Document and Entity Information
Document and Entity Information | ||
3 Months Ended
Mar. 31, 2010 | Apr. 30, 2010
| |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-03-31 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | MS | |
Entity Registrant Name | MORGAN STANLEY | |
Entity Central Index Key | 0000895421 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 1,397,819,191 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Assets | ||
Cash and due from banks | $5,979 | $6,988 |
Interest bearing deposits with banks | 29,499 | 25,003 |
Cash deposited with clearing organizations or segregated under federal and other regulations or requirements | 22,367 | 23,712 |
Financial instruments owned, at fair value (approximately $128 billion at March 31, 2010 and $101 billion at December 31, 2009 were pledged to various parties): | ||
U.S. government and agency securities | 69,274 | 62,215 |
Other sovereign government obligations | 31,341 | 25,445 |
Corporate and other debt ($5,809 at March 31, 2010 related to consolidated variable interest entities, generally not available to the Company) | 90,192 | 90,454 |
Corporate equities | 67,591 | 57,968 |
Derivative and other contracts | 47,906 | 49,081 |
Investments ($1,102 at March 31, 2010 related to consolidated variable interest entities, generally not available to the Company) | 9,482 | 9,286 |
Physical commodities | 4,898 | 5,329 |
Total financial instruments owned, at fair value | 320,684 | 299,778 |
Securities available for sale | 18,637 | |
Securities received as collateral, at fair value | 16,891 | 13,656 |
Federal funds sold and securities purchased under agreements to resell | 138,633 | 143,208 |
Securities borrowed | 181,055 | 167,501 |
Receivables: | ||
Customers | 25,949 | 27,594 |
Brokers, dealers and clearing organizations | 6,575 | 5,719 |
Fees, interest and other | 9,768 | 11,164 |
Loans | 7,484 | 7,259 |
Other investments | 3,901 | 3,752 |
Premises, equipment and software costs (net of accumulated depreciation of $3,915 at March 31, 2010 and $3,734 at December 31, 2009) ($388 at March 31, 2010 related to consolidated variable interest entities, generally not available to the Company) | 6,047 | 7,067 |
Goodwill | 7,169 | 7,162 |
Intangible assets (net of accumulated amortization of $365 at March 31, 2010 and $275 at December 31, 2009) (includes $175 and $137 at fair value at March 31, 2010 and December 31, 2009, respectively) | 4,998 | 5,054 |
Other assets ($398 at March 31, 2010 related to consolidated variable interest entities, generally not available to the Company) | 14,083 | 16,845 |
Total assets | 819,719 | 771,462 |
Liabilities and Equity | ||
Commercial paper and other short-term borrowings (includes $1,520 and $791 at fair value at March 31, 2010 and December 31, 2009, respectively) | 3,323 | 2,378 |
Deposits (includes $4,789 and $4,967 at fair value at March 31, 2010 and December 31, 2009, respectively) | 63,926 | 62,215 |
Financial instruments sold, not yet purchased, at fair value: | ||
U.S. government and agency securities | 26,220 | 20,503 |
Other sovereign government obligations | 22,754 | 18,244 |
Corporate and other debt | 9,643 | 7,826 |
Corporate equities | 29,409 | 22,601 |
Derivative and other contracts | 37,777 | 38,209 |
Physical commodities | 39 | |
Total financial instruments sold, not yet purchased, at fair value | 125,842 | 107,383 |
Obligation to return securities received as collateral, at fair value | 16,891 | 13,656 |
Securities sold under agreements to repurchase | 174,591 | 159,401 |
Securities loaned | 31,372 | 26,246 |
Other secured financings, at fair value ($4,883 at March 31, 2010 related to consolidated variable interest entities and are non-recourse to the Company) | 9,560 | 8,102 |
Payables: | ||
Customers | 121,025 | 117,058 |
Brokers, dealers and clearing organizations | 12,121 | 5,423 |
Interest | 2,729 | 2,597 |
Other liabilities and accrued expenses | 13,957 | 20,849 |
Long-term borrowings (includes $38,373 and $37,610 at fair value at March 31, 2010 and December 31, 2009, respectively) | 189,203 | 193,374 |
Liabilities, Total | 764,540 | 718,682 |
Commitments and contingencies | ||
Morgan Stanley shareholders' equity: | ||
Preferred stock | 9,597 | 9,597 |
Common stock, $0.01 par value; Shares authorized: 3,500,000,000 at March 31, 2010 and December 31, 2009; Shares issued: 1,487,850,163 at March 31, 2010 and December 31, 2009; Shares outstanding: 1,398,469,576 at March 31, 2010 and 1,360,595,214 at December 31, 2009 | 15 | 15 |
Paid-in capital | 6,750 | 8,619 |
Retained earnings | 36,539 | 35,056 |
Employee stock trust | 3,772 | 4,064 |
Accumulated other comprehensive loss | (559) | (560) |
Common stock held in treasury, at cost, $0.01 par value; 89,380,587 shares at March 31, 2010 and 127,254,949 shares at December 31, 2009 | (4,078) | (6,039) |
Common stock issued to employee trust | (3,772) | (4,064) |
Total Morgan Stanley shareholders' equity | 48,264 | 46,688 |
Non-controlling interests | 6,915 | 6,092 |
Total equity | 55,179 | 52,780 |
Total liabilities and equity | $819,719 | $771,462 |
1_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) (USD $) | ||
In Millions, except Share data | Mar. 31, 2010
| Dec. 31, 2009
|
Financial instruments owned at fair value, pledged to various parties | $128 | $101 |
Corporate and other debt, consolidated variable interest entities, generally not available to the Company | 5,809 | |
Investments, consolidated variable interest entities, generally not available to the Company | 1,102 | |
Premises, equipment and software costs, accumulated depreciation | 3,915 | 3,734 |
Premises, equipment and software costs, consolidated variable interest entities, generally not available to the Company | 388 | |
Intangible assets, accumulated amortization | 365 | 275 |
Intangible assets, fair value | 175 | 137 |
Other assets, consolidated variable interest entities, generally not available to the Company | 398 | |
Commercial paper and other short-term borrowings, fair value | 1,520 | 791 |
Deposits, fair value | 4,789 | 4,967 |
Other secured financings, consolidated variable interest entities and are non-recourse to the Company | 4,883 | |
Long-term borrowings, fair value | $38,373 | $37,610 |
Common stock, par value | 0.01 | 0.01 |
Common stock, Shares authorized | 3,500,000,000 | 3,500,000,000 |
Common stock, Shares issued | 1,487,850,163 | 1,487,850,163 |
Common stock, Shares outstanding | 1,398,469,576 | 1,360,595,214 |
Common stock held in treasury, shares | 89,380,587 | 127,254,949 |
2_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) | ||
In Millions, except Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Revenues: | ||
Investment banking | $1,060 | $873 |
Principal transactions: | ||
Trading | 3,751 | 1,355 |
Investments | 369 | (1,150) |
Commissions | 1,261 | 770 |
Asset management, distribution and administration fees | 1,963 | 866 |
Other | 293 | 247 |
Total non-interest revenues | 8,697 | 2,961 |
Interest income | 1,748 | 2,245 |
Interest expense | 1,367 | 2,309 |
Net interest | 381 | (64) |
Net revenues | 9,078 | 2,897 |
Non-interest expenses: | ||
Compensation and benefits | 4,418 | 1,978 |
Occupancy and equipment | 392 | 337 |
Brokerage, clearing and exchange fees | 348 | 248 |
Information processing and communications | 395 | 282 |
Marketing and business development | 134 | 110 |
Professional services | 395 | 303 |
Other | 480 | 269 |
Total non-interest expenses | 6,562 | 3,527 |
Income (loss) from continuing operations before income taxes | 2,516 | (630) |
