UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-11758
(Exact Name of Registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
1585 Broadway New York, NY 10036 (Address of principal executive offices, including zip code) |
36-3145972 (I.R.S. Employer Identification No.) |
(212) 761-4000 (Registrants telephone number, including area code) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 Regulation S-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 x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer x |
Accelerated Filer ¨ | |
Non-Accelerated Filer ¨ |
Smaller reporting company ¨ | |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of October 31, 2014, there were 1,957,403,208 shares of the Registrants Common Stock, par value $0.01 per share, outstanding.
For the quarter ended September 30, 2014
Table of Contents | Page | |||||
Part IFinancial Information |
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Item 1. |
Financial Statements (unaudited) | 1 | ||||
Condensed Consolidated Statements of Financial ConditionSeptember 30, 2014 and December 31, 2013 |
1 | |||||
Condensed Consolidated Statements of IncomeThree and Nine Months Ended September 30, 2014 and 2013 |
2 | |||||
3 | ||||||
Condensed Consolidated Statements of Cash FlowsNine Months Ended September 30, 2014 and 2013 |
4 | |||||
5 | ||||||
Notes to Condensed Consolidated Financial Statements (unaudited) |
7 | |||||
98 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 99 | ||||
99 | ||||||
100 | ||||||
108 | ||||||
126 | ||||||
128 | ||||||
132 | ||||||
136 | ||||||
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 158 | ||||
Item 4. |
Controls and Procedures | 175 | ||||
176 | ||||||
Part IIOther Information |
||||||
Item 1. |
Legal Proceedings | 182 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 186 | ||||
Item 6. |
Exhibits | 186 |
i |
AVAILABLE INFORMATION
Morgan Stanley files annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (the SEC). You may read and copy any document we file with the SEC at the SECs public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including Morgan Stanley) file electronically with the SEC. Morgan Stanleys electronic SEC filings are available to the public at the SECs internet site, www.sec.gov.
Morgan Stanleys internet site is www.morganstanley.com. You can access Morgan Stanleys Investor Relations webpage at www.morganstanley.com/about/ir. Morgan Stanley makes available free of charge, on or through its Investor Relations webpage, its proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Morgan Stanley also makes available, through its Investor Relations webpage, via a link to the SECs internet site, statements of beneficial ownership of Morgan Stanleys equity securities filed by its directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.
Morgan Stanley has a Corporate Governance webpage. You can access information about Morgan Stanleys corporate governance at www.morganstanley.com/about/company/governance. Morgan Stanley posts the following on its Corporate Governance webpage:
| Amended and Restated Certificate of Incorporation; |
| Amended and Restated Bylaws; |
| Charters for its Audit Committee; Operations and Technology Committee; Compensation, Management Development and Succession Committee; Nominating and Governance Committee; and Risk Committee; |
| Corporate Governance Policies; |
| Policy Regarding Communication with the Board of Directors; |
| Policy Regarding Director Candidates Recommended by Shareholders; |
| Policy Regarding Corporate Political Activities; |
| Policy Regarding Shareholder Rights Plan; |
| Code of Ethics and Business Conduct; |
| Code of Conduct; and |
| Integrity Hotline information. |
Morgan Stanleys Code of Ethics and Business Conduct applies to all directors, officers and employees, including its Chief Executive Officer, Chief Financial Officer and Deputy Chief Financial Officer. Morgan Stanley 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 its 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 Morgan Stanleys internet site is not incorporated by reference into this report.
ii |
Item 1. | Financial Statements. |
MORGAN STANLEY
Condensed Consolidated Statements of Financial Condition
(dollars in millions, except share data)
(unaudited)
September 30, 2014 |
December 31, 2013 |
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Assets |
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Cash and due from banks ($49 and $544 at September 30, 2014 and December 31, 2013, respectively, related to consolidated variable interest entities, generally not available to the Company) |
$ | 20,242 | $ | 16,602 | ||||
Interest bearing deposits with banks |
35,584 | 43,281 | ||||||
Cash deposited with clearing organizations or segregated under federal and other regulations or requirements ($149 and $117 at September 30, 2014 and December 31, 2013, respectively, related to consolidated variable interest entities, generally not available to the Company) |
45,106 | 39,203 | ||||||
Trading assets, at fair value ($126,689 and $151,078 were pledged to various parties at September 30, 2014 and December 31, 2013, respectively) ($1,122 and $2,825 at September 30, 2014 and December 31, 2013, respectively, related to consolidated variable interest entities, generally not available to the Company) |
252,482 | 280,744 | ||||||
Available for sale securities, at fair value |
63,547 | 53,430 | ||||||
Securities received as collateral, at fair value |
16,694 | 20,508 | ||||||
Federal funds sold and securities purchased under agreements to resell (includes $863 and $866 at fair value at September 30, 2014 and December 31, 2013, respectively) |
98,994 | 118,130 | ||||||
Securities borrowed |
140,303 | 129,707 | ||||||
Customer and other receivables |
54,839 | 57,104 | ||||||
Loans: |
||||||||
Held for investment (net of allowances of $141 and $156 at September 30, 2014 and December 31, 2013, respectively) |
51,465 | 36,545 | ||||||
Held for sale |
6,744 | 6,329 | ||||||
Other investments ($488 and $561 at September 30, 2014 and December 31, 2013, respectively, related to consolidated variable interest entities, generally not available to the Company) |
4,515 | 5,086 | ||||||
Premises, equipment and software costs (net of accumulated depreciation of $6,128 and $6,420 at September 30, 2014 and December 31, 2013, respectively) ($194 and $201 at September 30, 2014 and December 31, 2013, respectively, related to consolidated variable interest entities, generally not available to the Company) |
5,642 | 6,019 | ||||||
Goodwill |
6,589 | 6,595 | ||||||
Intangible assets (net of accumulated amortization of $1,924 and $1,703 at September 30, 2014 and December 31, 2013, respectively) (includes $6 and $8 at fair value at September 30, 2014 and December 31, 2013, respectively) |
3,054 | 3,286 | ||||||
Other assets ($15 and $11 at September 30, 2014 and December 31, 2013, respectively, related to consolidated variable interest entities, generally not available to the Company) |
8,711 | 10,133 | ||||||
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|
|
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Total assets |
$ | 814,511 | $ | 832,702 | ||||
|
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|
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Liabilities |
||||||||
Deposits (includes $0 and $185 at fair value at September 30, 2014 and December 31, 2013, respectively). |
$ | 124,382 | $ | 112,379 | ||||
Commercial paper and other short-term borrowings (includes $1,473 and $1,347 at fair value at September 30, 2014 and December 31, 2013, respectively) |
1,760 | 2,142 | ||||||
Trading liabilities, at fair value ($1 and $33 at September 30, 2014 and December 31, 2013, respectively, related to consolidated variable interest entities, generally non-recourse to the Company) |
118,896 | 104,521 | ||||||
Obligation to return securities received as collateral, at fair value |
22,944 | 24,568 | ||||||
Securities sold under agreements to repurchase (includes $609 and $561 at fair value at September 30, 2014 and December 31, 2013, respectively) |
83,706 | 145,676 | ||||||
Securities loaned |
27,657 | 32,799 | ||||||
Other secured financings (includes $4,367 and $5,206 at fair value at September 30, 2014 and December 31, 2013, respectively) ($380 and $543 at September 30, 2014 and December 31, 2013, respectively, related to consolidated variable interest entities, generally non-recourse to the Company) |
12,019 | 14,215 | ||||||
Customer and other payables |
181,899 | 157,125 | ||||||
Other liabilities and accrued expenses ($72 and $76 at September 30, 2014 and December 31, 2013, respectively, related to consolidated variable interest entities, generally non-recourse to the Company) |
14,880 | 16,672 | ||||||
Long-term borrowings (includes $33,159 and $35,637 at fair value at September 30, 2014 and December 31, 2013, respectively) |
152,357 | 153,575 | ||||||
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|
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Total liabilities |
740,500 | 763,672 | ||||||
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|
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Commitments and contingent liabilities (see Note 11) |
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Equity |
||||||||
Morgan Stanley shareholders equity: |
||||||||
Preferred stock (see Note 13) |
6,020 | 3,220 | ||||||
Common stock, $0.01 par value: |
||||||||
Shares authorized: 3,500,000,000 at September 30, 2014 and December 31, 2013; |
||||||||
Shares issued: 2,038,893,979 at September 30, 2014 and December 31, 2013; |
||||||||
Shares outstanding: 1,958,386,188 and 1,944,868,751 at September 30, 2014 and December 31, 2013, respectively |
20 | 20 | ||||||
Additional paid-in capital |
23,922 | 24,570 | ||||||
Retained earnings |
46,573 | 42,172 | ||||||
Employee stock trusts |
2,127 | 1,718 | ||||||
Accumulated other comprehensive loss |
(1,115 | ) | (1,093 | ) | ||||
Common stock held in treasury, at cost, $0.01 par value: |
||||||||
Shares outstanding: 80,507,791 and 94,025,228 at September 30, 2014 and December 31, 2013, respectively |
(2,502 | ) | (2,968 | ) | ||||
Common stock issued to employee stock trusts |
(2,127 | ) | (1,718 | ) | ||||
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|
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Total Morgan Stanley shareholders equity |
72,918 | 65,921 | ||||||
Nonredeemable noncontrolling interests |
1,093 | 3,109 | ||||||
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|
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Total equity |
74,011 | 69,030 | ||||||
|
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|
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Total liabilities and equity |
$ | 814,511 | $ | 832,702 | ||||
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|
See Notes to Condensed Consolidated Financial Statements.
