,743~~$6,377 million were toU.K.-focused counterparties that generate more thanone-third of their revenues in the U.K., ~~$5,076~~$3,586 million were to geographically diversified counterparties, and ~~$6,454~~$5,671 million were to exchanges and clearinghouses.

~~Country Risk Exposures Related to Brazil~~. At June 30, 2018, our country risk exposures in Brazil included net exposures of $5,035 million as shown in the Top 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 $771 million of exposures to~~non-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 the ~~2017~~2018 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~~a 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 strategy. For a further discussion about our model risk, see “Quantitative and Qualitative Disclosures about ~~Market~~ Risk–~~Risk Management–~~–Model Risk” in the ~~2017~~2018 Form10-K.


		31		March 2019 Form 10-Q

LOGO

Risk Disclosures

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 the ~~2017~~2018 Form10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital ~~Resources.”~~Resources” herein.

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 AML, ~~and~~ terrorist financing, and anti-corruption 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 the ~~2017~~2018 Form10-K.


~~June 2018~~March 2019 Form 10-Q		4032

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, 2018,~~March 31, 2019, and the related condensed consolidated income statements, ~~and~~ comprehensive income statements, ~~for the three-month andsix-month~~ ~~periods ended June 30, 2018 and 2017, and the~~ cash flow statements and statements of changes in total equity for the~~six-month~~ three-month periods ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ and the 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 financial information for it 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) (PCAOB), the consolidated balance sheet of the Firm as of December 31, ~~2017,~~2018, 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,~~26, 2019, 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~~2018 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 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.

/s/ Deloitte & Touche LLP

~~New York, New York~~

~~August 3, 2018~~

New York, New York

May 3, 2019


		4133		~~June 2018~~March 2019 Form 10-Q

Consolidated Income Statements

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
in millions, except per share data	2018			2017			2018			2017			2019		2018

Revenues
Investment banking	$	1,793		$	1,530		$	3,427		$	3,075		$	1,242	$	1,634

Trading		3,293			2,931			7,063			6,166			3,441		3,770

Investments		147			163			273			328			273		126

Commissions and fees		1,039			1,027			2,212			2,060			966		1,173

Asset management		3,189			2,902			6,381			5,669			3,049		3,192

Other		243			199			450			428			301		207

Totalnon-interest revenues		9,704			8,752			19,806			17,726			9,272		10,102

Interest income		3,294			2,106			6,154			4,071			4,290		2,860

Interest expense		2,388			1,355			4,273			2,549			3,276		1,885

Net interest		906			751			1,881			1,522			1,014		975

Net revenues		10,610			9,503			21,687			19,248			10,286		11,077

Non-interest expenses
Compensation and benefits		4,621			4,252			9,535			8,718			4,651		4,914

Occupancy and equipment		346			333			682			660			347		336

Brokerage, clearing and exchange fees		609			525			1,236			1,034			593		627

Information processing and communications		496			433			974			861			532		478

Marketing and business development		179			155			319			291			141		140

Professional services		580			561			1,090			1,088			514		510

Other		670			602			1,322			1,146			553		652

Totalnon-interest expenses		7,501			6,861			15,158			13,798			7,331		7,657

Income from continuing operations before income taxes		3,109			2,642			6,529			5,450			2,955		3,420

Provision for income taxes		640			846			1,354			1,661			487		714

Income from continuing operations		2,469			1,796			5,175			3,789			2,468		2,706

Income (loss) from discontinued operations, net of income taxes		(2	)		(5	)		(4	)		(27	)		—		(2	)

Net income	$	2,467		$	1,791		$	5,171		$	3,762		$	2,468	$	2,704

Net income applicable to noncontrolling interests		30			34			66			75			39		36

Net income applicable to Morgan Stanley	$	2,437		$	1,757		$	5,105		$	3,687		$	2,429	$	2,668

Preferred stock dividends and other		170			170			263			260			93		93

Earnings applicable to Morgan Stanley common shareholders	$	2,267		$	1,587		$	4,842		$	3,427		$	2,336	$	2,575

Earnings per basic common share
Income from continuing operations	$	1.32		$	0.89		$	2.80		$	1.92
Income (loss) from discontinued operations		—			—			—			(0.01	)
Earnings per basic common share	$	1.32		$	0.89		$	2.80		$	1.91

Earnings per diluted common share
Income from continuing operations	$	1.30		$	0.87		$	2.75		$	1.88
Income (loss) from discontinued operations		—			—			—			(0.01	)
Earnings per diluted common share	$	1.30		$	0.87		$	2.75		$	1.87
Earnings per common share
Basic													$	1.41	$	1.48

Dividends declared per common share	$	0.25		$	0.20		$	0.50		$	0.40
Diluted													$	1.39	$	1.45

Average common shares outstanding
Basic		1,720			1,791			1,730			1,796			1,658		1,740

Diluted		1,748			1,830			1,760			1,836			1,677		1,771


~~June 2018~~March 2019 Form 10-Q		4234		See Notes to Consolidated Financial Statements

Consolidated Comprehensive Income Statements

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
$ in millions	2018			2017			2018			2017			2019			2018
Net income	$	2,467		$	1,791		$	5,171		$	3,762		$	2,468		$	2,704
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	$	(192	)	$	12		$	(75	)	$	162		$	(22	)	$	117
Change in net unrealized gains (losses) onavailable-for-sale securities		(126	)		108			(536	)		192			429			(410	)
Pension, postretirement and other		6			4			11			4			1			5
Change in net debt valuation adjustment		639			(183	)		1,090			(174	)		(620	)		451
Total other comprehensive income (loss)	$	327		$	(59	)	$	490		$	184		$	(212	)	$	163
Comprehensive income	$	2,794		$	1,732		$	5,661		$	3,946		$	2,256		$	2,867
Net income applicable to noncontrolling interests		30			34			66			75			39			36
Other comprehensive income (loss) applicable to noncontrolling interests		(9	)		(21	)		63			29			(31	)		72
Comprehensive income applicable to Morgan Stanley	$	2,773		$	1,719		$	5,532		$	3,842		$	2,248		$	2,759


See Notes to Consolidated Financial Statements		4335		~~June 2018~~March 2019 Form 10-Q


~~Consolidated Balance Sheets~~

LOGO

Consolidated Balance Sheets


$ in millions, except share data	(Unaudited) At June 30, 2018			At December 31, 2017			(Unaudited) At March 31, 2019			At December 31, 2018

Assets
Cash and cash equivalents:
Cash and due from banks	$	30,176		$	24,816		$	35,472		$	30,541

Interest bearing deposits with banks		18,707			21,348			14,498			21,299

Restricted cash		32,706			34,231			30,712			35,356
Trading assets at fair value ($168,810and $169,735 were pledged to various parties)		266,438			298,282
Investment securities (includes$56,704 and $55,203 at fair value)		81,948			78,802
Securities purchased under agreements to resell		93,928			84,258

Trading assets at fair value ($103,750and $120,437 were pledged to various parties)								264,818			266,299

Investment securities (includes$61,641 and $61,061 at fair value)								97,944			91,832

Securities purchased under agreements to resell (includes$5and $— at fair value)								96,570			98,522

Securities borrowed		153,248			124,010			138,891			116,313

Customer and other receivables		61,714			56,187			52,667			53,298

Loans:
Held for investment (net of allowance of$241 and $224)		96,366			92,953
Held for investment (net of allowance of $259 and $238)								101,266			99,815

Held for sale		15,747			11,173			14,931			15,764

Goodwill		6,692			6,597			6,686			6,688
Intangible assets (net of accumulated amortization of$2,909 and $2,730)		2,332			2,448

Intangible assets (net of accumulated amortization of$2,952 and $2,877)								2,084			2,163

Other assets		15,873			16,628			19,425			15,641

Total assets	$	875,875		$	851,733		$	875,964		$	853,531

Liabilities
Deposits (includes$285 and $204 at fair value)	$	172,802		$	159,436
Deposits (includes $692 and $442 at fair value)							$	179,731		$	187,820

Trading liabilities at fair value		139,359			131,295			144,565			126,747
Securities sold under agreements to repurchase (includes$788 and $800 at fair value)		50,650			56,424

Securities sold under agreements to repurchase (includes$622 and $812 at fair value)								47,948			49,759

Securities loaned		12,720			13,592			12,508			11,908
Other secured financings (includes$3,606 and $3,863 at fair value)		9,890			11,271

Other secured financings (includes$4,283 and $5,245 at fair value)								8,043			9,466

Customer and other payables		201,737			191,510			193,092			179,559

Other liabilities and accrued expenses		15,967			17,157			17,494			17,204
Borrowings (includes$50,350and $46,912 at fair value)		192,244			192,582

Borrowings (includes$56,464and $51,184 at fair value)								190,691			189,662

Total liabilities		795,369			773,267			794,072			772,125

Commitments and contingent liabilities (see Note 11)

Equity
Morgan Stanley shareholders’ equity:
Preferred stock		8,520			8,520			8,520			8,520

Common stock, $0.01 par value:
Shares authorized:3,500,000,000; Shares issued:2,038,893,979; Shares outstanding:1,749,653,071 and 1,788,086,805		20			20
Shares authorized: 3,500,000,000; Shares issued:2,038,893,979; Shares outstanding:1,685,996,391and 1,699,828,943								20			20

Additionalpaid-in capital		23,454			23,545			23,178			23,794

Retained earnings		61,835			57,577			66,061			64,175

Employee stock trusts		2,829			2,907			3,000			2,836

Accumulated other comprehensive income (loss)		(3,070	)		(3,060	)		(2,473	)		(2,292	)
Common stock held in treasury at cost, $0.01 par value (289,240,908 and 250,807,174 shares)		(11,650	)		(9,211	)

Common stock held in treasury at cost, $0.01 par value (352,897,588 and 339,065,036 shares)								(14,582	)		(13,971	)

Common stock issued to employee stock trusts		(2,829	)		(2,907	)		(3,000	)		(2,836	)

Total Morgan Stanley shareholders’ equity		79,109			77,391			80,724			80,246

Noncontrolling interests		1,397			1,075			1,168			1,160

Total equity		80,506			78,466			81,892			81,406

Total liabilities and equity	$	875,875		$	851,733		$	875,964		$	853,531


~~June 2018~~March 2019 Form 10-Q		4436		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			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, 2018																													$	8,520	$	20	$	23,794		$	64,175		$	2,836	$	(2,292	)	$	(13,971	)	$	(2,836	)	$	1,160		$	81,406

Cumulative adjustments for accounting changes¹																														—		—		—			63			—		—			—			—			—			63

Net income applicable to Morgan Stanley																														—		—		—			2,429			—		—			—			—			—			2,429

Net income applicable to noncontrolling interests																														—		—		—			—			—		—			—			—			39			39

Preferred stock dividends²																														—		—		—			(93	)		—		—			—			—			—			(93	)

Common stock dividends($0.30 per share)																														—		—		—			(513	)		—		—			—			—			—			(513	)

Shares issued under employee plans																														—		—		(618	)		—			164		—			1,034			(164	)		—			416

Repurchases of common stock and employee tax withholdings																														—		—		—			—			—		—			(1,645	)		—			—			(1,645	)

Net change in Accumulated other comprehensive income (loss)																														—		—		—			—			—		(181	)		—			—			(31	)		(212	)

Other net increases																														—		—		2			—			—		—			—			—			—			2

Balance at March 31, 2019																													$	8,520	$	20	$	23,178		$	66,061		$	3,000	$	(2,473	)	$	(14,582	)	$	(3,000	)	$	1,168		$	81,892

Balance at December 31, 2017	$	8,520	$	20	$	23,545		$	57,577		$	2,907		$	(3,060	)	$	(9,211	)	$	(2,907	)	$	1,075		$	78,466		$	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	)

Cumulative adjustments for accounting changes¹																														—		—		—			306			—		(437	)		—			—			—			(131	)

Net income applicable to Morgan Stanley		—		—		—			5,105			—			—			—			—			—			5,105			—		—		—			2,668			—		—			—			—			—			2,668

Net income applicable to noncontrolling interests		—		—		—			—			—			—			—			—			66			66			—		—		—			—			—		—			—			—			36			36
Dividends		—		—		—			(1,153	)		—			—			—			—			—			(1,153	)

Preferred stock dividends²																														—		—		—			(93	)		—		—			—			—			—			(93	)

Common stock dividends ($0.25 per share)																														—		—		—			(449	)		—		—			—			—			—			(449	)

Shares issued under employee plans		—		—		(91	)		—			(78	)		—			734			78			—			643			—		—		(285	)		—			—		—			710			—			—			425

Repurchases of common stock and employee tax withholdings		—		—		—			—			—			—			(3,173	)		—			—			(3,173	)		—		—		—			—			—		—			(1,868	)		—			—			(1,868	)

Net change in Accumulated other comprehensive income (loss)		—		—		—			—			—			427			—			—			63			490			—		—		—			—			—		91			—			—			72			163

Other net increases		—		—		—			—			—			—			—			—			193			193			—		—		—			—			—		—			—			—			272			272
Balance at June 30, 2018	$	8,520	$	20	$	23,454		$	61,835		$	2,829		$	(3,070	)	$	(11,650	)	$	(2,829	)	$	1,397		$	80,506

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 March 31, 2018																													$	8,520	$	20	$	23,260		$	60,009		$	2,907	$	(3,406	)	$	(10,369	)	$	(2,907	)	$	1,455		$	79,489

1.	~~The cumulative~~Cumulative adjustments for accounting changes relate to the adoption of certain accounting updates during the current and prior year ~~periods.~~quarters. See Notes 2 and 14 for further information.

2.	See Note 14 for information regarding dividends per share for each class of preferred stock.


See Notes to Consolidated Financial Statements		4537		~~June 2018~~March 2019 Form 10-Q

LOGO

Consolidated Cash Flow Statements

(Unaudited)


	Six Months Ended June 30,						Three Months Ended March 31,
$ in millions	2018			2017			2019			2018
Cash flows from operating activities
Net income	$	5,171		$	3,762		$	2,468		$	2,704
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
(Income) loss from equity method investments		(54	)		—
Stock-based compensation expense		526			518			293			321
Depreciation and amortization		907			889			658			390
(Release of) Provision for credit losses on lending activities		(29	)		25
Provision for credit losses on lending activities								36			26
Other operating adjustments		72			(158	)		(92	)		(37	)
Changes in assets and liabilities:
Trading assets, net of Trading liabilities		39,106			(18,797	)		23,977			33,832
Securities borrowed		(29,238	)		(1,486	)		(22,578	)		(11,825	)
Securities loaned		(872	)		1,018			600			(36	)
Customer and other receivables and other assets		(9,279	)		(6,144	)		1,567			(13,019	)
Customer and other payables and other liabilities		9,053			5,598			9,971			1,129
Securities purchased under agreements to resell		(9,670	)		4,547			1,952			4,012
Securities sold under agreements to repurchase		(5,774	)		(3,931	)		(1,811	)		(4,849	)
Net cash provided by (used for) operating activities		(81	)		(14,159	)		17,041			12,648

Cash flows from investing activities
Proceeds from (payments for):
Other assets—Premises, equipment and software, net		(908	)		(723	)		(529	)		(410	)
Changes in loans, net		(4,560	)		(5,326	)		(1,329	)		(3,801	)
Investment securities:
Purchases		(12,388	)		(8,418	)		(15,895	)		(5,482	)
Proceeds from sales		2,231			13,533			7,875			810
Proceeds from paydowns and maturities		6,469			3,668			2,663			2,125
Other investing activities		(147	)		(39	)		(12	)		(164	)
Net cash provided by (used for) investing activities		(9,303	)		2,695			(7,227	)		(6,922	)

Cash flows from financing activities
Net proceeds from (payments for):
Noncontrolling interests		(85	)		(35	)
Other secured financings		(2,275	)		4,272			(1,575	)		(2,101	)
Deposits		13,366			(10,950	)		(8,089	)		988
Proceeds from:
Derivatives financing activities		—			73
Issuance of preferred stock, net of issuance costs		—			994
Issuance of Borrowings		28,234			33,522			8,091			15,370
Payments for:
Borrowings		(22,981	)		(17,821	)		(11,927	)		(11,377	)
Derivatives financing activities		—			(48	)
Repurchases of common stock and employee tax withholdings		(3,173	)		(1,709	)		(1,645	)		(1,868	)
Cash dividends		(1,115	)		(954	)		(663	)		(599	)
Other financing activities		(145	)		21			(56	)		(50	)
Net cash provided by (used for) financing activities		11,826			7,365			(15,864	)		363
Effect of exchange rate changes on cash and cash equivalents		(1,248	)		1,569			(464	)		860
Net increase (decrease) in cash and cash equivalents		1,194			(2,530	)		(6,514	)		6,949
Cash and cash equivalents, at beginning of period		80,395			77,360			87,196			80,395
Cash and cash equivalents, at end of period	$	81,589		$	74,830		$	80,682		$	87,344

Cash and cash equivalents:
Cash and due from banks	$	30,176		$	25,008		$	35,472		$	29,073
Interest bearing deposits with banks		18,707			19,651			14,498			22,980
Restricted cash		32,706			30,171			30,712			35,291
Cash and cash equivalents, at end of period	$	81,589		$	74,830		$	80,682			$87,344

Supplemental Disclosure of Cash Flow Information

Cash payments for:
Interest	$	3,934		$	1,922		$	2,896		$	1,407
Income taxes, net of refunds		790			732			245			250


~~June 2018~~March 2019 Form 10-Q		4638		See Notes to Consolidated Financial Statements

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

1. Introduction and Basis of Presentation

The Firm

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 foreign exchange and commodities. Lending ~~services~~activities include originating ~~and/or purchasing~~ corporate loans, commercial ~~and residential~~ mortgage lending, ~~asset-backed~~providing secured lending facilities and extending financing ~~extended~~ to ~~equities~~sales and ~~commodities customers and municipalities.~~trading customers. Other activities include investments and research.

Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small tomedium-sized businesses and institutions covering brokerage and investment advisory ~~services,~~services; financial and wealth planning ~~services,~~services; annuity and insurance ~~products, credit~~products; securities-based lending, residential real estate loans and other lending ~~products,~~products; banking and retirement plan services.

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~~served through intermediaries, including affiliated andnon-affiliated distributors.

Basis of Financial Information

The unaudited consolidated financial statements (“financial statements”) are prepared in accordance with U.S. GAAP, which requires 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 financial statements and related disclosures. The Firm believes that the estimates utilized in the preparation of its 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 financial statements should be read in conjunction with the Firm’s financial statements and notes thereto included in the ~~2017~~2018 Form10-K. Certain footnote disclosures included in the ~~2017~~2018 Form10-K have been condensed or omitted from these financial statements as they are not required for interim reporting under U.S. GAAP. The 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 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 VIEs (see Note 12). For consolidated subsidiaries that are ~~less than~~not 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 (“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 (“balance sheets”).


		47		~~June 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~~Note 1 ~~and 2~~ to the financial statements in the ~~2017~~2018 Form~~Form~~ 10-K.


		39		March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

2. Significant Accounting Policies

For a detailed discussion about the Firm’s significant accounting policies, see Note 2 to the financial statements in the ~~2017~~2018 Form10-K.

During the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 (“current ~~year period”~~quarter”), there were no significant revisions to the Firm’s significant accounting policies, other than for ~~Carried Interest 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 Updates Adopted

The Firm adopted the following accounting updates ~~in the current year period.~~on January 1, 2019. Prior ~~period results~~periods are presented under previous policies. ~~See Note 14 for a summary of the Retained earnings impacts of these~~

Leases

The Firm adoptedLeases, and ~~other minor adoptions effective~~recognized leases with terms exceeding one year in the ~~current year period.~~

~~Revenue from Contracts with Customers~~

~~On January 1, 2018, we adopted~~~~Revenue from Contracts with Customers~~ ~~using the modified retrospective method, which~~March 31, 2019 balance sheet asright-of-use (“ROU”) assets and corresponding liabilities. The adoption resulted in ~~a net decrease~~an increase to Retained earnings of ~~$32~~approximately $63 million, net of ~~tax.~~tax, related to deferred revenue from previously recorded sale-leaseback transactions. At transition on January 1, 2019, the adoption also resulted in a balancesheet gross-up of approximately $4 billion reflected in Other assets and Other liabilities and accrued expenses. See Note 11 for lease disclosures, including amounts reflected in the March 31, 2019 balance sheet. Prior period amounts were not restated.

~~Our revised accounting policy in accordance with this adoption is effective January 1, 2018,~~As allowed by the guidance, the Firm elected not to reassess the following at transition: whether existing contracts are or contain leases, and ~~is discussed below.~~for existing leases, lease classification and initial direct costs. In addition, the Firm continues to account for existing land easements as service contracts.

~~Revenue Recognition~~

~~Revenues~~Both at transition and for new leases thereafter, ROU assets and lease liabilities are initially recognized ~~when the promised goods or services are delivered to our customers, in an amount that is~~ based on the ~~consideration~~present value of the future minimum lease payments over the lease term, includingnon-lease components such as fixed common area maintenance costs and other fixed costs such as real estate taxes and insurance.

The discount rates used in determining the present value of leases are the Firm’s incremental borrowing rates, developed based upon each lease’s term and currency of payment. The lease term includes options to extend or terminate the lease when it is reasonably certain that the Firm ~~expects to receive in exchange for those goods or services when such amounts are not probable of significant reversal.~~will exercise that option. For operating leases, the ROU assets also include any

•

~~Investment Banking~~

~~Revenue from investment banking activities consists of revenues earned from underwriting primarily equity~~prepaid lease payments and ~~fixed income securities~~initial direct costs incurred 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 the amount to be paid. Underwriting costs are deferred and recognized in the relevantnon-interest~~ ~~expenses 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 relevant~~non-interest~~ ~~expenses 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~~lease incentives. For these leases, lease expense ~~caps, if any, provided to the customer.~~


~~June 2018 Form 10-Q~~		48

~~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~~recognized on 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 itsopen-end~~ ~~mutual fund products are accounted for as deferred commission assets and amortized to expense~~straight-line basis over the ~~expected life of~~lease term if the ~~contract. The Firm periodically tests deferred commission assets for recoverability based on cash flows expected to be received in future periods. Other~~ROU asset ~~management and distribution costs are recognized as incurred in the relevantnon-interest~~ ~~expenses line items.~~

•

~~Other Items~~

~~Revenue from commodities-related contracts is recognized as the promised goods~~has not been impaired 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.abandoned.

Derivatives and ~~Hedging–Targeted Improvements to Accounting for~~ Hedging ~~Activities~~(ASU 2018-16)

~~This accounting~~The amendments in this update ~~aims to better align~~permit use of the OIS rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting ~~requirements with an entity’s risk management~~

~~strategies and improve the financial reporting of~~purposes. The Firm adopted this update on a prospective basis for qualifying new or redesignated hedging relationships. ~~It also results in simplification of~~This update did not impact the ~~application of hedge accounting related to the assessment of hedge effectiveness.~~

~~The Firm early adopted this accounting update in the first quarter of 2018. Upon adoption, the Firm recorded a~~Firm’s~~cumulative catch-up adjustment,~~pre-existing decreasing Retained earnings by $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 effects 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 other adjustments to deferred tax assets 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.


		49		~~June 2018 Form 10-Q~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

hedges.

3. Fair Values

Recurring Fair Value ~~Measurement~~Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

At June 30, 2018
$ in millions Level 1 Level 2 Level 3 Netting¹ Total
Assets at fair value

Trading assets:

U.S. Treasury and agency securities
$ 25,629 $ 24,986 $ — $ — $ 50,615
Other sovereign government obligations
24,899 6,680 5 — 31,584
State and municipal securities
— 3,602 2 — 3,604
MABS
— 1,913 327 — 2,240
Loans and lending commitments²
— 6,996 6,923 — 13,919
Corporate and other debt
— 19,335 701 — 20,036
Corporate equities³
106,657 512 171 — 107,340
Derivative and other contracts:

Interest rate
953 166,598 1,118 — 168,669
Credit
— 5,414 406 — 5,820
Foreign exchange
88 65,440 67 — 65,595
Equity
862 44,608 1,177 — 46,647
Commodity and other
278 6,795 4,652 — 11,725
Netting¹
(1,302 ) (215,518 ) (1,693 ) (47,389 ) (265,902 )
Total derivative and other contracts
879 73,337 5,727 (47,389 ) 32,554
Investments⁴
519 411 941 — 1,871
Physical commodities
— 255 — — 255
Total trading assets⁴
158,583 138,027 14,797 (47,389 ) 264,018
Investment securities—AFS
31,601 25,103 — — 56,704
Intangible assets
— 3 — — 3
Total assets
at fair value
$ 190,184 $ 163,133 $ 14,797 $ (47,389 ) $ 320,725

At June 30, 2018
$ in millions Level 1 Level 2 Level 3 Netting¹ Total
Liabilities at fair value

Deposits
$ — $ 248 $ 37 $ — $ 285
Trading liabilities:

U.S. Treasury and
agency securities
15,625 26 — — 15,651
Other sovereign
government obligations
22,059 2,796 — — 24,855
Corporate and other debt
— 8,370 1 — 8,371
Corporate equities³
62,807 809 24 — 63,640
Derivative and other contracts:

Interest rate
1,105 152,302 551 — 153,958
Credit
— 5,735 408 — 6,143
Foreign exchange
15 61,612 93 — 61,720
Equity
831 44,460 2,712 — 48,003
Commodity and other
614 7,580 2,620 — 10,814
Netting¹
(1,302 ) (215,518 ) (1,693 ) (35,283 ) (253,796 )
Total derivative and
other contracts
1,263 56,171 4,691 (35,283 ) 26,842
Total trading liabilities
101,754 68,172 4,716 (35,283 ) 139,359
Securities sold under
agreements to repurchase
— 788 — — 788
Other secured financings
— 3,436 170 — 3,606
Borrowings
— 47,055 3,295 — 50,350
Total liabilities
at fair value
$ 101,754 $ 119,699 $ 8,218 $ (35,283 ) $ 194,388


	At March 31, 2019
$ in millions	Level 1			Level 2			Level 3			Netting¹			Total
Assets at fair value
Trading assets:
U.S. Treasury and agency securities	$	47,877		$	22,821		$	7		$	—		$	70,705
Other sovereign government obligations		29,063			4,890			5			—			33,958
State and municipal securities		—			3,175			12			—			3,187
MABS		—			1,864			301			—			2,165
Loans and lending commitments²		—			5,012			6,343			—			11,355
Corporate and other debt		—			20,014			1,061			—			21,075
Corporate equities³		88,020			527			152			—			88,699
Derivative and other contracts:
Interest rate		3,238			166,248			998			—			170,484
Credit		—			5,696			485			—			6,181
Foreign exchange		22			60,900			59			—			60,981
Equity		1,621			38,006			1,293			—			40,920
Commodity and other		593			7,002			2,902			—			10,497
Netting¹		(3,633	)		(212,585	)		(873	)		(43,036	)		(260,127	)
Total derivative and other contracts		1,841			65,267			4,864			(43,036	)		28,936
Investments⁴		369			149			974			—			1,492
Physical commodities		—			441			—			—			441
Total trading assets⁴		167,170			124,160			13,719			(43,036	)		262,013
Investment securities—AFS		32,527			29,114			—			—			61,641
Securities purchased under agreements to resell		—			5			—			—			5
Total assets at fair value	$	199,697		$	153,279		$	13,719		$	(43,036)		$	323,659


~~June 2018~~March 2019 Form 10-Q		5040

LOGO

Notes to Consolidated Financial Statements

(Unaudited)


		At December 31, 2017																At March 31, 2019
$ in millions		Level 1			Level 2			Level 3			Netting¹			Total				Level 1			Level 2			Level 3			Netting¹			Total
Assets at fair value
Trading assets:
Liabilities at fair value
Deposits																		$	—		$	593		$	99		$	—		$	692
Trading liabilities:
U.S. Treasury and agency securities		$	22,077		$	26,888		$	—		$	—		$	48,965				13,169			251			—			—			13,420
Other sovereign government obligations			20,234			7,825			1			—			28,060				25,301			1,970			—			—			27,271
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				—			9,030			23			—			9,053
Corporate equities³			149,697			492			166			—			150,355				64,961			94			20			—			65,075
Derivative and other contracts:	Derivative and other contracts:																Derivative and other contracts:
Interest rate			472			178,704			1,763			—			180,939				3,271			155,949			447			—			159,667
Credit			—			7,602			420			—			8,022				—			6,019			746			—			6,765
Foreign exchange			58			53,724			15			—			53,797				11			59,864			54			—			59,929
Equity			1,101			40,359			3,530			—			44,990				1,393			40,912			3,053			—			45,358
Commodity and other			1,126			5,390			4,147			—			10,663				732			5,444			796			—			6,972
Netting¹			(2,088	)		(216,764	)		(1,575	)		(47,171	)		(267,598	)			(3,633	)		(212,585	)		(873	)		(31,854	)		(248,945	)
Total derivative and other contracts			669			69,015			8,300			(47,171	)		30,813				1,774			55,603			4,223			(31,854	)		29,746
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
Total trading liabilities																			105,205			66,948			4,266			(31,854	)		144,565
Securities sold under agreements to repurchase																			—			622			—			—			622
Other secured financings																			—			4,130			153			—			4,283
Borrowings																			—			52,689			3,775			—			56,464
Total liabilities at fair value																		$	105,205		$	124,982		$	8,293		$	(31,854	)	$	206,626


	At December 31, 2018
$ in millions	Level 1			Level 2			Level 3			Netting¹			Total
Assets at fair value
Trading assets:
U.S. Treasury and agency securities	$	38,767		$	29,594		$	54		$	—		$	68,415
Other sovereign government obligations		28,395			5,529			17			—			33,941
State and municipal securities		—			3,161			148			—			3,309
MABS		—			2,154			354			—			2,508
Loans and lending commitments²		—			4,055			6,870			—			10,925
Corporate and other debt		—			18,129			1,076			—			19,205
Corporate equities³		93,626			522			95			—			94,243
Derivative and other contracts:
Interest rate		2,793			155,027			1,045			—			158,865
Credit		—			5,707			421			—			6,128
Foreign exchange		62			63,023			161			—			63,246
Equity		1,256			45,596			1,022			—			47,874
Commodity and other		963			8,517			2,992			—			12,472
Netting¹		(4,151	)		(210,190	)		(896	)		(44,175	)		(259,412	)
Total derivative and other contracts		923			67,680			4,745			(44,175	)		29,173
Investments⁴		412			293			757			—			1,462
Physical commodities		—			536			—			—			536
Total trading assets⁴		162,123			131,653			14,116			(44,175	)		263,717
Investment securities—AFS		36,399			24,662			—			—			61,061
Intangible assets		—			5			—			—			5
Total assets at fair value	$	198,522		$	156,320		$	14,116		$	(44,175	)	$	324,783


		At December 31, 2017																At December 31, 2018
$ in millions		Level 1			Level 2			Level 3			Netting¹			Total				Level 1			Level 2			Level 3			Netting¹			Total
Liabilities at fair value	Liabilities at fair value																Liabilities at fair value
Deposits		$	—		$	157		$	47		$	—		$	204			$	—		$	415		$	27		$	—		$	442
Trading liabilities:
U.S. Treasury and agency securities			17,802			24			—			—			17,826				11,272			543			—			—			11,815
Other sovereign government obligations			24,857			2,016			—			—			26,873				21,391			1,454			—			—			22,845
Corporate and other debt			—			7,141			3			—			7,144				—			8,550			1			—			8,551
Corporate equities³			52,653			82			22			—			52,757				56,064			199			15			—			56,278
Derivative and other contracts:	Derivative and other contracts:																Derivative and other contracts:
Interest rate			364			162,239			545			—			163,148				2,927			142,746			427			—			146,100
Credit			—			8,166			379			—			8,545				—			5,772			381			—			6,153
Foreign exchange			23			55,118			127			—			55,268				41			63,379			86			—			63,506
Equity			1,001			44,666			2,322			—			47,989				1,042			47,091			2,507			—			50,640
Commodity and other			1,032			5,156			2,701			—			8,889				1,228			6,872			940			—			9,040
Netting¹			(2,088	)		(216,764	)		(1,575	)		(36,717	)		(257,144	)			(4,151	)		(210,190	)		(896	)		(32,944	)		(248,181	)
Total derivative and other contracts			332			58,581			4,499			(36,717	)		26,695				1,087			55,670			3,445			(32,944	)		27,258
Total trading liabilities			95,644			67,844			4,524			(36,717	)		131,295				89,814			66,416			3,461			(32,944	)		126,747
Securities sold under agreements to repurchase			—			650			150			—			800				—			812			—			—			812
Other secured financings			—			3,624			239			—			3,863				—			5,037			208			—			5,245
Borrowings			—			43,928			2,984			—			46,912				—			47,378			3,806			—			51,184
Total liabilities at fair value		$	95,644		$	116,203		$	7,944		$	(36,717	)	$	183,074			$	89,814		$	120,058		$	7,502		$	(32,944	)	$	184,430

MABS—Mortgage-

and asset-backed securities

For positions with the same counterparty ~~that cross over the~~classified in different levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled “Netting.” Positions classified within the same level that are with the same counterparty are netted within the column for that level. For further information on derivative instruments and hedging activities, see Note 4.