Provision for (benefit from) income taxes | 436 | (595) |
Income (loss) from continuing operations | 2,080 | (35) |
Discontinued operations: | ||
Loss from discontinued operations | (100) | (255) |
Benefit from income taxes | (31) | (100) |
Net loss from discontinued operations | (69) | (155) |
Net income (loss) | 2,011 | (190) |
Net income (loss) applicable to non-controlling interests | 235 | (13) |
Net income (loss) applicable to Morgan Stanley | 1,776 | (177) |
Earnings (loss) applicable to Morgan Stanley common shareholders | 1,411 | (578) |
Amounts applicable to Morgan Stanley: | ||
Income (loss) from continuing operations | 1,845 | (17) |
Net loss from discontinued operations | (69) | (160) |
Net income (loss) applicable to Morgan Stanley | $1,776 | ($177) |
Earnings (loss) per basic common share: | ||
Income (loss) from continuing operations | 1.12 | -0.41 |
Net loss from discontinued operations | -0.05 | -0.16 |
Earnings (loss) per basic common share | 1.07 | -0.57 |
Earnings (loss) diluted common share: | ||
Income (loss) from continuing operations | 1.03 | -0.41 |
Net loss from discontinued operations | -0.04 | -0.16 |
Earnings (loss) per diluted common share | 0.99 | -0.57 |
Average common shares outstanding: | ||
Basic | 1,314,608,020 | 1,011,741,210 |
Diluted | 1,626,207,327 | 1,011,741,210 |
3_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) | |||||||||||||||||||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 | |||||||||||||||||
Net income (loss) | $2,011 | ($190) | |||||||||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||||||
Foreign currency translation adjustments | 14 | [1] | (59) | [1] | |||||||||||||||
Amortization of cash flow hedges | 3 | [2] | 3 | [2] | |||||||||||||||
Net unrealized gains (losses) on Securities available for sale | (20) | [3] | |||||||||||||||||
Pension and postretirement related adjustments | 4 | [4] | 5 | [4] | |||||||||||||||
Comprehensive income (loss) | 2,012 | (241) | |||||||||||||||||
Net income (loss) applicable to non-controlling interests | 235 | (13) | |||||||||||||||||
Other comprehensive (loss) income applicable to non-controlling interests | (12) | ||||||||||||||||||
Comprehensive income (loss) applicable to Morgan Stanley | $1,789 | ($228) | |||||||||||||||||
[1]Amounts are net of provision for income taxes of $89 million and $31 million for the quarters ended March 31, 2010 and 2009, respectively. | |||||||||||||||||||
[2]Amounts are net of provision for income taxes of $2 million for the quarters ended March 31, 2010 and 2009, respectively. | |||||||||||||||||||
[3]Amount is net of benefit from income taxes of $14 million for the quarter ended March 31, 2010. | |||||||||||||||||||
[4]Amounts are net of provision for income taxes of $2 million and $3 million for quarters ended March 31, 2010 and 2009, respectively. |
4_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Foreign currency translation adjustments, provision for income taxes | $89 | $31 |
Net change in cash flow hedges, provision for income taxes | 2 | 2 |
Net unrealized gains (losses) arising during the period, benefit from income taxes | 14 | |
Pension and postretirement related adjustments, provision for income taxes | $2 | $3 |
5_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income (loss) | $2,011 | ($190) |
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | ||
Compensation payable in common stock and options | 370 | 204 |
Depreciation and amortization | 154 | 155 |
Loss on business dispositions | 932 | 19 |
Gain on repurchase of long-term debt | (233) | |
Impairment charges and other-than-temporary impairment charges | 10 | 278 |
Changes in assets and liabilities: | ||
Cash deposited with clearing organizations or segregated under federal and other regulations or requirements | 1,345 | 945 |
Financial instruments owned, net of financial instruments sold, not yet purchased | (5,073) | 1,711 |
Securities borrowed | (13,554) | (4,537) |
Securities loaned | 5,126 | 4,526 |
Receivables, loans and other assets | 4,521 | 2,771 |
Payables and other liabilities | 5,487 | (17,767) |
Federal funds sold and securities purchased under agreements to resell | 4,575 | 2,169 |
Securities sold under agreements to repurchase | 15,190 | (22,572) |
Net cash provided by (used for) operating activities | 21,094 | (32,521) |
Net (payments for) proceeds from: | ||
Premises, equipment and software costs | (138) | (1,127) |
Business dispositions, net of cash disposed | (8) | |
Purchases of securities available for sale | (18,674) | |
Net cash used for investing activities | (18,812) | (1,135) |
Net proceeds from (payments for): | ||
Short-term borrowings | 945 | (6,691) |
Derivatives financing activities | (39) | (53) |
Other secured financings | 1,458 | (2,024) |
Deposits | 1,711 | 8,567 |
Excess tax benefits associated with stock-based awards | 2 | 10 |
Net proceeds from: | ||
Issuance of common stock | 1 | 19 |
Issuance of long-term borrowings | 7,755 | 19,433 |
Payments for: | ||
Long-term borrowings | (9,693) | (14,414) |
Repurchases of common stock for employee tax withholding | (262) | (14) |
Cash dividends | (293) | (645) |
Net cash provided by financing activities | 1,585 | 4,188 |
Effect of exchange rate changes on cash and cash equivalents | (380) | (661) |
Net increase (decrease) in cash and cash equivalents | 3,487 | (30,129) |
Cash and cash equivalents, at beginning of period | 31,991 | 78,670 |
Cash and cash equivalents, at end of period | 35,478 | 48,541 |
Cash and cash equivalents include: | ||
Cash and due from banks | 5,979 | 8,019 |
Interest bearing deposits with banks | 29,499 | 40,522 |
Cash and cash equivalents, at end of period | $35,478 | $48,541 |
6_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash payments for interest | $1,178 | $2,856 |
Cash payments for income taxes | $169 | $97 |
7_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY (USD $) | |||||||||||||||||||
In Millions | Preferred Stock
| Common Stock
| Paid-in Capital
| Retained Earnings
| Employee Stock Trust
| Accumulated Other Comprehensive Income (Loss)
| Common Stock Held in Treasury at Cost
| Common Stock Issued to Employee Trust
| Non-controlling Interests
| Total
| |||||||||
BEGINNING BALANCE at Dec. 31, 2008 | $19,168 | $12 | $459 | $36,154 | $4,312 | ($420) | ($6,620) | ($4,312) | $703 | $49,456 | |||||||||
Net income (loss) | (177) | (13) | (190) | ||||||||||||||||
Dividends | (360) | (5) | (365) | ||||||||||||||||
Shares issued under employee plans and related tax effects | (30) | (145) | 401 | 145 | 371 | ||||||||||||||
Repurchases of common stock | (14) | (14) | |||||||||||||||||
Preferred stock accretion | 40 | (40) | |||||||||||||||||
Net change in cash flow hedges | 3 | 3 | [1] | ||||||||||||||||
Pension and postretirement adjustments | 5 | 5 | |||||||||||||||||
Foreign currency translation adjustments | (59) | (59) | |||||||||||||||||
ENDING BALANCE at Mar. 31, 2009 | 19,208 | 12 | 429 | 35,577 | 4,167 | (471) | (6,233) | (4,167) | 685 | 49,207 | |||||||||
BEGINNING BALANCE at Dec. 31, 2009 | 9,597 | 15 | 8,619 | 35,056 | 4,064 | (560) | (6,039) | (4,064) | 6,092 | 52,780 | |||||||||
Net income (loss) | 1,776 | 235 | 2,011 | ||||||||||||||||
Dividends | (293) | (293) | |||||||||||||||||
Shares issued under employee plans and related tax effects | (1,869) | (292) | 2,223 | 292 | 354 | ||||||||||||||
Repurchases of common stock | (262) | (262) | |||||||||||||||||
Net change in cash flow hedges | 3 | 3 | [1] | ||||||||||||||||
Pension and postretirement adjustments | 4 | 4 | |||||||||||||||||