1 |
Condensed Consolidated Statements of Income
(dollars in millions, except share and per share data)
(unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues: |
||||||||||||||||
Investment banking |
$ | 1,551 | $ | 1,160 | $ | 4,492 | $ | 3,687 | ||||||||
Trading |
2,448 | 2,259 | 7,926 | 7,847 | ||||||||||||
Investments |
138 | 728 | 724 | 1,254 | ||||||||||||
Commissions and fees |
1,124 | 1,079 | 3,478 | 3,463 | ||||||||||||
Asset management, distribution and administration fees |
2,716 | 2,389 | 7,886 | 7,139 | ||||||||||||
Other |
373 | 231 | 873 | 762 | ||||||||||||
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|
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Total non-interest revenues |
8,350 | 7,846 | 25,379 | 24,152 | ||||||||||||
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Interest income |
1,384 | 1,261 | 3,977 | 3,873 | ||||||||||||
Interest expense |
827 | 1,151 | 2,845 | 3,377 | ||||||||||||
|
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Net interest |
557 | 110 | 1,132 | 496 | ||||||||||||
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Net revenues |
8,907 | 7,956 | 26,511 | 24,648 | ||||||||||||
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Non-interest expenses: |
||||||||||||||||
Compensation and benefits |
4,214 | 3,966 | 12,720 | 12,284 | ||||||||||||
Occupancy and equipment |
350 | 374 | 1,069 | 1,129 | ||||||||||||
Brokerage, clearing and exchange fees |
437 | 416 | 1,338 | 1,300 | ||||||||||||
Information processing and communications |
396 | 404 | 1,231 | 1,322 | ||||||||||||
Marketing and business development |
160 | 151 | 472 | 448 | ||||||||||||
Professional services |
522 | 448 | 1,506 | 1,346 | ||||||||||||
Other |
608 | 832 | 1,653 | 2,059 | ||||||||||||
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Total non-interest expenses |
6,687 | 6,591 | 19,989 | 19,888 | ||||||||||||
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Income from continuing operations before income taxes |
2,220 | 1,365 | 6,522 | 4,760 | ||||||||||||
Provision for income taxes |
463 | 363 | 1,263 | 1,288 | ||||||||||||
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Income from continuing operations |
1,757 | 1,002 | 5,259 | 3,472 | ||||||||||||
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Discontinued operations: |
||||||||||||||||
Income (loss) from discontinued operations before income taxes |
(8 | ) | 14 | (11 | ) | (58 | ) | |||||||||
Provision for (benefit from) income taxes |
(3 | ) | (2 | ) | (5 | ) | (26 | ) | ||||||||
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Income (loss) from discontinued operations |
(5 | ) | 16 | (6 | ) | (32 | ) | |||||||||
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Net income |
$ | 1,752 | $ | 1,018 | $ | 5,253 | $ | 3,440 | ||||||||
Net income applicable to redeemable noncontrolling interests |
| | | 222 | ||||||||||||
Net income applicable to nonredeemable noncontrolling interests |
59 | 112 | 156 | 370 | ||||||||||||
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Net income applicable to Morgan Stanley |
$ | 1,693 | $ | 906 | $ | 5,097 | $ | 2,848 | ||||||||
Preferred stock dividends and other |
64 | 26 | 199 | 229 | ||||||||||||
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Earnings applicable to Morgan Stanley common shareholders |
$ | 1,629 | $ | 880 | $ | 4,898 | $ | 2,619 | ||||||||
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Amounts applicable to Morgan Stanley: |
||||||||||||||||
Income from continuing operations |
$ | 1,698 | $ | 890 | $ | 5,103 | $ | 2,880 | ||||||||
Income (loss) from discontinued operations |
(5 | ) | 16 | (6 | ) | (32 | ) | |||||||||
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Net income applicable to Morgan Stanley |
$ | 1,693 | $ | 906 | $ | 5,097 | $ | 2,848 | ||||||||
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Earnings per basic common share: |
||||||||||||||||
Income from continuing operations |
$ | 0.85 | $ | 0.45 | $ | 2.55 | $ | 1.39 | ||||||||
Income (loss) from discontinued operations |
| 0.01 | (0.01 | ) | (0.02 | ) | ||||||||||
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Earnings per basic common share |
$ | 0.85 | $ | 0.46 | $ | 2.54 | $ | 1.37 | ||||||||
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Earnings per diluted common share: |
||||||||||||||||
Income from continuing operations |
$ | 0.83 | $ | 0.44 | $ | 2.49 | $ | 1.36 | ||||||||
Income (loss) from discontinued operations |
| 0.01 | | (0.02 | ) | |||||||||||
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Earnings per diluted common share |
$ | 0.83 | $ | 0.45 | $ | 2.49 | $ | 1.34 | ||||||||
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Dividends declared per common share |
$ | 0.10 | $ | 0.05 | $ | 0.25 | $ | 0.15 | ||||||||
Average common shares outstanding: |
||||||||||||||||
Basic |
1,922,995,835 | 1,909,350,788 | 1,925,172,108 | 1,906,097,564 | ||||||||||||
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Diluted |
1,970,922,473 | 1,964,812,610 | 1,970,091,170 | 1,952,146,477 | ||||||||||||
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See Notes to Condensed Consolidated Financial Statements.
2 |
Condensed Consolidated Statements of Comprehensive Income
(dollars in millions)
(unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income |
$ | 1,752 | $ | 1,018 | $ | 5,253 | $ | 3,440 | ||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Foreign currency translation adjustments(1) |
$ | (327 | ) | $ | 125 | $ | (175 | ) | $ | (321 | ) | |||||
Amortization of cash flow hedges(2) |
1 | 1 | 3 | 3 | ||||||||||||
Change in net unrealized gains (losses) on available for sale securities(3) |
(102 | ) | 33 | 134 | (336 | ) | ||||||||||
Pension, postretirement and other related adjustments(4) |
(16 | ) | 4 | (10 | ) | 15 | ||||||||||
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Total other comprehensive income (loss) |
$ | (444 | ) | $ | 163 | $ | (48 | ) | $ | (639 | ) | |||||
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Comprehensive income |
$ | 1,308 | $ | 1,181 | $ | 5,205 | $ | 2,801 | ||||||||
Net income applicable to redeemable noncontrolling interests |
| | | 222 | ||||||||||||
Net income applicable to nonredeemable noncontrolling interests |
59 | 112 | 156 | 370 | ||||||||||||
Other comprehensive income (loss) applicable to nonredeemable noncontrolling interests |
(62 | ) | 8 | (26 | ) | (141 | ) | |||||||||
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Comprehensive income applicable to Morgan Stanley |
$ | 1,311 | $ | 1,061 | $ | 5,075 | $ | 2,350 | ||||||||
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(1) | Amounts are net of provision for (benefit from) income taxes of $249 million and $(124) million for the quarters ended September 30, 2014 and 2013, respectively, and $137 million and $176 million for the nine months ended September 30, 2014 and 2013, respectively. |
(2) | Amounts are net of provision for income taxes of $1 million and $1 million for the quarters ended September 30, 2014 and 2013, respectively, and $2 million and $2 million for the nine months ended September 30, 2014 and 2013, respectively. |
(3) | Amounts are net of provision for (benefit from) income taxes of $(70) million and $23 million for the quarters ended September 30, 2014 and 2013, respectively, and $92 million and $(230) million for the nine months ended September 30, 2014 and 2013, respectively. |
(4) | Amounts are net of provision for (benefit from) income taxes of $(8) million and $2 million for the quarters ended September 30, 2014 and 2013, respectively, and $(6) million and $13 million for the nine months ended September 30, 2014 and 2013, respectively. |
See Notes to Condensed Consolidated Financial Statements.