2.	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 based on NAV per share, which are not classified in the fair value hierarchy. For additional disclosure about such investments, see ~~“Measured Based on Net~~“Net Asset ~~Value”~~Value Measurements—Fund Interests” herein.

~~Loans and Lending Commitments at Fair Value~~


Breakdown of Loans and Lending Commitments at Fair Value
$ in millions	At March 31, 2019		At December 31, 2018
Corporate	$	8,307	$	9,171
Residential real estate		1,282		1,153
Commercial real estate		1,766		601
Total	$	11,355	$	10,925

$ in millions
At
June 30, 2018

At
December 31, 2017

Corporate
   $ 8,752    $ 8,358
Residential real estate
   1,334    799
Wholesale real estate
   3,833    1,579
Total
   $ 13,919    $ 10,736


		51		~~June 2018 Form 10-Q~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Unsettled Fair Value of Futures Contracts~~¹


Unsettled Fair Value of Futures Contracts¹					Unsettled Fair Value of Futures Contracts¹
$ in millions	At June 30, 2018		At December 31, 2017			At March 31, 2019		At December 31, 2018
Customer and other receivables, net	$	958	$	831		$	727	$	615

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 financial statements in the ~~2017~~2018 Form10-K. During the current ~~year period,~~quarter, there were no significant revisions made to the Firm’s valuation techniques.

~~Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis~~


		41		March 2019 Form 10-Q

~~The following tables present additional information about Level 3 assets and liabilities measured at fair value on a~~

LOGO

Notes to Consolidated Financial Statements

(Unaudited)


Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
	Three Months Ended March 31,
$ in millions	2019			2018
Assets at Fair value

U.S. Treasury and agency securities
Beginning balance	$	54		$	—
Sales		(50	)		—
Net transfers		3			—
Ending balance	$	7		$	—
Unrealized gains (losses)	$	—		$	—

Other sovereign government obligations
Beginning balance	$	17		$	1
Purchases		2			7
Sales		(2	)		—
Net transfers		(12	)		(1	)
Ending balance	$	5		$	7
Unrealized gains (losses)	$	—		$	—

State and municipal securities
Beginning balance	$	148		$	8
Realized and unrealized gains (losses)		1			—
Purchases		10			1
Sales		(44	)		(7	)
Net transfers		(103	)		—
Ending balance	$	12		$	2
Unrealized gains (losses)	$	1		$	—

MABS
Beginning balance	$	354		$	423
Realized and unrealized gains (losses)		(7	)		77
Purchases		19			64
Sales		(83	)		(238	)
Settlements		(3	)		(16	)
Net transfers		21			32
Ending balance	$	301		$	342
Unrealized gains (losses)	$	(14	)	$	2

Loans and lending commitments
Beginning balance	$	6,870		$	5,945
Realized and unrealized gains (losses)		—			28
Purchases and originations		1,255			3,740
Sales		(108	)		(283	)
Settlements		(820	)		(1,218	)
Net transfers		(854	)		(84	)
Ending balance	$	6,343		$	8,128
Unrealized gains (losses)	$	(7	)	$	(9	)

Corporate and other debt
Beginning balance	$	1,076		$	701
Realized and unrealized gains (losses)		43			1
Purchases		204			350
Sales		(127	)		(243	)
Settlements		(3	)		—
Net transfers		(132	)		5
Ending balance	$	1,061		$	814
Unrealized gains (losses)	$	41		$	(1	)


	Three Months Ended March 31,
$ in millions	2019			2018
Corporate equities
Beginning balance	$	95		$	166
Realized and unrealized gains (losses)		6			—
Purchases		51			166
Sales		(9	)		(132	)
Net transfers		9			33
Ending balance	$	152		$	233
Unrealized gains (losses)	$	7		$	(9	)

Investments
Beginning balance	$	757		$	1,020
Realized and unrealized gains (losses)		10			44
Purchases		10			21
Sales		(4	)		(78	)
Net transfers		201			5
Ending balance	$	974		$	1,012
Unrealized gains (losses)	$	14		$	22

Net derivative and other contracts:
Interest rate
Beginning balance	$	618		$	1,218
Realized and unrealized gains (losses)		(48	)		52
Purchases		24			32
Issuances		(19	)		(41	)
Settlements		(12	)		(81	)
Net transfers		(12	)		(510	)
Ending balance	$	551		$	670
Unrealized gains (losses)	$	(43	)	$	75

Credit
Beginning balance	$	40		$	41
Realized and unrealized gains (losses)		162			(107	)
Purchases		26			—
Issuances		(442	)		—
Settlements		(33	)		38
Net transfers		(14	)		(2	)
Ending balance	$	(261	)	$	(30	)
Unrealized gains (losses)	$	167		$	(109	)

Foreign exchange
Beginning balance	$	75		$	(112	)
Realized and unrealized gains (losses)		(113	)		57
Purchases		1			—
Issuances		—			(31	)
Settlements		8			33
Net transfers		34			20
Ending balance	$	5		$	(33	)
Unrealized gains (losses)	$	3		$	(9	)

Equity
Beginning balance	$	(1,485	)	$	1,208
Realized and unrealized gains (losses)		(191	)		356
Purchases		34			142
Issuances		(193	)		(799	)
Settlements		139			159
Net transfers		(64	)		(51	)
Ending balance	$	(1,760	)	$	1,015
Unrealized gains (losses)	$	(203	)	$	315

recurring basis for the quarter ended June 30, 2018 (“current quarter”) and June 30, 2017 (“prior year quarter”), the current year period and the six months ended June 30, 2017 (“prior year period”).


March 2019 Form 10-Q		42

LOGO

Notes to Consolidated Financial Statements

(Unaudited)


	Three Months Ended March 31,
$ in millions	2019			2018
Commodity and other
Beginning balance	$	2,052		$	1,446
Realized and unrealized gains (losses)		43			217
Purchases		5			13
Issuances		(1	)		(6	)
Settlements		(81	)		(57	)
Net transfers		88			47
Ending balance	$	2,106		$	1,660
Unrealized gains (losses)	$	(25	)	$	149

Liabilities at Fair Value
Deposits
Beginning balance	$	27		$	47
Realized and unrealized losses (gains)		6			(1	)
Issuances		24			9
Settlements		(1	)		(1	)
Net transfers		43			(10	)
Ending balance	$	99		$	44
Unrealized losses (gains)	$	6		$	(1	)

Nonderivative trading liabilities
Beginning balance	$	16		$	25
Realized and unrealized losses (gains)		(1	)		(4	)
Purchases		(6	)		(7	)
Sales		23			15
Net transfers		11			10
Ending balance	$	43		$	39
Unrealized losses (gains)	$	(1	)	$	(4	)

Securities sold under agreements to repurchase
Beginning balance	$	—		$	150
Net transfers		—			(150	)
Ending balance	$	—		$	—
Unrealized losses (gains)	$	—		$	—

Other secured financings
Beginning balance	$	208		$	239
Realized and unrealized losses (gains)		4			(13	)
Issuances		—			4
Settlements		(7	)		(10	)
Net transfers		(52	)		—
Ending balance	$	153		$	220
Unrealized losses (gains)	$	4		$	(13	)

Borrowings
Beginning balance	$	3,806		$	2,984
Realized and unrealized losses (gains)		287			(102	)
Issuances		264			640
Settlements		(115	)		(83	)
Net transfers		(467	)		187
Ending balance	$	3,775		$	3,626
Unrealized losses (gains)	$	276		$	(99	)
Portion of Unrealized losses (gains) recorded in OCI—Change in net DVA		59			(44	)

Level 3 instruments may be hedged with instruments classified in Level 1 and Level 2. ~~As a result, the~~The realized and unrealized gains (losses) for assets and liabilities within the Level 3 category presented in the ~~following~~previous 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, the~~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 income statements.

~~Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for~~Additionally, in the ~~Current Quarter~~

$ in millions Beginning
Balance at
March 31,
2018 Realized and
Unrealized
Gains
(Losses) Purchases¹ Sales and
Issuances² Settlements¹ Net
Transfers Ending
Balance at
June 30,
2018 Unrealized
Gains (Losses)
Assets at Fair Value

Trading assets:

Other sovereign government obligations
$ 7 $ (3 ) $ 2 $ (1 ) $ — $ — $ 5 $ —
State and municipal securities
2 — 1 (1 ) — — 2 —
MABS
342 — 35 (88 ) (7 ) 45 327 (6 )
Loans and lending commitments
8,128 (62 ) 1,726 (615 ) (1,781 ) (473 ) 6,923 (78 )
Corporate and other debt
814 37 166 (194 ) (3 ) (119 ) 701 5
Corporate equities
233 (4 ) 21 (25 ) — (54 ) 171 (3 )
Net derivative and other contracts³:

Interest rate
670 (75 ) 61 (24 ) (45 ) (20 ) 567 (99 )
Credit
(30 ) 111 15 (41 ) (57 ) — (2 ) 115
Foreign exchange
(33 ) 37 — (19 ) (3 ) (8 ) (26 ) 43
Equity⁴
1,015 51 29 (191 ) 185 (2,624 ) (1,535 ) (14 )
Commodity and other
1,660 170 1 (3 ) 122 82 2,032 107
Total net derivative and other contracts
3,282 294 106 (278 ) 202 (2,570 ) 1,036 152
Investments
1,012 (8 ) 17 (28 ) — (52 ) 941 2
Liabilities at Fair Value

Deposits
$ 44 $ 1 $ — $ 5 $ — $ (11 ) $ 37 $ 1
Trading liabilities:

Other sovereign government obligations
3 — (3 ) — — — — —
Corporate and other debt
4 — (6 ) 4 — (1 ) 1 —
Corporate equities
32 3 (8 ) 3 — — 24 2
Other secured financings
220 5 — 4 (8 ) (41 ) 170 5
Borrowings
3,626 130 — 306 (141 ) (366 ) 3,295 133

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 derivatives 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.

4.	~~During the current quarter, the Firm transferred from Level 3 to Level 2 $2.6 billion of Equity Derivatives due to a reduction in the significance of the unobservable inputs relating to volatility.~~


~~June 2018 Form 10-Q~~		52

~~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
March 31,
2017 Realized and
Unrealized
Gains
(Losses) Purchases¹ Sales and
Issuances² Settlements¹ Net
Transfers Ending
Balance at
June 30,
2017 Unrealized
Gains (Losses)
Assets at Fair Value

Trading assets:

U.S. Treasury and agency securities
$ 42 $ — $ — $ — $ — $ (42 ) $ — $ —
Other sovereign government obligations
65 — 87 (52 ) — — 100 —
State and municipal securities
55 3 3 (52 ) — — 9 —
MABS
216 36 32 (44 ) (5 ) 29 264 8
Loans and lending commitments
4,479 27 1,242 (417 ) (581 ) 114 4,864 11
Corporate and other debt
717 33 206 (292 ) (1 ) 30 693 26
Corporate equities
310 8 101 (60 ) — 141 500 9
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
36 — (135 ) 124 — (10 ) 15 (1 )
Corporate equities
2 (12 ) (36 ) 45 — 5 28 (11 )
Securities sold under agreements to repurchase
148 — — — — — 148 —
Other secured financings
203 (4 ) — 38 (1 ) — 244 (4 )
Borrowings
2,092 (45 ) — 694 (145 ) (40 ) 2,646 (49 )

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 derivatives 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.


		53		~~June 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 Current Year Period~~

$ in millions Beginning
Balance at
December 31,
2017
Realized and
Unrealized
Gains
(Losses)
Purchases¹ Sales and
Issuances² Settlements¹ Net Transfers Ending
Balance at
June 30,
2018 Unrealized Gains
(Losses)
Assets at fair value

Trading assets:

Other sovereign government obligations
$ 1 $ — $ 4 $ — $ — $ — $ 5 $ —
State and municipal securities
8 — 1 (7 ) — — 2 —
MABS
423 76 74 (282 ) (12 ) 48 327 —
Loans and lending commitments
5,945 (6 ) 3,841 (913 ) (1,531 ) (413 ) 6,923 (61 )
Corporate and other debt
701 43 366 (165 ) (1 ) (243 ) 701 6
Corporate equities
166 2 43 (49 ) — 9 171 (7 )
Net derivative and other contracts³:

Interest rate
1,218 (1 ) 69 (51 ) (131 ) (537 ) 567 (13 )
Credit
41 (22 ) 4 (40 ) 17 (2 ) (2 ) (28 )
Foreign exchange
(112 ) 96 — (46 ) 46 (10 ) (26 ) 28
Equity⁴
1,208 163 94 (930 ) 294 (2,364 ) (1,535 ) 135
Commodity and other
1,446 392 35 (6 ) 7 158 2,032 230
Total net derivative and other contracts
3,801 628 202 (1,073 ) 233 (2,755 ) 1,036 352
Investments
1,020 23 64 (133 ) — (33 ) 941 7
Liabilities at fair value

Deposits
$ 47 $ 1 $ — $ 10 $ (1 ) $ (18 ) $ 37 $ 1
Trading liabilities:

Corporate and other debt
3 — (9 ) 7 — — 1 —
Corporate equities
22 6 (10 ) 15 — 3 24 4
Securities sold under agreements to repurchase
150 — — — — (150 ) — —
Other secured financings
239 17 — 7 (18 ) (41 ) 170 17
Borrowings
2,984 201 — 825 (195 ) (118 ) 3,295 199

1.	~~Loan originations and~~previous tables, 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.

4.	During the current year period, the Firm transferred from Level 3 to Level 2 $2.4 billion of Equity Derivatives due to a reduction in the significance of the unobservable inputs relating to volatility.


~~June 2018 Form 10-Q~~		54

~~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 Period~~

$ 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)
Assets at fair value

Trading assets:

U.S. Treasury and agency securities
$ 74 $ (1 ) $ — $ (240 ) $ — $ 167 $ — $ —
Other sovereign government obligations
6 — 98 (4 ) — — 100 —
State and municipal securities
250 3 3 (77 ) — (170 ) 9 —
MABS
217 44 78 (83 ) (16 ) 24 264 27
Loans and lending commitments
5,122 89 1,596 (1,002 ) (1,146 ) 205 4,864 41
Corporate and other debt
475 31 290 (225 ) (2 ) 124 693 30
Corporate equities
446 10 97 (159 ) — 106 500 15
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 )
Trading liabilities:

Corporate and other debt
36 — (164 ) 129 — 14 15 —
Corporate equities
35 — (63 ) 5 — 51 28 —
Securities sold under agreements to repurchase
149 1 — — — — 148 1
Other secured financings
434 (23 ) — 52 (221 ) (44 ) 244 (16 )
Borrowings
2,014 (104 ) — 981 (288 ) (165 ) 2,646 (95 )

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


Valuation Techniques and Unobservable Inputs

		Balance / Range (Average¹)
$ in millions, except inputs		At March 31, 2019		At December 31, 2018
Assets Measured at Fair Value on a Recurring Basis
MABS	$	301	$	354
Comparable pricing:
Bond price		1 to 91 points (37 points)		0 to 97 points (38 points)
Loans and lending commitments	$	6,343	$	6,870
Margin loan model:
Discount rate		1% to 6% (2%)		1% to 7% (2%)
Volatility skew		18% to 57% (25%)		19% to 56% (28%)
Credit Spread		11 to 62 bps (27 bps)		14 to 90 bps (36 bps)
Comparable pricing:
Loan price		85 to 104 points (98 points)		60 to 101 points (95 points)
Corporate and other debt	$	1,061	$	1,076
Comparable pricing:
Bond price		12 to 100 points (72 points)		12 to 100 points (72 points)
Discounted cash flow:
Recovery rate		27%		20%
Discount rate		N/M		15% to 21% (16%)
Option model:
At the money volatility		24% to 70% (56%)		24% to 78% (50%)
Corporate equities	$	152		$95
Comparable pricing:
Equity price		100%		100%
Investments	$	974	$	757
Discounted cash flow:
WACC		9% to 16% (11%)		9% to 15% (10%)
Exit multiple		9 to 10 times (10 times)		7 to 10 times (10 times)
Market approach:
EBITDA multiple		5 to 24 times (10 times)		6 to 24 times (12 times)
Comparable pricing:
Equity price		75% to 100% (99%)		75% to 100% (96%)
Net derivative and other contracts:
Interest rate	$	551	$	618
Option model:
IR volatility skew		23% to 98% (59% / 61%)		22% to 95% (48% / 51%)
Inflation volatility		22% to 62% (42% / 39%)		23% to 65% (44% / 40%)
IR curve		1%		1%


		43		March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)



	Balance / Range (Average¹)
$ in millions, except inputs	At March 31, 2019			At December 31, 2018

Credit	$	(261	)	$	40

Comparable pricing:

Cash-synthetic basis		12 points			8 to 9 points (9 points	)

Bond price		0 to 83 points (38 points	)		0 to 75 points (26 points	)

Credit spread		227 to 584 bps (307 bps	)		246 to 499 bps (380 bps	)

Funding spread		42 to 112 bps (91 bps	)		47 to 98 bps (93 bps	)

Correlation model:

Credit correlation		36% to 68% (42%	)		36% to 69% (44%	)

Foreign exchange²	$	5		$	75

Option model:

IR FX correlation		5% to 57% (36% / 36%	)		53% to 56% (55% / 55%	)

IR volatility skew		23% to 98% (59% / 61%	)		22% to 95% (48% / 51%	)

Contingency probability		80% to 95% (90% / 90%	)		90% to 95% (93% / 95%	)

Equity²	$	(1,760	)	$	(1,485	)

Option model:

At the money volatility		6% to 69% (36%	)		17% to 63% (38%	)

Volatility skew		-2% to 0%(-1%	)		-2% to 0%(-1%	)

Equity correlation		5% to 96% (65%	)		5% to 96% (71%	)

FX correlation		-60% to 55%(-21%	)		-60% to 55%(-26%	)

IR correlation		-7% to 45% (16% / 13%	)		-7% to 45% (15% / 12%	)

Commodity and other	$	2,106		$	2,052

Option model:

Forward power price	$	4 to $172 ($30) per MWh		$	3 to $185 ($31) per MWh

Commodity volatility		7% to 130% (16%	)		7% to 187% (17%	)

Cross-commodity correlation		5% to 99% (93%	)		5% to 99% (93%	)

Liabilities Measured at Fair Value on a Recurring Basis

Deposits	$	99		$	27

Option Model

At the money volatility		15% to 42% (21%	)		N/M

Other secured financings	$	153		$	208

Discounted cash flow:

Funding spread		112 to 205 bps (158 bps	)		103 to 193 bps (148 bps	)

Option model:

Volatility skew		N/M			-1%

At the money volatility		10% to 40% (26%	)		10% to 40% (25%	)

Borrowings	$	3,775		$	3,806

Option model:

At the money volatility		6% to 34% (21%	)		5% to 35% (22%	)

Volatility skew		-2% to 0% (0%	)		-2% to 0% (0%	)

Equity correlation		38% to 98% (81%	)		45% to 98% (85%	)

Equity - FX correlation		-55% to 30%(-27%	)		-75% to 50%(-27%	)

IR Correlation		N/M			58% to 97% (85% / 91%	)

IR FX Correlation		27% to 58% (39% / 34%	)		28% to 58% (44% / 44%	)

Nonrecurring Fair Value Measurement

Loans	$	1,166		$	1,380

Corporate loan model:

Credit spread		72 to 366 bps (150 bps	)		97 to 434 bps (181 bps	)

Warehouse model:

Credit spread		262 to 309 bps (299 bps	)		223 to 313 bps (247 bps	)

Points—Percentage of par

IR—Interest rate

FX—Foreign exchange

1.	Amounts represent weighted averages except where simple averages and the median of the inputs are more relevant.

2.	Includes derivative contracts with multiple risks (i.e., hybrid products).

The ~~following disclosures~~previous tables 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 financial statements in the 2017 Form10-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/median).~~average.


		55		~~June 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~~

Predominant Valuation Techniques/
Significant Unobservable Inputs

Range (Weighted Average or Simple Average/Median)¹
$ in millions, except inputs    At June 30, 2018    At December 31, 2017
Recurring Fair Value Measurement

Assets at fair value

MABS ($327 and $423)

Comparable pricing:
Comparable bond price    0 to 100 points (44 points)    0 to 95 points (26 points)
Loans and lending commitments ($6,923and $5,945)

Margin loan model:
Discount rate    1% to 5% (2%)    0% to 3% (1%)
Volatility skew    15% to 55% (24%)    7% to 41% (22%)
Comparable pricing:
Comparable loan price    55 to 101 points (94 points)    55 to 102 points (95 points)
Corporate and other debt ($701 and $701)

Comparable pricing:
Comparable bond price    0 to 101 points (74 points)    3 to 134 points (59 points)
Discounted cash flow:
Recovery rate    18%    6% to 36% (27%)
Discount rate    8% to 20% (15%)    7% to 20% (14%)
Option model:
At the money volatility    15% to 51% (38%)    17% to 52% (52%)
Corporate equities ($171 and $166)

Comparable pricing:
Comparable equity price    100%    100%
Net derivative and other contracts²:

Interest rate ($567 and $1,218)

Option model:
Interest rate volatility skew    28% to 94% (39% / 43%)    31% to 97% (41% / 47%)
Inflation volatility    26% to 66% (46% / 43%)    23% to 63% (44% / 41%)
Interest rate curve    2%    2%
Credit ($(2)and $41)

Comparable pricing:
Cash synthetic basis    9 to 10 points (9 points)    12 to 13 points (12 points)
Comparable bond price    0 to 75 points (28 points)    0 to 75 points (25 points)
Correlation model:
Credit correlation    36% to 63% (48%)    38% to 100% (48%)
Foreign exchange³ ($(26)and $(112))

Option model:
Interest rate - Foreign exchange correlation    53% to 56% (55% / 55%)    54% to 57% (56% / 56%)
Interest rate volatility skew    28% to 94% (39% / 43%)    31% to 97% (41% / 47%)
Contingency probability    95% to 99% (97% / 97%)    95% to 100% (96% / 95%)
Equity³ ($(1,535) and $1,208)

Option model:
At the money volatility    15% to 56% (34%)    7% to 54% (32%)
Volatility skew    -3% to 0%(-1%)    -5% to 0%(-1%)
Equity - Equity correlation    5% to 99% (80%)    5% to 99% (76%)
Equity - Foreign exchange correlation    -60% to 55%(-55%)    -55% to 40% (36%)
Equity - Interest rate correlation    -7% to 47% (15% / 10%)    -7% to 49% (18% / 20%)
Commodity and other ($2,032 and $1,446)

Option model:
Forward power price    $6 to $133 ($30) per MWh    $4 to $102 ($31) per MWh
Commodity volatility    5% to 219% (14%)    7% to 205% (17%)
Cross-commodity correlation    5% to 99% (91%)    5% to 99% (92%)
Investments ($941 and $1,020)

Discounted cash flow:
WACC    8% to 15% (9%)    8% to 15% (9%)
Exit multiple    8 to 10 times (10 times)    8 to 11 times (10 times)
Market approach:
EBITDA multiple    3 to 24 times (13 times)    6 to 25 times (11 times)
Comparable pricing:
Comparable equity price    35% to 100% (93%)    45% to 100% (92%)


~~June 2018 Form 10-Q~~		56

~~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 June 30, 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 (~~~~$170~~ ~~and $239)~~
~~Discounted cash flow:~~	~~Funding spread~~	~~25 to 73 bps (49 bps)~~	~~39 to 76 bps (57 bps)~~
~~Option model:~~	~~Volatility skew~~	~~N/A~~	~~-1%~~
	~~At the money volatility~~	~~10% to 40% (27%)~~	~~10% to 40% (26%)~~
~~Borrowings (~~~~$3,295~~~~and $2,984)~~
~~Option model:~~	~~At the money volatility~~	~~6% to 35% (23%)~~	~~5% to 35% (22%)~~
	~~Volatility skew~~	~~-2% to 0% (0%)~~	~~-2% to 0% (0%)~~
	~~Equity - Equity correlation~~	~~45% to 95% (84%)~~	~~39% to 95% (86%)~~
	~~Equity - Foreign exchange correlation~~	~~-51% to 30%(-27%)~~	~~-55% to 10%(-18%)~~
~~Nonrecurring Fair Value Measurement~~
~~Assets at fair value~~
~~Loans (~~~~$1,058~~~~and $924)~~
~~Corporate loan model:~~	~~Credit spread~~	~~95 to 427 bps (166 bps)~~	~~93 to 563 bps (239 bps)~~
~~Expected recovery:~~	~~Asset coverage~~	~~N/M~~	~~95% to 99% (95%)~~

~~Points—Percentage of par~~

1.	~~Amounts represent weighted averages except where simple averages and the median of the inputs are more relevant.~~

CVA and FVA are included in the balance but excluded from the Valuation Technique(s) and Significant Unobservable Inputs. CVA is a Level 3 input when the underlying counterparty credit curve is unobservable. FVA is a Level 3 input in its entirety given the lack of observability of funding spreads in the principal market.

3.	~~Includes derivative contracts with multiple risks (~~~~i.e.~~~~, hybrid products).~~

For a description of the Firm’s significant unobservable inputs and ~~related sensitivity,~~qualitative information about the effect of hypothetical changes in the values of those inputs, see Note 3 to the financial statements in the ~~2017~~2018 Form10-K. During the current ~~year period,~~quarter, there were no significant revisions made to the descriptions of the Firm’s significant unobservable inputs.