Foreign currency translation adjustments | 14 | (12) | 2 | ||||||||||||||||
Change in net unrealized gains (losses) on securities available for sale | (20) | (20) | [2] | ||||||||||||||||
Increases for issuances of shares by a subsidiary of the Company | 51 | 51 | |||||||||||||||||
Increases for the sale of a subsidiary's shares by the Company | 25 | 25 | |||||||||||||||||
Increase in non-controlling interests related to the consolidation of certain real estate partnerships sponsored by the Company | 468 | 468 | |||||||||||||||||
Decrease in non-controlling interests related to dividends of non-controlling interests | (7) | (7) | |||||||||||||||||
Other increases in non-controlling interests | 63 | 63 | |||||||||||||||||
ENDING BALANCE at Mar. 31, 2010 | $9,597 | $15 | $6,750 | $36,539 | $3,772 | ($559) | ($4,078) | ($3,772) | $6,915 | $55,179 | |||||||||
[1]Amounts are net of provision for income taxes of $2 million for the quarters ended March 31, 2010 and 2009, respectively. | |||||||||||||||||||
[2]Amount is net of benefit from income taxes of $14 million for the quarter ended March 31, 2010. |
Basis of Presentation and Summa
Basis of Presentation and Summary of Significant Accounting Policies. | |
3 Months Ended
Mar. 31, 2010 | |
Basis of Presentation and Summary of Significant Accounting Policies. | 1. Basis of Presentation and Summary of Significant Accounting Policies. The Company.Morgan Stanley (or the Company), a financial holding company, is a global financial services firm that maintains significant market positions in each of its business segmentsInstitutional Securities, Global Wealth Management Group and Asset Management. A summary of the activities of each of the Companys business segments is as follows: Institutional Securities includes capital raising; financial advisory services, including advice on mergers and acquisitions, restructurings, real estate and project finance; corporate lending; sales, trading, financing and market-making activities in equity and fixed income securities and related products, including foreign exchange and commodities; and investment activities. Global Wealth Management Group, which includes the Companys 51% interest in Morgan Stanley Smith Barney Holdings LLC (MSSB) (see Note 2), provides brokerage and investment advisory services to individual investors and small-to-medium sized businesses and institutions covering various investment alternatives; financial and wealth planning services; annuity and other insurance products; credit and other lending products; cash management services; retirement services; and trust and fiduciary services. Asset Management provides global asset management products and services in equity, fixed income, alternative investments, which includes hedge funds and funds of funds, and merchant banking, which includes real estate, private equity and infrastructure, to institutional and retail clients through proprietary and third-party distribution channels. Asset Management also engages in investment activities. Discontinued Operations. Revel Entertainment Group, LLC.On March31, 2010, the Board of Directors authorized a plan of disposal by sale for Revel Entertainment Group, LLC (Revel), a development stage enterprise and subsidiary of the Company that is primarily associated with a development property in Atlantic City, New Jersey. Total assets of Revel included in the Companys condensed consolidated statement of financial condition at March31, 2010 approximated $240 million. The results of Revel are reported as discontinued operations for all periods presented and were formerly included within the Institutional Securities business segment. The quarter ended March31, 2010 includes a loss of approximately $932 million in connection with such planned disposition. Retail Asset Management Business.On October19, 2009, as part of a restructuring of its Asset Management business segment, the Company entered into a definitive agreement to sell substantially all of its retail asset management business (Retail Asset Management), including Van Kampen Investments, Inc. (Van Kampen), to Invesco Ltd. (Invesco). This transaction allows the Companys Asset Management business segment to focus on its institutional client base, including corporations, pension plans, large intermediaries, foundations and endowments, sovereign wealth funds and central banks, among others. Under the terms of the definitive agreement, Invesco will purchase substantially all of Retai |
Morgan Stanley Smith Barney Hol
Morgan Stanley Smith Barney Holdings LLC. | |
3 Months Ended
Mar. 31, 2010 | |
Morgan Stanley Smith Barney Holdings LLC. | 2.Morgan Stanley Smith Barney Holdings LLC. Smith Barney.On May31, 2009, the Company and Citigroup Inc. (Citi) consummated the combination of the Companys Global Wealth Management Group and the businesses of Citis Smith Barney in the U.S., Quilter Holdings Ltd (Quilter) in the U.K., and Smith Barney Australia (Smith Barney). In addition to the Companys contribution of respective businesses to MSSB, the Company paid Citi $2,755million in cash. The combined businesses operate as Morgan Stanley Smith Barney. Pursuant to the terms of the amended contribution agreement, dated at May29, 2009, certain businesses of Smith Barney and Morgan Stanley will be contributed to MSSB subsequent to May31, 2009 (the delayed contribution businesses). Morgan Stanley and contribution businesses until they are transferred to MSSB and gains and losses from such businesses will be allocated to the Companys and Citis respective share of MSSBs gains and losses. The Company owns 51% and Citi owns 49% of MSSB. At May31, 2009, the Company included MSSB in its condensed consolidated financial statements. The results of MSSB are included within the Global Wealth Management Group business segment. See Note 3 to the consolidated financial statements for the year ended December31, 2009 included in the Form 10-K for further information on Smith Barney. Citi Managed Futures.Citi contributed its managed futures business and certain related proprietary trading positions to MSSB on July31, 2009 (Citi Managed Futures). The Company paid Citi approximately $300million in cash in connection with this transfer. At July31, 2009, Citi Managed Futures was wholly-owned and consolidated by MSSB, of which the Company owns 51% and Citi owns 49%. See Note 3 to the consolidated financial statements for the year ended December31, 2009 included in the Form10-K for further information on Citi Managed Futures. Pro forma condensed combined financial information (unaudited). The following unaudited pro forma condensed combined financial information presents the results of operations of the Company as they may have appeared if the closing of MSSB and Citi Managed Futures had been completed on January1, 2009 (dollars in millions, except share data). ThreeMonths Ended March 31,2009 (unaudited) Net revenues $ 4,560 Total non-interest expenses 5,076 Loss from continuing operations before income taxes (516 ) Benefit from income taxes (574 ) Income from continuing operations 58 Discontinued operations: Loss from discontinued operations (255 ) Benefit from income taxes (100 ) Net loss from discontinued operations (155 ) Net loss (97 ) Net income applicable to non-controlling interests 15 Net loss applicable to Morgan Stanley $ (112 ) Loss applicable to Morgan Stanley common shareholders $ (513 ) Loss per basic common share: Loss from continuing operations $ (0.35 ) Loss on discontinued operations (0.16 ) Loss per basic common share $ (0.51 ) |
Fair Value Disclosures.