3 |
Condensed Consolidated Statements of Cash Flows
(dollars in millions)
(unaudited)
Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income |
$ | 5,253 | $ | 3,440 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Income from equity method investments |
(108 | ) | (400 | ) | ||||
Compensation payable in common stock and options |
933 | 850 | ||||||
Depreciation and amortization |
748 | 1,084 | ||||||
Net gain on sale of available for sale securities |
(36 | ) | (43 | ) | ||||
Impairment charges |
85 | 182 | ||||||
Provision for credit losses on lending activities |
1 | 116 | ||||||
Other operating activities |
(167 | ) | 58 | |||||
Changes in assets and liabilities: |
||||||||
Cash deposited with clearing organizations or segregated under federal and other regulations or requirements |
(5,903 | ) | (6,422 | ) | ||||
Trading assets, net of Trading liabilities |
39,205 | (5,944 | ) | |||||
Securities borrowed |
(10,596 | ) | (17,468 | ) | ||||
Securities loaned |
(5,142 | ) | (4,042 | ) | ||||
Customer and other receivables and other assets |
2,931 | 6,761 | ||||||
Customer and other payables and other liabilities |
23,335 | 21,500 | ||||||
Federal funds sold and securities purchased under agreements to resell |
19,136 | 424 | ||||||
Securities sold under agreements to repurchase |
(61,935 | ) | 16,724 | |||||
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Net cash provided by operating activities |
7,740 | 16,820 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Proceeds from (payments for): |
||||||||
Premises, equipment and software |
(533 | ) | (944 | ) | ||||
Business dispositions, net of cash disposed |
962 | 569 | ||||||
Loans |
(13,974 | ) | (6,046 | ) | ||||
Purchases of available for sale securities |
(24,581 | ) | (20,497 | ) | ||||
Sales of available for sale securities |
11,212 | 9,052 | ||||||
Maturities and redemptions of available for sale securities |
3,415 | 3,760 | ||||||
Other investing activities |
(264 | ) | 117 | |||||
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Net cash used for investing activities |
(23,763 | ) | (13,989 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Net proceeds from (payments for): |
||||||||
Commercial paper and other short-term borrowings |
(382 | ) | 195 | |||||
Noncontrolling interests |
(189 | ) | (549 | ) | ||||
Other secured financings |
(1,725 | ) | (1,395 | ) | ||||
Deposits |
12,003 | 21,541 | ||||||
Proceeds from: |
||||||||
Excess tax benefits associated with stock-based awards |
91 | 8 | ||||||
Derivatives financing activities |
784 | 244 | ||||||
Issuance of preferred stock, net of issuance costs |
2,782 | 854 | ||||||
Issuance of long-term borrowings |
26,529 | 24,766 | ||||||
Payments for: |
||||||||
Long-term borrowings |
(24,731 | ) | (31,084 | ) | ||||
Derivatives financing activities |
(384 | ) | (237 | ) | ||||
Repurchases of common stock and related employee tax withholdings |
(1,172 | ) | (451 | ) | ||||
Purchase of additional stake in Wealth Management JV |
| (4,725 | ) | |||||
Cash dividends |
(652 | ) | (358 | ) | ||||
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Net cash provided by financing activities |
12,954 | 8,809 | ||||||
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Effect of exchange rate changes on cash and cash equivalents |
(939 | ) | (298 | ) | ||||
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Effect of cash and cash equivalents related to variable interest entities |
(49 | ) | (465 | ) | ||||
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Net increase (decrease) in cash and cash equivalents |
(4,057 | ) | 10,877 | |||||
Cash and cash equivalents, at beginning of period |
59,883 | 46,904 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, at end of period |
$ | 55,826 | $ | 57,781 | ||||
|
|
|
|
|||||
Cash and cash equivalents include: |
||||||||
Cash and due from banks |
$ | 20,242 | $ | 14,333 | ||||
Interest bearing deposits with banks |
35,584 | 43,448 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, at end of period |
$ | 55,826 | $ | 57,781 | ||||
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest were $2,116 million and $3,372 million for the nine months ended September 30, 2014 and 2013, respectively.
Cash payments for income taxes were $620 million and $598 million for the nine months ended September 30, 2014 and 2013, respectively.
See Notes to Condensed Consolidated Financial Statements.
4 |
Condensed Consolidated Statements of Changes in Total Equity
Nine Months Ended September 30, 2014
(dollars in millions)
(unaudited)
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- redeemable Non- controlling Interests |
Total Equity |
|||||||||||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2013 |
$ | 3,220 | $ | 20 | $ | 24,570 | $ | 42,172 | $ | 1,718 | $ | (1,093 | ) | $ | (2,968 | ) | $ | (1,718 | ) | $ | 3,109 | $ | 69,030 | |||||||||||||||||
Net income applicable to Morgan Stanley |
| | | 5,097 | | | | | | 5,097 | ||||||||||||||||||||||||||||||
Net income applicable to nonredeemable noncontrolling interests |
| | | | | | | | 156 | 156 | ||||||||||||||||||||||||||||||
Dividends |
| | | (696 | ) | | | | | | (696 | ) | ||||||||||||||||||||||||||||
Shares issued under employee plans and related tax effects |
| | (627 | ) | | 409 | | 1,638 | (409 | ) | | 1,011 | ||||||||||||||||||||||||||||
Repurchases of common stock and related employee tax withholdings |
| | | | | | (1,172 | ) | | | (1,172 | ) | ||||||||||||||||||||||||||||
Net change in Accumulated other comprehensive income |
| | | | | (22 | ) | | | (26 | ) | (48 | ) | |||||||||||||||||||||||||||
Issuance of preferred stock |
2,800 | | (18 | ) | | | | | | | 2,782 | |||||||||||||||||||||||||||||
Deconsolidation of certain legal entities associated with a real estate fund |
| | | | | | | | (1,606 | ) | (1,606 | ) | ||||||||||||||||||||||||||||
Other net decreases |
| | (3 | ) | | | | | | (540 | ) | (543 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
BALANCE AT SEPTEMBER 30, 2014 |
$ | 6,020 | $ | 20 | $ | 23,922 | $ | 46,573 | $ | 2,127 | $ | (1,115 | ) | $ | (2,502 | ) | $ | (2,127 | ) | $ | 1,093 | $ | 74,011 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
5 |
MORGAN STANLEY
Condensed Consolidated Statements of Changes in Total Equity(Continued)
Nine Months Ended September 30, 2013
(dollars in millions)
(unaudited)
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- Redeemable Non- controlling Interests |
Total Equity |
|||||||||||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2012 |
$ | 1,508 | $ | 20 | $ | 23,426 | $ | 39,912 | $ | 2,932 | $ | (516 | ) | $ | (2,241 | ) | $ | (2,932 | ) | $ | 3,319 | $ | 65,428 | |||||||||||||||||
Net income applicable to Morgan Stanley |
| | | 2,848 | | | | | | 2,848 | ||||||||||||||||||||||||||||||
Net income applicable to nonredeemable noncontrolling interests |
| | | | | | | | 370 | 370 | ||||||||||||||||||||||||||||||
Dividends |
| | | (372 | ) | | | | | | (372 | ) | ||||||||||||||||||||||||||||
Shares issued under employee plans and related tax effects |
| | 817 | | (1,179 | ) | | (28 | ) | 1,179 | | 789 | ||||||||||||||||||||||||||||
Repurchases of common stock and related employee tax withholdings |
| | | | | | (451 | ) | | | (451 | ) | ||||||||||||||||||||||||||||
Net change in Accumulated other comprehensive income |
| | | | | (498 | ) | | | (141 | ) | (639 | ) | |||||||||||||||||||||||||||
Issuance of preferred stock |
862 | | (8 | ) | | | | | | | 854 | |||||||||||||||||||||||||||||
Wealth Management JV redemption value adjustment |
| | | (151 | ) | | | | | | (151 | ) | ||||||||||||||||||||||||||||
Other net decreases |
| | | | | | | | (435 | ) | (435 | ) | ||||||||||||||||||||||||||||
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|
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|
|||||||||||||||||||||
BALANCE AT SEPTEMBER 30, 2013 |
$ | 2,370 | $ | 20 | $ | 24,235 | $ | 42,237 | $ | 1,753 | $ | (1,014 | ) | $ | (2,720 | ) | $ | (1,753 | ) | $ | 3,113 | $ | 68,241 | |||||||||||||||||
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|
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|
|
|
See Notes to Condensed Consolidated Financial Statements.