~~Measured Based on~~ Net Asset Value

~~For a description of the Firm’s investments in private equity funds, real estate funds and hedge funds, which are measured based on NAV, see Note 3 to the financial statements in the 2017 Form10-K.~~ Measurements


Fund Interests									Fund Interests
	At June 30, 2018				At December 31, 2017					At March 31, 2019				At December 31, 2018
$ in millions	Carrying Value		Commitment		Carrying Value		Commitment			Carrying Value		Commitment		Carrying Value		Commitment
Private equity	$	1,571	$	289	$	1,674	$	308		$	1,455	$	314	$	1,374	$	316
Real estate		753		174		800		183			1,248		149		1,105		161
Hedge¹		96		4		90		4			102		4		103		4
Total	$	2,420	$	467	$	2,564	$	495		$	2,805	$	467	$	2,582	$	481

1.	Investments in hedge funds may be subject to initial periodlock-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.

For a description of the Firm’s investments in private equity funds, real estate funds and hedge funds, which are measured based on NAV, see Note 3 to the financial statements in the 2018 Form10-K.

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 the fund 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~~performance-based fees in the form of carried ~~interest.~~interest previously received. See Note 18 for information regarding carried interest at risk of reversal.


March 2019 Form 10-Q		44

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

Nonredeemable Funds by Contractual Maturity

   Carrying Value at June 30, 2018
$ in millions    Private Equity          Real Estate
Less than 5 years
   $ 481    $ 53
5-10 years
   886    483
Over 10 years
   204    217
Total
   $ 1,571    $ 753

~~Fair~~

Carrying Value ~~Option~~at March 31, 2019

$ in millions

Private Equity

Real Estate

Less than 5 years

705

634

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.5-10 years

723

555

Over 10 years

Total

1,455

1,248

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 the complexities of applying certain accounting models.

Borrowings Measured at Fair Value on a Recurring Basis


		57		~~June 2018 Form 10-Q~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


$ in millions	At March 31, 2019		At December 31, 2018
Business Unit Responsible for Risk Management
Equity	$	27,807	$	24,494
Interest rates		23,945		22,343
Commodities		3,209		2,735
Credit		981		856
Foreign exchange		522		756
Total	$	56,464	$	51,184

Earnings Impact of Borrowings under the Fair Value Option


	Three Months Ended March 31,
$ in millions	2019			2018
Trading revenues	$	(2,903	)	$	26
Interest expense		(93	)		(102	)
Net revenues¹	$	(2,996	)	$	(76	)

~~Earnings Impact of Borrowings under the Fair Value Option~~

Three Months Ended
June 30,

Six Months Ended
June 30,

$ in millions 2018 2017 2018 2017
Trading revenues
$ 859 $ (895 ) $ 885 $ (2,520 )
Interest income (expense)
(73 ) (112 ) (175 ) (231 )
Net revenues
$ 786 $ (1,007 ) $ 710 $ (2,751 )

~~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~~Amounts do not reflect any gains or losses onfrom related ~~hedging instruments.~~economic hedges.

~~Gains (Losses) Due to Changes in Instrument-Specific Credit Risk~~

   Three Months Ended June 30,
   2018    2017
$ in millions
   Trading
Revenues    OCI    Trading
Revenues    OCI
Borrowings
   $ (3 )    $ 842    $ (4 )    $     (281 )
Loans and other debt¹
   63    —    48    —
Lending commitments²
   1    —    —    —
   Six Months Ended June 30,
   2018    2017
$ in millions
   Trading
Revenues    OCI    Trading
Revenues    OCI
Borrowings
   $ (18 )    $     1,435    $ (8 )    $     (267 )
Securities sold under agreements to repurchase
   —    2    —    (3 )
Loans and other debt¹
   144    —    45    —
Lending commitments²
   3    —    —    —

$ in millions
At
June 30, 2018

At
December 31, 2017

Cumulativepre-tax DVA gain (loss) recognized in AOCI
$ (392 ) $ (1,831 )

Gains (losses) are mainly attributable to movements in the reference price or index, interest rates or foreign exchange rates.

Gains (Losses) Due to Changes in Instrument-Specific Credit Risk


	Three Months Ended March 31,
	2019						2018
$ in millions	Trading Revenues			OCI			Trading Revenues			OCI
Borrowings	$	(4	)	$	(816	)	$	(15	)	$	593
Loans and other debt¹		93			—			81			—
Lending commitments		(1	)		—			2			—
Other		—			(4	)		—			2

$ in millions

March 31,

2019

December 31,

2018

Cumulativepre-tax DVA gain (loss) recognized in AOCI

(648

)

172

1.	Loans and other debt instrument-specific credit gains (losses) were determined by excluding thenon-credit components of gains and losses.

~~Gains (losses) on lending commitments were generally determined based on the difference between estimated expected client yields and contractual yields at each respectiveperiod-end.~~

Excess of Contractual Principal Amount Over Fair Value


$ in millions	At March 31, 2019		At December 31, 2018
Loans and other debt¹	$	13,031	$	13,094
Nonaccrual loans¹		10,677		10,831
Borrowings²		730		2,657

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.

Borrowings ~~Measured at Fair Value~~in this table do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in a ~~Recurring Basis~~

$ in millions
At
June 30,
2018
   At
December 31,
2017
Business Unit Responsible for Risk Management

Equity
   $ 26,139    $ 25,903
Interest rates
   20,541    19,230
Foreign exchange
   822    666
Credit
   845    815
Commodities
   2,003    298
Total
   $ 50,350    $ 46,912

~~Excess of Contractual Principal Amount Over Fair Value~~

$ in millions
At
June 30,
2018
   At
December 31,
2017
Loans and other debt¹
   $ 13,748    $ 13,481
Loans 90 or more days past due and/or on nonaccrual status¹
   10,977    11,253
Borrowings²
   1,830    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.~~reference price or index.

2.	~~Borrowings in this table do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in a reference price or index.~~

~~Fair Value Loans on Nonaccrual Status~~

$ in millions
At
June 30,
2018
   At
December 31,
2017
Nonaccrual loans
   $ 1,705    $ 1,240
Nonaccrual loans 90 or more
days past due
   $ 965    $ 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.~~

~~Measured at Fair Value on a Nonrecurring Basis~~

~~Carrying and Fair Values~~

   At June 30, 2018
   Fair Value
$ in millions    Level 2    Level 3¹    Total
Assets

Loans
   $ 1,481    $ 1,058    $ 2,539
Other assets—Other investments
   17    36    53
Other assets—Premises, equipment and software
   —    —    —
Total
   $ 1,498    $ 1,094    $ 2,592
Liabilities

Other liabilities and accrued expenses—Lending commitments
   $ 210    $ 42    $ 252
Total
   $ 210    $ 42    $ 252

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.

Fair Value Loans on Nonaccrual Status


$ in millions	At March 31, 2019		At December 31, 2018
Nonaccrual loans	$	1,198	$	1,497
Nonaccrual loans 90 or more days past due	$	769	$	812


~~June 2018 Form 10-Q~~		58		45		March 2019 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

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

Nonrecurring Fair Value Measurements

Carrying and Fair Values


	At March 31, 2019
	Fair Value
$ in millions	Level 2		Level 3¹		Total
Assets
Loans	$	2,160	$	1,166	$	3,326
Other assets—Other investments		—		30		30
Other assets—Premises, equipment and software		—		—		—
Total	$	2,160	$	1,196	$	3,356
Liabilities
Other liabilities and accrued expenses—Lending commitments	$	186	$	49	$	235
Total	$	186	$	49	$	235


	At December 31, 2018
	Fair Value
$ in millions	Level 2		Level 3¹		Total
Assets
Loans	$	2,307	$	1,380	$	3,687
Other assets—Other investments		14		100		114
Other assets—Premises, equipment and software		—		—		—
Total	$	2,321	$	1,480	$	3,801
Liabilities
Other liabilities and accrued expenses—Lending commitments	$	292	$	65	$	357
Total	$	292	$	65	$	357

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


	Three Months Ended March 31,
$ in millions	2019			2018
Assets
Loans²	$	36		$	8
Other assets—Other investments		(5	)		—
Other assets—Premises, equipment and software		(2	)		(8	)
Total	$	29		$	—
Liabilities
Other liabilities and accrued expenses—Lending commitments²	$	67		$	6
Total	$	67		$	6

1.	Gains and losses for Loans and Other assets—Other investments are classified in Other revenues. For other items, gains and losses are recorded in Other revenues if the item is held for sale; otherwise they are recorded in Other expenses.

~~Gains (Losses) from Fair Value Remeasurements~~Nonrecurring changes in the fair value of loans and lending commitments were calculated as follows: for the¹held-for-investment

   Three Months Ended
June 30,    Six Months Ended
June 30,
$ in millions    2018    2017    2018    2017
Assets

Loans²
   $ (1 )    $ 20    $ 8    $ 44
Other assets—Other investments³
   (7 )    —    (7 )    —
Other assets—Premises, equipment and software⁴
   (2 )    (1 )    (10 )    (6 )
Total
   $ (10 )    $ 19    $ (9 )    $ 38
Liabilities

Other liabilities and accrued expenses—
Lending commitments²
   $ (30 )    $ 21    $ (12 )    $ 48
Total
   $ (30 )    $ 21    $ (12 )    $ 48

1.	Gains and losses for Loans and Other assets—Other investments are classified in Other revenues. For other items, gains and losses are recorded in Other revenues if the item is held for sale, otherwise in Other expenses.

Nonrecurring changes in the fair value of loans and lending commitments were calculated as follows: for the held for investment category, based on the value of the underlying collateral; and for the held for sale category, based on the value of the underlying collateral; and for theheld-for-sale category, based on recently executed transactions, market price quotations, valuation models that incorporate market observable inputs where possible, such as comparable loan or debt prices and CDS spread levels adjusted for any basis difference between cash and derivative instruments, or default recovery analysis where such transactions and quotations are unobservable.


March 2019 Form 10-Q		46		Losses related to Other assets—Other investments were determined using techniques that included discounted cash flow models, methodologies that incorporate multiples of certain comparable companies and recently executed transactions.

4.	~~Losses related to Other assets—Premises, equipment and software were determined using techniques that included a default recovery analysis and recently executed transactions.~~

~~Financial Instruments Not Measured at Fair Value~~

At June 30, 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
$ 30,176 $ 30,176 $ — $ — $ 30,176
Interest bearing deposits with banks
18,707 18,707 — — 18,707
Restricted cash
32,706 32,706 — — 32,706
Investment securities—HTM
25,244 12,656 11,188 331 24,175
Securities purchased under agreements to resell
93,928 — 93,844 — 93,844
Securities borrowed
153,248 — 153,193 — 153,193
Customer and other receivables¹
55,598 — 52,108 3,305 55,413
Loans²
112,113 — 24,963 86,827 111,790
Other assets
427 — 427 — 427
Financial Liabilities

Deposits
$ 172,517 $ — $ 172,488 $ — $ 172,488
Securities sold under agreements to repurchase
49,862 — 49,398 404 49,802
Securities loaned
12,720 — 12,611 175 12,786
Other secured financings
6,284 — 4,621 1,674 6,295
Customer and other payables¹
198,236 — 198,236 — 198,236
Borrowings
141,894 — 145,351 30 145,381

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

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

Financial Instruments Not Measured at Fair Value

Carrying and Fair Values


	At March 31, 2019
	Carrying Value		Fair Value
$ in millions	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents:
Cash and due from banks	$	35,472	$	35,472	$	—	$	—	$	35,472
Interest bearing deposits with banks		14,498		14,498		—		—		14,498
Restricted cash		30,712		30,712		—		—		30,712
Investment securities—HTM		36,303		21,270		14,218		536		36,024
Securities purchased under agreements to resell		96,565		—		95,841		714		96,555
Securities borrowed		138,891		—		138,891		—		138,891
Customer and other receivables¹		47,854		—		44,907		2,836		47,743
Loans²		116,197		—		24,888		91,610		116,498
Other assets		461		—		461		—		461

Financial liabilities
Deposits	$	179,039	$	—	$	179,168	$	—	$	179,168
Securities sold under agreements to repurchase		47,326		—		46,765		550		47,315
Securities loaned		12,508		—		12,508		—		12,508
Other secured financings		3,760		—		3,539		226		3,765
Customer and other payables¹		189,712		—		189,712		—		189,712
Borrowings		134,227		—		137,906		30		137,936
		Commitment Amount
Lending commitments³	$	113,418	$	—	$	947	$	294	$	1,241


	At December 31, 2018
	Carrying Value		Fair Value
$ in millions	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents:
Cash and due from banks	$	30,541	$	30,541	$	—	$	—	$	30,541
Interest bearing deposits with banks		21,299		21,299		—		—		21,299
Restricted cash		35,356		35,356		—		—		35,356
Investment securities—HTM		30,771		17,473		12,018		474		29,965
Securities purchased under agreements to resell		98,522		—		97,611		866		98,477
Securities borrowed		116,313		—		116,312		—		116,312
Customer and other receivables¹		47,972		—		44,620		3,219		47,839
Loans²		115,579		—		25,604		90,121		115,725
Other assets		461		—		461		—		461

Financial liabilities
Deposits	$	187,378	$	—	$	187,372	$	—	$	187,372
Securities sold under agreements to repurchase		48,947		—		48,385		525		48,910
Securities loaned		11,908		—		11,906		—		11,906
Other secured financings		4,221		—		3,233		994		4,227
Customer and other payables¹		176,561		—		176,561		—		176,561
Borrowings		138,478		—		140,085		30		140,115
		Commitment Amount
Lending commitments³	$	104,844	$	—	$	1,249	$	321	$	1,570

1.	Accrued interest and dividend receivables and payables where carrying value approximates fair value have been excluded.

2.	Amounts include loans measured at fair value on a nonrecurring basis.

			3.	Represents Lending Commitments accounted for as Held for Investment and Held for Sale. For a further discussion on lending commitments, see Note 11.
		59		~~June 2018~~

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.


		47		March 2019 Form 10-Q

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

4. Derivative Instruments and Hedging Activities

Fair Values of Derivative Contracts

At March 31, 2019


	Assets
$ in millions	Bilateral OTC			Cleared OTC			Exchange- Traded			Total
Designated as accounting hedges
Interest rate	$	489		$	1		$	—		$	490
Foreign exchange		107			14			—			121
Total		596			15			—			611
Not designated as accounting hedges
Interest rate		164,693			4,602			699			169,994
Credit		4,327			1,854			—			6,181
Foreign exchange		59,462			1,336			62			60,860
Equity		21,593			—			19,327			40,920
Commodity and other		9,011			—			1,486			10,497
Total		259,086			7,792			21,574			288,452
Total gross derivatives	$	259,682		$	7,807		$	21,574		$	289,063
Amounts offset
Counterparty netting		(194,262	)		(6,453	)		(20,683	)		(221,398	)
Cash collateral netting		(37,487	)		(1,242	)		—			(38,729	)
Total in Trading assets	$	27,933		$	112		$	891		$	28,936
Amounts not offset¹
Financial instruments collateral		(12,603	)		—			—			(12,603	)
Other cash collateral		(59	)		—			—			(59	)
Net amounts	$	15,271		$	112		$	891		$	16,274
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable										$	2,118


	Liabilities
$ in millions	Bilateral OTC			Cleared OTC			Exchange- Traded			Total
Designated as accounting hedges
Interest rate	$	88		$	3		$	—		$	91
Foreign exchange		17			32			—			49
Total		105			35			—			140
Not designated as accounting hedges
Interest rate		155,653			3,395			528			159,576
Credit		4,631			2,134			—			6,765
Foreign exchange		58,577			1,302			1			59,880
Equity		25,681			—			19,677			45,358
Commodity and other		5,514			—			1,458			6,972
Total		250,056			6,831			21,664			278,551
Total gross derivatives	$	250,161		$	6,866		$	21,664		$	278,691
Amounts offset
Counterparty netting		(194,262	)		(6,453	)		(20,683	)		(221,398	)
Cash collateral netting		(27,167	)		(380	)		—			(27,547	)
Total in Trading liabilities	$	28,732		$	33		$	981		$	29,746
Amounts not offset¹
Financial instruments collateral		(8,466	)		—			(392	)		(8,858	)
Other cash collateral		(48	)		(30	)		—			(78	)
Net amounts	$	20,218		$	3		$	589		$	20,810
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable										$	3,116

At December 31, 2018


	Assets
$ in millions	Bilateral OTC			Cleared OTC			Exchange- Traded			Total
Designated as accounting hedges
Interest rate	$	512		$	1		$	—		$	513
Foreign exchange		27			8			—			35
Total		539			9			—			548
Not designated as accounting hedges
Interest rate		153,768			3,887			697			158,352
Credit		4,630			1,498			—			6,128
Foreign exchange		61,846			1,310			55			63,211
Equity		24,590			—			23,284			47,874
Commodity and other		10,538			—			1,934			12,472
Total		255,372			6,695			25,970			288,037
Total gross derivatives	$	255,911		$	6,704		$	25,970		$	288,585
Amounts offset
Counterparty netting		(190,220	)		(5,260	)		(24,548	)		(220,028	)
Cash collateral netting		(38,204	)		(1,180	)		—			(39,384	)
Total in Trading assets	$	27,487		$	264		$	1,422		$	29,173
Amounts not offset¹
Financial instruments collateral		(12,467	)		—			—			(12,467	)
Other cash collateral		(31	)		—			—			(31	)
Net amounts	$	14,989		$	264		$	1,422		$	16,675
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable										$	2,206


	Liabilities
$ in millions	Bilateral OTC			Cleared OTC			Exchange- Traded			Total
Designated as accounting hedges
Interest rate	$	176		$	—		$	—		$	176
Foreign exchange		62			24			—			86
Total		238			24			—			262
Not designated as accounting hedges
Interest rate		142,592			2,669			663			145,924
Credit		4,545			1,608			—			6,153
Foreign exchange		62,099			1,302			19			63,420
Equity		27,119			—			23,521			50,640
Commodity and other		6,983			—			2,057			9,040
Total		243,338			5,579			26,260			275,177
Total gross derivatives	$	243,576		$	5,603		$	26,260		$	275,439
Amounts offset
Counterparty netting		(190,220	)		(5,260	)		(24,548	)		(220,028	)
Cash collateral netting		(27,860	)		(293	)		—			(28,153	)
Total in Trading liabilities	$	25,496		$	50		$	1,712		$	27,258
Amounts not offset¹
Financial instruments collateral		(4,709	)		—			(766	)		(5,475	)
Other cash collateral		(53	)		(1	)		—			(54	)
Net amounts	$	20,734		$	49		$	946		$	21,729
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable										$	4,773

~~Commitments—Held for Investment~~Amounts relate to master netting agreements and ~~Held for Sale~~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.

See Note 3 for information related to the unsettled fair value of futures contracts not designated as accounting hedges, which are excluded from the previous tables.

Commitment
Amount¹
   Fair Value
$ in millions    Level 2    Level 3    Total
June 30, 2018
   $ 122,253    $   820    $   200    $     1,020
December 31, 2017
   100,151    620    174    794

~~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. During the current year period, there were no significant updates made to the Firm’s valuation techniques for financial instruments not measured at fair value.


~~June 2018 Form 10-Q~~		60
March 2019 Form 10-Q		48

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

Notionals of Derivative Contracts

At March 31, 2019


	Assets
$ in billions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	15	$	83	$	—	$	98
Foreign exchange		10		1		—		11
Total		25		84		—		109
Not designated as accounting hedges
Interest rate		4,785		7,900		1,042		13,727
Credit		139		74		—		213
Foreign exchange		2,731		104		13		2,848
Equity		455		—		367		822
Commodity and other		98		—		68		166
Total		8,208		8,078		1,490		17,776
Total gross derivatives	$	8,233	$	8,162	$	1,490	$	17,885


	Liabilities
$ in billions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	2	$	75	$	—	$	77
Foreign exchange		2		1		—		3
Total		4		76		—		80
Not designated as accounting hedges
Interest rate		4,956		7,059		880		12,895
Credit		156		84		—		240
Foreign exchange		2,748		102		12		2,862
Equity		410		—		558		968
Commodity and other		80		—		64		144
Total		8,350		7,245		1,514		17,109
Total gross derivatives	$	8,354	$	7,321	$	1,514	$	17,189

At December 31, 2018


	Assets
$ in billions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	15	$	52	$	—	$	67
Foreign exchange		5		1		—		6
Total		20		53		—		73
Not designated as accounting hedges
Interest rate		4,807		6,708		1,157		12,672
Credit		162		74		—		236
Foreign exchange		2,436		118		14		2,568
Equity		373		—		371		744
Commodity and other		97		—		67		164
Total		7,875		6,900		1,609		16,384
Total gross derivatives	$	7,895	$	6,953	$	1,609	$	16,457


	Liabilities
$ in billions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	2	$	107	$	—	$	109
Foreign exchange		5		1		—		6
Total		7		108		—		115
Not designated as accounting hedges
Interest rate		4,946		5,735		781		11,462
Credit		162		73		—		235
Foreign exchange		2,451		114		17		2,582
Equity		389		—		602		991
Commodity and other		72		—		65		137
Total		8,020		5,922		1,465		15,407
Total gross derivatives	$	8,027	$	6,030	$	1,465	$	15,522

The Firm believes that the notional amounts of derivative contracts generally overstate its exposure. In most circumstances notional amounts are only used as a reference point from which to calculate amounts owed between the parties to the contract. Furthermore, notional amounts do not reflect the benefit of legally enforceable netting arrangements or risk mitigating transactions.

For a discussion of the Firm’s derivative instruments and hedging activities, see Note 4 to the financial statements in the 2018 Form10-K.

Gains (Losses) on Accounting Hedges


	Three Months Ended March 31,
$ in millions	2019			2018
Fair Value Hedges—Recognized in Interest Expense
Interest rate contracts	$	1,577		$	(1,841	)
Borrowings		(1,621	)		1,852
Net Investment Hedges—Foreign exchange contracts
Recognized in OCI, net of tax	$	64		$	(148	)
Forward points excluded from hedge effectiveness testing—Recognized in Interest income		35			7

Fair Value Hedges—Hedged Items


$ in millions	At March 31, 2019			At December 31, 2018
Investment Securities—AFS¹
Carrying amount²currently or previously hedged	$	413		$	201
Borrowings
Carrying amount²currently or previously hedged	$	103,460		$	102,899
Basis adjustments included in carrying amount³	$	(74	)	$	(1,689	)

~~4. Derivative Instruments~~Amounts recognized in interest income and ~~Hedging Activities~~

Derivative Fair Values
At June 30, 2018

Assets
$ in millions
Bilateral
OTC Cleared
OTC Exchange-
Traded Total
Designated as accounting hedges

Interest rate contracts
$ 638 $ 1 $ — $ 639
Foreign exchange contracts
174 61 — 235
Total
812 62 — 874
Not designated as accounting hedges

Interest rate contracts
165,607 1,795 628 168,030
Credit contracts
4,389 1,431 — 5,820
Foreign exchange contracts
63,383 1,740 237 65,360
Equity contracts
24,804 — 21,843 46,647
Commodity and other contracts
10,108 — 1,617 11,725
Total
268,291 4,966 24,325 297,582
Total gross derivatives
$ 269,103 $ 5,028 $ 24,325 $ 298,456
Amounts offset

Counterparty netting
(199,543 ) (4,098 ) (20,669 ) (224,310 )
Cash collateral netting
(41,007 ) (585 ) — (41,592 )
Total in Trading assets
$ 28,553 $ 345 $ 3,656 $ 32,554
Amounts not offset¹

Financial instruments collateral
(12,869 ) — — (12,869 )
Other cash collateral
(27 ) — — (27 )
Net amounts
$ 15,657 $ 345 $ 3,656 $ 19,658
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable

$ 4,484

Liabilities
$ in millions
Bilateral
OTC Cleared
OTC Exchange-
Traded Total
Designated as accounting hedges

Interest rate contracts
$ 209 $ 4 $ — $ 213
Foreign exchange contracts
18 1 — 19
Total
227 5 — 232
Not designated as accounting hedges

Interest rate contracts
151,813 1,275 657 153,745
Credit contracts
4,395 1,748 — 6,143
Foreign exchange contracts
59,766 1,802 133 61,701
Equity contracts
26,776 — 21,227 48,003
Commodity and other contracts
9,106 — 1,708 10,814
Total
251,856 4,825 23,725 280,406
Total gross derivatives
$ 252,083 $ 4,830 $ 23,725 $ 280,638
Amounts offset

Counterparty netting
(199,543 ) (4,098 ) (20,669 ) (224,310 )
Cash collateral netting
(29,119 ) (367 ) — (29,486 )
Total in Trading liabilities
$ 23,421 $ 365 $ 3,056 $ 26,842
Amounts not offset¹

Financial instruments collateral
(4,599 ) — (364 ) (4,963 )
Other cash collateral
(31 ) — — (31 )
Net amounts
$ 18,791 $ 365 $ 2,692 $ 21,848
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable

$ 4,980

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

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

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.basis adjustments related to AFS securities were not material.

Carrying amount represents amortized cost basis.


		61		~~June 2018 Form 10-Q~~

~~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~~

At June 30, 2018

Assets
$ in billions Bilateral
OTC Cleared
OTC Exchange-
Traded Total
Designated as accounting hedges

Interest rate contracts
$ 16 $ 32 $ — $ 48
Foreign exchange contracts
7 2 — 9
Total
23 34 — 57
Not designated as accounting hedges

Interest rate contracts
4,739 8,012 3,181 15,932
Credit contracts
143 68 — 211
Foreign exchange contracts
2,402 88 18 2,508
Equity contracts
417 — 378 795
Commodity and other contracts
90 — 60 150
Total
7,791 8,168 3,637 19,596
Total gross derivatives
$ 7,814 $ 8,202 $ 3,637 $ 19,653

Liabilities
$ in billions
Bilateral
OTC Cleared
OTC Exchange-
Traded Total
Designated as accounting hedges

Interest rate contracts
$ 2 $ 130 $ — $ 132
Foreign exchange contracts
2 — — 2
Total
4 130 — 134
Not designated as accounting hedges

Interest rate contracts
5,030 7,184 1,246 13,460
Credit contracts
146 75 — 221
Foreign exchange contracts
2,278 86 10 2,374
Equity contracts
414 — 467 881
Commodity and other contracts
83 — 53 136
Total
7,951 7,345 1,776 17,072
Total gross derivatives
$ 7,955 $ 7,475 $ 1,776 $ 17,206

At December 31, 2017

Assets
$ in billions
Bilateral
OTC Cleared
OTC Exchange-
Traded Total
Designated as accounting hedges

Interest rate contracts
$ 20 $ 46 $ — $ 66
Foreign exchange contracts
4 — — 4
Total
24 46 — 70
Not designated as accounting hedges

Interest rate contracts
3,999 6,458 2,714 13,171
Credit contracts
194 100 — 294
Foreign exchange contracts
1,960 67 9 2,036
Equity contracts
397 — 334 731
Commodity and other contracts
86 — 72 158
Total
6,636 6,625 3,129 16,390
Total gross derivatives
$ 6,660 $ 6,671 $ 3,129 $ 16,460

Liabilities
$ in billions
Bilateral
OTC Cleared
OTC Exchange-
Traded Total
Designated as accounting hedges

Interest rate contracts
$ 2 $ 102 $ — $ 104
Foreign exchange contracts
4 2 — 6
Total
6 104 — 110
Not designated as accounting hedges

Interest rate contracts
4,199 6,325 1,089 11,613
Credit contracts
226 80 — 306
Foreign exchange contracts
2,014 78 51 2,143
Equity contracts
394 — 405 799
Commodity and other contracts
68 — 61 129
Total
6,901 6,483 1,606 14,990
Total gross derivatives
$ 6,907 $ 6,587 $ 1,606 $ 15,100

~~The Firm believes that the notional amounts of 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 financial statements in the 2017 Form~~10-K.~~

~~Gains (Losses) on Accounting Hedges~~

   Three Months Ended Six Months Ended
   June 30, June 30,
$ in millions    2018 2017 2018 2017
Fair Value Hedges—Recognized in Interest Expense

Interest rate contracts
   $ (619 ) $ 138 $ (2,460 ) $ (660 )
Borrowings
           587     (213 )         2,439 $         495
Net Investment Hedges—Foreign exchange contracts

Recognized in OCI
   $ 395 $ (47 ) $ 247 $ (251 )
Forward points excluded from hedge effectiveness testing—Recognized in Interest income
   $ 24 $ (9 ) $ 31 $ (19 )

~~Borrowings under Fair Value Hedges~~

$ in millions    At June 30,
2018
Carrying amount of Borrowings currently or previously hedged
   $ 104,509
Basis adjustments included in carrying amount
   $ (2,624 )

Hedge accounting basis adjustments for Borrowings are primarily related to outstanding hedges.


~~June 2018 Form 10-Q~~		62		49		March 2019 Form 10-Q


~~Notes to Consolidated Financial Statements (Unaudited)~~

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

~~Trading Revenues by Product Type~~

Three Months Ended Six Months Ended
June 30, June 30,
$ in millions 2018 2017 2018 2017
Interest rate contracts
$ 781 $ 451 $ 1,652 $ 1,045
Foreign exchange contracts
138 197 399 432
Equity security and index contracts¹
1,785 1,818 3,661 3,459
Commodity and other contracts
358 110 794 299
Credit contracts
231 355 557 931
Total
$ 3,293 $ 2,931 $ 7,063 $ 6,166

1.	~~Dividend income is included within equity security and index contracts.~~

~~The previous table summarizes gains and losses included in Trading revenues in the income 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. The trading revenues presented in the 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.

~~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.