Fair Value Disclosures. | |
3 Months Ended
Mar. 31, 2010 | |
Fair Value Disclosures. | 3.Fair Value Disclosures. Fair Value Measurements. A description of the valuation techniques applied to the Companys major categories of assets and liabilities measured at fair value on a recurring basis follows. Financial Instruments Owned and Financial Instruments Sold, Not Yet Purchased U.S. Government and Agency Securities U.S. Treasury Securities.U.S. treasury securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. treasury securities are generally categorized in Level1 of the fair value hierarchy. U.S. Agency Securities.U.S. agency securities are comprised of two main categories consisting of agency issued debt and mortgage pass-throughs. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. Mortgage pass-throughs include mortgage pass-throughs and forward settling mortgage pools. The fair value ofmortgage pass-throughs are model driven based on spreads of the comparable To-be-announced (TBA) security. Actively traded non-callable agency issued debt securities are categorized in Level 1 of the fair value hierarchy. Callable agency issued debt securities and mortgage pass-throughs are generally categorized in Level 2 of the fair value hierarchy. Other Sovereign Government Obligations Foreign sovereign government obligations are valued using quoted prices in active markets when available. To the extent quoted prices are not available, fair value is determined based on a valuation model that has as inputs interest rate yield curves, cross-currency basis index spreads, and country credit spreads for structures similar to the bond in terms of issuer, maturity and seniority. These bonds are generally categorized in Levels 1 or 2 of the fair value hierarchy. Corporate and Other Debt State and Municipal Securities.The fair value of state and municipal securities is estimated using recently executed transactions, market price quotations and pricing models that factor in, where applicable, interest rates, bond or credit default swap spreads and volatility. These bonds are generally categorized in Level 2 of the fair value hierarchy. Residential Mortgage-Backed Securities (RMBS), Commercial Mortgage-Backed Securities (CMBS), and other Asset-Backed Securities (ABS).RMBS, CMBS and other ABS may be valued based on price or spread data obtained from observed transactions or independent external parties such as vendors or brokers. When position-specific external price data are not observable, the fair value determination may require benchmarking to similar instruments and/or analyzing expected credit losses, default and recovery rates. In evaluating the fair value of each security, the Company considers security collateral-specific attributes including payment priority, credit enhancement levels, type of collateral, delinquency rates and loss severity among other factors. In addition for RMBS borrowers, FICO scores and the level |
Securities Available for Sale.
Securities Available for Sale. | |
3 Months Ended
Mar. 31, 2010 | |
Securities Available for Sale. | 4. Securities Available for Sale. In the first quarter of 2010, the Company purchased certain debt securities that are classified as AFS. The following table presents information about the Companys AFS securities: At March31, 2010 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses(1) Other-than- temporary Impairment Fair Value (dollars in millions) Debt securities available for sale: U.S. government and agency securities $ 18,671 $ $ 34 $ $ 18,637 (1) The unrealized losses are attributable to changes in interest rates since purchase. The Company does not intend to sell these securities or expect to be required to sell these securities prior to recovery of the amortized costs basis. In addition, the Company does not expect these securities to experience a credit loss given the explicit and implicit guarantee provided by the U.S. government. The table below presents the fair value of investments in debt securities available for sale that have been in an unrealized loss position for less than 12 months or for 12 months or longer at March 31, 2010: Less than 12 months 12 months or longer Total At March31, 2010 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (dollars in millions) Debt securities available for sale: U.S. government and agency securities $ 18,637 $ 34 $ $ $ 18,637 $ 34 The following table presents the amortized cost and fair value of debt securities available for sale by contractual maturity dates at March 31, 2010: At March31, 2010 Amortized Cost Fair Value Yield (dollars in millions) U.S. government and agency securities: Due within 1 year $ 1,807 $ 1,806 0.4 % After 1 year but through 5 years 16,864 16,831 1.2 % Total $ 18,671 $ 18,637 1.1 % |
Collateralized Transactions.