6 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | Introduction and Basis of Presentation. |
The Company. Morgan Stanley, a financial holding company, is a global financial services firm that maintains significant market positions in each of its business segmentsInstitutional Securities, Wealth Management and Investment Management. The Company, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms Morgan Stanley or the Company mean Morgan Stanley (the Parent) together with its consolidated subsidiaries.
A summary of the activities of each of the Companys business segments is as follows:
Institutional Securities provides financial advisory and capital raising 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.
Wealth Management 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 engages in fixed income trading, which primarily facilitates clients trading or investments in such securities.
Investment Management provides a broad array of investment strategies that span the risk/return spectrum across geographies, asset classes and public and private markets to a diverse group of clients across the institutional and intermediary channels as well as high net worth clients.
Global Oil Merchanting Business, CanTerm and TransMontaigne.
On December 20, 2013, the Company and a subsidiary of Rosneft Oil Company (Rosneft) entered into a Purchase Agreement pursuant to which the Company would sell the global oil merchanting unit of its commodities division (the global oil merchanting business) to Rosneft. In the current environment there can be no assurance that the transaction will close, particularly in light of the existing contractual requirement that all necessary approvals be received by December 20, 2014, when the Purchase Agreement will expire. The Company continues to operate the global oil merchanting business in the ordinary course, and should the transaction not close, the Company would consider a variety of options that take into account the interests of the Companys shareholders, clients and employees. For the foregoing reasons, the global oil merchanting business is no longer classified as held for sale.
On March 27, 2014, the Company completed the sale of Canterm Canadian Terminals Inc. (CanTerm), a public storage terminal operator for refined products with two distribution terminals in Canada. Due to a change in the Companys expected level of continuing involvement with CanTerm, it is no longer considered to be a discontinued operation, and as such, the results of CanTerm are reported as a component of continuing operations within the Institutional Securities business segment for all periods presented. As a result of this change, previously disclosed earnings per diluted common share (diluted EPS) from discontinued operations of $0.02 per share are included in diluted EPS from continuing operations for the nine months ended September 30, 2014.
On July 1, 2014, the Company completed the sale of its ownership stake in TransMontaigne Inc., a U.S.-based oil storage, marketing and transportation company, as well as related physical inventory and the assumption of the Companys obligations under certain terminal storage contracts, to NGL Energy Partners LP. The gain on sale, which was included in continuing operations, was approximately $101 million for the quarter and nine months ended September 30, 2014.
7 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Discontinued Operations. Pre-tax gain (loss) amounts for the quarter and nine months ended September 30, 2014 were not significant. Pre-tax gain (loss) amounts for the quarter and nine months ended September 30, 2013 were $14 million and $(58) million, respectively, included in discontinued operations, primarily related to the prior sale of Saxon and a principal investment.
Prior-period amounts have been recast for discontinued operations.
Basis of Financial Information. The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which require the Company to make estimates and assumptions regarding the valuations of certain financial instruments, the valuation of goodwill and intangible assets, compensation, deferred tax assets, the outcome of litigation and tax matters, allowance for credit losses and other matters that affect the condensed consolidated financial statements and related disclosures. The Company believes that the estimates utilized in the preparation of the condensed consolidated financial statements are prudent and reasonable. Actual results could differ materially from these estimates. Intercompany balances and transactions have been eliminated.
The condensed consolidated financial statements should be read in conjunction with the Companys consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K). The condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The results of operations for interim periods are not necessarily indicative of results for the entire year.
Consolidation. The condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and other entities in which the Company has a controlling financial interest, including certain variable interest entities (VIE) (see Note 7). For consolidated subsidiaries that are less than wholly owned, the third-party holdings of equity interests are referred to as noncontrolling interests. The portion of net income attributable to noncontrolling interests for such subsidiaries is presented as either Net income (loss) applicable to redeemable noncontrolling interests or Net income (loss) applicable to nonredeemable noncontrolling interests in the condensed consolidated statements of income. The portion of shareholders equity of such subsidiaries that is redeemable would be presented as Redeemable noncontrolling interests outside of the equity section in the condensed consolidated statements of financial condition. The portion of shareholders equity of such subsidiaries that is nonredeemable is presented as Nonredeemable noncontrolling interests, a component of total equity, in the condensed consolidated statements of financial condition.
For entities where (1) the total equity investment at risk is sufficient to enable the entity to finance its activities without additional subordinated financial support and (2) the equity holders bear the economic residual risks and returns of the entity and have the power to direct the activities of the entity that most significantly affect its economic performance, the Company consolidates those entities it controls either through a majority voting interest or otherwise. For VIEs (i.e., entities that do not meet these criteria), the Company consolidates those entities where the Company has the power to make the decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, except for certain VIEs that are money market funds, are investment companies or are entities qualifying for accounting purposes as investment companies. Generally, the Company consolidates those entities when it absorbs a majority of the expected losses or a majority of the expected residual returns, or both, of the entities.
For investments in entities in which the Company does not have a controlling financial interest but has significant influence over operating and financial decisions, the Company generally applies the equity method of accounting with net gains and losses recorded within Other revenues. Where the Company has elected to measure certain eligible investments at fair value in accordance with the fair value option, net gains and losses are recorded within Investments revenues (see Note 4).
8 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Equity and partnership interests held by entities qualifying for accounting purposes as investment companies are carried at fair value.
The Companys significant regulated U.S. and international subsidiaries include Morgan Stanley & Co. LLC (MS&Co.), Morgan Stanley Smith Barney LLC (MSSB LLC), Morgan Stanley & Co. International plc (MSIP), Morgan Stanley MUFG Securities Co., Ltd. (MSMS), Morgan Stanley Bank, N.A. (MSBNA) and Morgan Stanley Private Bank, National Association (MSPBNA).
Income Statement Presentation. The Company, 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. In connection with the delivery of the various products and services to clients, the Company manages its revenues and related expenses in the aggregate. As such, when assessing the performance of its businesses, primarily in its Institutional Securities business segment, the Company considers its trading, investment banking, commissions and fees, and interest income, along with the associated interest expense, as one integrated activity.
2. | Significant Accounting Policies. |
For a detailed discussion about the Companys significant accounting policies, see Note 2 to the consolidated financial statements in the 2013 Form 10-K.
During the quarter and nine months ended September 30, 2014, other than the following, no updates were made to the Companys significant accounting policies.
Condensed Consolidated Statements of Cash Flows.
For purposes of the condensed consolidated statements of cash flows, cash and cash equivalents consist of Cash and due from banks and Interest bearing deposits with banks, which are highly liquid investments with original maturities of three months or less, held for investment purposes, and readily convertible to known amounts of cash.
On April 1, 2014, the Company deconsolidated approximately $1.6 billion in total assets that were related to certain legal entities associated with a real estate fund sponsored by the Company. The deconsolidation resulted in a non-cash reduction of assets of $1.3 billion. The Company had no significant non-cash activities in the nine months ended September 30, 2013.
Goodwill.
The Company completed its annual goodwill impairment testing at July 1, 2014. The Companys impairment testing did not indicate any goodwill impairment, as each of the Companys reporting units with goodwill had a fair value that was substantially in excess of its carrying value. Adverse market or economic events could result in impairment charges in future periods.
Accounting Standards Adopted.
Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. In February 2013, the Financial Accounting Standards Board (the FASB) issued an accounting update that requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay and any additional amount the reporting entity expects to
9 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
pay on behalf of its co-obligors. This update also requires additional disclosures about those obligations. This guidance became effective for the Company retrospectively beginning on January 1, 2014. The adoption of this accounting guidance did not have a material impact on the Companys condensed consolidated financial statements.
Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. In March 2013, the FASB issued an accounting update requiring the parent entity to release any related cumulative translation adjustment into net income when the parent ceases to have a controlling financial interest in a subsidiary that is a foreign entity. When the parent ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, the related cumulative translation adjustment would be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. This guidance became effective for the Company prospectively beginning on January 1, 2014. The adoption of this accounting guidance did not have a material impact on the Companys condensed consolidated financial statements.
Amendments to the Scope, Measurement, and Disclosure Requirements of an Investment Company. In June 2013, the FASB issued an accounting update that modifies the criteria used in defining an investment company under U.S. GAAP and sets forth certain measurement and disclosure requirements. This update requires an investment company to measure noncontrolling interests in another investment company at fair value and requires an entity to disclose the fact that it is an investment company, and provide information about changes, if any, in its status as an investment company. An entity will also need to include disclosures around financial support that has been provided or is contractually required to be provided to any of its investees. This guidance became effective for the Company prospectively beginning January 1, 2014. The adoption of this accounting guidance did not have a material impact on the Companys condensed consolidated financial statements.
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. In July 2013, the FASB issued an accounting update providing guidance on the financial statement presentation of an unrecognized tax benefit when a deferred tax asset from a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. This guidance requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to such deferred tax asset if a settlement in such manner is expected in the event the uncertain tax position is disallowed. This guidance became effective for the Company beginning January 1, 2014. This guidance was applied prospectively to unrecognized tax benefits that existed at the effective date. The adoption of this accounting guidance did not have a material impact on the Companys condensed consolidated financial statements.
Accounting for Investments in Qualified Affordable Housing Projects. In January 2014, the FASB issued an accounting update providing guidance on accounting for investments in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The Company adopted this guidance on April 1, 2014, as early adoption is permitted. The adoption of this guidance did not have a material impact on the Companys condensed consolidated financial statements. For further information on the adoption of this guidance, see Note 17.
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. In April 2014, the FASB issued an accounting update that changes the requirements and disclosure for reporting discontinued operations. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entitys operations and financial results. Individually significant components that have
10 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
been disposed of or are held for sale that do not meet the definition of a discontinued operation require new disclosures. The Company adopted this guidance on April 1, 2014, as early adoption is permitted. The adoption of this guidance did not have a material impact on the Companys condensed consolidated financial statements.
3. | Wealth Management JV. |
In 2009, the Company and Citigroup Inc. (Citi) consummated the combination of each institutions respective wealth management business. The combined businesses operated as the Wealth Management JV. Prior to September 2012, the Company owned 51% and Citi owned 49% of the Wealth Management JV. In September 2012, the Company purchased an additional 14% stake in the Wealth Management JV from Citi for $1.89 billion, increasing the Companys interest from 51% to 65%. In June 2013, the Company purchased the remaining 35% stake in the Wealth Management JV for $4.725 billion, increasing the Companys interest from 65% to 100%.
For the quarters ended September 30, 2014 and 2013 and the nine months ended September 30, 2014, no results were attributed to Citi since the Company owned 100% of the Wealth Management JV. For the nine months ended September 30, 2013, Citis 35% interest was reported on the balance sheet as redeemable noncontrolling interest and the results related to its 35% interest were reported in net income (loss) applicable to redeemable noncontrolling interests in the condensed consolidated statement of income.
Concurrent with the acquisition of the remaining 35% stake in the Wealth Management JV, the deposit sweep agreement between Citi and the Company was terminated. During the quarter and nine months ended September 30, 2014, $5 billion and $14 billion, respectively, of deposits held by Citi relating to the Companys customer accounts were transferred to the Companys depository institutions. At September 30, 2014, approximately $13 billion of additional deposits are scheduled to be transferred to the Companys depository institutions on an agreed-upon basis through June 2015.
4. | Fair Value Disclosures. |
Fair Value Measurements.
For a description of the valuation techniques applied to the Companys major categories of assets and liabilities measured at fair value on a recurring basis, see Note 4 to the consolidated financial statements in the 2013 Form 10-K.
11 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following fair value hierarchy tables present information about the Companys assets and liabilities measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013.
Assets and Liabilities Measured at Fair Value on a Recurring Basis at September 30, 2014.
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Counterparty and Cash Collateral Netting |
Balance at September 30, 2014 |
||||||||||||||||
(dollars in millions) | ||||||||||||||||||||
Assets at Fair Value |
||||||||||||||||||||
Trading assets: |
||||||||||||||||||||
U.S. government and agency securities: |
||||||||||||||||||||
U.S. Treasury securities |
$ | 19,259 | $ | | $ | | $ | | $ | 19,259 | ||||||||||
U.S. agency securities |
976 | 13,788 | | | 14,764 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total U.S. government and agency securities |
20,235 | 13,788 | | | 34,023 | |||||||||||||||
Other sovereign government obligations |
22,746 | 7,982 | 13 | | 30,741 | |||||||||||||||
Corporate and other debt: |
||||||||||||||||||||
State and municipal securities |
| 1,656 | | | 1,656 | |||||||||||||||
Residential mortgage-backed securities |
| 1,486 | 81 | | 1,567 | |||||||||||||||
Commercial mortgage-backed securities |
| 1,428 | 57 | | 1,485 | |||||||||||||||
Asset-backed securities |
| 773 | 111 | | 884 | |||||||||||||||
Corporate bonds |
| 17,007 | 506 | | 17,513 | |||||||||||||||
Collateralized debt and loan obligations |
| 627 | 1,271 | | 1,898 | |||||||||||||||
Loans and lending commitments |
| 6,436 | 7,507 | | 13,943 | |||||||||||||||
Other debt |
| 1,420 | 155 | | 1,575 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total corporate and other debt |
| 30,833 | 9,688 | | 40,521 | |||||||||||||||
Corporate equities(1) |
102,539 | 1,011 | 241 | | 103,791 | |||||||||||||||
Derivative and other contracts: |
||||||||||||||||||||
Interest rate contracts |
665 | 438,182 | 2,685 | | 441,532 | |||||||||||||||
Credit contracts |
| 30,381 | 1,597 | | 31,978 | |||||||||||||||
Foreign exchange contracts |
71 | 70,609 | 265 | | 70,945 | |||||||||||||||
Equity contracts |
1,209 | 54,189 | 1,353 | | 56,751 | |||||||||||||||
Commodity contracts |
3,133 | 10,101 | 2,177 | | 15,411 | |||||||||||||||
Other |
| 251 | | | 251 | |||||||||||||||
Netting(2) |
(4,017 | ) | (511,875 | ) | (4,130 | ) | (61,831 | ) | (581,853 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivative and other contracts |
1,061 | 91,838 | 3,947 | (61,831 | ) | 35,015 | ||||||||||||||
Investments: |
||||||||||||||||||||
Private equity funds |
| | 2,493 | | 2,493 | |||||||||||||||
Real estate funds |
| 6 | 1,811 | | 1,817 | |||||||||||||||
Hedge funds |
| 351 | 364 | | 715 | |||||||||||||||
Principal investments |
66 | 5 | 913 | | 984 | |||||||||||||||
Other |
202 | 70 | 393 | | 665 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total investments |
268 | 432 | 5,974 | | 6,674 | |||||||||||||||
Physical commodities |
| 1,717 | | | 1,717 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading assets |
146,849 | 147,601 | 19,863 | (61,831 | ) | 252,482 | ||||||||||||||
Available for sale securities |
33,367 | 30,180 | | | 63,547 | |||||||||||||||