Net Derivative Liabilities and Collateral Posted


$ in millions	At June 30, 2018		At December 31, 2017		At March 31, 2019		At December 31, 2018
Net derivative liabilities with credit risk-related contingent features	$	17,026	$	20,675	$	18,373	$	16,403
Collateral posted		14,494		16,642		14,473		11,981

The previous 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.

Incremental Collateral orand Termination Payments upon Potential Future Ratings Downgrade

$ in millions
At
June 30,
2018

One-notch downgrade
$ 647
Two-notch downgrade
367
Bilateral downgrade agreements included in the amounts above¹
$ 881


$ in millions	At March 31, 2019
One-notch downgrade	$	452
Two-notch downgrade		277
Bilateral downgrade agreements included in the amounts above¹	$	685

1.	Amount represents arrangements between the Firm and other parties where upon the downgrade of one party, the downgraded party must deliver collateral to the other party. These bilateral downgrade arrangements are used by the Firm to manage the risk of counterparty downgrades.

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 S&P Global Ratings.The previous 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.

Maximum Potential Payout/Notional of Credit ~~Derivatives and Other~~Protection Sold¹


	Years to Maturity at March 31, 2019
$ in millions	< 1		1-3		3-5		Over 5		Total
Single-name CDS
Investment grade	$	19,721	$	21,800	$	20,305	$	11,743	$	73,569
Non-investment grade		9,173		12,154		8,908		3,159		33,394
Total	$	28,894	$	33,954	$	29,213	$	14,902	$	106,963
Index and basket CDS
Investment grade	$	4,886	$	9,022	$	36,038	$	22,143	$	72,089
Non-investment grade		5,608		5,482		10,281		14,131		35,502
Total	$	10,494	$	14,504	$	46,319	$	36,274	$	107,591
Total CDS sold	$	39,388	$	48,458	$	75,532	$	51,176	$	214,554
Other credit contracts		—		—		—		105		105
Total credit protection sold	$	39,388	$	48,458	$	75,532	$	51,281	$	214,659
CDS protection sold with identical protection purchased									$	199,507


	Years to Maturity at December 31, 2018
$ in millions	< 1		1-3		3-5		Over 5		Total
Single-name CDS
Investment grade	$	22,297	$	23,876	$	19,469	$	7,844	$	73,486
Non-investment grade		10,135		11,061		9,020		861		31,077
Total	$	32,432	$	34,937	$	28,489	$	8,705	$	104,563
Index and basket CDS
Investment grade	$	5,341	$	9,901	$	60,887	$	6,816	$	82,945
Non-investment grade		4,574		5,820		12,855		13,272		36,521
Total	$	9,915	$	15,721	$	73,742	$	20,088	$	119,466
Total CDS sold	$	42,347	$	50,658	$	102,231	$	28,793	$	224,029
Other credit contracts		—		—		—		116		116
Total credit protection sold	$	42,347	$	50,658	$	102,231	$	28,909	$	224,145
CDS protection sold with identical protection purchased									$	209,972

Fair Value Asset (Liability) of Credit ~~Contracts~~Protection Sold¹


$ in millions	At March 31, 2019			At December 31, 2018
Single-name CDS
Investment grade	$	401		$	118
Non-investment grade		(440	)		(403	)
Total	$	(39	)	$	(285	)
Index and basket CDS
Investment grade	$	708		$	314
Non-investment grade		(460	)		(1,413	)
Total	$	248		$	(1,099	)
Total CDS sold	$	209		$	(1,384	)
Other credit contracts		(8	)		(14	)
Total credit protection sold	$	201		$	(1,398	)

Investmentgrade/non-investment grade determination is based on the internal credit rating of the reference obligation. 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 judgement to estimate the various risk parameters related to each obligor.

Protection Purchased with CDS


	At March 31, 2019
$ in millions	Fair Value Asset (Liability)			Notional
Single name	$	(148	)	$	116,753
Index and basket		(170	)		105,819
Tranched index and basket		(475	)		15,677
Total	$	(793	)	$	238,249


	At December 31, 2018
$ in millions	Fair Value Asset (Liability)			Notional
Single name	$	277		$	116,333
Index and basket		1,333			117,022
Tranched index and basket		(251	)		13,524
Total	$	1,359		$	246,879


March 2019 Form 10-Q		50

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

The Firm enters into credit derivatives, principally 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.

The fair value amounts as shown in the previous tables are prior to cash collateral or counterparty netting. For further information on credit derivatives and other ~~credit~~ contracts, see Note 4 to the financial statements in the ~~2017~~2018 Form10-K.

~~Protection Sold and Purchased with CDS~~

At June 30, 2018
Fair Value (Asset)/Liability Notional
Protection Protection Protection Protection
$ in millions Sold Purchased Sold Purchased
Single name
$ (517 ) $ 688 $ 119,286 $ 133,926
Index and basket
456 (501 ) 74,089 86,016
Tranched index and basket
(146 ) 343 6,072 12,347
Total
$ (207 ) $ 530 $ 199,447 $ 232,289
Single name and non-tranched index and basket with identical underlying reference obligations

$ 193,224 $ 219,407

At December 31, 2017
Fair Value (Asset)/Liability Notional
Protection Protection Protection Protection
$ in millions Sold Purchased Sold Purchased
Single name
$ (1,277 ) $ 1,658 $ 146,948 $ 164,773
Index and basket
(341 ) 209 131,073 120,348
Tranched index and basket
(342 ) 616 11,864 24,498
Total
$ (1,960 ) $ 2,483 $ 289,885 $ 309,619
Single name andnon-tranched index and basket with identical underlying reference obligations

$ 274,473 $ 281,162


		63		~~June 2018 Form 10-Q~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Credit Ratings of Reference Obligation and Maturities of Credit Protection Sold~~

   At June 30, 2018
   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
   $ 28,320    $ 31,006    $ 18,746    $ 8,410    $ 86,482    $ (425 )
Non-investment grade
   11,423    12,571    8,019    791    32,804    (92 )
Total single name CDS
   $ 39,743    $ 43,577    $ 26,765    $ 9,201    $ 119,286    $ (517 )
Index and basket CDS

Investment grade
   $ 6,604    $ 8,565    $ 17,286    $ 8,006    $ 40,461    $ (474 )
Non-investment grade
   3,808    7,521    18,934    9,437    39,700    784
Total index and basket CDS
   $ 10,412    $ 16,086    $ 36,220    $ 17,443    $ 80,161    $ 310
Total CDS sold
   $ 50,155    $ 59,663    $ 62,985    $ 26,644    $ 199,447    $ (207 )
Other credit contracts
   —    —    —    119    119    11
Total credit derivatives and other credit contracts
   $ 50,155    $ 59,663    $ 62,985    $ 26,763    $ 199,566    $ (196 )

   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 )

The fair value amounts as shown in the previous table 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.


~~June 2018 Form 10-Q~~		64


~~Notes to Consolidated Financial Statements (Unaudited)~~

5. Investment Securities

~~AFS and HTM Securities~~


AFS and HTM Securities									AFS and HTM Securities
	At June 30, 2018									At March 31, 2019
$ in millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
AFS securities
U.S. government and agency securities:									U.S. government and agency securities:
U.S. Treasury securities	$	31,725	$	2	$	906	$	30,821		$	32,144	$	83	$	448	$	31,779
U.S. agency securities¹		20,808		20		571		20,257			23,857		82		318		23,621
Total U.S. government and agency securities		52,533		22		1,477		51,078			56,001		165		766		55,400
Corporate and other debt:
Agency CMBS		1,233		1		67		1,167			1,965		18		54		1,929
Non-agency CMBS		757		1		17		741			343		—		7		336
Corporate bonds		1,329		—		33		1,296			1,724		4		10		1,718
CLO		313		1		—		314
State and municipal securities											394		6		—		400
FFELP student loan ABS²		2,098		16		6		2,108			1,868		6		16		1,858
Total corporate and other debt		5,730		19		123		5,626			6,294		34		87		6,241
Total AFS securities		58,263		41		1,600		56,704			62,295		199		853		61,641
HTM securities
U.S. government and agency securities:									U.S. government and agency securities:
U.S. Treasury securities		13,188		1		533		12,656			21,349		172		251		21,270
U.S. agency securities¹		11,716		—		528		11,188			14,424		46		252		14,218
Total U.S. government and agency securities		24,904		1		1,061		23,844			35,773		218		503		35,488
Corporate and other debt:
Non-agency CMBS		340		—		9		331			530		7		1		536
Total HTM securities		25,244		1		1,070		24,175			36,303		225		504		36,024
Total investment securities	$	83,507	$	42	$	2,670	$	80,879		$	98,598	$	424	$	1,357	$	97,665


	At December 31, 2017									At December 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. government and agency securities:
U.S. Treasury securities	$	26,842	$	—	$	589	$	26,253		$	36,268	$	40	$	656	$	35,652
U.S. agency securities¹		22,803		28		247		22,584			20,740		10		497		20,253
Total U.S. government and agency securities		49,645		28		836		48,837			57,008		50		1,153		55,905
Corporate and other debt:
Agency CMBS		1,370		2		49		1,323			1,054		—		62		992
Non-agency CMBS		1,102		—		8		1,094			461		—		14		447
Corporate bonds		1,379		5		12		1,372			1,585		—		32		1,553
CLO		398		1		—		399
State and municipal securities											200		2		—		202
FFELP student loan ABS²		2,165		15		7		2,173			1,967		10		15		1,962
Total corporate and other debt		6,414		23		76		6,361			5,267		12		123		5,156
Total AFS debt securities		56,059		51		912		55,198
AFS equity securities		15		—		10		5
Total AFS securities		56,074		51		922		55,203			62,275		62		1,276		61,061
HTM securities
U.S. government and agency securities:									U.S. government and agency securities:
U.S. Treasury securities		11,424		—		305		11,119			17,832		44		403		17,473
U.S. agency securities¹		11,886		7		220		11,673			12,456		8		446		12,018
Total U.S. government and agency securities		23,310		7		525		22,792			30,288		52		849		29,491
Corporate and other debt:
Non-agency CMBS		289		1		1		289			483		—		9		474
Total HTM securities		23,599		8		526		23,081			30,771		52		858		29,965
Total investment securities	$	79,673	$	59	$	1,448	$	78,284		$	93,046	$	114	$	2,134	$	91,026

1.	U.S. agency securities consist mainly of agency-issued debt, agency mortgage pass-through pool securities and CMOs.

2.	~~Amounts~~Underlying loans are backed by a guarantee, ultimately from the U.S. Department of Education, of at least 95% of the principal balance and interest ~~on such loans.~~outstanding.


		6551		~~June 2018~~March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

Investment Securities in an Unrealized Loss Position


	At June 30, 2018
	Less than 12 Months				12 Months or Longer				Total				At March 31, 2019
													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 securities
U.S. government and agency securities:
U.S. Treasury securities	$	24,282	$	779	$	4,591	$	127	$	28,873	$	906	$	124	$	—	$	22,670	$	448	$	22,794	$	448
U.S. agency securities		13,684		459		2,381		112		16,065		571		3,641		29		13,307		289		16,948		318
Total U.S. government and agency securities		37,966		1,238		6,972		239		44,938		1,477		3,765		29		35,977		737		39,742		766
Corporate and other debt:
Agency CMBS		852		67		—		—		852		67		64		—		802		54		866		54
Non-agency CMBS		338		6		211		11		549		17		—		—		336		7		336		7
Corporate bonds		858		16		380		17		1,238		33		276		1		818		9		1,094		10
FFELP student loan ABS		892		6		—		—		892		6		615		5		702		11		1,317		16
Total corporate and other debt		2,940		95		591		28		3,531		123		955		6		2,658		81		3,613		87
Total AFS securities		40,906		1,333		7,563		267		48,469		1,600		4,720		35		38,635		818		43,355		853
HTM securities
U.S. government and agency securities:
U.S. Treasury securities		5,866		197		5,614		336		11,480		533		99		—		9,495		251		9,594		251
U.S. agency securities		4,566		140		6,622		388		11,188		528		303		2		9,505		250		9,808		252
Total U.S. government and agency securities		10,432		337		12,236		724		22,668		1,061		402		2		19,000		501		19,402		503
Corporate and other debt:
Non-agency CMBS		209		7		41		2		250		9		66		1		110		—		176		1
Total HTM securities		10,641		344		12,277		726		22,918		1,070		468		3		19,110		501		19,578		504
Total investment securities	$	51,547	$	1,677	$	19,840	$	993	$	71,387	$	2,670	$	5,188	$	38	$	57,745	$	1,319	$	62,933	$	1,357

	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


	At December 31, 2018
	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 securities
U.S. government and agency securities:
U.S. Treasury securities	$	19,937	$	541	$	5,994	$	115	$	25,931	$	656
U.S. agency securities		12,904		383		4,142		114		17,046		497
Total U.S. government and agency securities		32,841		924		10,136		229		42,977		1,153
Corporate and other debt:
Agency CMBS		808		62		—		—		808		62
Non-agency CMBS		—		—		446		14		446		14
Corporate bonds		470		7		1,010		25		1,480		32
FFELP student loan ABS		1,366		15		—		—		1,366		15
Total corporate and other debt		2,644		84		1,456		39		4,100		123
Total AFS securities		35,485		1,008		11,592		268		47,077		1,276
HTM securities
U.S. government and agency securities:
U.S. Treasury securities		—		—		11,161		403		11,161		403
U.S. agency securities		410		1		10,004		445		10,414		446
Total U.S. government and agency securities		410		1		21,165		848		21,575		849
Corporate and other debt:
Non-agency CMBS		206		1		216		8		422		9
Total HTM securities		616		2		21,381		856		21,997		858
Total investment securities	$	36,101	$	1,010	$	32,973	$	1,124	$	69,074	$	2,134


~~June 2018~~March 2019 Form 10-Q		6652


~~Notes to Consolidated Financial Statements (Unaudited)~~

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

The Firm believes there are no securities in an unrealized loss position that are other-than-temporarily impaired after performing the analysis described in Note 2 to the financial statements in the ~~2017~~2018 Form10-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 the amortized cost basis. Furthermore, for both 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.

See Note 12 for additional information on securities issued by VIEs, including U.S. agency mortgage-backed securities,non-agency CMBS ~~CLO~~ and FFELP student loan ABS.

Investment Securities by Contractual Maturity


	At June 30, 2018							At March 31, 2019
$ in millions	Amortized Cost		Fair Value		Annualized Average Yield			Amortized Cost		Fair Value		Annualized Average Yield
AFS securities
U.S. government and agency securities:							U.S. government and agency securities:
U.S. Treasury securities:
Due within 1 year	$	3,554	$	3,539		1.0%		$	4,665	$	4,647		1.7	%
After 1 year through 5 years		24,707		24,102		1.8%			22,997		22,730		1.9	%
After 5 years through 10 years		3,464		3,180		1.5%			4,482		4,402		2.1	%
Total		31,725		30,821					32,144		31,779
U.S. agency securities:
Due within 1 year		94		93		1.1%			498		496		1.1	%
After 1 year through 5 years		1,222		1,200		1.1%			699		691		1.1	%
After 5 years through 10 years		1,780		1,712		1.8%			1,584		1,554		1.8	%
After 10 years		17,712		17,252		2.0%			21,076		20,880		2.4	%
Total		20,808		20,257					23,857		23,621
Total U.S. government and agency securities		52,533		51,078		1.8%			56,001		55,400		2.1	%
Corporate and other debt:
Agency CMBS:
Due within 1 year		4		4		1.3%
After 1 year through 5 years		403		401		1.3%			228		227		1.4	%
After 5 years through 10 years		44		44		1.2%			994		1,011		3.2	%
After 10 years		782		718		1.6%			743		691		1.6	%
Total		1,233		1,167					1,965		1,929
Non-agency CMBS:
After 5 years through 10 years		36		34		2.5%
After 1 year through 5 years									36		35		2.5	%
After 10 years		721		707		1.9%			307		301		2.3	%
Total		757		741					343		336
Corporate bonds:
Due within 1 year		81		81		1.6%			23		23		1.4	%
After 1 year through 5 years		1,209		1,178		2.4%			1,427		1,421		2.6	%
After 5 years through 10 years		39		37		2.6%			274		274		3.3	%
Total		1,329		1,296					1,724		1,718
CLO:
After 5 years through 10 years		115		115		1.4%
After 10 years		198		199		2.4%
Total		313		314


	At June 30, 2018							At March 31, 2019
$ in millions	Amortized Cost		Fair Value		Annualized Average Yield			Amortized Cost		Fair Value		Annualized Average Yield
State and municipal securities:
After 5 years through 10 years								$	209	$	209		3.5	%
After 10 Years									185		191		4.7	%
Total									394		400
FFELP student loan ABS:							FFELP student loan ABS:
After 1 year through 5 years	$	88	$	87		0.8%			78		77		0.8	%
After 5 years through 10 years		332		330		0.8%			418		411		0.8	%
After 10 years		1,678		1,691		1.1%			1,372		1,370		1.2	%
Total		2,098		2,108					1,868		1,858
Total corporate and other debt		5,730		5,626		1.6%			6,294		6,241		2.2	%
Total AFS securities		58,263		56,704		1.8%			62,295		61,641		2.1	%
HTM securities
U.S. government securities:
U.S. government and agency securities:
U.S. Treasury securities:
Due within 1 year		2,127		2,114		1.2%			774		771		1.4	%
After 1 year through 5 years		5,223		5,129		2.0%			9,504		9,525		2.4	%
After 5 years through 10 years		5,112		4,777		1.9%			9,987		9,953		2.3	%
After 10 years		726		636		2.3%			1,084		1,021		2.5	%
Total		13,188		12,656					21,349		21,270
U.S. agency securities:
After 5 years through 10 years		33		32		1.9%			28		28		1.9	%
After 10 years		11,683		11,156		2.6%			14,396		14,190		2.7	%
Total		11,716		11,188					14,424		14,218
Total U.S. government and agency
securities		24,904		23,844		2.2%
Total U.S. government and agency securities									35,773		35,488		2.5	%
Corporate and other debt:
Non-agency CMBS:
Due within 1 year		23		23		3.7%			61		61		4.4	%
After 1 year through 5 years		63		63		3.7%			86		86		4.8	%
After 5 years through 10 years		235		227		3.9%			344		350		4.1	%
After 10 years		19		18		4.1%			39		39		4.4	%
Total corporate and other debt		340		331		3.9%			530		536		4.3	%
Total HTM securities		25,244		24,175		2.2%			36,303		36,024		2.5	%
Total investment securities	$	83,507	$	80,879		1.9%		$	98,598	$	97,665		2.3	%

Gross Realized Gains ~~and Losses~~(Losses) on Sales of AFS Securities


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
$ in millions	2018			2017			2018			2017			2019			2018
Gross realized gains	$	6		$	23		$	7		$	27		$	19		$	1
Gross realized (losses)		(3	)		(9	)		(4	)		(11	)		(9	)		(1	)
Total¹	$	3		$	14		$	3		$	16		$	10		$	—

1.	~~Gross realized~~Realized gains and losses are recognized in Other revenues in the income statements.


		6753		~~June 2018~~March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

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 financial statements in the 2017 Form~~10-K.~~

~~Offsetting of Certain Collateralized Transactions~~


Offsetting of Certain Collateralized Transactions
	At March 31, 2019
$ in millions	Gross Amounts		Amounts Offset			Net Amounts Presented		Amounts Not Offset¹			Net Amounts
Assets
Securities purchased under agreements to resell	$	254,681	$	(158,111	)	$	96,570	$	(93,718	)	$	2,852
Securities borrowed		161,154		(22,263	)		138,891		(134,107	)		4,784
Liabilities
Securities sold under agreements to repurchase	$	206,059	$	(158,111	)	$	47,948	$	(41,675	)	$	6,273
Securities loaned		34,771		(22,263	)		12,508		(12,382	)		126
Net amounts for which master netting agreements are not in place or may not be legally enforceable
Securities purchased under agreements to resell											$	2,419
Securities borrowed												773
Securities sold under agreements to repurchase												5,148
Securities loaned												107

At June 30, 2018
$ in millions
Gross
Amounts
Amounts
Offset
Net
Amounts
Presented Amounts
Not Offset¹ Net
Amounts
Assets

Securities purchased under agreements to resell
$ 226,847 $ (132,919) $ 93,928 $ (88,769) $ 5,159
Securities borrowed
169,491 (16,243) 153,248 (147,966) 5,282
Liabilities

Securities sold under agreements to repurchase
$ 183,569 $ (132,919) $ 50,650 $ (43,738) $ 6,912
Securities loaned
28,963 (16,243) 12,720 (12,672) 48
Net amounts for which master netting agreements are not in place or may not be legally enforceable

Securities purchased under agreements to resell

$ 4,974
Securities borrowed
998
Securities sold under agreements to repurchase

5,693
Securities loaned
19


		At December 31, 2017											At December 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		$	199,044	$	(114,786)	$	84,258	$	(78,009)	$	6,249		$	262,976	$	(164,454	)	$	98,522	$	(95,610	)	$	2,912
Securities borrowed			133,431		(9,421)		124,010		(119,358)		4,652			134,711		(18,398	)		116,313		(112,551	)		3,762
Liabilities
Securities sold under agreements to repurchase		$	171,210	$	(114,786)	$	56,424	$	(48,067)	$	8,357		$	214,213	$	(164,454	)	$	49,759	$	(41,095	)	$	8,664
Securities loaned			23,014		(9,422)		13,592		(13,271)		321			30,306		(18,398	)		11,908		(11,677	)		231
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											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									$	5,687	Securities purchased under agreements to resell											$	2,579
Securities borrowed											572													724
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase										6,945	Securities sold under agreements to repurchase												6,762
Securities loaned											307													191

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 further discussion of the Firm’s collateralized transactions, see Note 6 to the financial statements in the 2018 Form10-K. For information related to offsetting of derivatives, see Note 4.

~~Maturities and Collateral Pledged~~

~~Gross Secured Financing Balances by Remaining Contractual Maturity~~


Gross Secured Financing Balances by Remaining Contractual Maturity
	At March 31, 2019
$ in millions	Overnight and Open		Less than 30 Days		30-90 Days		Over 90 Days		Total
Securities sold under agreements to repurchase	$	72,663	$	53,332	$	42,658	$	37,406	$	206,059
Securities loaned		19,131		6,858		2,715		6,067		34,771
Total included in the offsetting disclosure	$	91,794	$	60,190	$	45,373	$	43,473	$	240,830
Trading liabilities— Obligation to return securities received as collateral		19,861		—		—		—		19,861
Total	$	111,655	$	60,190	$	45,373	$	43,473	$	260,691


	At June 30, 2018										At December 31, 2018
$ in millions	Overnight and Open		Less than 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 repurchase	$	44,577	$	67,770	$	30,336	$	40,886	$	183,569	$	56,503	$	93,427	$	35,692	$	28,591	$	214,213
Securities loaned		17,693		2,430		2,228		6,612		28,963		18,397		3,609		1,985		6,315		30,306
Total included in the offsetting disclosure	$	62,270	$	70,200	$	32,564	$	47,498	$	212,532	$	74,900	$	97,036	$	37,677	$	34,906	$	244,519
Trading liabilities— Obligation to return securities received as collateral		19,646		—		—		—		19,646		17,594		—		—		—		17,594
Total	$	81,916	$	70,200	$	32,564	$	47,498	$	232,178	$	92,494	$	97,036	$	37,677	$	34,906	$	262,113

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~~


Gross Secured Financing Balances by Class of Collateral Pledged						Gross Secured Financing Balances by Class of Collateral Pledged
$ in millions		At June 30, 2018		At December 31, 2017			At March 31, 2019		At December 31, 2018
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase					Securities sold under agreements to repurchase
U.S. Treasury and agency securities		$	40,728	$	43,346		$	59,851	$	68,487
State and municipal securities			1,432		2,451			1,633		925
Other sovereign government obligations			109,893		87,141			123,089		120,432
ABS			2,088		1,130			2,112		3,017
Corporate and other debt			8,286		7,737			7,327		8,719
Corporate equities			20,348		28,497			11,624		12,079
Other			794		908			423		554
Total		$	183,569	$	171,210		$	206,059	$	214,213
Securities loaned
U.S. Treasury and agency securities		$	1	$	81
Other sovereign government obligations			16,530		9,489		$	22,656	$	19,021
Corporate and other debt			18		14
Corporate equities			12,048		13,174			11,736		10,800
Other			366		256			379		485
Total		$	28,963	$	23,014		$	34,771	$	30,306
Total included in the offsetting disclosure		$	212,532	$	194,224		$	240,830	$	244,519
Trading liabilities—Obligation to return securities received as collateral	Trading liabilities—Obligation to return securities received as collateral					Trading liabilities—Obligation to return securities received as collateral
Corporate equities		$	19,646	$	22,555		$	19,861	$	17,594
Total		$	232,178	$	216,779		$	260,691	$	262,113


~~June 2018~~March 2019 Form 10-Q		6854


~~Notes to Consolidated Financial Statements (Unaudited)~~

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

~~Assets Pledged~~


Carrying Value of Assets Loaned or Pledged without Counterparty Right to Sell or Repledge
$ in millions	At March 31, 2019		At December 31, 2018
Trading assets		$ 35,543		$ 39,430

The Firm pledges its trading assets ~~and loans~~ to collateralize securities sold under agreements to repurchase, securities loaned, other secured financings and ~~derivatives.~~derivatives and to cover customer short sales. 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 balance sheets.

Carrying Value of Assets Loaned or Pledged without Counterparty
Right to Sell or Repledge
$ in millions
At
June 30,
2018

At
December 31,
2017

Trading assets
$ 32,682 $ 31,324
Loans (gross of allowance for loan losses)
— 228
Total
$ 32,682 $ 31,552

Fair Value of Collateral Received with Right to Sell or Repledge


$ in millions	At March 31, 2019		At December 31, 2018
Collateral received with right to sell or repledge		$ 697,669		$ 639,610
Collateral that was sold or repledged¹		553,625		487,983

1.	Does not include securities used to meet federal regulations for the Firm’s U.S. broker-dealers.

Restricted Cash and Segregated Securities


$ in millions	At March 31, 2019		At December 31, 2018
Restricted cash		$ 30,712		$ 35,356
Segregated securities¹		24,752		26,877
Total		$ 55,464		$ 62,233

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 balance sheets.

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.

Fair Value of Collateral Received with Right to Sell or Repledge
$ in millions
At
June 30,
2018

At
December 31,
2017

Collateral received with right to sell or repledge
$ 668,906 $ 599,244
Collateral that was sold or repledged
528,660 475,113

Customer Margin Lending ~~and Other~~


$ in millions	At June 30, 2018		At December 31, 2017		At March 31, 2019		At December 31, 2018
Net customer receivables representing margin loans	$	32,811	$	32,112
Customer receivables representing margin loans						$ 27,427		$ 26,225

The Firm provides margin lending arrangements which allow customers to borrow against the value of qualifying securities. ~~Customer receivables representing~~Receivables under margin ~~loans~~lending arrangements are included within Customer and other receivables in the 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 financial statements in the ~~2017~~2018 Form10-K.

The Firm has additional secured liabilities. For a further discussion of other secured financings, see ~~Note 10.~~Notes 10 and 12.