Collateralized Transactions. | |
3 Months Ended
Mar. 31, 2010 | |
Collateralized Transactions. | 5. Collateralized Transactions. The Company pledges its financial instruments owned to collateralize repurchase agreements and other securities financings. Pledged financial instruments that can be sold or repledged by the secured party are identified as Financial instruments owned (pledged to various parties) in the condensed consolidated statements of financial condition. The carrying value and classification of financial instruments owned by the Company that have been loaned or pledged to counterparties where those counterparties do not have the right to sell or repledge the collateral were as follows: At March31, 2010 At December31, 2009 (dollars in millions) Financial instruments owned: U.S. government and agency securities $ 16,395 $ 18,376 Other sovereign government obligations 6,059 4,584 Corporate and other debt 10,482 13,111 Corporate equities 15,187 10,284 Total $ 48,123 $ 46,355 The Company enters into reverse repurchase agreements, repurchase agreements, 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 the Companys inventory positions. The Companys policy is generally to take possession of Securities purchased under agreements to resell. The Company also engages in securities financing transactions for customers through margin lending. Under these agreements and transactions, the Company either receives or provides collateral, including U.S. government and agency securities, other sovereign government obligations, corporate and other debt, and corporate equities. The Company receives collateral in the form of securities in connection with reverse repurchase agreements, securities borrowed and derivative transactions, and customer margin loans. In many cases, the Company is permitted to sell or repledge these securities held as collateral and use the securities to secure repurchase agreements, to enter into securities lending and derivative transactions or for delivery to counterparties to cover short positions. At March31, 2010 and December31, 2009, the fair value of financial instruments received as collateral where the Company is permitted to sell or repledge the securities was $507 billion and $429 billion, respectively, and the fair value of the portion that had been sold or repledged was $361 billion and $311 billion, respectively. The Company additionally receives securities as collateral in connection with certain securities for securities transactions in which the Company is the lender. In instances where the Company is permitted to sell or repledge these securities, the Company reports the fair value of the collateral received and the related obligation to return the collateral in the condensed consolidated statements of financial condition. At March31, 2010 andDecember31, 2009, $17 billion and $14 billion, respectively, were reported as Securities received as collateral and an Obligation to return securities received as collate |
Variable Interest Entities and
Variable Interest Entities and Securitization Activities. | |
3 Months Ended
Mar. 31, 2010 | |
Variable Interest Entities and Securitization Activities. | 6. Variable Interest Entities and Securitization Activities. The Company is involved with various special purpose entities (SPEs) in the normal course of business. In most cases, these entities are deemed to be VIEs. The Company applies accounting guidance for consolidation of VIEs to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Entities that previously met the criteria as QSPEs that were not subject to consolidation prior to January1, 2010 became subject to the consolidation requirements for VIEs on that date. Excluding entities subject to the Deferral (as defined in Note1), effective January1, 2010, the primary beneficiary of a VIE is the party that both (1)has the power to direct the activities of a VIE that most significantly affect the VIEs economic performance and (2)has an obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. The Company consolidates entities of which it is the primary beneficiary. The Companys variable interests in VIEs include debt and equity interests, commitments, guarantees, derivative instruments and certain fees. The Companys involvement with VIEs arises primarily from: Interests purchased in connection with market making and retained interests held as a result of securitization activities. Guarantees issued and residual interests retained in connection with municipal bond securitizations. Loans and investments made to VIEs that hold debt, equity, real estate or other assets. Derivatives entered into with VIEs. Structuring of credit-linked notes (CLNs) or other asset-repackaged notes designed to meet the investment objectives of clients. Other structured transactions designed to provide tax-efficient yields to the Company or its clients. The Company determines whether it is the primary beneficiary of a VIE upon its initial involvement with the VIE and reassesses whether it is the primary beneficiary on an ongoing basis as long as it has any continuing involvement with the VIE. This determination is based upon an analysis of the design of the VIE, including the VIEs structure and activities, the power to make significant economic decisions held by the Company and by other parties and the variable interests owned by the Company and other parties. The power to make the most important decisions may take a number of different forms in different types of VIEs. The Company considers servicing or collateral management decisions as representing the power to make the most important economic decisions in transactions such as securitizations or collateral debt obligations. For many transactions, such as CLNs and other asset-repackaged notes, there are no significant economic decisions made on an ongoing basis. In these cases, the Company focuses its analysis on decisions made prior to the initial closing of the transaction and at the termination of t |
Goodwill and Net Intangible Ass
Goodwill and Net Intangible Assets. | |
3 Months Ended
Mar. 31, 2010 | |
Goodwill and Net Intangible Assets. | 7.Goodwill and Net Intangible Assets. The Company tests goodwill for impairment on an annual basis and on an interim basis when certain events or circumstances exist. The Company tests for impairment at the reporting unit level, which is generally one level below its business segments. Goodwill impairment is determined by comparing the estimated fair value of a reporting unit with its respective book value. If the estimated fair value exceeds the book value, goodwill at the reporting unit level is not deemed to be impaired. If the estimated fair value is below book value, however, further analysis is required to determine the amount of the impairment. The estimated fair values of the reporting units are generally determined utilizing methodologies that incorporate price-to-book, price-to-earnings and assets under management multiples of certain comparable companies. The Company completed its annual goodwill impairment testing at July1, 2009, which did not result in any goodwill impairment. Goodwill. Changes in the carrying amount of the Companys goodwill, net of accumulated impairment losses for the quarter ended March31, 2010 were as follows: Institutional Securities Global Wealth Management Group Asset Management Total (dollars in millions) Goodwill at December31, 2009 $ 373 $ 5,618 $ 1,171 $ 7,162 Foreign currency translation adjustments and other 9 (2 ) 7 Goodwill at March31, 2010(1)(2) $ 382 $ 5,616 $ 1,171 $ 7,169 (1) The Asset Management business segment amounts at March31, 2010 and December31, 2009 included approximately $404 million related to Retail Asset Management. (2) The amount of the Companys goodwill before accumulated impairments of $673 million at March31, 2010 was $7,842 million. Net Intangible Assets. Changes in the carrying amount of the Companys intangible assets for the quarter ended March31, 2010 were as follows: Institutional Securities Global Wealth Management Group Asset Management Total (dollars in millions) Amortizable net intangible assets at December31, 2009 $ 161 $ 4,292 $ 184 $ 4,637 Mortgage servicing rights (see Note 6) 135 2 137 Indefinite-lived intangible assets 280 280 Net intangible assets at December31, 2009 $ 296 $ 4,574 $ 184 $ 5,054 Amortizable net intangible assets at December31, 2009 $ 161 $ 4,292 $ 184 $ 4,637 Foreign currency translation adjustments and other 5 1 6 Amortization expense (4 ) (83 ) (3 ) (90 ) Impairment losses (10 ) (10 ) Amortizable net intangible assets at March31, 2010 162 4,210 171 4,543 Mortgage servicing rights (see Note 6) 172 3 175 Indefinite-lived intangible assets 280 280 |
Long-Term Borrowings.