Securities received as collateral |
16,652 | 42 | | | 16,694 | |||||||||||||||
Federal funds sold and securities purchased under agreements to resell |
| 863 | | | 863 | |||||||||||||||
Intangible assets(3) |
| | 6 | | 6 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets measured at fair value |
$ | 196,868 | $ | 178,686 | $ | 19,869 | $ | (61,831 | ) | $ | 333,592 | |||||||||
|
|
|
|
|
|
|
|
|
|
12 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Counterparty and Cash Collateral Netting |
Balance at September 30, 2014 |
||||||||||||||||
(dollars in millions) | ||||||||||||||||||||
Liabilities at Fair Value |
||||||||||||||||||||
Commercial paper and other short-term borrowings |
$ | | $ | 1,473 | $ | | $ | | $ | 1,473 | ||||||||||
Trading liabilities: |
||||||||||||||||||||
U.S. government and agency securities: |
||||||||||||||||||||
U.S. Treasury securities |
16,718 | | | | 16,718 | |||||||||||||||
U.S. agency securities |
1,157 | 83 | | | 1,240 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total U.S. government and agency securities |
17,875 | 83 | | | 17,958 | |||||||||||||||
Other sovereign government obligations |
16,974 | 2,486 | 2 | | 19,462 | |||||||||||||||
Corporate and other debt: |
||||||||||||||||||||
State and municipal securities |
| 4 | | | 4 | |||||||||||||||
Corporate bonds |
| 6,057 | 48 | | 6,105 | |||||||||||||||
Collateralized debt and loan obligations |
| 1 | | | 1 | |||||||||||||||
Unfunded lending commitments |
| 3 | | | 3 | |||||||||||||||
Other debt |
| 251 | 35 | | 286 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total corporate and other debt |
| 6,316 | 83 | | 6,399 | |||||||||||||||
Corporate equities(1) |
34,487 | 1,531 | 3 | | 36,021 | |||||||||||||||
Derivative and other contracts: |
||||||||||||||||||||
Interest rate contracts |
492 | 417,021 | 2,672 | | 420,185 | |||||||||||||||
Credit contracts |
| 29,330 | 2,279 | | 31,609 | |||||||||||||||
Foreign exchange contracts |
2 | 70,012 | 111 | | 70,125 | |||||||||||||||
Equity contracts |
920 | 59,026 | 2,541 | | 62,487 | |||||||||||||||
Commodity contracts |
3,023 | 10,887 | 1,010 | | 14,920 | |||||||||||||||
Other |
| 43 | | | 43 | |||||||||||||||
Netting(2) |
(4,017 | ) | (511,875 | ) | (4,130 | ) | (40,291 | ) | (560,313 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivative and other contracts |
420 | 74,444 | 4,483 | (40,291 | ) | 39,056 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading liabilities |
69,756 | 84,860 | 4,571 | (40,291 | ) | 118,896 | ||||||||||||||
Obligation to return securities received as collateral |
22,880 | 64 | | | 22,944 | |||||||||||||||
Securities sold under agreements to repurchase |
| 456 | 153 | | 609 | |||||||||||||||
Other secured financings |
| 4,205 | 162 | | 4,367 | |||||||||||||||
Long-term borrowings |
| 31,238 | 1,921 | | 33,159 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities measured at fair value |
$ | 92,636 | $ | 122,296 | $ | 6,807 | $ | (40,291 | ) | $ | 181,448 | |||||||||
|
|
|
|
|
|
|
|
|
|
(1) | The Company holds or sells short for trading purposes equity securities issued by entities in diverse industries and of varying size. |
(2) | For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled Counterparty and Cash Collateral Netting. For contracts with the same counterparty, counterparty netting among positions classified within the same level is included within that level. For further information on derivative instruments and hedging activities, see Note 10. |
(3) | Amount represents mortgage servicing rights (MSR) accounted for at fair value. |
Transfers Between Level 1 and Level 2 During the Quarter and Nine Months Ended September 30, 2014.
For assets and liabilities that were transferred between Level 1 and Level 2 during the period, fair values are ascribed as if the assets or liabilities had been transferred as of the beginning of the period.
In the quarter and nine months ended September 30, 2014, there were no material transfers between Level 1 and Level 2.
13 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Assets and Liabilities Measured at Fair Value on a Recurring Basis at December 31, 2013.
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Counterparty and Cash Collateral Netting |
Balance at December 31, 2013 |
||||||||||||||||
(dollars in millions) | ||||||||||||||||||||
Assets at Fair Value |
||||||||||||||||||||
Trading assets: |
||||||||||||||||||||
U.S. government and agency securities: |
||||||||||||||||||||
U.S. Treasury securities |
$ | 32,083 | $ | | $ | | $ | | $ | 32,083 | ||||||||||
U.S. agency securities |
1,216 | 17,720 | | | 18,936 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total U.S. government and agency securities |
33,299 | 17,720 | | | 51,019 | |||||||||||||||
Other sovereign government obligations |
25,363 | 6,610 | 27 | | 32,000 | |||||||||||||||
Corporate and other debt: |
||||||||||||||||||||
State and municipal securities |
| 1,615 | | | 1,615 | |||||||||||||||
Residential mortgage-backed securities |
| 2,029 | 47 | | 2,076 | |||||||||||||||
Commercial mortgage-backed securities |
| 1,534 | 108 | | 1,642 | |||||||||||||||
Asset-backed securities |
| 878 | 103 | | 981 | |||||||||||||||
Corporate bonds |
| 16,592 | 522 | | 17,114 | |||||||||||||||
Collateralized debt and loan obligations |
| 802 | 1,468 | | 2,270 | |||||||||||||||
Loans and lending commitments |
| 7,483 | 5,129 | | 12,612 | |||||||||||||||
Other debt |
| 6,365 | 27 | | 6,392 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total corporate and other debt |
| 37,298 | 7,404 | | 44,702 | |||||||||||||||
Corporate equities(1) |
107,818 | 1,206 | 190 | | 109,214 | |||||||||||||||
Derivative and other contracts: |
||||||||||||||||||||
Interest rate contracts |
750 | 526,127 | 2,475 | | 529,352 | |||||||||||||||
Credit contracts |
| 42,258 | 2,088 | | 44,346 | |||||||||||||||
Foreign exchange contracts |
52 | 61,570 | 179 | | 61,801 | |||||||||||||||
Equity contracts |
1,215 | 51,656 | 1,234 | | 54,105 | |||||||||||||||
Commodity contracts |
2,396 | 8,595 | 2,380 | | 13,371 | |||||||||||||||
Other |
| 43 | | | 43 | |||||||||||||||
Netting(2) |
(3,836 | ) | (606,878 | ) | (4,931 | ) | (54,906 | ) | (670,551 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivative and other contracts |
577 | 83,371 | 3,425 | (54,906 | ) | 32,467 | ||||||||||||||
Investments: |
||||||||||||||||||||
Private equity funds |
| | 2,531 | | 2,531 | |||||||||||||||
Real estate funds |
| 6 | 1,637 | | 1,643 | |||||||||||||||
Hedge funds |
| 377 | 432 | | 809 | |||||||||||||||
Principal investments |
43 | 42 | 2,160 | | 2,245 | |||||||||||||||
Other |
202 | 45 | 538 | | 785 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total investments |
245 | 470 | 7,298 | | 8,013 | |||||||||||||||
Physical commodities |
| 3,329 | | | 3,329 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading assets |
167,302 | 150,004 | 18,344 | (54,906 | ) | 280,744 | ||||||||||||||
Available for sale securities |
24,412 | 29,018 | | | 53,430 | |||||||||||||||
Securities received as collateral |
20,497 | 11 | | | 20,508 | |||||||||||||||
Federal funds sold and securities purchased under agreements to resell |
| 866 | | | 866 | |||||||||||||||
Intangible assets(3) |
| | 8 | | 8 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets measured at fair value |
$ | 212,211 | $ | 179,899 | $ | 18,352 | $ | (54,906 | ) | $ | 355,556 | |||||||||
|
|
|
|
|
|
|
|
|
|
14 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Counterparty and Cash Collateral Netting |
Balance at December 31, 2013 |
||||||||||||||||
(dollars in millions) | ||||||||||||||||||||
Liabilities at Fair Value |
||||||||||||||||||||
Deposits |
$ | | $ | 185 | $ | | $ | | $ | 185 | ||||||||||
Commercial paper and other short-term borrowings |
| 1,346 | 1 | | 1,347 | |||||||||||||||
Trading liabilities: |
||||||||||||||||||||
U.S. government and agency securities: |
||||||||||||||||||||
U.S. Treasury securities |
15,963 | | | | 15,963 | |||||||||||||||
U.S. agency securities |
2,593 | 116 | | | 2,709 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total U.S. government and agency securities |
18,556 | 116 | | | 18,672 | |||||||||||||||
Other sovereign government obligations |
14,717 | 2,473 | | | 17,190 | |||||||||||||||
Corporate and other debt: |
||||||||||||||||||||
State and municipal securities |
| 15 | | | 15 | |||||||||||||||
Corporate bonds |
| 5,033 | 22 | | 5,055 | |||||||||||||||
Collateralized debt and loan obligations |
| 3 | | | 3 | |||||||||||||||
Unfunded lending commitments |
| 127 | 2 | | 129 | |||||||||||||||
Other debt |
| 1,144 | 48 | | 1,192 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total corporate and other debt |
| 6,322 | 72 | | 6,394 | |||||||||||||||
Corporate equities(1) |
27,983 | 513 | 8 | | 28,504 | |||||||||||||||