Restricted Cash and Segregated Securities
$ in millions
At
June 30,
2018

At
December 31,
2017

Restricted cash
$ 32,706 $ 34,231
Segregated securities¹
25,974 20,549
Total
$ 58,680 $ 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 balance sheets.~~

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 balance sheets. For a further description of these loans, refer to Note 7 to the financial statements in the 2017 Form~~10-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.~~ by Type


Loans by Type

		At June 30, 2018									At March 31, 2019
$ in millions		Loans Held for Investment			Loans Held for Sale		Total Loans				Loans Held for Investment			Loans Held for Sale		Total Loans
Corporate loans		$	32,382		$	13,366	$	45,748
Consumer loans			27,954			—		27,954
Residential real estate loans			26,405			30		26,435
Wholesale real estate loans			9,866			2,351		12,217
Corporate											$	38,424		$	12,469	$	50,893
Consumer												27,300			—		27,300
Residential real estate												28,037			22		28,059
Commercial real estate												7,764			2,440		10,204
Total loans, gross			96,607			15,747		112,354				101,525			14,931		116,456
Allowance for loan losses			(241	)		—		(241	)			(259	)		—		(259	)
Total loans, net		$	96,366		$	15,747	$	112,113			$	101,266		$	14,931	$	116,197
Fixed rate loans, net							$	14,593								$	16,450
Floating or adjustable rate loans, net	Floating or adjustable rate loans, net							97,520		Floating or adjustable rate loans, net							99,747
Loans tonon-U.S. borrowers, net	Loans tonon-U.S. borrowers, net							15,417		Loans tonon-U.S. borrowers, net							18,072


	At December 31, 2018
$ in millions	Loans Held for Investment			Loans Held for Sale		Total Loans
Corporate	$	36,909		$	13,886	$	50,795
Consumer		27,868			—		27,868
Residential real estate		27,466			22		27,488
Commercial real estate¹		7,810			1,856		9,666
Total loans, gross		100,053			15,764		115,817
Allowance for loan losses		(238	)		—		(238	)
Total loans, net	$	99,815		$	15,764	$	115,579
Fixed rate loans, net						$	15,632
Floating or adjustable rate loans, net							99,947
Loans tonon-U.S. borrowers, net							17,568

1.	Beginning in 2019, loans previously referred to as Wholesale real estate are referred to as Commercial real estate.


		6955		~~June 2018~~March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

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
Fixed rate loans, net

$ 13,339
Floating or adjustable rate loans, net

90,787
Loans tonon-U.S. borrowers, net

9,977

~~Credit Quality~~

For a further discussion about the Firm’s evaluation of credit transactions and monitoring and credit quality indicators, as well as factors considered by the Firm in determining the allowance for loan losses and impairments, see Notes 2 and 7 to the financial statements in the 2017 Form~~10-K.~~

Loans Held for Investment before Allowance by Credit Quality

At June 30, 2018
$ in millions
Corporate Consumer
Residential
Real Estate

Wholesale
Real Estate
Total
Pass
$ 31,829 $ 27,949 $ 26,333 $ 8,794 $ 94,905
Special mention
187 5 — 555 747
Substandard
361 — 72 517 950
Doubtful
5 — — — 5
Loss
— — — — —
Total
$ 32,382 $ 27,954 $ 26,405 $ 9,866 $ 96,607


	At December 31, 2017										At March 31, 2019
$ in millions	Corporate		Consumer		Residential Real Estate		Wholesale Real Estate		Total			Corporate		Consumer		Residential Real Estate		Commercial Real Estate		Total
Pass	$	29,166	$	26,802	$	26,562	$	9,480	$	92,010	$	37,806	$	27,294	$	27,954	$	7,332	$	100,386
Special mention		188		6		—		200		394		171		—		9		312		492
Substandard		393		—		73		300		766		447		6		74		120		647
Doubtful		7		—		—		—		7		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—
Total	$	29,754	$	26,808	$	26,635	$	9,980	$	93,177	$	38,424	$	27,300	$	28,037	$	7,764	$	101,525

~~The following~~


	At December 31, 2018
$ in millions		Corporate		Consumer		Residential Real Estate		Commercial Real Estate		Total
Pass	$	36,217	$	27,863	$	27,387	$	7,378	$	98,845
Special mention		492		5		—		312		809
Substandard		200		—		79		120		399
Doubtful		—		—		—		—		—
Loss		—		—		—		—		—
Total	$	36,909	$	27,868	$	27,466	$	7,810	$	100,053

Impaired Loans and Lending Commitments before Allowance


	At March 31, 2019
$ in millions	Corporate		Consumer		Residential Real Estate		Total
Loans
With allowance	$	265	$	—	$	—	$	265
Without allowance¹		20		5		65		90
Total impaired loans	$	285	$	5	$	65	$	355
UPB		292		5		66		363
Lending commitments
With allowance	$	17	$	—	$	—	$	17
Without allowance¹		45		—		—		45
Total impaired lending commitments		62		—		—		62

	At December 31, 2018
$ in millions	Corporate		Consumer		Residential Real Estate		Total
Loans
With allowance	$	24	$	—	$	—	$	24
Without allowance¹		32		—		69		101
Total impaired loans	$	56	$	—	$	69	$	125
UPB		63		—		70		133
Lending commitments
With allowance	$	19	$	—	$	—	$	19
Without allowance¹		34		—		—		34
Total impaired lending commitments		53		—		—		53

1.	No allowance was recorded for these loans and lending commitments as the present value of the expected future cash flows or value of the collateral equaled or exceeded the carrying value.

Loans and lending commitments in the previous table 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~~Total Allowance by Region

At June 30, 2018
$ in millions Corporate Residential
Real Estate Total
Loans

With allowance
$ 17 $ — $ 17
Without allowance¹
80 46 126
Total impaired loans
$ 97 $ 46 $ 143
UPB
106 46 152
Lending Commitments

With allowance
$ 9 $ — $ 9
Without allowance¹
$ 193 $ — $ 193
At December 31, 2017
$ in millions Corporate Residential
Real Estate Total
Loans

With allowance
$ 16 $ — $ 16
Without allowance¹
118 45 163
Total impaired loans
$ 134 $ 45 $ 179
UPB
146 46 192
Lending Commitments

Without allowance¹
$ 199 $ — $ 199

At June 30, 2018 and December 31, 2017, no allowance was recorded for these loans and lending commitments as the present value of the expected future cash flows (or, alternatively, the observable market price of the instrument or the fair value of the collateral held) equaled or exceeded the carrying value.
   At March 31, 2019
$ in millions    Americas    EMEA    Asia    Total
Impaired loans
   $ 355    $ —    $ —    $ 355
Total Allowance for loan losses
   211    46    2    259
   At December 31, 2018
$ in millions
   Americas    EMEA    Asia    Total
Impaired loans
   $ 125    $ —    $ —    $ 125
Total Allowance for loan losses
   193    42    3    238

Troubled Debt Restructurings

Impaired Loans and Total Allowance by Region
At June 30, 2018
$ in millions Americas EMEA Asia Total
Impaired loans
$           139 $ — $ 4 $ 143
Total Allowance for loan losses
201           39 1 241
At December 31, 2017
$ in millions
Americas EMEA Asia Total
Impaired loans
$ 160 $ 9 $           10 $           179
Total Allowance for loan losses
194 27 3 224


Troubled Debt Restructurings

$ in millions	At June 30, 2018		At December 31, 2017			At March 31, 2019		At December 31, 2018
Loans	$	65	$	51	$	93	$	38
Lending commitments		20		28		68		45
Allowance for loan losses and lending commitments		4		10		5		4

Impaired loans and lending commitments classified as held for investment within corporate loans include TDRs as shown in the previous table. These restructurings typically include modifications of interest rates, collateral requirements, other loan covenants and payment extensions.

Allowance for Loan Losses Rollforward


$ in millions		Corporate			Consumer			Residential Real Estate			Commercial Real Estate		Total
December 31, 2018	$	144		$	7		$	20		$	67	$	238
Provision (release)		26			(1	)		2			—		27
Other		(6	)		—			—			—		(6	)
March 31, 2019	$	164		$	6		$	22		$	67	$	259
Inherent	$	150		$	6		$	22		$	67	$	245
Specific		14			—			—			—		14

$ in millions		Corporate			Consumer			Residential Real Estate			Commercial 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


~~June 2018~~March 2019 Form 10-Q		7056


~~Notes to Consolidated Financial Statements (Unaudited)~~

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

Allowance for Loan Losses Rollforward
$ in millions Corporate Consumer Residential
Real Estate Wholesale
Real Estate Total
December 31, 2017
$         126 $             4 $             24 $             70 $ 224
Gross charge-offs
(1 ) — — — (1 )
Recoveries¹
54 — — — 54
Net recoveries (charge-offs)
53 — — — 53
Provision (release)^{1, 2}
(51 ) 1 (5 ) 21 (34 )
Other
(1 ) — (1 ) — (2 )
June 30, 2018
$ 127 $ 5 $ 18 $ 91 $ 241
Inherent
$ 123 $ 5 $ 18 $ 91 $             237
Specific
4 — — — 4
$ in millions Corporate Consumer Residential
Real Estate Wholesale
Real Estate Total
December 31, 2016
$ 195 $ 4 $ 20 $ 55 $ 274
Recoveries
1 — — — 1
Provision (release)²
14 — 1 14 29
Other
1 — — 1 2
June 30, 2017
$ 211 $ 4 $ 21 $ 70 $ 306
Inherent
$ 142 $ 4 $ 21 $ 70 $             237
Specific
69 — — — 69

Allowance for Lending Commitments Rollforward

~~The current quarter release was primarily due to the recovery of a previously charged off energy industry related loan.~~
$ in millions
Corporate Consumer
Residential
Real Estate

Commercial
Real Estate
Total
December 31, 2018
$ 198 $ 2 $ — $ 3 $ 203
Provision (release)
8 — — 1 9
Other
— (1) — — (1)
March 31, 2019
$ 206 $ 1 $ — $ 4 $ 211
Inherent
$ 202 $ 1 $ — $ 4 $ 207
Specific
4 — — — 4
$ in millions
Corporate Consumer
Residential
Real Estate

Commercial
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

For a further discussion of the Firm’s loans, including loan types and categories, as well as the Firm’s allowance methodology, refer to Notes 2 and 7 to the financial statements in the 2018 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.

Employee Loans

2.	~~The Firm recorded a release of $53 million, and a provision of $7 million for loan losses in the current quarter and prior year quarter, respectively.~~

Allowance for Lending Commitments Rollforward
$ in millions Corporate Consumer Residential
Real Estate Wholesale
Real Estate Total
December 31, 2017
$         194 $             1 $             — $ 3 $ 198
Provision (release)¹
5 — —             — 5
Other
— — — (1 ) (1 )
June 30, 2018
$ 199 $ 1 $ — $ 2 $ 202
Inherent
$ 195 $ 1 $ — $ 2 $             198
Specific
4 — — — 4
$ in millions Corporate Consumer Residential
Real Estate Wholesale
Real Estate Total
December 31, 2016
$ 185 $ 1 $ — $ 4 $ 190
Provision (release)¹
(3 ) — — (1 ) (4 )
June 30, 2017
$ 182 $ 1 $ — $ 3 $ 186
Inherent
$ 179 $ 1 $ — $ 3 $             183
Specific
3 — — — 3

1.	~~The Firm recorded a release of $2 million, and $7 million for lending commitments in the current quarter and prior year quarter, respectively.~~


Employee Loans

$ in millions	At June 30, 2018			At December 31, 2017				At March 31, 2019		At December 31, 2018
Balance	$	3,564		$	4,185		$	3,011	$	3,415
Allowance for loan losses		(74	)		(77	)		(64)		(63)
Balance, net	$	3,490		$	4,108		$	2,947	$	3,352
Repayment term range, in years		1 to 20			1 to 20			1 to 20		1 to 20

Employee loans are granted in conjunction with a program established primarily to ~~retain and~~ recruit certain ~~employees,~~Wealth Management representatives, are full recourse and generally require periodic repayments. These loans are recorded in Customer and other receivables in the balance sheets. The Firm establishes an allowance for loan amounts it does not consider recoverable, and the related provision is recorded in Compensation and benefits expense.

8. Equity Method Investments

~~Overview~~

Equity method investments other than certain investments in funds are summarized below and included in Other assets in the balance sheets with related income or loss included in Other revenues in the 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-based fees in the form of carried interest.

Equity Method Investment Balances


$ in millions	At June 30, 2018		At December 31, 2017			At March 31, 2019			At December 31, 2018
Investments	$	2,491	$	2,623	$	2,391		$	2,432

					Three Months Ended March 31,
$ in millions						2019			2018
Income (loss)					$	(10	)	$	50

Equity method investments, other than certain investments in funds, are summarized above and are included in Other assets in the balance sheets with related income or loss included in Other revenues in the income statements. See “Net Asset Value Measurements—Fund Interests” 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 carried interest.

Three Months Ended
June 30, Six Months Ended
June 30,
$ in millions 2018 2017 2018 2017
Income (loss)
$ 4 $ (9 ) $ 54 $ —

Japanese Securities Joint Venture

~~Included~~


	Three Months Ended March 31,
$ in millions		2019		2018
Income from investment in MUMSS	$	3	$	56

The Firm and Mitsubishi UFJ Financial Group, Inc. (“MUFG”) formed a joint venture in ~~the equity method investments is the Firm’s 40% voting interest in~~Japan comprising their respective investment banking and securities businesses by forming two joint venture companies, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (“MUMSS”)~~. Mitsubishi UFJ Financial Group, Inc.~~ and Morgan Stanley MUFG Securities Co., Ltd. (“~~MUFG”~~MSMS”) ~~holds a 60% voting interest.~~(the “Joint Venture”). The Firm ~~accounts~~owns a 40% economic interest in the Joint Venture and MUFG owns the other 60%.

The Firm’s 40% voting interest in MUMSS is accounted for ~~its~~under the equity method ~~investment in MUMSS~~ within the Institutional Securities business ~~segment.~~segment, and is included in the equity method investment balances above. The Firm consolidates MSMS into the Institutional Securities business segment, based on its 51% voting interest.

Three Months Ended
June 30, Six Months Ended
June 30,
$ in millions 2018 2017 2018 2017
Income from investment in MUMSS
$ 26 $ 23 $ 82 $ 71

The Firm engages in transactions in the ordinary course of business with MUFG and its affiliates, for example investment banking, financial advisory, sales and trading, derivatives, investment management, lending, securitization and other financial services transactions. Such transactions are on substantially the same terms as those that would be available to unrelated third parties for comparable transactions.


		7157		~~June 2018~~March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

9. Deposits

Deposits


$ in millions	At June 30, 2018		At December 31, 2017		At March 31, 2019		At December 31, 2018
Savings and demand deposits	$	139,736	$	144,487	$	143,201	$	154,897
Time deposits		33,066		14,949		36,530		32,923

Total	$	172,802	$	159,436	$	179,731	$	187,820
Deposits subject to FDIC insurance	$	135,229	$	127,017	$	141,737	$	144,515
Time deposits that equal or exceed the FDIC insurance limit	$	11	$	38	$	22	$	11

Time Deposit Maturities


$ in millions	At June 30, 2018		At March 31, 2019
2018	$	15,493
2019		8,840	$	14,100
2020		5,452		13,381
2021		1,466		4,272
2022		667		1,866
2023				2,069
Thereafter		1,148		842
Total			$	36,530

10. Borrowings and Other Secured Financings

Borrowings


$ in millions	At June 30, 2018		At December 31, 2017			At March 31, 2019		At December 31, 2018
Original maturities of one year or less	$	2,329	$	1,519		$	1,498	$	1,545
Original maturities greater than one year					Original maturities greater than one year
Senior	$	180,008	$	180,835		$	178,926	$	178,027
Subordinated		9,907		10,228			10,267		10,090

Total	$	189,915	$	191,063		$	189,193	$	188,117
Total borrowings	$	192,244	$	192,582		$	190,691	$	189,662

Weighted average stated maturity, in years¹		6.7		6.6			6.7		6.5

1.	~~Includes only~~Only includes borrowings with original maturities greater than one year.

Other Secured Financings


$ in millions	At March 31, 2019		At December 31, 2018
Original maturities:
Greater than one year	$	5,254	$	6,772

One year or less		2,074		2,036
Failed sales		715		658

Total	$	8,043	$	9,466

Other secured financings include the liabilities related to certain ELNs, transfers of financial assets that are accounted for as financings rather than sales, pledged commodities, consolidated VIEs where the Firm is deemed to be the primary beneficiary and other secured borrowings. These liabilities are generally payable from the cash flows of the related assets accounted for as Trading assets.See Note 12 for further information on other secured financings related to VIEs and securitization activities.

~~Other Secured Financings by Original Maturity and Type~~

$ in millions
At
June 30,
2018
     At
  December 31,
  2017
Original maturities:

Greater than one year
   $ 8,439    $ 8,685
One year or less
   745    2,034
Failed sales
   706    552
Total
   $               9,890    $             11,271

~~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 balance sheets.

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.

11. Commitments, Leases, Guarantees and Contingencies

Commitments

Years to Maturity at June 30, 2018
$ in millions Less
than 1 1-3 3-5 Over 5 Total
Lending:

Corporate
$ 12,850 $ 47,036 $ 43,123 $ 12,723 $ 115,732
Consumer
6,895 — 11 — 6,906
Residential real estate
5 69 25 253 352
Wholesale real estate
268 337 17 100 722
Forward-starting secured financing receivables
84,321 — — 1,177 85,498
Investment activities
489 77 42 253 861
Letters of credit and
other financial guarantees
186 1 — 39 226
Total
$ 105,014 $ 47,520 $ 43,218 $ 14,545 $ 210,297
Corporate lending commitments participated to third parties

$ 7,183
Forward-starting secured financing receivables settled within three business days

$ 80,137


~~June 2018 Form 10-Q~~		72


~~Notes to Consolidated Financial Statements (Unaudited)~~


	Years to Maturity at March 31, 2019
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Lending:
Corporate	$	19,594	$	30,583	$	49,944	$	5,286	$	105,407
Consumer		7,442		1		11		—		7,454
Residential and commercial real estate		66		751		89		554		1,460
Forward-starting secured financing receivables		121,612		—		—		8,322		129,934
Underwriting		2,299		—		—		—		2,299
Investment activities		513		93		49		243		898
Letters of credit and other financial guarantees		187		1		—		2		190
Total	$	151,713	$	31,429	$	50,093	$	14,407	$	247,642
Corporate lending commitments participated to third parties									$	8,674

Forward-starting secured financing receivables settled within three business days									$	110,917

Since commitments associated with these instruments may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.


March 2019 Form 10-Q		58

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

For a further description of these commitments, refer to Note 12 to the financial statements in the ~~2017~~2018 Form10-K.

Leases

Balance Sheet Amounts Related to Leases


$ in millions	At March 31, 2019
Other assets—ROU assets	$	3,886
Other liabilities and accrued expenses—
Lease liabilities		4,653
Weighted average:
Remaining lease term, in years		10.0
Discount rate		3.7%

Lease Liabilities


$ in millions	At March 31, 2019
Remainder of 2019	$	552
2020		687
2021		634
2022		583
2023		532
Thereafter		2,766
Total undiscounted cash flows	$	5,754
Difference between undiscounted and discounted cash flows		1,101
Amount on balance sheet	$	4,653

Lease Costs


$ in millions	Three Months Ended March 31, 2019
Fixed costs	$	170
Variable costs¹		34
Less: Sublease income		(1	)
Total lease cost, net		203

1.	Includes common area maintenance charges and other variable costs not included in the measurement of ROU assets and lease liabilities.

Cash Flows Statement Supplemental Information


$ in millions	Three Months Ended March 31, 2019
Cash outflows—Lease liabilities	$	165
Non-cash—ROU assets recorded for new and modified leases		40

Minimum Future Lease Commitments (under Previous GAAP)


$ in millions	At December 31, 2018
2019	$	677
2020		657
2021		602
2022		555
2023		507
Thereafter		2,639
Total undiscounted cash flows	$	5,637
Minimum rental income to be received in the future undernon-cancelable operating subleases	$	7

The Firm’s leases are principallynon-cancelable operating real estate leases.

Guarantees

Obligations under Guarantee Arrangements at ~~June 30, 2018~~March 31, 2019


	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	$	50,155	$	59,663	$	62,985	$	26,644	$	199,447	$	39,388	$	48,458	$	75,532	$	51,176	$	214,554
Other credit contracts		—		—		—		119		119		—		—		—		105		105
Non-credit derivatives		2,166,063		1,346,622		414,569		643,110		4,570,364		1,585,096		1,425,027		450,368		791,729		4,252,220
Standby letters of credit and other financial guarantees issued¹		897		1,062		1,304		5,053		8,316		1,015		1,037		1,302		4,174		7,528
Market value guarantees		16		110		24		—		150		104		103		4		—		211
Liquidity facilities		3,585		—		—		—		3,585		4,478		—		—		—		4,478
Whole loan sales guarantees		—		1		—		23,230		23,231		—		1		—		23,175		23,176
Securitization representations and warranties		—		—		—		62,081		62,081		—		—		—		64,939		64,939
General partner guarantees		4		51		342		30		427		9		112		162		50		333


$ in millions	Carrying Amount (Asset)/ Liability			Collateral/ Recourse			Carrying Amount Asset (Liability)			Collateral/ Recourse
Credit derivatives²	$	(207	)	$	—	$	209		$	—
Other credit contracts		11			—		(8	)		—
Non-credit derivatives²		43,962			—		(41,254	)		—
Standby letters of credit and other financial guarantees issued¹		(241	)		6,777		222			6,350
Market value guarantees		—			3		—			107
Liquidity facilities		(5	)		5,770		6			7,620
Whole loan sales guarantees		9			—		(9	)		—
Securitization representations and warranties		71			—
Securitization representations and warranties³							(42	)		—
General partner guarantees		66			—		(71	)		—

1.	These amounts include certain issued standby letters of credit participated to third parties, totaling ~~$0.7~~$0.6 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.

3.	Primarily related to residential mortgage securitizations.


		59		March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

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~~a 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 financial statements in the ~~2017~~2018 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/~~exchange and clearinghouse member guarantees and merger and acquisition guarantees are described in Note 12 to the financial statements in the ~~2017~~2018 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 financial statements.

Finance Subsidiary

The Parent Company fully and unconditionally guarantees the securities issued by Morgan Stanley Finance LLC, a100%-owned finance subsidiary.


		73		~~June 2018 Form 10-Q~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Contingencies

~~Legal~~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 litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases are bankrupt or are in financial distress. These actions have included, but are not limited to, residential mortgage and credit 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, whileWhile 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 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 government 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.


March 2019 Form 10-Q		60

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

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 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, styledChinaDevelopment Industrial Bank v. Morgan Stanley & Co. Incorporated et al., 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 CDS 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 CDS with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that CDIB alleges it has already lost under the 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. On ~~June 27,~~December 21, 2018, the ~~Firm filed a~~court denied the Firm’s motion for summary judgment and granted in part the Firm’s motion for sanctions relating to spoliation ~~sanctions against CDIB.~~of evidence. On January 24, 2019, CDIB filed a notice of appeal from the court’s December 21, 2018 order, and on January 25, 2019, the Firm filed a notice of appeal from the same order. On March 7, 2019, the court denied the relief that CDIB sought in a motion to clarify and resettle the portion of the court’s December 21, 2018 order granting spoliation sanctions. 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 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 asTrustee of the Morgan Stanley Mortgage Loan Trust2007-2AX (MSM2007-2AX) v. Morgan Stanley Mortgage Capital Holdings LLC,Successor-by-Merger to MorganStanley MortgageCapital Inc. and GreenPoint Mortgage 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


~~June 2018 Form 10-Q~~		74


~~Notes to Consolidated Financial Statements (Unaudited)~~

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,~~November 24, 2014, the ~~Firm filed a motion to dismiss the complaint, which was~~court granted in part and denied in part ~~on November 24, 2014.~~the Firm’s motion to dismiss the complaint. On April 4, 2019, the court denied the Firm’s motion to renew its motion to dismiss. 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 September 19, 2014, Financial Guaranty Insurance Company (“FGIC”) filed a complaint against the Firm in the Supreme Court of NY, styledFinancial Guaranty InsuranceCompany 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,~~September 13, 2018, the ~~Firm filed a notice of appeal of~~Appellate Division, First Department, affirmed the ~~denial of its~~lower court’s order denying the Firm’s motion to ~~dismiss the complaint and perfected its appeal on November 22, 2017.~~dismiss. 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. 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


		61		March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

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,~~September 13, 2018, the ~~Firm filed a notice of~~Appellate Division, First Department, affirmed in part and reversed in part the lower court’s order denying the Firm’s motion to dismiss. On December 20, 2018, the Appellate Division denied plaintiff’s motion for leave to appeal the decision of the ~~court’s order and perfected its appeal on November 22, 2017.~~Appellate Division, First Department, to the New York Court of Appeals or, in the alternative, forre-argument. 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 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 Companysolely in its capacity as Trustee of the Morgan Stanley ABSCapital 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 October 19, 2018, the court granted the Firm’s motion for leave to amend its answer and to stay the case pending resolution of Deutsche Bank National Trust Company’s appeal to the New York Court of Appeals in another case. On January 17, 2019, the First Department reversed the trial court’s order to the extent that it had granted in part the Firm’s motion to dismiss the complaint. On February ~~11, 2016, plaintiff~~15, 2019, the Firm filed a ~~notice~~motion for leave to appeal, or in the alternative, for the re-argument of ~~appeal of that order, and~~ the ~~appeal was fully briefed on August 19, 2016.~~First

Department’s decision. 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,~~has challenged, in the District Court in Amsterdam, the priorset-off by the Firm of approximately €124 million (approximately ~~$145~~$139 million) plus accrued interest of withholding tax


		75		~~June 2018 Form 10-Q~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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. A hearing took place in this matter on September 19, 2017. On April 26, 2018, the District Court in Amsterdam issued a decision dismissing the Dutch Authority’s claims. On June 6,4, 2018, the Dutch Authority filed an appeal ~~against~~before the ~~decision issued by~~Court of Appeal in Amsterdam in mattersre-styledCase number 18/00318andCase number 18/00319. A hearing of the ~~District Court in Amsterdam.~~Dutch Authority’s appeal has been scheduled for June 26, 2019. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately €124 million (approximately ~~$145~~$139 million) plus accrued interest.

Matters settled. On April 1, 2016, the California Attorney General’s Office filed an action against the Firm in California state court styledCaliforniav.MorganStanley, et al.,on behalf of California investors, including the California Public Employees’ Retirement System and the California Teachers’ Retirement System. The complaint alleges that the Firm made misrepresentations and omissions regarding RMBS and notes issued by the Cheyne SIV, and asserts violations of the California False Claims Act and other state laws and seeks treble damages, civil penalties, disgorgement, and injunctive relief. On April 24, 2019, the parties reached an agreement to settle the litigation.


March 2019 Form 10-Q		62

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

12. 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 financial statements in the 2017 Form10-K.~~

Consolidated VIEs

Assets and Liabilities by Type of Activity

Assets and Liabilities by Type of Activity

At June 30, 2018 At December 31, 2017
$ in millions VIE Assets     VIE Liabilities VIE Assets     VIE Liabilities
OSF
$ 282 $                 1 $ 378 $                 3
MABS¹
73 52 249 210
Other²
2,545 1,030 1,174 250
Total
$          2,900 $ 1,083 $         1,801 $ 463


	At March 31, 2019				At December 31, 2018

$ in millions	VIE Assets		VIE Liabilities		VIE Assets		VIE Liabilities
OSF	$	260	$	—	$	267	$	—
MABS¹		37		18		59		38
Other²		842		63		809		48
Total	$	1,139	$	81	$	1,135	$	86

OSF—Other structured financings

Amounts include transactions backed by residential mortgage loans, commercial mortgage loans and other types of assets, including consumer or commercial assets. The value of assets is determined based on the fair value of the liabilities and the interests owned by the Firm in such VIEs as the fair values for the liabilities and interests owned are more observable.

2.	Other primarily includes ~~investment funds,~~ certain operating entities, ~~CLOs~~investment funds and structured transactions. ~~At June 30, 2018, Other includes the consolidation of a fund managed by Mesa West Capital, LLC, which was acquired in the first quarter of 2018.~~

Assets and Liabilities by Balance Sheet Caption


	At June 30,		At December 31,
$ in millions	2018		2017		At March 31, 2019		At December 31, 2018
Assets
Cash and cash equivalents:
Cash and due from banks	$	93	$	69	$	92	$	77
Restricted cash		169		222		171		171
Trading assets at fair value		2,032		833		311		314
Customer and other receivables		21		19		21		25
Goodwill		18		18		18		18
Intangible assets		140		155		104		128
Other assets		427		485		422		402
Total	$	2,900	$	1,801	$	1,139	$	1,135
Liabilities
Other secured financings	$	1,049	$	438	$	49	$	64
Other liabilities and accrued expenses		34		25		32		22
Total	$	1,083	$	463	$	81	$	86
Noncontrolling interests	$	441	$	189	$	115	$	106

Consolidated VIE assets and liabilities are presented in the previous tables after intercompany eliminations. Most assets owned by consolidated VIEs cannot be removed unilaterally by the Firm and are not generally available to the Firm. Most related liabilities issued by consolidated VIEs arenon-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 net assets

recognized in its financial statements, net of amounts absorbed by third-party variable interest holders.

Non-consolidated VIEs

~~Most~~


	At March 31, 2019
$ in millions	MABS		CDO		MTOB		OSF		Other
VIE assets (UPB)	$	75,970	$	9,766	$	7,110	$	3,302	$	19,512
Maximum exposure to loss¹
Debt and equity interests	$	8,080	$	938	$	3	$	1,613	$	5,261
Derivative and other contracts		—		—		4,478		—		1,966
Commitments, guarantees and other		735		—		—		211		327
Total	$	8,815	$	938	$	4,481	$	1,824	$	7,554

Carrying value of exposure to loss—Assets
Debt and equity interests	$	8,080	$	938	$	3	$	1,194	$	5,261
Derivative and other contracts		—		—		6		—		228
Total	$	8,080	$	938	$	9	$	1,194	$	5,489
Additional VIE assets owned²									$	11,144
Carrying value of exposure to loss—Liabilities
Derivative and other contracts	$	—	$	—	$	—	$	—	$	205


	At December 31, 2018
$ in millions	MABS		CDO		MTOB		OSF		Other
VIE assets (UPB)	$	71,287	$	10,848	$	7,014	$	3,314	$	19,682
Maximum exposure to loss¹
Debt and equity interests	$	8,234	$	1,169	$	—	$	1,622	$	4,645
Derivative and other contracts		—		—		4,449		—		1,768
Commitments, guarantees and other		397		3		—		235		327
Total	$	8,631	$	1,172	$	4,449	$	1,857	$	6,740

Carrying value of exposure to loss—Assets
Debt and equity interests	$	8,234	$	1,169	$	—	$	1,205	$	4,645
Derivative and other contracts		—		—		6		—		87
Total	$	8,234	$	1,169	$	6	$	1,205	$	4,732
Additional VIE assets owned²									$	11,969
Carrying value of exposure to loss—Liabilities
Derivative and other contracts	$	—	$	—	$	—	$	—	$	185

MTOB—Municipal tender option bonds

1.	Where notional amounts are utilized in quantifying the maximum exposure related to derivatives, such amounts do not reflect changes in fair value recorded by the Firm.