Long-Term Borrowings. | |
3 Months Ended
Mar. 31, 2010 | |
Long-Term Borrowings. | 8.Long-Term Borrowings. The Companys long-term borrowings included the following components: AtMarch31, 2010 AtDecember31, 2009 (dollars in millions) Senior debt $ 174,619 $ 178,797 Subordinated debt 4,030 3,983 Junior subordinated debentures 10,554 10,594 Total $ 189,203 $ 193,374 During the quarter ended March31, 2010, the Company issued notes with a principal amount of approximately $8 billion representing senior unsecured notes that were not guaranteed by the Federal Deposit Insurance Corporation (FDIC). The amount included non-U.S. dollar currency notes aggregating approximately $1billion. During the quarter ended March31, 2010, approximately $10 billion of notes were repaid. The weighted average maturity of the Companys long-term borrowings, based upon stated maturity dates, was approximately 5.7 years and 5.6 years at March31, 2010 and December31, 2009, respectively. FDICs Temporary Liquidity Guarantee Program (TLGP). At March31, 2010 and December31, 2009, the Company had long-term debt outstanding of $23.8 billion under the TLGP. These borrowings are senior unsecured debt obligations of the Company and guaranteed by the FDIC under the TLGP. The FDIC has concluded that the guarantee is backed by the full faith and credit of the U.S. government. |
Derivative Instruments and Hedg
Derivative Instruments and Hedging Activities. | |
3 Months Ended
Mar. 31, 2010 | |
Derivative Instruments and Hedging Activities. | 9.Derivative Instruments and Hedging Activities. The Company trades, makes markets and takes proprietary positions globally in listed futures, OTC swaps, forwards, options and other derivatives referencing, among other things, interest rates, currencies, investment grade and non-investment grade corporate credits, loans, bonds, U.S. and other sovereign securities, emerging market bonds and loans, credit indices, asset-backed security indices, property indices, mortgage-related and other asset-backed securities and real estate loan products. The Company uses these instruments for trading, foreign currency exposure management, and asset and liability management. The Company manages its trading positions by employing a variety of risk mitigation strategies. These strategies include diversification of risk exposures and hedging. Hedging activities consist of the purchase or sale of positions in related securities and financial instruments, including a variety of derivative products (e.g., futures, forwards, swaps and options). The Company manages the market risk associated with its trading activities on a Company-wide basis, on a worldwide trading division level and on an individual product basis. The Company incurs credit risk as a dealer in OTC derivatives. Credit risk with respect to derivative instruments arises from the failure of a counterparty to perform according to the terms of the contract. The Companys exposure to credit risk at any point in time is represented by the fair value of the derivative contracts reported as assets. The fair value of a derivative represents the amount at which the derivative could be exchanged in an orderly transaction between market participants, and is further described in Notes1 and 3. In connection with its derivative activities, the Company generally enters into master netting agreements and collateral arrangements with counterparties. These agreements provide the Company with the ability to offset a counterpartys rights and obligations, request additional collateral when necessary or liquidate the collateral in the event of counterparty default. The tables below present a summary by counterparty credit rating and remaining contract maturity of the fair value of OTC derivatives in a gain position at March31, 2010 and December31, 2009, respectively. Fair value is presented in the final column net of collateral received (principally cash and U.S. government and agency securities): OTC Derivative ProductsFinancial Instruments Owned at March31, 2010(1) Years to Maturity Cross-Maturity and CashCollateral Netting(3) NetExposure Post-Cash Collateral NetExposure Post- Collateral Credit Rating(2) Lessthan1 1-3 3-5 Over 5 (dollars in millions) AAA $ 534 $ 1,952 $ 3,287 $ 9,769 $ (6,753 ) $ 8,789 $ 8,443 AA 5,635 6,953 7,101 16,481 (26,290 ) 9,880 8,010 A 9,111 8,809 7,102 25,507 (39,564 ) 10,965 9,800 BBB 3,404 3,990 2,347 7,501 (9,623 ) 7,619 5,547 Non-investment grade 2,488 3,067 1,7 |
Commitments, Guarantees and Con
Commitments, Guarantees and Contingencies. | |
3 Months Ended
Mar. 31, 2010 | |
Commitments, Guarantees and Contingencies. | 10.Commitments, Guarantees and Contingencies. Commitments. The Companys commitments associated with outstanding letters of credit and other financial guarantees obtained to satisfy collateral requirements, investment activities, corporate lending and financing arrangements, mortgage lending and margin lending at March31, 2010 are summarized below by period of expiration. Since commitments associated with these instruments may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements: Years to Maturity Total at March31, 2010 Less than1 1-3 3-5 Over5 (dollars in millions) Letters of credit and other financial guarantees obtained to satisfy collateral requirements $ 853 $ 1 $ 1 $ 6 $ 861 Investment activities 940 767 167 72 1,946 Primary lending commitmentsinvestment grade(1)(2) 10,558 27,321 3,938 163 41,980 Primary lending commitmentsnon-investment grade(1) 833 4,179 3,957 2,656 11,625 Secondary lending commitments(1) 67 99 140 35 341 Commitments for secured lending transactions 1,296 454 208 1,958 Forward starting reverse repurchase agreements(3) 75,289 101 75,390 Commercial and residential mortgage-related commitments(1) 906 906 Underwriting commitments 500 500 Other commitments 216 12 150 378 Total $ 91,458 $ 32,934 $ 8,561 $ 2,932 $ 135,885 (1) These commitments are recorded at fair value within Financial instruments owned and Financial instruments sold, not yet purchased in the condensed consolidated statements of financial condition (see Note 3). (2) This amount includes commitments to asset-backed commercial paper conduits of $276 million at March31, 2010, of which $268million have maturities of less than one year and $8 million of which have maturities of one to three years. (3) The Company enters into forward starting securities purchased under agreements to resell (agreements that have a trade date as of or prior to March31, 2010 and settle subsequent to period-end) that are primarily secured by collateral from U.S. government agency securities and other sovereign government obligations. These agreements primarily settle within three business days and as of March31, 2010, $75.3billion of the $75.4 billion settled within three business days. For further description of these commitments, refer to Note 11 to the consolidated financial statements for the year ended December31, 2009 included in the Form 10-K. The Company sponsors several nonconsolidated investment funds for third-party investors where the Company typically acts as general partner of, and investment adviser to, these funds and typically commits to invest a minority of the capital of such funds with subscribing third-party investors contributing the majority. The Companys employees, including its senior officers, as well as the Co |
Regulatory Requirements.