Derivative and other contracts: |
||||||||||||||||||||
Interest rate contracts |
675 | 504,292 | 2,362 | | 507,329 | |||||||||||||||
Credit contracts |
| 40,391 | 2,235 | | 42,626 | |||||||||||||||
Foreign exchange contracts |
23 | 61,925 | 111 | | 62,059 | |||||||||||||||
Equity contracts |
1,033 | 57,797 | 2,065 | | 60,895 | |||||||||||||||
Commodity contracts |
2,637 | 8,749 | 1,500 | | 12,886 | |||||||||||||||
Other |
| 72 | 4 | | 76 | |||||||||||||||
Netting(2) |
(3,836 | ) | (606,878 | ) | (4,931 | ) | (36,465 | ) | (652,110 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total derivative and other contracts |
532 | 66,348 | 3,346 | (36,465 | ) | 33,761 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total trading liabilities |
61,788 | 75,772 | 3,426 | (36,465 | ) | 104,521 | ||||||||||||||
Obligation to return securities received as collateral |
24,549 | 19 | | | 24,568 | |||||||||||||||
Securities sold under agreements to repurchase |
| 407 | 154 | | 561 | |||||||||||||||
Other secured financings |
| 4,928 | 278 | | 5,206 | |||||||||||||||
Long-term borrowings |
| 33,750 | 1,887 | | 35,637 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities measured at fair value |
$ | 86,337 | $ | 116,407 | $ | 5,746 | $ | (36,465 | ) | $ | 172,025 | |||||||||
|
|
|
|
|
|
|
|
|
|
(1) | The Company holds or sells short for trading purposes equity securities issued by entities in diverse industries and of varying size. |
(2) | For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled Counterparty and Cash Collateral Netting. For contracts with the same counterparty, counterparty netting among positions classified within the same level is included within that level. For further information on derivative instruments and hedging activities, see Note 10. |
(3) | Amount represents MSRs accounted for at fair value. |
Transfers Between Level 1 and Level 2 During the Quarter and Nine Months Ended September 30, 2013.
For assets and liabilities that were transferred between Level 1 and Level 2 during the period, fair values are ascribed as if the assets or liabilities had been transferred as of the beginning of the period.
In the quarter and nine months ended September 30, 2013, there were no material transfers between Level 1 and Level 2.
Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis.
The following tables present additional information about Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters and nine months ended September 30, 2014 and 2013, respectively. Level 3 instruments
15 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
may be hedged with instruments classified in Level 1 and Level 2. As a result, the realized and unrealized gains (losses) for assets and liabilities within the Level 3 category presented in the tables below do not reflect the related realized and unrealized gains (losses) on hedging instruments that have been classified by the Company within the Level 1 and/or Level 2 categories.
Additionally, both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains (losses) during the period for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value during the period that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
For assets and liabilities that were transferred into Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred into Level 3 at the beginning of the period; similarly, for assets and liabilities that were transferred out of Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred out at the beginning of the period.
16 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Quarter Ended September 30, 2014.
Beginning Balance at June 30, 2014 |
Total Realized and Unrealized Gains (Losses)(1) |
Purchases | Sales | Issuances | Settlements | Net Transfers |
Ending Balance at September 30, 2014 |
Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at September 30, 2014(2) |
||||||||||||||||||||||||||||
(dollars in millions) | ||||||||||||||||||||||||||||||||||||
Assets at Fair Value |
||||||||||||||||||||||||||||||||||||
Trading assets: |
||||||||||||||||||||||||||||||||||||
Other sovereign government obligations |
$ | 14 | $ | (1 | ) | $ | | $ | (1 | ) | $ | | $ | | $ | 1 | $ | 13 | $ | (1 | ) | |||||||||||||||
Corporate and other debt: |
||||||||||||||||||||||||||||||||||||
State and municipal securities |
4 | | | | | | (4 | ) | | | ||||||||||||||||||||||||||
Residential mortgage-backed securities |
55 | 11 | 33 | (7 | ) | | (11 | ) | | 81 | 11 | |||||||||||||||||||||||||
Commercial mortgage-backed securities |
47 | (1 | ) | 1 | (3 | ) | | | 13 | 57 | (2 | ) | ||||||||||||||||||||||||
Asset-backed securities |
65 | 5 | 27 | (8 | ) | | | 22 | 111 | 5 | ||||||||||||||||||||||||||
Corporate bonds |
510 | 36 | 99 | (148 | ) | | | 9 | 506 | 38 | ||||||||||||||||||||||||||
Collateralized debt and loan obligations |
1,332 | 8 | 299 | (362 | ) | | (6 | ) | | 1,271 | 6 | |||||||||||||||||||||||||
Loans and lending commitments |
5,829 | (20 | ) | 2,138 | (676 | ) | | (721 | ) | 957 | 7,507 | (24 | ) | |||||||||||||||||||||||
Other debt |
22 | | 135 | (3 | ) | | | 1 | 155 | | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total corporate and other debt |
7,864 | 39 | 2,732 | (1,207 | ) | | (738 | ) | 998 | 9,688 | 34 | |||||||||||||||||||||||||
Corporate equities |
243 | (2 | ) | 30 | (41 | ) | | | 11 | 241 | 7 | |||||||||||||||||||||||||
Net derivative and other contracts(3): |
||||||||||||||||||||||||||||||||||||
Interest rate contracts |
(109 | ) | (15 | ) | 7 | | (3 | ) | (17 | ) | 150 | 13 | (22 | ) | ||||||||||||||||||||||
Credit contracts |
(710 | ) | 209 | 7 | | (64 | ) | (108 | ) | (16 | ) | (682 | ) | 140 | ||||||||||||||||||||||
Foreign exchange contracts |
109 | (27 | ) | 6 | (3 | ) | | 70 | (1 | ) | 154 | (25 | ) | |||||||||||||||||||||||
Equity contracts |
(1,097 | ) | (6 | ) | 56 | | (59 | ) | (105 | ) | 23 | (1,188 | ) | (9 | ) | |||||||||||||||||||||
Commodity contracts |
1,132 | 73 | 36 | | | (62 | ) | (12 | ) | 1,167 | 12 | |||||||||||||||||||||||||
Other |
(3 | ) | (1 | ) | | | | 4 | | | | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total net derivative and other contracts |
(678 | ) | 233 | 112 | (3 | ) | (126 | ) | (218 | ) | 144 | (536 | ) | 96 | ||||||||||||||||||||||
Investments: |
||||||||||||||||||||||||||||||||||||
Private equity funds |
2,555 | 60 | 31 | (153 | ) | | | | 2,493 | 11 | ||||||||||||||||||||||||||
Real estate funds |
1,813 | 67 | 8 | (77 | ) | | | | 1,811 | 86 | ||||||||||||||||||||||||||
Hedge funds |
371 | (1 | ) | 1 | (23 | ) | | | 16 | 364 | (1 | ) | ||||||||||||||||||||||||
Principal investments |
883 | (1 | ) | 22 | (23 | ) | | | 32 | 913 | (1 | ) | ||||||||||||||||||||||||
Other |
380 | (3 | ) | 14 | | | | 2 | 393 | (3 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total investments |
6,002 | 122 | 76 | (276 | ) | | | 50 | 5,974 | 92 | ||||||||||||||||||||||||||
Intangible assets |
6 | | | | | | | 6 | | |||||||||||||||||||||||||||
Liabilities at Fair Value |
||||||||||||||||||||||||||||||||||||
Trading liabilities: |
||||||||||||||||||||||||||||||||||||
Other sovereign government obligations |
$ | | $ | | $ | | $ | | $ | | $ | | $ | 2 | $ | 2 | $ | | ||||||||||||||||||
Corporate and other debt: |
||||||||||||||||||||||||||||||||||||
Corporate bonds |
14 | 1 | (8 | ) | 46 | | | (3 | ) | 48 | 1 | |||||||||||||||||||||||||
Unfunded lending commitments |
12 | 12 | | | | | | | | |||||||||||||||||||||||||||
Other debt |
42 | 5 | | | | (2 | ) | | 35 | 5 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total corporate and other debt |
68 | 18 | (8 | ) | 46 | | (2 | ) | (3 | ) | 83 | 6 | ||||||||||||||||||||||||
Corporate equities |
6 | (5 | ) | (12 | ) | 2 | | | 2 | 3 | (4 | ) | ||||||||||||||||||||||||
Securities sold under agreements to repurchase |
155 | 2 | | | | | | 153 | 2 | |||||||||||||||||||||||||||
Other secured financings |
135 | | | | 4 | (3 | ) | 26 | 162 | | ||||||||||||||||||||||||||
Long-term borrowings |
1,779 | 72 | | | 136 | (108 | ) | 186 | 1,921 | 72 |
(1) | Total realized and unrealized gains (losses) are primarily included in Trading revenues in the condensed consolidated statements of income except for $122 million related to Trading assetsInvestments, which is included in Investments revenues. |
(2) | Amounts represent unrealized gains (losses) for the quarter ended September 30, 2014 related to assets and liabilities still outstanding at September 30, 2014. |
(3) | Net derivative and other contracts represent Trading assetsDerivative and other contracts net of Trading liabilitiesDerivative and other contracts. For further information on derivative instruments and hedging activities, see Note 10. |
17 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
In the quarter ended September 30, 2014, there were no material transfers into or out of Level 3.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2014.