Additional VIE assets owned represents the carrying value of total exposure tonon-consolidated VIEs for which the maximum exposure to loss is less than specific thresholds, primarily interests issued by securitization SPEs. The Firm’s primary risk exposure is to the most subordinate class of beneficial interest and maximum exposure to loss generally equals the fair value of the assets owned. These assets are primarily included in Trading assets and Investment securities and are measured at fair value (see Note 3). The Firm does not provide additional support in these transactions through contractual facilities, guarantees or similar derivatives.


		63		March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

The majority of the VIEs included in the ~~following~~previous tables are sponsored by unrelated parties; the Firm’s involvement generally is the result of its secondary market-making activities and securities held in its Investment securities portfolio (see Note 5) ~~and certain investments in funds.~~.


~~June 2018 Form 10-Q~~		76


~~Notes to Consolidated Financial Statements (Unaudited)~~

Non-consolidated VIEs
At June 30, 2018
$ in millions MABS CDO MTOB OSF Other
VIE assets (UPB)
$     66,680 $     11,274 $     5,618 $     3,277 $     20,153
Maximum exposure to loss

Debt and equity interests
$ 8,013 $ 1,289 $ 1 $ 1,566 $ 4,388
Derivative and other contracts
— — 3,585 — 2,627
Commitments, guarantees and other
762 427 — 150 327
Total
$ 8,775 $ 1,716 $ 3,586 $ 1,716 $ 7,342
Carrying value of exposure to loss—Assets

Debt and equity interests
$ 8,013 $ 1,289 $ 1 $ 1,157 $ 4,388
Derivative and other contracts
— — 5 — 122
Total
$ 8,013 $ 1,289 $ 6 $ 1,157 $ 4,510
Additional VIE assets owned¹

$ 12,173
At December 31, 2017
$ in millions      MABS       CDO      MTOB       OSF      Other
VIE assets (UPB)
$   89,288 $   9,807 $   5,306 $   3,322 $   31,934
Maximum exposure to loss

Debt and equity interests
$ 10,657 $ 1,384 $ 80 $ 1,628 $ 4,730
Derivative and other contracts
— — 3,333 — 1,686
Commitments, guarantees and other
1,214 668 — 164 433
Total
$ 11,871 $ 2,052 $ 3,413 $ 1,792 $ 6,849
Carrying value of exposure to loss—Assets

Debt and equity interests
$ 10,657 $ 1,384 $ 43 $ 1,202 $ 4,730
Derivative and other contracts
— — 5 — 184
Total
$ 10,657 $ 1,384 $ 48 $ 1,202 $ 4,914
Additional VIE assets owned¹

$ 11,318

~~MTOB—Municipal tender option bonds~~

~~Additional VIE Assets owned represents the carrying value of total exposure tonon-consolidated~~ VIEs that does not meet the criteria for detailed breakout in the previous table, primarily interests issued by securitization SPEs for which the maximum exposure to loss is less than specific thresholds.

The Firm’s maximum exposure to loss ~~presented in the previous table~~ is dependent on the nature of the Firm’s variable interest in the VIE and is limited to:

notional amounts of certain liquidity facilities;

other credit support;

total return swaps;

written put options; and

fair value of certain other derivatives and investments the Firm has made in the VIE.

~~Where notional amounts are utilized in quantifying the maximum exposure related to derivatives, such amounts do not reflect changes in fair value recorded by the Firm.~~

The Firm’s maximum exposure to loss ~~presented~~ in the previous ~~table~~tables does not ~~include:~~

include the offsetting benefit of ~~any financial instruments that the Firm may utilize to hedge these risks associated with its variable interests; and~~

hedges or any reductions associated with 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.

Liabilities issued by VIEs generally arenon-recourse to the Firm.

The Firm’s primary risk exposure related to additional VIE assets owned is to the most subordinate class of beneficial interest, which are typically acquired by the Firm in the secondary market and generally issued by SPEs sponsored by unrelated parties. These assets, which generally consist of MABS, CDO, MTOB and other exposure, are primarily 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.

Mortgage- and Asset-Backed Securitization Assets

At June 30, 2018 At December 31, 2017
$ in millions UPB Debt and
Equity
Interests UPB Debt and
Equity
Interests
Residential mortgages
$       11,611 $ 813 $ 15,636 $ 1,272
Commercial mortgages
31,713 1,218       46,464 2,331
U.S. agency collateralized mortgage obligations
13,610         2,578 16,223 3,439
Other consumer or commercial loans
9,746 3,404 10,965 3,615
Total
$   66,680 $   8,013 $   89,288 $       10,657


		77		~~June 2018 Form 10-Q~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	At March 31, 2019				At December 31, 2018
$ in millions	UPB		Debt and Equity Interests		UPB		Debt and Equity Interests
Residential mortgages	$	6,590	$	628	$	6,954	$	745
Commercial mortgages		41,021		1,754		42,974		1,237
U.S. agency collateralized mortgage obligations		15,072		2,640		14,969		3,443
Other consumer or commercial loans		13,287		3,058		6,390		2,809
Total	$	75,970	$	8,080	$	71,287	$	8,234

Transfers of Assets with Continuing Involvement


			At June 30, 2018								At March 31, 2019

$ in millions		RML		CML		U.S. Agency CMO		CLN and Other¹			RML		CML		U.S. Agency CMO		CLN and Other¹
SPE assets (UPB)²		$	14,383	$	64,392	$	14,904	$	15,867		$	13,937	$	73,268	$	22,907	$	15,068
Retained interests										Retained interests
Investment grade		$	—	$	418	$	619	$	3		$	17	$	525	$	349	$	2
Non-investment grade (fair value)			1		57		—		296
Non-investment grade												4		166		—		90
Total		$	1	$	475	$	619	$	299		$	21	$	691	$	349	$	92
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		$	—	$	158	$	40	$	—		$	9	$	72	$	246	$	—
Non-investment grade			16		18		—		—			14		100		—		—
Total		$	16	$	176	$	40	$	—		$	23	$	172	$	246	$	—
Derivative assets (fair value)		$	—	$	—	$	—	$	222		$	—	$	—	$	—	$	129
Derivative liabilities (fair value)			—		—		—		164			—		—		—		106

			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


	At December 31, 2018

$ in millions	RML		CML		U.S. Agency CMO		CLN and Other¹
SPE assets (UPB)²	$	14,376	$	68,593	$	16,594	$	14,608
Retained interests
Investment grade	$	17	$	483	$	1,573	$	3
Non-investment grade (fair value)		4		212		—		210
Total	$	21	$	695	$	1,573	$	213
Interests purchased in the secondary market (fair value)
Investment grade	$	7	$	91	$	102	$	—
Non-investment grade		28		71		—		—
Total	$	35	$	162	$	102	$	—
Derivative assets (fair value)	$	—	$	—	$	—	$	216
Derivative liabilities (fair value)		—		—		—		178

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.

   Fair Value at June 30, 2018
$ in millions    Level 2      Level 3      Total
Retained interests

Investment grade
   $ 624    $ 56    $ 680
Non-investment grade
   10    344    354
Total
   $ 634    $ 400    $ 1,034
Interests purchased in the secondary market

Investment grade
   $ 183    $ 15    $ 198
Non-investment grade
   21    13    34
Total
   $             204    $ 28    $             232
Derivative assets
   $ 97    $             125    $ 222
Derivative liabilities
   157    7    164


			Fair Value at December 31, 2017						Fair Value at March 31, 2019
$ in millions		Level 2		Level 3		Total			Level 2		Level 3		Total
Retained interests
Investment grade		$	407	$	4	$	411		$	356	$	24	$	380
Non-investment grade			22		555		577			7		94		101
Total		$	429	$	559	$	988		$	363	$	118	$	481
Interests purchased in the secondary market	Interests purchased in the secondary market							Interests purchased in the secondary market
Investment grade		$	531	$	2	$	533		$	320	$	7	$	327
Non-investment grade			57		29		86			101		13		114
Total		$	588	$	31	$	619		$	421	$	20	$	441
Derivative assets		$	78	$	149	$	227		$	47	$	82	$	129
Derivative liabilities			81		4		85			104		2		106


	Fair Value at December 31,2018
$ in millions	Level 2		Level 3		Total
Retained interests
Investment grade	$	1,580	$	13	$	1,593
Non-investment grade		174		252		426
Total	$	1,754	$	265	$	2,019
Interests purchased in the secondary market
Investment grade	$	193	$	7	$	200
Non-investment grade		83		16		99
Total	$	276	$	23	$	299
Derivative assets	$	121	$	95	$	216
Derivative liabilities		175		3		178

The ~~previous~~transfers of assets with continuing involvement tables include transactions with SPEs in which the Firm, acting as principal, transferred financial assets with continuing involvement and received sales treatment.

Transferred assets are carried at fair value prior to securitization, and any changes in fair value are recognized in the income statements. The Firm may act as underwriter of the beneficial interests issued by these securitization vehicles,


March 2019 Form 10-Q		64

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

for which Investment banking ~~underwriting net~~ revenues are recognized. 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 balance sheets with changes in fair value recognized in the 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	2018		2017		2018		2017		2019		2018
New transactions¹	$	5,624	$	4,750	$	11,758	$	10,747	$	4,733	$	6,134
Retained interests		1,156		529		1,637		959		2,887		481
Sales of corporate loans to CLO SPEs^{1, 2}		142		239		236		418		—		94

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).

Assets Sold with Retained Exposure


$ in millions	At March 31, 2019		At December 31, 2018
Gross cash proceeds from sale of assets¹	$	27,444	$	27,121
Fair value
Assets sold	$	27,560	$	26,524
Derivative assets recognized in the balance sheets		264		164
Derivative liabilities recognized in the balance sheets		73		763

1.
~~June 2018 Form 10-Q~~		78

The carrying value of assets derecognized at the time of sale approximates gross cash proceeds.


~~Notes to Consolidated Financial Statements (Unaudited)~~

The Firm ~~also~~ enters into transactions in which it sells ~~equity~~ securities, primarily equities 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~~sold securities.

For a discussion of the Firm’s VIEs, the determination and structure of VIEs and securitization activities, see Note 13 to the financial statements in the ~~following table.~~

~~Assets Sold with Retained Exposure~~2018 Form10-K.

$ in millions
At June 30,
2018
   At December 31,
2017
Carrying value of assets derecognized at the time of sale and gross cash proceeds
   $                     32,433    $                     19,115
Fair value

Assets sold
   $ 32,089    $ 19,138
Derivative assets recognized in the balance sheets
   204    176
Derivative liabilities recognized in the balance sheets
   548    153

13.

~~13.~~ Regulatory Requirements

Regulatory Capital Framework and Requirements

For a discussion of the Firm’s regulatory capital framework, see Note 14 to the financial statements in the ~~2017~~2018 Form~~Form~~ 10-K.

The Firm is required to maintain minimum risk-based and leverage-based capital ratios under ~~the~~ regulatory capital requirements. A summary of the calculations of regulatory capital, RWA and transition provisions follows.

The Firm’s risk-based capital ratios for purposes of determining regulatory compliance are the lower of the 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”).

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 AOCI and investments in the capital instruments of unconsolidated financial institutions.

In addition to the minimum risk-based capital ratio requirements, ~~by 2019~~ the Firm ~~will be~~is subject to the following ~~buffers:~~buffers in 2019:

A greater than 2.5% Common Equity Tier 1 capital conservation buffer;

The Common Equity Tier 1G-SIB capital surcharge, currently at 3%; and

Up to a 2.5% Common Equity Tier 1 CCyB, currently set by U.S. banking agencies at zero.

~~For a further discussion of the Firm’s calculation of risk-based capital ratios, see Note 14 to the financial statements in the 2017 Form10-K.~~

The Firm’s Regulatory Capital and Capital Ratios

~~At June 30, 2018 and December 31, 2017, the Firm’s risk-based capital ratios are based on the Standardized Approach rules.~~

~~Regulatory Capital~~


		At June 30, 2018					At March 31, 2019
$ in millions	Required Ratio¹		Amount		Ratio		Required Ratio¹			Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital		8.6%	$	61,352		15.8%		10.0	%	$	63,344		16.7	%
Tier 1 capital		10.1%		70,017		18.1%		11.5	%		71,910		19.0	%
Total capital		12.1%		79,681		20.6%		13.5	%		81,570		21.6	%
Total RWA		N/A		387,414		N/A					378,420
Leverage-based capital
Tier 1 leverage		4.0%		70,017		8.2%		4.0	%	$	71,910		8.4	%
Adjusted average assets²		N/A		852,726		N/A					855,192
SLR³		5.0%		70,017		6.4%
Supplementary leverage exposure⁴		N/A		1,096,953		N/A

		At December 31, 2017
$ in millions	Required Ratio¹		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital		7.3%	$	61,134		16.5%
Tier 1 capital		8.8%		69,938		18.9%
Total capital		10.8%		80,275		21.7%
Total RWA		N/A		369,578		N/A
Leverage-based capital
Tier 1 leverage		4.0%		69,938		8.3%
Adjusted average assets²		N/A		842,270		N/A
SLR								5.0	%		71,910		6.5	%
Supplementary leverage exposure³											1,104,264


		65		March 2019 Form 10-Q

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Notes to Consolidated Financial Statements

(Unaudited)


	At December 31, 2018
$ in millions	Required Ratio¹			Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital		8.6	%	$	62,086		16.9	%
Tier 1 capital		10.1	%		70,619		19.2	%
Total capital		12.1	%		80,052		21.8	%
Total RWA					367,309
Leverage-based capital
Tier 1 leverage		4.0	%	$	70,619		8.4	%
Adjusted average assets²					843,074
SLR		5.0	%		70,619		6.5	%
Supplementary leverage exposure³					1,092,672

~~Percentages represent~~Required ratios are inclusive of any buffers applicable as of the date presented. For 2018, the minimum required regulatory capital ~~ratios—~~ratios for risk-based capital ~~the ratios~~ are under the transitional rules. ~~For risk- and leverage-based capital, regulatory compliance was determined based on capital ratios calculated under the transitional rules until December 31, 2017.~~

Adjusted average assets represents the denominator of the Tier 1 leverage ratio and is composed of the average daily balance of consolidatedon-balance sheet assets under U.S. GAAP during the ~~current quarter~~quarters ended March 31, 2019 and ~~the quarter ended~~ December 31, ~~2017, respectively,~~2018, adjusted for disallowed goodwill, intangible assets, certain deferred tax assets, certain investments in the capital instruments of unconsolidated financial institutions and other adjustments.


		79		~~June 2018 Form 10-Q~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

3.	~~The SLR became effective as a capital standard on January 1, 2018.~~

Supplementary ~~Leverage~~leverage exposure is the sum of Adjusted average assets used in the Tier 1 leverage ratio and other adjustments, primarily (i) potential future exposure for derivative exposures,gross-up for cash collateral netting where qualifying criteria are not met, and the effective notional principal amount of sold credit protection offset by qualifying purchased credit protection; (ii) the counterparty credit risk for repo-style transactions; and (iii) the credit equivalent amount foroff-balance sheet exposures.

At March 31, 2019 and December 31, 2018, the Firm’ risk-based capital ratios are based on the Standardized Approach rules.

U.S. Bank Subsidiaries’ Regulatory Capital and Capital Ratios

The OCC establishes capital requirements for ~~our~~the Firm’s U.S. Bank Subsidiaries and evaluates their compliance with such capital requirements. Regulatory capital requirements for ~~our~~the U.S. Bank Subsidiaries are calculated in a similar manner to the Firm’s regulatory capital requirements, althoughG-SIB capital surcharge requirements do not apply to ~~our~~the U.S. Bank Subsidiaries.

The OCC’s regulatory capital framework includes Prompt Corrective Action (“PCA”) standards, including ~~“well capitalized”~~“well-capitalized” PCA standards that are based on specified regulatory capital ratio minimums. For usthe Firm to remain an FHC, ~~our~~the U.S. Bank Subsidiaries must remain ~~well capitalized~~well-capitalized in accordance with the OCC’s PCA standards. In addition, failure by ~~our~~the U.S. Bank Subsidiaries to meet minimum capital requirements may result in 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.

At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the U.S. Bank Subsidiaries’ risk-based capital ratios are based on the Standardized Approach rules, and in each period, the ratios exceeded ~~well capitalized~~well-capitalized requirements.

~~MSBNA’s Regulatory Capital~~


MSBNA’s Regulatory Capital

	At March 31, 2019
$ in millions	Required Ratio¹			Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital		6.5	%	$	16,285		19.9	%
Tier 1 capital		8.0	%		16,285		19.9	%
Total capital		10.0	%		16,569		20.2	%
Leverage-based capital
Tier 1 leverage		5.0	%	$	16,285		11.1	%
SLR		6.0	%		16,285		8.7	%

	At December 31, 2018
$ in millions	Required Ratio¹			Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital		6.5	%	$	15,221		19.5	%
Tier 1 capital		8.0	%		15,221		19.5	%
Total capital		10.0	%		15,484		19.8	%
Leverage-based capital
Tier 1 leverage		5.0	%	$	15,221		10.5	%
SLR		6.0	%		15,221		8.2	%

   At June 30, 2018
$ in millions
   Required
Ratio¹   Amount Ratio
Risk-based capital

Common Equity Tier 1 capital
   6.5 % $       15,065 18.7%
Tier 1 capital
   8.0 % 15,065 18.7%
Total capital
   10.0 % 15,327 19.1%
Leverage-based capital
��
Tier 1 leverage
   5.0 % 15,065 11.0%
SLR²
   6.0 % 15,065 8.4%
   At December 31, 2017
$ in millions    Required
Ratio¹ Amount Ratio
Risk-based capital

Common Equity Tier 1 capital
   6.5 % $       15,196 20.5%
Tier 1 capital
   8.0 % 15,196 20.5%
Total capital
   10.0 % 15,454 20.8%
Leverage-based capital

Tier 1 leverage
   5.0 % 15,196 11.8%


MSPBNA’s Regulatory Capital	MSPBNA’s Regulatory Capital								MSPBNA’s Regulatory Capital

			At June 30, 2018							At March 31, 2019
$ in millions		Required Ratio¹			Amount		Ratio			Required Ratio¹			Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital			6.5	%	$	6,608		24.6%			6.5	%	$	7,545		26.4	%
Tier 1 capital			8.0	%		6,608		24.6%			8.0	%		7,545		26.4	%
Total capital			10.0	%		6,649		24.8%			10.0	%		7,590		26.6	%
Leverage-based capital
Tier 1 leverage			5.0	%		6,608		9.8%			5.0	%	$	7,545		10.1	%
SLR²			6.0	%		6,608		9.4%

			At December 31, 2017
$ in millions		Required Ratio¹			Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital			6.5	%	$	6,215		24.4%
Tier 1 capital			8.0	%		6,215		24.4%
Total capital			10.0	%		6,258		24.6%
Leverage-based capital
Tier 1 leverage			5.0	%		6,215		9.7%
SLR											6.0	%		7,545		9.7	%


	At December 31, 2018
$ in millions	Required Ratio¹			Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital		6.5	%	$	7,183		25.2%
Tier 1 capital		8.0	%		7,183		25.2%
Total capital		10.0	%		7,229		25.4%
Leverage-based capital
Tier 1 leverage		5.0	%	$	7,183		10.0%
SLR		6.0	%		7,183		9.6%

1.	Ratios that are required in order to be considered well-capitalized for U.S. regulatory purposes. ~~Regulatory compliance was determined based on capital ratios calculated under the transitional rules until December 31, 2017.~~

2.	~~The SLR became effective as a capital standard on January 1, 2018.~~
March 2019 Form 10-Q		66

~~U.S. Broker-Dealer Regulatory Capital Requirements~~

~~MS&Co. Regulatory Capital~~

LOGO

Notes to Consolidated Financial Statements

(Unaudited)


U.S. Broker-Dealer Regulatory Capital Requirements					U.S. Broker-Dealer Regulatory Capital Requirements

MS&Co. Regulatory Capital					MS&Co. Regulatory Capital

$ in millions	At June 30, 2018		At December 31, 2017			At March 31, 2019		At December 31, 2018
Net capital	$	13,056	$	10,142		$	13,925	$	13,797
Excess net capital		10,661		8,018			11,403		11,333

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 SEC and the CFTC. MS&Co. has consistently operated with capital in excess of its regulatory capital requirements.

As an Alternative Net Capital broker-dealer, and in accordance with the market and credit risk standards of Appendix E of SEC Rule15c3-1, 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, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, MS&Co. has exceeded its net capital requirement and has tentative net capital in excess of the minimum and notification requirements.


~~June 2018 Form 10-Q~~		80


~~Notes to Consolidated Financial Statements (Unaudited)~~

~~MSSB LLC Regulatory Capital~~


MSSB LLC Regulatory Capital					MSSB LLC Regulatory Capital

$ in millions	At June 30, 2018		At December 31, 2017			At March 31, 2019		At December 31, 2018
Net capital	$	2,710	$	2,567		$	3,041	$	3,455
Excess net capital		2,556		2,400			2,901		3,313

MSSB 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

MSIP, a London-based broker-dealer subsidiary, is subject to the capital requirements of the PRA, and 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.

14. Total Equity

Share Repurchases


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
$ in millions	2018		2017		2018		2017		2019		2018
Repurchases of common stock under the Firm’s share repurchase program	$	1,250	$	500	$	2,500	$	1,250
Repurchases of common stock under our Share Repurchase Program									$	1,180	$	1,250

The Firm’s 2018 Capital Plan (“Capital Plan”) includes the share repurchase of up to $4.7 billion of outstanding common stock for the period beginning July 1, 2018 through June 30, 2019. Additionally, the Capital Plan includes quarterly common stock dividends of up to $0.30 per share.

~~On April 18, 2018,~~A portion of common stock repurchases in the ~~Firm entered into~~current quarter was conducted under a sales plan with MUFG, whereby MUFG ~~sells~~sold shares of the Firm’s common stock to the Firm, as part of the Firm’s ~~share repurchase program.~~Share Repurchase Program. The sales plan ~~which began to be executed in the current quarter,~~ is only intended to maintain MUFG’s ownership percentage below 24.9% in order to comply with MUFG’s passivity commitments to the Board of Governors of the Federal Reserve System and ~~will have~~has no impact on the strategic alliance between MUFG and the Firm, including the joint ventures in Japan.

Preferred Stock

Three Months Ended

June 30,

Six Months Ended

June 30,

$ in millions 2018 2017 2018 2017
Dividends declared
$ 170 $ 170 $ 263 $ 260

~~For a description of Series A through Series K preferred stock issuances, see Note 15 to the financial statements in the 2017 Form10-K.~~ 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).

~~Preferred Stock~~ Outstanding


	Shares Outstanding				Carrying Value					Shares Outstanding				Carrying Value
$ in millions, except per share data	At June 30, 2018		Liquidation Preference per Share		At June 30, 2018		At December 31, 2017			At March 31, 2019		Liquidation Preference per Share		At March 31, 2019		At December 31, 2018
Series
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		1,000			40,000		25,000		1,000		1,000
Total					$	8,520	$	8,520	Total					$	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.

For a description of Series A through Series K preferred stock issuances, see Note 15 to the financial statements in the 2018 Form10-K. 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).


		8167		~~June 2018~~March 2019 Form 10-Q

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Notes to Consolidated Financial Statements

(Unaudited)

Preferred Stock Dividends


$ in millions, except per share data	Three Months Ended March 31, 2019				Three Months Ended March 31, 2018
$ in millions, except per share data	Per Share¹		Total		Per Share¹		Total
Series
A	$	250	$	11	$	250	$	11
C		25		13		25		13
E		445		15		445		15
F		430		15		430		15
G		414		8		414		8
I		398		16		398		16
K		366		15		366		15
Total			$	93			$	93

~~Notes~~In addition to ~~Consolidated Financial Statements~~the dividends on the series of preferred stock included above, which are payable quarterly, Series H and J are payable semiannually until July 15, 2019 and July 15, 2020, respectively, and quarterly thereafter.

~~(Unaudited)~~

~~Comprehensive Income (Loss)~~

~~Accumulated Other Comprehensive Income (Loss)~~¹


Accumulated Other Comprehensive Income (Loss)¹																Accumulated Other Comprehensive Income (Loss)¹
$ in millions	Foreign Currency Translation Adjustments			AFS Securities			Pension, Postretirement and Other			DVA			Total				Foreign Currency Translation Adjustments		AFS Securities		Pension, Postretirement and Other		DVA		Total
March 31, 2018	$	(715	)	$	(1,068	)	$	(710	)	$	(913	)	$	(3,406	)
December 31, 2018																	$	(889)	$	(930)	$	(578)	$	105	$	(2,292)
OCI during the period		(149	)		(126	)		6			605			336				(12)		429		1		(599)		(181)
June 30, 2018	$	(864	)	$	(1,194	)	$	(704	)	$	(308	)	$	(3,070	)

March 31, 2017	$	(879	)	$	(504	)	$	(474	)	$	(593	)	$	(2,450	)
OCI during the period		23			108			4			(173	)		(38	)
June 30, 2017	$	(856	)	$	(396	)	$	(470	)	$	(766	)	$	(2,488	)
March 31, 2019																	$	(901)	$	(501)	$	(577)	$	(494)	$	(2,473)

December 31, 2017	$	(767	)	$	(547	)	$	(591	)	$	(1,155	)	$	(3,060	)		$	(767)	$	(547)	$	(591)	$	(1,155)	$	(3,060)
Cumulative adjustment for accounting changes²		(8	)		(111	)		(124	)		(194	)		(437	)			(8)		(111)		(124)		(194)		(437)
OCI during the period		(89	)		(536	)		11			1,041			427				60		(410)		5		436		91
June 30, 2018	$	(864	)	$	(1,194	)	$	(704	)	$	(308	)	$	(3,070	)

December 31, 2016	$	(986	)	$	(588	)	$	(474	)	$	(595	)	$	(2,643	)
OCI during the period		130			192			4			(171	)		155
June 30, 2017	$	(856	)	$	(396	)	$	(470	)	$	(766	)	$	(2,488	)
March 31, 2018																	$	(715)	$	(1,068)	$	(710)	$	(913)	$	(3,406)

1.	Amounts are net of tax and exclude noncontrolling interests.

The cumulative adjustment for accounting changes is primarily the effect of the adoption of the accounting updateReclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This adjustment was recorded as of January 1, 2018 to reclassify certain income tax effects related to enactment of the Tax Act from AOCI to Retained earnings, primarily related to the remeasurement of deferred tax assets and liabilities resulting from the reduction in the corporate income tax rate to 21%. See Note 2 for further information.

~~Components of Period Changes in OCI~~


Components of Period Changes in OCI																	Components of Period Changes in OCI
		Three Months Ended June 30, 2018																Three Months Ended March 31, 2019¹
$ in millions		Pre-tax Gain (Loss)			Income Tax Benefit (Provision)			After-tax Gain (Loss)			Non-controlling Interests			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		$	(86	)	$	(106	)	$	(192	)	$	(43	)	$	(149	)		$	(4)	$	(18)	$	(22)	$	(10)	$	(12)
Reclassified to earnings			—			—			—			—			—				—		—		—		—		—
Net OCI		$	(86	)	$	(106	)	$	(192	)	$	(43	)	$	(149	)		$	(4)	$	(18)	$	(22)	$	(10)	$	(12)

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		$	(162	)	$	39		$	(123	)	$	—		$	(123	)		$	570	$	(133)	$	437	$	—	$	437
Reclassified to earnings			(3	)		—			(3	)		—			(3	)			(10)		2		(8)		—		(8)
Net OCI		$	(165	)	$	39		$	(126	)	$	—		$	(126	)		$	560	$	(131)	$	429	$	—	$	429

Pension, postretirement and other	Pension, postretirement and other																Pension, postretirement and other
OCI activity		$	2		$	—		$	2		$	—		$	2			$	—	$	(1)	$	(1)	$	—	$	(1)
Reclassified to earnings			6			(2	)		4			—			4				3		(1)		2		—		2
Net OCI		$	8		$	(2	)	$	6		$	—		$	6			$	3	$	(2)	$	1	$	—	$	1

Change in net DVA																	Change in net DVA
OCI activity		$	841		$	(205	)	$	636		$	34		$	602			$	(824)	$	201	$	(623)	$	(21)	$	(602)
Reclassified to earnings			3			—			3			—			3				4		(1)		3		—		3
Net OCI		$	844		$	(205	)	$	639		$	34		$	605			$	(820)	$	200	$	(620)	$	(21)	$	(599)

Three Months Ended

June 30, 2017

$ in millions Pre-tax
Gain (Loss) Income
Tax Benefit
(Provision) After-tax
Gain (Loss) Non-controlling
Interests 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 earnings
(14 ) 5 (9 ) — (9 )
Net OCI
$ 171 $ (63 ) $ 108 $ — $       108
Pension, postretirement and other

OCI activity
$ 3 $ — $ 3 $ — $ 3
Reclassified to earnings
1 — 1 — 1
Net OCI
$ 4 $ — $ 4 $ — $ 4
Change in net DVA

OCI activity
$ (285 ) $ 99 $ (186 ) $ (10 ) $ (176 )
Reclassified to earnings
4 (1 ) 3 — 3
Net OCI
$ (281 ) $ 98 $ (183 ) $ (10 ) $ (173 )

Six Months Ended

June 30, 2018¹

$ in millions Pre-tax
Gain (Loss) Income
Tax Benefit
(Provision) After-tax
Gain (Loss) Non-controlling
Interests Net
Foreign currency translation adjustments

OCI activity
$ (8 ) $ (67 ) $ (75 ) $ 14 $ (89 )
Reclassified to earnings
— — — — —
Net OCI
$ (8 ) $ (67 ) $ (75 ) $ 14 $ (89 )
Change in net unrealized gains (losses) on AFS securities

OCI activity
$ (697 ) $ 164 $ (533 ) $ — $ (533 )
Reclassified to earnings
(3 ) — (3 ) — (3 )
Net OCI
$ (700 ) $         164 $ (536 ) $ — $ (536 )
Pension, postretirement and other

OCI activity
$ 2 $ — $ 2 $ — $ 2
Reclassified to earnings
12 (3 ) 9 — 9
Net OCI
$ 14 $ (3 ) $ 11 $ — $ 11
Change in net DVA

OCI activity
$       1,421 $ (345 ) $ 1,076 $ 49 $ 1,027
Reclassified to earnings
18 (4 ) 14 — 14
Net OCI
$ 1,439 $ (349 ) $     1,090 $                 49 $     1,041


~~June 2018 Form 10-Q~~		82


~~Notes to Consolidated Financial Statements (Unaudited)~~


		Six Months Ended June 30, 2017																Three Months Ended March 31, 2018¹
$ in millions		Pre-tax Gain (Loss)			Income Tax Benefit (Provision)			After-tax Gain (Loss)			Non-controlling Interests			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		$	44		$	118		$	162		$	32		$	130			$	78	$	39	$	117	$	57	$	60
Reclassified to earnings			—			—			—			—			—				—		—		—		—		—
Net OCI		$	44		$	118		$	162		$	32		$	130			$	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		$	322		$	(120	)	$	202		$	—		$	202			$	(535)	$	125	$	(410)	$	—	$	(410)
Reclassified to earnings			(16	)		6			(10	)		—			(10	)			—		—		—		—		—
Net OCI		$	306		$	(114	)	$	192		$	—		$	192			$	(535)	$	125	$	(410)	$	—	$	(410)

Pension, postretirement and other	Pension, postretirement and other																Pension, postretirement and other
OCI activity		$	3		$	—		$	3		$	—		$	3			$	—	$	—	$	—	$	—	$	—
Reclassified to earnings			1			—			1			—			1				6		(1)		5		—		5
Net OCI		$	4		$	—		$	4		$	—		$	4			$	6	$	(1)	$	5	$	—	$	5

Change in net DVA																	Change in net DVA

OCI activity		$	(278	)	$	98		$	(180	)	$	(3	)	$	(177	)		$	580	$	(140)	$	440	$	15	$	425
Reclassified to earnings			8			(2	)		6			—			6				15		(4)		11		—		11
Net OCI		$	(270	)	$	96		$	(174	)	$	(3	)	$	(171	)		$	595	$	(144)	$	451	$	15	$	436

1.	Exclusive of ~~2018~~ cumulative adjustments related to the adoption of certain accounting ~~updates in the current year period.~~updates. Refer to the table below and Note 2 for further information.