Regulatory Requirements. | |
3 Months Ended
Mar. 31, 2010 | |
Regulatory Requirements. | 11. Regulatory Requirements. Morgan Stanley.The Company is a financial holding company under the Bank Holding Company Act of 1956 and is subject to the regulation and oversight of the Board of Governors of the Federal Reserve System (the Fed). The Fed establishes capital requirements for the Company, including well-capitalized standards, and evaluates the Companys compliance with such capital requirements. The Office of the Comptroller of the Currency and the Office of Thrift Supervision establish similar capital requirements and standards for the Companys national banks and federal savings bank, respectively. The Company calculates its capital ratios and risk-weighted assets (RWAs) in accordance with the capital adequacy standards for financial holding companies adopted by the Fed. These standards are based upon a framework described in the International Convergence of Capital Measurement and Capital Standards, July 1988, as amended, also referred to as Basel I. In December 2007, the U.S. banking regulators published a final Basel II Accord that requires internationally active banking organizations, as well as certain of its U.S. bank subsidiaries, to implement BaselII standards over the next several years. The Company will be required to implement these Basel II standards as a result of becoming a financial holding company. At March31, 2010, the Company was in compliance with Basel I capital requirements with ratios of Tier 1 capital to RWAs of 15.1% and total capital to RWAs of 16.1% (6% and 10% being well-capitalized for regulatory purposes, respectively). In addition, financial holding companies are also subject to a Tier 1 leverage ratio as defined by the Fed. The Company calculated its Tier 1 leverage ratio as Tier 1 capital divided by adjusted average total assets (which reflects adjustments for disallowed goodwill, certain intangible assets and deferred tax assets). The adjusted average total assets are derived using weekly balances for the calendar quarter. The following table summarizes the capital measures for the Company at March31, 2010 and December31, 2009: March31, 2010 December31, 2009 Balance Ratio Balance Ratio (dollarsinmillions) Tier 1 capital $ 50,122 15.1 % $ 46,670 15.3 % Total capital 53,411 16.1 % 49,955 16.4 % RWAs 331,913 305,000 Adjusted average assets 821,517 804,456 Tier 1 leverage 6.1 % 5.8 % The Companys Significant U.S. Bank Operating Subsidiaries.The Companys domestic bank operating subsidiaries are subject to various regulatory capital requirements as administered by U.S. federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional, discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys U.S. bank operating subsidiaries financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Companys U.S. bank operating subsidiaries must meet specific capital guidelines that involve |
Total Equity.
Total Equity. | |
3 Months Ended
Mar. 31, 2010 | |
Total Equity. | 12. Total Equity. During the quarter ended March31, 2010 and 2009, the Company did not purchase any of its common stock as part of its share repurchase program. At March31, 2010, the Company had approximately $1.6 billion remaining under its current share repurchase authorization. Share repurchases by the Company are subject to regulatory approval. |
Earnings per Common Share.
Earnings per Common Share. | |
3 Months Ended
Mar. 31, 2010 | |
Earnings per Common Share. | 13. Earningsper Common Share. Basic EPS is computed by dividing income available to Morgan Stanley common shareholders by the weighted average number of common shares outstanding for the period. Common shares outstanding include common stock and vested restricted stock unit awards where recipients have satisfied either the explicit vesting terms or retirement eligibility requirements. Diluted EPS reflects the assumed conversion of all dilutive securities. The Company calculates EPS using the two-class method (see Note 1) and determines whether instruments granted in share-based payment transactions are participating securities. The following table presents the calculation of basic and diluted EPS (in millions, except for per share data): Three Months Ended March31, 2010 2009 Basic EPS: Income (loss) from continuing operations $ 2,080 $ (35 ) Net loss from discontinued operations (69 ) (155 ) Net income (loss) 2,011 (190 ) Net income (loss) applicable to non-controlling interests 235 (13 ) Net income (loss) applicable to Morgan Stanley 1,776 (177 ) Less: Preferred dividends (Series A Preferred Stock) (11 ) (11 ) Less: Preferred dividends (Series B Preferred Stock) (196 ) (196 ) Less: Preferred dividends (Series C Preferred Stock) (13 ) (29 ) Less: Preferred dividends (Series D Preferred Stock) (125 ) Less:AmortizationofissuancediscountforSeriesDPreferredStock(1) (40 ) Less: Allocation of earnings to participating restricted stock units(2): From continuing operations (54 ) From discontinued operations 2 Less: Allocation of undistributed earnings to Equity Units(1): From continuing operations (99 ) From discontinued operations 6 Net income (loss) applicable to Morgan Stanley common shareholders $ 1,411 $ (578 ) Weighted average common shares outstanding 1,315 1,012 Earnings (loss) per basic common share: Income (loss) from continuing operations $ 1.12 $ (0.41 ) Net loss on discontinued operations (0.05 ) (0.16 ) Earnings (loss) per basic common share $ 1.07 $ (0.57 ) Diluted EPS: Earnings (loss) applicable to Morgan Stanley common shareholders $ 1,411 $ (578 ) Preferred stock dividends (Series B Preferred Stock) 196 Income (loss) available to common shareholders plus assumed conversions $ 1,607 $ (578 ) Weighted average common shares outstanding 1,315 1,012 Effect of dilutive securities: Stock options and restricted stock units(2) 1 Series B Preferred Stock 310 Weighted average common shares outstanding and common stock equivalents 1,626 1,012 Earnings (loss) per dilut |
Interest Income and Interest Ex
Interest Income and Interest Expense. | |
3 Months Ended
Mar. 31, 2010 | |
Interest Income and Interest Expense. | 14. Interest Income and Interest Expense. Details of Interest income and Interest expense were as follows: Three Months Ended March, 31 2010 2009 (dollarsinmillions) Interest income(1): Financial instruments owned(2) $ 1,143 $ 1,289 Securities available for sale 10 Loans 70 88 Interest bearing deposits with banks 41 113 Federal funds sold and securities purchased under agreements to resell and securities borrowed 150 444 Other 334 311 Interest income $ 1,748 $ 2,245 Interest expense(1): Commercial paper and other short-term borrowings $ 3 $ 37 Deposits 172 150 Long-term debt 1,064 1,472 Securities sold under agreements to repurchase and securities loaned 286 463 Other (158 ) 187 Interest expense $ 1,367 $ 2,309 Net interest $ 381 $ (64 ) (1) Interest income and expense are recorded within the condensed consolidated statements of income depending on the nature of the instrument and related market conventions. When interest is included as a component of the instruments fair value, interest is included within Principal transactionsTrading revenues or Principal transactionsInvestment revenues. Otherwise, it is included within Interest income or Interest expense. (2) Interest expense on Financial instruments sold, not yet purchased is reported as a reduction to Interest income. |
Employee Benefit Plans.
Employee Benefit Plans. | |
3 Months Ended
Mar. 31, 2010 | |
Employee Benefit Plans. | 15. Employee Benefit Plans. The Company maintains various pension and benefit plans for eligible employees. The following table presents the components of the net periodic benefit expense: ThreeMonths EndedMarch31, 2010 2009 (dollarsinmillions) Service cost, benefits earned during the period $ 26 $ 31 Interest cost on projected benefit obligation 41 40 Expected return on plan assets (32 ) (30 ) Net amortization of prior service costs (2 ) (3 ) Net amortization of actuarial loss 8 11 Net periodic benefit expense $ 41 $ 49 |
Income Taxes.