~~Cumulative Adjustments to Retained Earnings Related to Adoption of Accounting Updates~~


Cumulative Adjustments to Retained Earnings Related to Adoption of Accounting Updates
	Three Months Ended
$ in millions	~~Six Months Ended~~ ~~June 30, 2018~~ March 31, 2019
~~Revenue from contracts with customers~~Leases	$	~~(32~~63	)

	Three Months Ended
$ in millions	March 31, 2018
Revenues from contracts with customers¹		(32)
Derivatives and ~~hedging–~~hedging—targeted improvements to accounting for hedging activities¹		~~(99~~(99)	)
Reclassification of certain tax effects from AOCI¹	$	443
Other¹²		(6(6)	)
Total	$	306

~~$ in millions~~	~~Six Months Ended~~ ~~June 30, 2017~~
~~Improvements to employee share-based payment accounting~~²		~~(30~~	)
~~Intra-entity transfers of assets other than inventory~~		(5	)
~~Total~~	$	~~(35~~	)

1.	See Note 2 to the 2018 Form10-K for further information.

Other includes the adoption of accounting updates related toRecognition and Measurement of Financial Assets and Financial Liabilities (other than the provision around presenting unrealized DVA in OCI, which wethe Firm early adopted in 2016) andDerecognition of Nonfinancial Assets. The impact of these adoptions on Retained earnings was not significant.

2.	~~See Note 2 to the 2017 Form10-K~~ ~~for further information.~~

~~15. Earnings per Common Share~~

~~Calculation of Basic and Diluted EPS~~

Three Months Ended

June 30,

Six Months Ended

June 30,

in millions, except for per share data 2018 2017 2018 2017
Basic EPS

Income from continuing operations
$ 2,469 $ 1,796 $ 5,175 $ 3,789
Income (loss) from discontinued operations
(2 ) (5 ) (4 ) (27 )
Net income
2,467 1,791 5,171 3,762
Net income applicable to noncontrolling interests
30 34 66 75
Net income applicable to Morgan Stanley
2,437 1,757 5,105 3,687
Preferred stock dividends and other
170 170 263 260
Earnings applicable to Morgan Stanley common shareholders
$ 2,267 $ 1,587 $ 4,842 $ 3,427
Weighted average common shares outstanding
1,720 1,791 1,730 1,796
Earnings per basic common share

Income from continuing operations
$ 1.32 $ 0.89 $ 2.80 $ 1.92
Income (loss) from discontinued operations
— — — (0.01 )
Earnings per basic common share
$ 1.32 $ 0.89 $ 2.80 $ 1.91
Diluted EPS

Earnings applicable to Morgan Stanley common shareholders
$ 2,267 $ 1,587 $ 4,842 $ 3,427
Weighted average common shares outstanding
1,720 1,791 1,730 1,796
Effect of dilutive securities: Stock options and RSUs¹
28 39 30 40
Weighted average common shares outstanding and common stock equivalents
1,748 1,830 1,760 1,836
Earnings per diluted common share

Income from continuing operations
$ 1.30 $ 0.87 $ 2.75 $ 1.88
Income (loss) from discontinued operations
— — — (0.01 )
Earnings per diluted common share
$ 1.30 $ 0.87 $ 2.75 $ 1.87
Weighted average antidilutive RSUs and stock options (excluded from the computation of diluted EPS)¹
1 — 1 —

1.	RSUs that are considered participating securities are treated as a separate class of securities in the computation of basic EPS, and, therefore, such RSUs are not included as incremental shares in the diluted EPS computation.


March 2019 Form 10-Q		8368		~~June 2018 Form 10-Q~~

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

15.

~~Notes to Consolidated Financial Statements~~Earnings per Common Share

~~(Unaudited)~~

~~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 March 31,
in millions, except for per share data	2019		2018
Earnings applicable to Morgan Stanley common shareholders	$	2,336	$	2,575

Basic EPS
Weighted average common shares outstanding		1,658		1,740
Earnings per basic common share	$	1.41	$	1.48

Diluted EPS
Weighted average common shares outstanding		1,658		1,740
Effect of dilutive RSUs and PSUs		19		31
Weighted average common shares outstanding and common stock equivalents		1,677		1,771
Earnings per diluted common share	$	1.39	$	1.45
Weighted average antidilutive RSUs (excluded from the computation of diluted EPS)		6		1

Three Months Ended

June 30,

Six Months Ended

June 30,

$ in millions 2018 2017 2018 2017
Interest income

Investment securities
$ 417 $ 304 $ 841 $ 630
Loans
1,074 798 2,012 1,546
Securities purchased under agreements to resell and Securities borrowed¹
366 29 581 10
Trading assets, net of Trading liabilities
576 491 1,116 955
Customer receivables and Other²
861 484 1,604 930
Total interest income
$ 3,294 $ 2,106 $ 6,154 $ 4,071
Interest expense

Deposits
$ 273 $ 14 $ 432 $ 25
Borrowings
1,258 1,067 2,396 2,088
Securities sold under agreements to repurchase and Securities loaned³
446 339 848 587
Customer payables and Other⁴
411 (65 ) 597 (151 )
Total interest expense
$ 2,388 $ 1,355 $ 4,273 $ 2,549
Net interest
$ 906 $ 751 $ 1,881 $ 1,522

16.

Interest Income and Interest Expense


	Three Months Ended March 31,
$ in millions	2019		2018
Interest income
Investment securities	$	475	$	424
Loans		1,195		938
Securities purchased under agreements to resell and Securities borrowed¹		947		215
Trading assets, net of Trading liabilities		713		540
Customer receivables and Other²		960		743
Total interest income	$	4,290	$	2,860

Interest expense
Deposits	$	462	$	159
Borrowings		1,380		1,138
Securities sold under agreements to repurchase and Securities loaned³		600		402
Customer payables and Other⁴		834		186
Total interest expense	$	3,276	$	1,885
Net interest	$	1,014	$	975

1.	Includes fees paid on Securities borrowed.

2.	Includes interest from Customer receivables and Cash and cash equivalents.

3.	Includes fees received on Securities loaned.

4.	Includes fees received from prime brokerage customers for stock loan transactions ~~incurred~~entered into to cover customers’ short positions.

17. ~~Employee Benefit Plans~~

The Firm sponsors various retirement plans for the majority of its U.S. employees. The Firm provides certain other postretirement benefits, primarily health care and life insurance, to eligible U.S. employees.

~~Components of Net Periodic Benefit Expense (Income) for Pension and Other Postretirement Plans~~

Three Months
Ended

June 30,

Six Months
Ended

June 30,

$ in millions 2018 2017 2018 2017
Service cost, benefits earned during the period
$ 4 $ 4 $ 8 $ 8
Interest cost on projected benefit obligation
35 38 69 75
Expected return on plan assets
(28 ) (29 ) (56 ) (58 )
Net amortization of prior service credit
— (4 ) — (8 )
Net amortization of actuarial loss
6 4 12 8
Net periodic benefit expense (income)
$ 17 $ 13 $ 33 $ 25

~~18.~~ Income Taxes

The Firm is under continuous examination by the IRS and other tax authorities in certain countries, such as Japan and the U.K., and in states and localities 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.

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 2009-2016 and 2007-2014, respectively.~~

~~The Firm~~ believes that the resolution of the above tax ~~matters~~examinations will not have a material effect on the annual financial statements, although a resolution could have a material impact in the income statements and on the effective tax rate for any period in which such resolution occurs.

Furthermore, by the end of the first quarter of 2018, the Firm reached a conclusion with the U.K. tax authorities on certain issues through tax year 2010, the resolution of which did not have a material impact on the financial statements or effective tax rate.

See Note 11 regarding the Dutch Tax Authority’s challenge, in the District Court in Amsterdam (matters styledCase number15/3637andCase number 15/~~4353~~4353)), of the Firm’s entitlement to certain withholding tax credits which may impact the balance of unrecognized tax benefits.


~~June 2018 Form 10-Q~~		84

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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.

The Firm’s effective tax rate for the current quarter ~~and current year period~~ included recurring-type discrete tax benefits associated with employee share-based payments of ~~$17 million and $164 million, respectively. Additionally, as a result of new information pertaining to the resolution of multi-jurisdiction tax examinations and other matters the~~$107 million. The Firm’s effective tax rate for the current quarter ~~and current year period~~ included an intermittent net discrete tax ~~benefits of $88 million with a corresponding reduction in the total amount of gross unrecognized tax benefits (excluding federal~~ benefit of ~~state items, competent authority~~$101 million primarily associated with the remeasurement of reserves and ~~foreign~~related interest due to new information with regard to multi-jurisdiction tax ~~credit offsets) of approximately $430 million.~~examinations.


		69		March 2019 Form 10-Q

LOGO

Notes to Consolidated Financial Statements

(Unaudited)

~~19.~~18. Segment, Geographic and Revenue ~~Information~~

~~Segment~~ Information

~~For a discussion about the Firm’s business segments, see Note 21 to the financial statements in the 2017 Form10-K.~~

Segment

Information

Selected Financial Information by Business Segment

Three Months Ended June 30, 2018
$ in millions IS WM IM I/E Total
Investment banking^{1, 2}
$ 1,699 $ 114 $ — $ (20 ) $ 1,793
Trading
3,128 135 16 14 3,293
Investments
89 3 55 — 147
Commissions and fees¹
674 442 — (77 ) 1,039
Asset management¹
102 2,514 610 (37 ) 3,189
Other
168 74 3 (2 ) 243
Totalnon-interest revenues^{3, 4}
5,860 3,282 684 (122 ) 9,704
Interest income
2,195 1,320 17 (238 ) 3,294
Interest expense
2,341 277 10 (240 ) 2,388
Net interest
(146 ) 1,043 7 2 906
Net revenues
$ 5,714 $ 4,325 $ 691 $ (120 ) $ 10,610
Income from continuing operations before income taxes
$ 1,812 $ 1,157 $ 140 $ — $ 3,109
Provision for income taxes
323 281 36 — 640
Income from continuing operations
1,489 876 104 — 2,469
Income (loss) from discontinued operations, net of income taxes
(2 ) — — — (2 )
Net income
1,487 876 104 — 2,467
Net income applicable to noncontrolling interests
30 — — — 30
Net income applicable to Morgan Stanley
$ 1,457 $ 876 $ 104 $ — $ 2,437

Three Months Ended June 30, 2017
$ in millions IS WM IM I/E Total
Investment banking
$ 1,413 $ 135 $ — $ (18 ) $ 1,530
Trading
2,725 207 (3 ) 2 2,931
Investments
37 1 125 — 163
Commissions and fees
630 424 — (27 ) 1,027
Asset management
89 2,302 539 (28 ) 2,902
Other
126 73 4 (4 ) 199
Totalnon-interest revenues
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
Six Months Ended June 30, 2018
$ in millions IS WM IM I/E Total
Investment banking^{1, 2}
$ 3,212 $ 254 $ — $ (39 ) $ 3,427
Trading
6,771 244 21 27 7,063
Investments
138 3 132 — 273
Commissions and fees¹
1,418 940 — (146 ) 2,212
Asset management¹
212 5,009 1,236 (76 ) 6,381
Other
304 137 13 (4 ) 450
Totalnon-interest revenues^{3, 4}
12,055 6,587 1,402 (238 ) 19,806
Interest income
3,999 2,600 18 (463 ) 6,154
Interest expense
4,240 488 11 (466 ) 4,273
Net interest
(241 ) 2,112 7 3 1,881
Net revenues
$ 11,814 $ 8,699 $ 1,409 $ (235 ) $ 21,687
Income from continuing operations before income taxes
$ 3,924 $ 2,317 $ 288 $ — $ 6,529
Provision for income taxes
772 527 55 — 1,354
Income from continuing operations
3,152 1,790 233 — 5,175
Income (loss) from discontinued operations, net of income taxes
(4 ) — — — (4 )
Net income
3,148 1,790 233 — 5,171
Net income applicable to noncontrolling interests
64 — 2 — 66
Net income applicable to Morgan Stanley
$ 3,084 $ 1,790 $ 231 $ — $ 5,105


	Three Months Ended March 31, 2019
$ in millions	IS			WM		IM			I/E			Total
Investment banking^{1, 2}	$	1,151		$	109	$	—		$	(18	)	$	1,242
Trading		3,130			302		(3	)		12			3,441
Investments		81			1		191			—			273
Commissions and fees¹		621			406		—			(61	)		966
Asset management¹		107			2,361		617			(36	)		3,049
Other		222			80		3			(4	)		301
Totalnon-interest revenues^{3, 4}		5,312			3,259		808			(107	)		9,272
Interest income		3,056			1,413		4			(183	)		4,290
Interest expense		3,172			283		8			(187	)		3,276
Net interest		(116	)		1,130		(4	)		4			1,014
Net revenues	$	5,196		$	4,389	$	804		$	(103	)	$	10,286
Income from continuing operations before income taxes	$	1,595		$	1,188	$	174		$	(2	)	$	2,955
Provision for income taxes		190			264		33			—			487
Income from continuing operations		1,405			924		141			(2	)		2,468
Income (loss) from discontinued operations, net of income taxes		—			—		—			—			—
Net income		1,405			924		141			(2	)		2,468
Net income applicable to noncontrolling interests		34			—		5			—			39
Net income applicable to Morgan Stanley	$	1,371		$	924	$	136		$	(2	)	$	2,429


	Three Months Ended March 31, 2018
$ in millions	IS			WM		IM		I/E			Total
Investment banking^{1, 2}	$	1,513		$	140	$	—	$	(19	)	$	1,634
Trading		3,643			109		5		13			3,770
Investments		49			—		77		—			126
Commissions and fees¹		744			498		—		(69	)		1,173
Asset management¹		110			2,495		626		(39	)		3,192
Other		136			63		10		(2	)		207
Totalnon-interest revenues^{3, 4}		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

~~June 2018 Form 10-Q~~

I/E–Intersegment Eliminations

1.	Approximately 85% of Investment banking revenues and substantially all of Commissions and fees and Asset management revenues in the current quarter and prior year quarter were accounted for under theRevenues from Contracts with Customers accounting update.

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Six Months Ended June 30, 2017
$ in millions IS WM IM I/E Total
Investment banking
$ 2,830 $ 280 $ — $ (35 ) $ 3,075
Trading
5,737 445 (14 ) (2 ) 6,166
Investments
103 2 223 — 328
Commissions and fees
1,250 864 — (54 ) 2,060
Asset management
180 4,486 1,056 (53 ) 5,669
Other
299 129 8 (8 ) 428
Totalnon-interest revenues
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

~~I/E–Intersegment Eliminations~~

1.	~~Approximately 85% of Investment banking revenues and substantially all of Commissions and fees and Asset management revenues in the current quarter and current year period were determined under the~~~~Revenues from Contracts with Customers~~ ~~accounting update.~~

Current quarter Institutional Securities Investment banking revenues are composed of $618 million of Advisory and $1,081 million of Underwriting revenues. Current year period Institutional Securities Investment banking revenues are composed of $1,192 million of Advisory and $2,020Current quarter Institutional Securities Investment banking revenues are composed of $406 million of Advisory and $745 million of Underwriting revenues. Prior year quarter Institutional Securities Investment banking revenues are composed of $574 million of Advisory and $939 million of Underwriting revenues.

The Firm enters into certain contracts which contain a current obligation to perform services in the future. Excluding contracts where billing is commensurate with the value of the services performed at each stage of the contract, contracts with variable consideration that is subject to reversal, and contracts with less than one year duration, we expect to record the following approximate annual revenues in the future: $100 million per year over the next three years; between $10 million and $50 million per year thereafter through 2035. These revenues are primarily related to certain commodities contracts with customers.

4.	Includes $862 million and $1,628 million in revenue recognized in the current quarter and current year period, respectively, where some or all services were performed in prior periods. This amount is primarily composed of investment banking advisory fees, and distribution fees.

~~Total Assets by Business Segment~~

$ in millions
At
June 30,
2018

At
December 31,
2017

Institutional Securities
   $ 683,888    $ 664,974
Wealth Management
   186,049    182,009
Investment Management
   5,938    4,750
Total¹
   $                 875,875    $                 851,733

1.	~~Parent assets have been fully allocated to the business segments.~~

~~Additional Information – Investment Management~~

~~Net Unrealized Performance-based Fees~~

$ in millions
At
June 30,
2018

At
December 31,
2017

Net cumulative unrealized performance-based fees at risk of reversing
   $                     426    $                     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
June 30,

Six Months Ended
June 30,

$ in millions    2018    2017    2018    2017
Fee waivers
   $ 16    $ 23    $ 34    $ 45

The Firm ~~waives~~enters into certain contracts which contain a ~~portion of its fees~~current obligation to perform services in the ~~Investment Management business segment from certain registered money market funds that comply~~future. Excluding contracts where billing is commensurate with the ~~requirements of Rule2a-7~~value of the ~~Investment Company Act~~services performed at each stage of ~~1940.~~

~~Geographic Information~~

~~For a discussion about~~ the ~~Firm’s geographic net~~contract, contracts with variable consideration that is subject to reversal, and contracts with less than one year duration, we expect to record the following approximate revenues ~~see Note 21 to the financial statements~~ in the ~~2017~~future: $105 million in the remainder of 2019 and $105 million in 2020; between $40 million and $70 million per year in 2021 through 2025; and $10 million per year thereafter through 2035. These revenues are primarily related to certain commodities contracts with customers.

4.	Includes $671 million and $902 million in revenue recognized in the current quarter and prior year quarter, respectively, where some or all services were performed in prior periods. This amount is primarily composed of investment banking advisory fees and distribution fees.

For a discussion about the Firm’s business segments, see Note 21 to the financial statements in the 2018 Form10-K.

March 2019 Form~~10-K.~~


~~June 2018 Form 10-Q~~		86 10-Q		70

LOGO

Notes to Consolidated Financial Statements

(Unaudited)


Total Assets by Business Segment
$ in millions	At March 31, 2019		At December 31, 2018
Institutional Securities	$	675,770	$	646,427
Wealth Management		194,897		202,392
Investment Management		5,297		4,712
Total¹	$	875,964	$	853,531

~~(Unaudited)~~
1.
Parent assets have been fully allocated to the business segments.

Additional

~~Net Revenues by Region~~Segment Information—Investment Management


Net Unrealized Carried Interest
	At		At
	March 31,		December 31,
$ in millions	2019		2018
Net cumulative unrealized carried interest at risk of reversing	$	469	$	434

The Firm’s portion of net cumulative unrealized carried interest (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-based fees in the form of carried interest previously received.


Reduction of Fees due to Fee Waivers
	Three Months Ended March 31,

$ in millions	2019		2018
Fee waivers	$	11	$	18

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 Rule2a-7 of the Investment Company Act of 1940.

Separately, the Firm’s employees, including its senior officers, may participate on the same terms and conditions as other investors in certain funds that the Firm sponsors primarily for client investment, and the Firm may waive or lower applicable fees and charges for its employees.

Geographic Information


Net Revenues by Region
	Three Months Ended March 31,
$ in millions	2019		2018
Americas	$	7,321	$	8,018
EMEA		1,702		1,708
Asia		1,263		1,351
Total	$	10,286	$	11,077

For a discussion about the Firm’s geographic net revenues, see Note 21 to the financial statements in the 2018 Form10-K.

Revenue Information

Trading Revenues by Product Type


	Three Months Ended March 31,
$ in millions	2019		2018
Interest rate	$	785	$	871
Foreign exchange		241		261
Equity security and index¹		1,451		1,877
Commodity and other		422		435
Credit		542		326
Total	$	3,441	$	3,770

   Three Months Ended
June 30,    Six Months Ended
June 30,
$ in millions    2018    2017    2018    2017
Americas
   $ 7,614    $ 6,746    $ 15,632    $ 13,834
EMEA
   1,829    1,606    3,537    3,095
Asia
   1,167    1,151    2,518    2,319
Total
   $ 10,610    $ 9,503    $ 21,687    $ 19,248

~~Additional Information—Revenues from Contracts with Customers~~

Change in Revenue as a Result of Application of the New
Revenue Recognition Standard
$ in millions Three
Months Ended
June 30, 2018 Six
Months Ended
June 30, 2018
Gross presentation impact

Investment banking—

Advisory
$ 29 $ 44
Underwriting
57 102
Asset management
7 14
Other
15 27
Subtotal
108 187
Timing impact

Investment banking—

Advisory
15 15
Asset management
(18 ) (16 )
Other
3 5
Subtotal
— 4
Total change
$ 108 $ 191

~~As a result of adopting the accounting update~~~~Revenue from Contracts with Customers~~~~, the accounting for certain transactions has changed (see Note 2 for further details). As summarized in the previous table, the change~~Dividend income is ~~composed of transactions which are now presented on a gross basis within bothNon-interest~~ ~~revenues andNon-interest~~ expenses as well as transactions where revenues are recognized with different timing compared to the previous GAAP. For example, timing impacts shown as negative amounts in the previous table represent revenues for which recognition has been deferred to future periods under the new standard.

~~Receivables from Contracts with Customers~~

$ in millions    At
June 30,
2018             At
January 1,
2018
Customer and other receivables
   $ 2,462    $ 2,805

~~Receivables from contracts with customers, which are~~ included within ~~Customer~~equity security and ~~other receivables in the balance sheets, arise when the Firm has both recorded revenues and has the right per the contract to bill customers.~~index contracts.

~~20. Subsequent Events~~

The previous table summarizes gains and losses included in Trading revenues in the income 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. The trading revenues presented in the 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.

The Firm has evaluated subsequent events for adjustment to or disclosure in the financial statements through the date of this report and has not identified any recordable or disclosable events not otherwise reported in these financial statements or the notes thereto.

~~June 2018~~


Receivables related to Revenues from Contracts with Customers
	At		At
	March 31,		December 31,
$ in millions	2019		2018
Customer and other receivables	$	2,206	$	2,308

Receivables from contracts with customers, which are included within Customer and other receivables in the balance sheets, arise when the Firm has both recorded revenues and has the right per the contract to bill the customer.

19. Subsequent Events


		71		March 2019 Form 10-Q

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Financial Data Supplement (Unaudited)

Average Balances and Interest Rates and Net Interest Income


	Three Months Ended March 31,
	2019						2018
$ in millions		Average Daily Balance		Interest	Annualized Average Rate			Average Daily Balance		Interest		Annualized Average Rate
Interest earning assets
Investment securities¹	$	94,906	$	475	2.0	%	$	80,532	$	424		2.1 %
Loans¹		116,698		1,195	4.2			104,407		938		3.6
Securities purchased under agreements to resell and Securities borrowed^2:
U.S.		141,806		934	2.7			124,172		309		1.0
Non-U.S.		77,256		13	0.1			87,581		(94	)	(0.4)
Trading assets, net of Trading liabilities^3:
U.S.		74,152		631	3.5			53,488		487		3.7
Non-U.S.		11,861		82	2.8			5,059		53		4.2
Customer receivables and Other^4:
U.S.		63,649		697	4.4			74,118		542		3.0
Non-U.S.		55,142		263	1.9			50,080		201		1.6
Total	$	635,470	$	4,290	2.7	%	$	579,437	$	2,860		2.0 %
Interest bearing liabilities
Deposits¹	$	181,017	$	462	1.0	%	$	159,948	$	159		0.4 %
Borrowings^{1, 5}		189,181		1,380	3.0			194,558		1,138		2.4
Securities sold under agreements to repurchase and Securities loaned^6:
U.S.		26,615		450	6.9			25,009		286		4.6
Non-U.S.		32,350		150	1.9			40,675		116		1.2
Customer payables and Other^7:
U.S.		117,932		554	1.9			121,438		49		0.2
Non-U.S.		65,498		280	1.7			69,646		137		0.8
Total	$	612,593	$	3,276	2.2	%	$	611,274	$	1,885		1.3 %
Net interest income and net interest rate spread			$	1,014	0.5	%			$	975		0.7 %

	1.	Amounts include primarily U.S. balances.
~~Financial Data Supplement (Unaudited)~~

2.	Includes fees paid on Securities borrowed.

3.	Excludesnon-interest earning assets andnon-interest bearing liabilities, such as equity securities.

4.	Includes interest from Customer receivables and Cash and cash equivalents. Prior period amounts have been revised to conform to the current presentation.

5.	Includes structured notes, whose interest expense is considered part of its value and therefore is recorded within Trading revenues.

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 averageon-balance sheet balances, which exclude certainsecurities-for-securities transactions.

Includes fees received from prime brokerage customers for stock loan transactions entered into to cover customers’ short positions.