Income Taxes. | |
3 Months Ended
Mar. 31, 2010 | |
Income Taxes. | 16. Income Taxes. The Company is under continuous examination by the Internal Revenue Service (the IRS) and other tax authorities in certain countries, such as Japan and the United Kingdom (the U.K.), and states in which the Company has significant business operations, such as New York. During 2010, the IRS and the Japanese tax authorities are expected to conclude the field work portion of their examinations on issues covering taxyears 1999 - 2005 and 2007 - 2008, respectively.Also during 2010, the Company expects to reach a conclusion with the U.K. tax authorities on issues through tax year 2007, including those in appeals. Additionally during 2010, the Company may reach a conclusion with the New York State and New York City tax authorities on issues covering years 2002 - 2006.The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions resulting from these and subsequent years examinations. The Company has established unrecognized tax benefits that the Company believes are adequate in relation to the potential for additional assessments. Once established, the Company adjusts unrecognized tax benefits only when more information is available or when an event occurs necessitating a change. The Company believes that the resolution of tax matters will not have a material effect on the condensed consolidated statements of financial condition of the Company, although a resolution could have a material impact on the Companys condensed consolidated statements of income for a particular future period and on the Companys effective income tax rate for any period in which such resolution occurs. It is reasonably possible that significant changes in the gross balance of unrecognized tax benefits may occur within the next twelve months. At this time, however, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits and impact on the effective tax rate over the next twelve months. During the quarter ended March31, 2010, as part of the Companys periodic review of the business, liquidity and capital requirements of its non-U.S. subsidiaries, it was determined that prior-years undistributed earnings of certain non-U.S. subsidiaries for which U.S. federal income taxes have been provided will remain indefinitely reinvested abroad. The Company does not intend to use these earnings as a source of funding of its operations in the U.S. in the foreseeable future. As a result of this determination, the income tax provision for the quarter ended March31, 2010 included a benefit of $382 million, or $0.21 per diluted share, associated with the release of the previously provided U.S. federal deferred tax liability associated with these earnings. |
Segment and Geographic Informat
Segment and Geographic Information. | |
3 Months Ended
Mar. 31, 2010 | |
Segment and Geographic Information. | 17. Segment and Geographic Information. The Company structures its segments primarily based upon the nature of the financial products and services provided to customers and the Companys management organization. The Company provides a wide range of financial products and services to its customers in each of its business segments: Institutional Securities, Global Wealth Management Group and Asset Management. For further discussion of the Companys business segments, see Note1. Revenues and expenses directly associated with each respective segment are included in determining its operating results. Other revenues and expenses that are not directly attributable to a particular segment are allocated based upon the Companys allocation methodologies, generally based on each segments respective net revenues, non-interest expenses or other relevant measures. As a result of treating certain intersegment transactions as transactions with external parties, the Company includes an Intersegment Eliminations category to reconcile the business segment results to the Companys consolidated results. Income before taxes in Intersegment Eliminations primarily represents the effect of timing differences associated with the revenue and expense recognition of commissions paid by the Asset Management business segment to the Global Wealth Management Group business segment associated with sales of certain products and the related compensation costs paid to the Global Wealth Management Group business segments global representatives. Intersegment eliminations also reflect the effect of fees paid by the Institutional Securities business segment to the Global Wealth Management Group business segment related to the bank deposit program. Selected financial information for the Companys segments is presented below: Three Months Ended March31, 2010 Institutional Securities GlobalWealth Management Group Asset Management Discover Intersegment Eliminations(4) Total (dollars in millions) Total non-interest revenues $ 5,219 $ 2,914 $ 673 $ $ (109 ) $ 8,697 Net interest 125 191 (20 ) 85 381 Net revenues $ 5,344 $ 3,105 $ 653 $ $ (24 ) $ 9,078 Income (loss) from continuing operations beforeincome taxes $ 2,067 $ 278 $ 173 $ $ (2 ) $ 2,516 Provision for (benefit from) income taxes 330 64 43 (1 ) 436 Income (loss) from continuing operations 1,737 214 130 (1 ) 2,080 Discontinued operations(1): Gain (loss) from discontinued operations (938 ) 65 775 (2 ) (100 ) Benefit from income taxes (30 ) (1 ) (31 ) Gain (loss) on discontinued operations(2) (938 ) 95 775 (1 ) (69 ) |
Discontinued Operations.
Discontinued Operations. | |
3 Months Ended
Mar. 31, 2010 | |
Discontinued Operations. | 18. Discontinued Operations. See Note 1 for a discussion of the Companys discontinued operations. The table below provides information regarding amounts included in discontinued operations: ThreeMonths Ended March31, 2010 2009 (dollarsinmillions) Net revenues(1): Revel $ $ (1 ) Crescent 60 Retail Asset Management 185 110 MSCI 96 Other 1 $ 185 $ 266 Pre-tax (loss) gain on discontinued operations(1): Revel(2) $ (938 ) $ (3 ) Crescent (306 ) Retail Asset Management 66 33 MSCI 22 DFS(3) 775 Other (3 ) (1 ) $ (100 ) $ (255 ) (1) Amounts included eliminations of intersegment activity. (2) Revel amount included a loss of approximately $932 million in connection with its planned disposition. (3) Amount relates to the legal settlement with DFS. |
Subsequent Events.
Subsequent Events. | |
3 Months Ended
Mar. 31, 2010 | |
Subsequent Events. | 19. Subsequent Events. Common Dividend.On April21, 2010, the Company announced that its Board of Directors declared a quarterly dividend per common share of $0.05. The dividend is payable on May 14, 2010 to common shareholders of record on April 30, 2010. U.K. Tax. In April 2010, the U.K. government enacted legislation imposing a payroll tax on discretionary bonuses over a certain amount awarded to certain employees in the period from December 9, 2009 to April 5, 2010. The Company is still evaluating the impact of this legislation and will recognize a charge in Compensation and benefits expense in the second quarter of 2010 reflecting the amount that will be currently payable by the Company in August 2010. Japan Securities Joint Venture.On May1, 2010, the Company and Mitsubishi UFJ Financial Group, Inc. (MUFG) closed the previously announced transaction to form a joint venture in Japan of their respective investment banking and securities businesses. MUFG and the Company have integrated their respective Japanese securities companies by forming two joint venture companies. MUFG contributed the wholesale and retail securities businesses conducted in Japan by its subsidiary Mitsubishi UFJ Securities Co., Ltd. into one of the joint venture entities named Mitsubishi UFJ Morgan Stanley Securities, Co., Ltd. (MUMSS). The Company contributed the investment banking operations conducted in Japan by its subsidiary, Morgan Stanley Japan Securities Co., Ltd. (MSJS), into MUMSS and contributed the sales and trading and capital markets business conducted in Japan by MSJS into a second joint venture entity called Morgan Stanley MUFG Securities, Co., Ltd. (MSMS and, together with MUMSS, the Joint Venture). Following the respective contributions to the Joint Venture and a cash payment of 26 billion yen from MUFG to the Company at closing of the transaction (subject to certain post-closing cash adjustments), the Company owns a 40% economic interest in the Joint Venture and MUFG owns a 60% economic interest in the Joint Venture. The Company holds a 40% voting interest and MUFG holds a 60% voting interest in MUMSS, while the Company holds a 51% voting interest and MUFG holds a 49% voting interest in MSMS. |