~~Average Balances and Interest Rates and Net Interest Income~~

Three Months Ended June 30,
2018 2017
$ in millions
Average
Daily
Balance
Interest
Annualized
Average
Rate

Average
Daily
Balance
Interest Annualized
Average
Rate
Interest earning assets¹

Investment securities²
$ 79,502 $ 417 2.1 % $ 74,855 $ 304 1.6 %
Loans²
111,939 1,074 3.8 96,230 798 3.3
Securities purchased under agreements to resell and Securities borrowed^3:

U.S.
137,413 463 1.4 129,845 140 0.4
Non-U.S.
90,114 (97 ) (0.4 ) 90,200 (111 ) (0.5 )
Trading assets, net of Trading liabilities^4:

U.S.
56,327 525 3.7 60,963 476 3.1
Non-U.S.
7,926 51 2.6 3,409 15 1.8
Customer receivables and Other^5:

U.S.
66,954 623 3.7 65,736 344 2.1
Non-U.S.
33,722 238 2.8 28,012 140 2.0
Total
$ 583,897 $ 3,294 2.3 % $ 549,250 $ 2,106 1.5 %
Interest bearing liabilities

Deposits²
$ 165,251 $ 273 0.7 % $ 146,982 $ 14 — %
Borrowings^{2, 6}
192,122 1,258 2.6 180,918 1,067 2.4
Securities sold under agreements to repurchase and Securities loaned^7:

U.S.
24,868 321 5.2 35,066 245 2.8
Non-U.S.
39,536 125 1.3 36,974 94 1.0
Customer payables and Other^8:

U.S.
121,968 208 0.7 130,814 (98 ) (0.3 )
Non-U.S.
72,915 203 1.1 64,135 33 0.2
Total
$ 616,660 $ 2,388 1.6 % $ 594,889 $ 1,355 0.9 %
Net interest income and net interest rate spread
$ 906 0.7 % $ 751 0.6 %

~~June 2018 Form 10-Q~~


March 2019 Form 10-Q		72

~~Financial Data Supplement (Unaudited)~~

~~Average Balances and Interest Rates and Net Interest Income~~

LOGO

Glossary of Common Acronyms

Six Months Ended June 30,
2018 2017
$ in millions Average
Daily
Balance Interest Annualized
Average
Rate
Average
Daily
Balance
Interest Annualized
Average
Rate
Interest earning assets¹

Investment securities²
$ 80,016 $ 841 2.1 % $ 77,758 $ 630 1.6 %
Loans²
108,193 2,012 3.8 95,799 1,546 3.3
Securities purchased under agreements to resell and Securities borrowed³:

U.S.
130,611 772 1.2 128,775 216 0.3
Non-U.S.
89,074 (191 ) (0.4 ) 92,354 (206 ) (0.4 )
Trading assets, net of Trading liabilities⁴:

U.S.
55,089 1,012 3.7 58,390 922 3.2
Non-U.S.
6,051 104 3.5 2,630 33 2.5
Customer receivables and Other⁵:

U.S.
69,003 1,165 3.4 66,143 681 2.1
Non-U.S.
34,126 439 2.6 27,622 249 1.8
Total
$ 572,163 $ 6,154 2.2 % $ 549,471 $ 4,071 1.5 %
Interest bearing liabilities

Deposits²
$ 162,607 $ 432 0.5 % $ 150,309 $ 25 — %
Borrowings^{2, 6}
193,323 2,396 2.5 175,937 2,088 2.4
Securities sold under agreements to repurchase and Securities loaned⁷:

U.S.
24,948 607 4.9 35,199 417 2.4
Non-U.S.
40,091 241 1.2 37,654 170 0.9
Customer payables and Other⁸:

U.S.
121,798 257 0.4 130,836 (183 ) (0.3 )
Non-U.S.
71,210 340 1.0 60,160 32 0.1
Total
$     613,977 $         4,273 1.4 % $     590,095 $         2,549 0.9 %
Net interest income and net interest rate spread
$ 1,881 0.8 % $ 1,522 0.6 %

1.	~~Prior period amounts have been revised to conform to the current presentation.~~

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 Customer receivables and Cash and cash equivalents.~~

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 Notes 3 and 11 to the financial statements in the 2017 Form~~10-K).~~

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 certainsecurities-for-securities~~ ~~transactions.~~

8.	~~Includes fees received from prime brokerage customers for stock loan transactions incurred to cover customers’ short positions.~~


		89		~~June 2018 Form 10-Q~~

~~Financial Data Supplement (Unaudited)~~

~~Effect of Volume and Rate Changes on Net Interest Income~~

Current Quarter
versus
Prior Year Quarter

Current Year Period
versus
Prior Year Period

Increase (Decrease)
Due to Change in:

Increase (Decrease)
Due to Change in:

$ in millions Volume Rate Net Change Volume Rate Net Change
Interest earning assets

Investment securities
$ 19 $ 94 $ 113 $ 18 $ 193 $ 211
Loans
130 146 276 201 265 466
Securities purchased under agreements to resell and Securities borrowed:

U.S.
8 315 323 8 548 556
Non-U.S.
— 14 14 10 5 15
Trading assets, net of Trading liabilities:

U.S.
(36 ) 85 49 (44 ) 134 90
Non-U.S.
20 16 36 30 41 71
Customer receivables and Other:

U.S.
6 273 279 18 466 484
Non-U.S.
29 69 98 70 120 190
Change in interest income
$ 176 $ 1,012 $ 1,188 $ 311 $ 1,772 $ 2,083
Interest bearing liabilities

Deposits
$ 2 $ 257 $ 259 $ 2 $ 405 $ 407
Borrowings
66 125 191 207 101 308
Securities sold under agreements to repurchase and Securities loaned:

U.S.
(71 ) 147 76 (116 ) 306 190
Non-U.S.
7 24 31 9 62 71
Customer payables and Other:

U.S.
7 299 306 7 433 440
Non-U.S.
5 165 170 5 303 308
Change in interest expense
$ 16 $ 1,017 $ 1,033 $ 114 $ 1,610 $ 1,724
Change in net interest income
$ 160 $ (5 ) $ 155 $ 197 $ 162 $ 359


~~June 2018 Form 10-Q~~		90


~~Glossary of Common Acronyms~~

~~2017~~2018 Form~~10-K—~~10-K

Annual Report on Form10-K for year ended December 31, ~~2017~~2018 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

BEAT

Base erosion and anti-abuse tax

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,~~obligation(s), including ~~collateralized~~Collateralized loan ~~obligations~~obligation(s)

CDS—

Credit default swaps

CECL—

Current expected credit loss

CFTC—

U.S. Commodity Futures Trading Commission

CLN—

Credit-linked ~~notes~~note(s)

CLO—

Collateralized loan ~~obligations~~obligation(s)

CMBS—

Commercial mortgage-backed securities

CMO—

Collateralized mortgage ~~obligations~~obligation(s)

CVA—

Credit valuation adjustment

DVA—

Debt valuation adjustment

EBITDA—

Earnings before interest, taxes, depreciation and amortization


ELN—		Equity-linked ~~notes~~note(s)

EMEA—		Europe, Middle East and Africa

EPS—		Earnings per common share

~~ERISA~~~~—Employee Retirement Income Security Act of 1974~~E.U.		~~E.U.~~—European Union

FDIC—		Federal Deposit Insurance Corporation

FFELP—		Federal Family Education Loan Program

FFIEC		Federal Financial Institutions Examination Council

FHC		Financial Holding Company

FICO		Fair Isaac Corporation

FVA—		Funding valuation adjustment

GILTI		Global IntangibleLow-Taxed Income

GLR—		Global liquidity reserve

G-SIB—		Global systemically important banks

HELOC		Home Equity Line of Credit

HQLA—		High-quality liquid assets

HTM—		Held-to-maturity

I/E—		Intersegment eliminations

IHC		Intermediate holding company

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.


		73		March 2019 Form 10-Q

LOGO

Glossary of Common Acronyms

MS~~&Co~~.—&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


		91		~~June 2018 Form 10-Q~~


~~Glossary of Common Acronyms~~

NAV

~~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)

OIS

Overnight index swap

OTC—

Over-the-counter

PRA—

Prudential Regulation Authority

PSU

Performance-based stock unit

RMBS—

Residential mortgage-backed securities

ROE—

Return on average common equity

ROTCE—

Return on average tangible common equity

ROU

Right-of-use

RSU—

Restricted stock ~~units~~unit

RWA—

Risk-weighted assets

SEC—

U.S. Securities and Exchange Commission

~~SLR—~~SLR

Supplementary leverage ratio

S&P—

Standard & Poor’s

SPE—

Special purpose entity

SPOE—

Single point of entry

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~~entity

WACC—

Implied weighted average cost of capital

WM—

Wealth Management


~~June 2018 Form 10-Q~~		92


March 2019 Form 10-Q		74

~~Other Information~~

~~Legal Proceedings~~

~~The following new matters and developments have occurred since previously reporting certain matters in the Firm’s 2017 Form10-K~~ ~~and the Firm’s Quarterly Report on Form10-Q~~ ~~for the quarterly period ended March 31, 2018 (the “First Quarter Form10-Q”).~~ ~~See also the disclosures set forth under “Legal Proceedings” in the 2017 Form10-K~~ ~~and Part II, Item 1 of the First Quarter Form10-Q.~~

LOGO

Other Information

Legal Proceedings

The following new matters and developments have occurred since previously reporting certain matters in the Firm’s 2018 Form10-K. See also the disclosures set forth under “Legal Proceedings” in the 2018 Form10-K.

Residential Mortgage and Credit Crisis Related Matters

On ~~June 27, 2018,~~February 15, 2019, the Firm in~~China Development Industrial Bank (“CDIB”) v. Morgan Stanley~~ ~~& Co. Incorporated et al.~~ filed a motion for ~~summary judgment and spoliation sanctions against CDIB.~~

~~On June 8, 2018,~~leave to appeal, or in the ~~parties~~alternative, for there-argument of the First Department’s January 17, 2019 decision in~~Wilmington~~Deutsche 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 ~~et al.~~ ~~reached an agreement in principle~~asSuccessor-by-Merger to ~~settle the litigation.~~Morgan Stanley Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc.

On ~~June 26,~~March 7, 2019, in the matter styledChina Development Industrial Bank v. Morgan Stanley & Co, Incorporated, et al, the court denied the relief that CDIB sought in a motion to clarify and resettle the portion of the court’s December 21, 2018 order granting spoliation sanctions.

On April 4, 2019, the court denied the Firm’s motion to renew its motion to dismiss inU.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,Successor-by-Merger to Morgan Stanley Mortgage Capital Inc. and GreenPoint Mortgage Funding, Inc.

On April 24, 2019, the parties in~~Deutsche Zentral-Genossenschaftsbank AG et al.~~California v. Morgan Stanley, et al.,~~entered into~~reached an agreement to settle the litigation.

Antitrust Related Matter

Beginning on March 25, 2019, the Firm was named as a defendant in a series of putative class action complaints filed in the Southern District of New York, the first of which is styledAlaska Electrical Pension Fund v. BofA Secs., Inc., et al. Each complaint alleges a conspiracy to fix prices and restrain competition in the market for unsecured bonds issued by the following Government-Sponsored Enterprises: the Federal National Mortgage Associate; the Federal Home Loan Mortgage Corporation; the Federal Farm Credit Banks Funding Corporation; and the Federal Home Loan Banks. The purported class period for each suit is from January 1, 2012 to June 1, 2018. Each complaint raises a claim under Section 1 of the Sherman Act and seeks, among other things, injunctive relief and treble compensatory damages.

European Matters

On ~~May 17, 2018,~~March 7, 2019, the ~~hearing~~Appellate Division of the Court of Accounts for the ~~parties’ final submissions was held~~Republic of Italy issued a decision in the ~~case~~matter styledCase No. 2012/00406/MNV affirming the decision below declining jurisdiction and dismissing the claim against the Firm. On April 19, 2019, the public prosecutor filed an appeal with the Italian Supreme Court seeking to overturn this decision.

On March 11, 2019, the plaintiff in the matter styledBanco Popolare Societá Cooperativa v.v Morgan Stanley & Co. International plc & others.

~~On June 6, 2018, the Dutch Tax Authority~~ filed an appeal ~~against the decision issued by the District Court~~ in ~~Amsterdam in matters styled~~~~Case number 15/3637~~ ~~and~~~~Case number 15/4353~~.

~~On June 8, 2018, the City Court of Copenhagen, Denmark ordered that the matters styled~~~~Case number BS99-6998/2017~~ ~~and~~~~Case numberB-2073-16~~ ~~be heard together before the High Court of Eastern Denmark. On June 29, 2018, the Firm filed its defense to the matter styled~~~~Case numberB-2073-16~~.

~~On June 15, 2018,~~ the Court of ~~Accounts for~~Appeal of Milan against the ~~Republic of Italy in the matter styled~~~~Case number 2012/00406/MNV~~~~issued a~~lower Milan court’s decision ~~declining jurisdiction and~~dated September 11, 2018 dismissing the claim against the Firm. ~~On July 24, 2018, the Firm was served with an appeal by the public prosecutor.~~

~~Currency Related Matters~~

On June 13, 2018, the Firm entered into an agreement to settle a proceeding before Brazil’s Council for Economic Defense related to alleged anticompetitive activity in the foreign exchange market related to the Brazilian Real.

~~Other Litigation~~

~~On June 22, 2018, the parties in~~~~Genesee~~~~County Employees’ Retirement System v. Bank of America Corporation et al.~~ ~~entered into an agreement to settle the litigation. The court granted preliminary approval of the settlement on June 26, 2018.~~


		9375		~~June 2018~~March 2019 Form 10-Q

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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 current quarter ended ~~June 30, 2018.~~

~~Issuer Purchases of Equity Securities~~March 31, 2019.


Issuer Purchases of Equity Securities									Issuer Purchases of Equity Securities
$ in millions, except per share data	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			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, 2018—April 30, 2018)
Month #1 (January 1, 2019—January 31, 2019)
Share Repurchase Program²		3,291,200	$	53.42		3,291,200	$	1,074			4,408,695	$	42.54		4,408,695	$	2,172
Employee transactions³		991,956	$	53.04		—		—			10,089,356	$	42.52		—		—

Month #2 (May 1, 2018—May 31, 2018)
Month #2 (February 1, 2019—February 28, 2019)
Share Repurchase Program²		8,301,300	$	53.32		8,301,300	$	632			8,886,000	$	41.83		8,886,000	$	1,801
Employee transactions³		33,887	$	51.73		—		—			709,539	$	42.18		—		—

Month #3 (June 1, 2018—June 30, 2018)
Month #3 (March 1, 2019—March 31, 2019)
Share Repurchase Program²		12,246,810	$	51.57		12,246,810	$	—			14,672,111	$	42.31		14,672,111	$	1,180
Employee transactions³		17,641	$	50.60		—		—			156,953	$	42.01		—		—

Quarter ended at June 30, 2018
Quarter ended at March 31, 2019
Share Repurchase Program²		23,839,310	$	52.43		23,839,310	$	—			27,966,806	$	42.19		27,966,806	$	1,180
Employee transactions³		1,043,484	$	52.96		—		—			10,955,848	$	42.49		—		—

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. 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~~sold shares of the Firm’s common stock to the Firm, through ~~its~~the Firm’s agent MS&Co., as part of the Company’s ~~share repurchase program~~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 Board of Governors of the Federal Reserve System (the “Federal Reserve”) and ~~will have~~has no impact on the strategic alliance between MUFG and the Firm, including the joint ~~venture~~ventures in Japan.

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, 2018, the Federal Reserve published summary results of CCAR and the Firm received a conditionalnon-objection to its 2018 Capital Plan, where the only condition was that the Firm’s capital distributions not exceed the greater of the actual distributions it made over the previous four calendar quarters or the annualized average of actual distributions over the previous eight calendar quarters. As a result, the Firm’s 2018 Capital Plan includes a share repurchase of up to $4.7 billion of its outstanding common stock during the period beginning July 1, 2018 through June 30, 2019. During the quarter ended ~~June 30, 2018,~~March 31, 2019, the Firm repurchased approximately ~~$1.25~~$1.2 billion of the Firm’s outstanding common stock as part of its Share Repurchase Program. For further information, see “Liquidity and Capital Resources—Capital Management.”

3.	Includes shares acquired by the Firm in satisfaction of the tax withholding obligations on stock-based awards granted under the Firm’s stock-based compensation plans.


~~June 2018~~March 2019 Form 10-Q		9476

LOGO

Controls and Procedures

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.

~~Exhibits~~

Exhibits

An exhibit index has been filed as part of this Report onpage E-1.


		9577		~~June 2018~~March 2019 Form 10-Q

LOGO

Exhibit Index

Morgan Stanley

Quarter Ended ~~June 30, 2018~~March 31, 2019


Exhibit No.	~~Description~~
12	~~Statement Re: Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends (unaudited).~~ Description

15		Letter of awareness from Deloitte & Touche LLP, dated ~~August~~May 3, ~~2018,~~2019, concerning unaudited interim financial information.

23		Consent of Shearman & Sterling LLP, as Special Tax Counsel for Certain Structured Product Issuances.

31.1		Rule13a-14(a) Certification of Chief Executive Officer.

31.2		Rule13a-14(a) Certification of Chief Financial Officer.

32.1		Section 1350 Certification of Chief Executive Officer.

32.2		Section 1350 Certification of Chief Financial Officer.

101		Interactive data files pursuant to Rule 405 of RegulationS-T (unaudited): (i) the Consolidated Income Statements—Three Months Ended March 31, 2019 and ~~Six Months Ended June 30,~~ 2018, ~~and 2017,~~ (ii) the Consolidated Comprehensive Income Statements—Three Months Ended March 31, 2019 and ~~Six Months Ended June 30,~~ 2018, ~~and 2017,~~ (iii) the Consolidated Balance Sheets—Unaudited at ~~June 30, 2018~~March 31, 2019 and at December 31, ~~2017,~~2018, (iv) the Consolidated Statements of Changes in Total Equity—~~Six~~Three Months Ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ (v) the Consolidated Cash Flow Statements—~~Six~~Three Months Ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ and (vi) Notes to Consolidated Financial Statements.


		~~E-1~~

LOGO

SIGNATURES

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: ~~/s/~~		/S/ JONATHAN PRUZAN
		Jonathan Pruzan Executive Vice President and Chief Financial Officer

By: ~~/s/~~		/S/ PAUL C. WIRTH
		Paul C. Wirth Deputy Chief Financial Officer

Date: ~~August~~May 3, ~~2018~~2019


		~~S-1~~

S-1


Table of Contents	Part	Item	Page	Table of Contents		Part		Item		Page
Financial Information	I		1	Financial Information			I				1
Management’s Discussion and Analysis of Financial Condition and Results of Operations	I	2	1	Management’s Discussion and Analysis of Financial Condition and Results of Operations			I		2		1
Introduction			1	Introduction							1
Executive Summary			2	Executive Summary							2
Business Segments			7	Business Segments							6
Supplemental Financial Information and Disclosures			18	Supplemental Financial Information and Disclosures							13
Accounting Development Updates			19	Accounting Development Updates							13
Critical Accounting Policies			19	Critical Accounting Policies							14
Liquidity and Capital Resources			19	Liquidity and Capital Resources							14
Quantitative and Qualitative Disclosures about Market Risk	I	3	32
Balance Sheet				Balance Sheet							14
Regulatory Requirements				Regulatory Requirements							19
Quantitative and Qualitative Disclosures about Risk				Quantitative and Qualitative Disclosures about Risk			I		3		24
Market Risk				Market Risk							24
Credit Risk				Credit Risk							26
Country and Other Risks				Country and Other Risks							30
Report of Independent Registered Public Accounting Firm			41	Report of Independent Registered Public Accounting Firm							33
Financial Statements	I	1	42
Consolidated Financial Statements and Notes			42	Consolidated Financial Statements and Notes			I		1		34
Consolidated Income Statements (Unaudited)			42	Consolidated Income Statements (Unaudited)							34
Consolidated Comprehensive Income Statements (Unaudited)			43	Consolidated Comprehensive Income Statements (Unaudited)							35
Consolidated Balance Sheets (Unaudited at June 30, 2018)			44
Consolidated Balance Sheets (Unaudited at March 31, 2019)				Consolidated Balance Sheets (Unaudited at March 31, 2019)							36
Consolidated Statements of Changes in Total Equity (Unaudited)			45	Consolidated Statements of Changes in Total Equity (Unaudited)							37
Consolidated Cash Flow Statements (Unaudited)			46	Consolidated Cash Flow Statements (Unaudited)							38
Notes to Consolidated Financial Statements (Unaudited)			47	Notes to Consolidated Financial Statements (Unaudited)							39
1. Introduction and Basis of Presentation			47
2. Significant Accounting Policies			48
3. Fair Values			50
4. Derivative Instruments and Hedging Activities			61
5. Investment Securities			65
6. Collateralized Transactions			68
7. Loans, Lending Commitments and Allowance for Credit Losses			69
8. Equity Method Investments			71
9. Deposits			72
10.Borrowings and Other Secured Financings			72
11.Commitments, Guarantees and Contingencies			72
12.Variable Interest Entities and Securitization Activities			76
13.Regulatory Requirements			79
14.Total Equity			81
15.Earnings per Common Share			83
16.Interest Income and Interest Expense			84
17.Employee Benefit Plans			84
18.Income Taxes			84
19.Segment, Geographic and Revenue Information			85
20.Subsequent Events			87
1.					Introduction and Basis of Presentation						39
2.					Significant Accounting Policies						40
3.					Fair Values						40
4.					Derivative Instruments and Hedging Activities						48
5.					Investment Securities						51
6.					Collateralized Transactions						54
7.					Loans, Lending Commitments and Allowance for Credit Losses						55
8.					Equity Method Investments						57
9.					Deposits						58
10.					Borrowings and Other Secured Financings						58
11.					Commitments, Leases, Guarantees and Contingencies						58
12.					Variable Interest Entities and Securitization Activities						63
13.					Regulatory Requirements						65
14.					Total Equity						67
15.					Earnings per Common Share						69
16.					Interest Income and Interest Expense						69
17.					Income Taxes						69
18.					Segment, Geographic and Revenue Information						70
19.					Subsequent Events						71
Financial Data Supplement (Unaudited)			88	Financial Data Supplement (Unaudited)							72
Glossary of Common Acronyms			91	Glossary of Common Acronyms							73
Other Information	II		93	Other Information			II				75
Legal Proceedings	II	1	93	Legal Proceedings			II		1		75
Unregistered Sales of Equity Securities and Use of Proceeds	II	2	94	Unregistered Sales of Equity Securities and Use of Proceeds			II		2		76
Controls and Procedures	I	4	95	Controls and Procedures			I		4		77
Exhibits	II	6	95	Exhibits			II		6		77
Exhibit Index			E-1	Exhibit Index							E-1
Signatures			S-1	Signatures							S-1


$ in millions, except	Three Months Ended June 30,					Six Months Ended June 30,
per share data	2018			2017		2018			2017
Net income applicable to Morgan Stanley	$	2,437		$	1,757	$	5,105		$	3,687
Impact of adjustments		(88	)		4		(88	)		18
Adjusted net income applicable to MorganStanley—non-GAAP¹	$	2,349			1,761	$	5,017			3,705
Earnings per diluted common share	$	1.30		$	0.87	$	2.75		$	1.87
Impact of adjustments		(0.05	)		—		(0.05	)		0.01
Adjusted earnings per diluted common share—non-GAAP¹	$	1.25		$	0.87	$	2.70		$	1.88
Effective income tax rate		20.6%			32.0%		20.7%			30.5%
Impact of adjustments		2.8%			(0.1)%		1.4%			(0.4)%
Adjusted effective income taxrate—non-GAAP¹		23.4%			31.9%		22.1%			30.1%


							Average Monthly Balance
	At June 30, 2018			At December 31, 2017			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions	At June 30, 2018			At December 31, 2017			2018			2017			2018			2017
Tangible Equity
U.S. GAAP
Morgan Stanley shareholders’ equity	$	79,109		$	77,391		$	78,432		$	78,436		$	77,960		$	77,836
Less: Goodwill and net intangible assets		(9,022	)		(9,042	)		(9,076	)		(9,194	)		(9,049	)		(9,227	)
Morgan Stanley tangible shareholders’equity—non-GAAP	$	70,087		$	68,349		$	69,356		$	69,242		$	68,911		$	68,609
U.S. GAAP
Common equity	$	70,589		$	68,871		$	69,912		$	69,916		$	69,440		$	69,459
Less: Goodwill and net intangible assets		(9,022	)		(9,042	)		(9,076	)		(9,194	)		(9,049	)		(9,227	)
Tangible commonequity—non-GAAP	$	61,567		$	59,829		$	60,836		$	60,722		$	60,391		$	60,232


	Three Months Ended June 30, 2017
$ in millions	Trading		Fees¹		Net Interest²			Total
Financing	$	1,166	$	88	$	(227	)	$	1,027
Execution services		601		580		(53	)		1,128
Total Equity	$	1,767	$	668	$	(280	)	$	2,155
Total Fixed income	$	1,114	$	48	$	77		$	1,239


	Six Months Ended June 30, 2018
$ in millions	Trading		Fees¹		Net Interest²			Total
Financing	$	2,607	$	196	$	(338	)	$	2,465
Execution services		1,452		1,269		(158	)		2,563
Total Equity	$	4,059	$	1,465	$	(496	)	$	5,028
Total Fixed Income	$	3,014	$	166	$	82		$	3,262


$ in billions	At March 31, 2017		Inflows		Outflows		Market Impact		At June 30, 2017
Separately managed¹	$	230	$	8	$	(7)	$	6	$	237
Unified managed		217		13		(7)		5		228
Mutual fund advisory		21		—		(1)		1		21
Advisor		133		10		(8)		3		138
Portfolio manager		305		23		(11)		4		321
Subtotal	$	906	$	54	$	(34)	$	19	$	945
Cash management		21		2		(6)		—		17
Totalfee-based client assets	$	927	$	56	$	(40)	$	19	$	962


$ in billions	At December 31, 2016		Inflows		Outflows		Market Impact		At June 30, 2017
Separately managed¹	$	222	$	16	$	(11)	$	10	$	237
Unified managed		204		25		(15)		14		228
Mutual fund advisory		21		1		(3)		2		21
Advisor		125		19		(14)		8		138
Portfolio manager		285		42		(21)		15		321
Subtotal	$	857	$	103	$	(64)	$	49	$	945
Cash management		20		5		(8)		—		17
Totalfee-based client assets	$	877	$	108	$	(72)	$	49	$	962


	At June 30, 2018		At December 31, 2017		Average Daily Balance Three Months Ended
$ in millions	At June 30, 2018		At December 31, 2017		June 30, 2018
Bank legal entities
Domestic	$	76,667	$	70,364	$	70,962
Foreign		4,365		4,756		4,144
Total Bank legal entities		81,032		75,120		75,106
Non-Bank legal entities
Domestic:
Parent Company		63,401		41,642		55,887
Non-Parent Company		31,652		35,264		32,307
Total Domestic		95,053		76,906		88,194
Foreign		50,237		40,634		50,650
TotalNon-Bank legal entities		145,290		117,540		138,844
Total	$	226,322	$	192,660	$	213,950


$ in millions	At June 30, 2018			At December 31, 2017¹
Common Equity Tier 1 capital
Common stock and surplus	$	11,824		$	14,354
Retained earnings		61,835			57,577
AOCI		(3,070	)		(3,060	)
Regulatory adjustments and deductions:
Net goodwill		(6,682	)		(6,599	)
Net intangible assets (other than goodwill and mortgage servicing assets)		(2,329	)		(2,446	)
Other adjustments and deductions²		(226	)		738
Total Common Equity Tier 1 capital	$	61,352		$	60,564
Additional Tier 1 capital
Preferred stock	$	8,520		$	8,520
Noncontrolling interests		501			415
Other adjustments and deductions		(1	)		(23	)
Additional Tier 1 capital	$	9,020		$	8,912
Deduction for investments in covered funds		(355	)		(356	)
Total Tier 1 capital	$	70,017		$	69,120
Standardized Tier 2 capital
Subordinated debt	$	9,141		$	9,839
Noncontrolling interests		118			98
Eligible allowance for credit losses		444			423
Other adjustments and deductions		(39	)		(10	)
Total Standardized Tier 2 capital	$	9,664		$	10,350
Total Standardized capital	$	79,681		$	79,470
Advanced Tier 2 capital
Subordinated debt	$	9,141		$	9,839
Noncontrolling interests		118			98
Eligible credit reserves		188			193
Other adjustments and deductions		(39	)		(10	)
Total Advanced Tier 2 capital	$	9,408		$	10,120
Total Advanced capital	$	79,425		$	79,240



$ in millions	Six Months Ended June 30, 2018
Common Equity Tier 1 capital
Common Equity Tier 1 capital at December 31, 2017¹	$	60,564
Change related to the following items:
Value of shareholders’ common equity		1,718
Net goodwill		(83	)
Net intangible assets (other than goodwill and mortgage servicing assets)		117
Other adjustments and deductions²		(964	)
Common Equity Tier 1 capital at June 30, 2018	$	61,352
Additional Tier 1 capital
Additional Tier 1 capital at December 31, 2017¹	$	8,912
Change related to the following items:
Noncontrolling interests		86
Other adjustments and deductions		22
Additional Tier 1 capital at June 30, 2018		9,020
Deduction for investments in covered funds at December 31, 2017¹		(356	)
Change in deduction for investments in covered funds		1
Deduction for investments in covered funds at June 30, 2018		(355	)
Tier 1 capital at June 30, 2018	$	70,017
Standardized Tier 2 capital
Tier 2 capital at December 31, 2017¹	$	10,350
Change related to the following items:
Eligible allowance for credit losses		21
Other changes, adjustments and deductions³		(707	)
Standardized Tier 2 capital at June 30, 2018	$	9,664
Total Standardized capital at June 30, 2018	$	79,681
Advanced Tier 2 capital
Tier 2 capital at December 31, 2017¹	$	10,120
Change related to the following items:
Eligible credit reserves		(5	)
Other changes, adjustments and deductions³		(707	)
Advanced Tier 2 capital at June 30, 2018	$	9,408
Total Advanced capital at June 30, 2018	$	79,425


	Six Months Ended June 30, 2018¹
$ in millions	Standardized			Advanced
Credit risk RWA
Balance at December 31, 2017²	$	301,946		$	170,754
Change related to the following items:
Derivatives		(1,584	)		2,153
Securities financing transactions		2,558			1,120
Securitizations		(599	)		(2,103	)
Investment securities		(435	)		384
Commitments, guarantees and loans		16,870			19,132
Cash		783			420
Equity investments		1,824			1,933
Other credit risk³		685			901
Total change in credit risk RWA	$	20,102		$	23,940
Balance at June 30, 2018	$	322,048		$	194,694
Market risk RWA
Balance at December 31, 2017²	$	75,295		$	74,907
Change related to the following items:
Regulatory VaR		435			435
Regulatory stressed VaR		(2,634	)		(2,634	)
Incremental risk charge		1,986			1,986
Comprehensive risk measure		(2,035	)		(1,752	)
Specific risk:
Non-securitizations		(3,018	)		(3,018	)
Securitizations		(4,663	)		(4,663	)
Total change in market risk RWA	$	(9,929	)	$	(9,646	)
Balance at June 30, 2018	$	65,366		$	65,261
Operational risk RWA
Balance at December 31, 2017²	$	N/A		$	112,663
Change in operational risk RWA		N/A			(3,235	)
Balance at June 30, 2018	$	N/A		$	109,428
Total RWA	$	387,414		$	369,383