Beginning Balance at December 31, 2013 |
Total Realized and Unrealized Gains (Losses)(1) |
Purchases | Sales | Issuances | Settlements | Net Transfers |
Ending Balance at September 30, 2014 |
Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at September 30, 2014(2) |
||||||||||||||||||||||||||||
(dollars in millions) | ||||||||||||||||||||||||||||||||||||
Assets at Fair Value |
||||||||||||||||||||||||||||||||||||
Trading assets: |
||||||||||||||||||||||||||||||||||||
Other sovereign government obligations |
$ | 27 | $ | (1 | ) | $ | 7 | $ | (21 | ) | $ | | $ | | $ | 1 | $ | 13 | $ | (1 | ) | |||||||||||||||
Corporate and other debt: |
||||||||||||||||||||||||||||||||||||
Residential mortgage-backed securities |
47 | 34 | 30 | (9 | ) | | (20 | ) | (1 | ) | 81 | 29 | ||||||||||||||||||||||||
Commercial mortgage-backed securities |
108 | 11 | 22 | (97 | ) | | | 13 | 57 | (3 | ) | |||||||||||||||||||||||||
Asset-backed securities |
103 | (3 | ) | 58 | (93 | ) | | | 46 | 111 | (3 | ) | ||||||||||||||||||||||||
Corporate bonds |
522 | 107 | 185 | (302 | ) | | | (6 | ) | 506 | 84 | |||||||||||||||||||||||||
Collateralized debt and loan obligations |
1,468 | 137 | 716 | (940 | ) | | (109 | ) | (1 | ) | 1,271 | 45 | ||||||||||||||||||||||||
Loans and lending commitments |
5,129 | (202 | ) | 3,962 | (327 | ) | | (1,299 | ) | 244 | 7,507 | (181 | ) | |||||||||||||||||||||||
Other debt |
27 | 4 | 128 | (6 | ) | | (2 | ) | 4 | 155 | 3 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total corporate and other debt |
7,404 | 88 | 5,101 | (1,774 | ) | | (1,430 | ) | 299 | 9,688 | (26 | ) | ||||||||||||||||||||||||
Corporate equities |
190 | 17 | 83 | (47 | ) | | | (2 | ) | 241 | 10 | |||||||||||||||||||||||||
Net derivative and other contracts(3): |
||||||||||||||||||||||||||||||||||||
Interest rate contracts |
113 | (4 | ) | 8 | | (3 | ) | (61 | ) | (40 | ) | 13 | 4 | |||||||||||||||||||||||
Credit contracts |
(147 | ) | (434 | ) | 52 | | (118 | ) | 10 | (45 | ) | (682 | ) | (475 | ) | |||||||||||||||||||||
Foreign exchange contracts |
68 | (6 | ) | 6 | (1 | ) | | 106 | (19 | ) | 154 | (2 | ) | |||||||||||||||||||||||
Equity contracts |
(831 | ) | (19 | ) | 223 | (1 | ) | (273 | ) | (370 | ) | 83 | (1,188 | ) | (66 | ) | ||||||||||||||||||||
Commodity contracts |
880 | 177 | 200 | | | (90 | ) | | 1,167 | 99 | ||||||||||||||||||||||||||
Other |
(4 | ) | (1 | ) | | | | 5 | | | | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total net derivative and other contracts |
79 | (287 | ) | 489 | (2 | ) | (394 | ) | (400 | ) | (21 | ) | (536 | ) | (440 | ) | ||||||||||||||||||||
Investments: |
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Private equity funds |
2,531 | 357 | 141 | (537 | ) | | | 1 | 2,493 | 130 | ||||||||||||||||||||||||||
Real estate funds |
1,637 | 212 | 142 | (180 | ) | | | | 1,811 | 263 | ||||||||||||||||||||||||||
Hedge funds |
432 | 17 | 36 | (44 | ) | | | (77 | ) | 364 | 17 | |||||||||||||||||||||||||
Principal investments |
2,160 | 49 | 36 | (124 | ) | | (1,234 | ) | 26 | 913 | 129 | |||||||||||||||||||||||||
Other |
538 | (13 | ) | 17 | (11 | ) | | | (138 | ) | 393 | (6 | ) | |||||||||||||||||||||||
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Total investments |
7,298 | 622 | 372 | (896 | ) | | (1,234 | ) | (188 | ) | 5,974 | 533 | ||||||||||||||||||||||||
Intangible assets |
8 | | | | | (2 | ) | | 6 | (1 | ) |
18 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Beginning Balance at December 31, 2013 |
Total Realized and Unrealized Gains (Losses)(1) |
Purchases | Sales | Issuances | Settlements | Net Transfers |
Ending Balance at September 30, 2014 |
Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at September 30, 2014(2) |
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(dollars in millions) | ||||||||||||||||||||||||||||||||||||
Liabilities at Fair Value |
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Commercial paper and other short-term borrowings |
$ | 1 | $ | | $ | | $ | | $ | | $ | (1 | ) | $ | | $ | | $ | | |||||||||||||||||
Trading liabilities: |
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Other sovereign government obligations |
| | | | | | 2 | 2 | | |||||||||||||||||||||||||||
Corporate and other debt: |
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Corporate bonds |
22 | 2 | (46 | ) | 85 | | | (11 | ) | 48 | 3 | |||||||||||||||||||||||||
Unfunded lending commitments |
2 | 2 | | | | | | | | |||||||||||||||||||||||||||
Other debt |
48 | 15 | | | | 1 | 1 | 35 | 5 | |||||||||||||||||||||||||||
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Total corporate and other debt |
72 | 19 | (46 | ) | 85 | | 1 | (10 | ) | 83 | 8 | |||||||||||||||||||||||||
Corporate equities |
8 | (6 | ) | (16 | ) | 2 | | | 3 | 3 | (6 | ) | ||||||||||||||||||||||||
Securities sold under agreements to repurchase |
154 | 1 | | | | | | 153 | 1 | |||||||||||||||||||||||||||
Other secured financings |
278 | (9 | ) | | | 21 | (188 | ) | 42 | 162 | (6 | ) | ||||||||||||||||||||||||
Long-term borrowings |
1,887 | 17 | | | 372 | (289 | ) | (32 | ) | 1,921 | 15 |
(1) | Total realized and unrealized gains (losses) are primarily included in Trading revenues in the condensed consolidated statements of income except for $622 million related to Trading assetsInvestments, which is included in Investments revenues. |
(2) | Amounts represent unrealized gains (losses) for the nine months ended September 30, 2014 related to assets and liabilities still outstanding at September 30, 2014. |
(3) | Net derivative and other contracts represent Trading assetsDerivative and other contracts net of Trading liabilitiesDerivative and other contracts. For further information on derivative instruments and hedging activities, see Note 10. |
In the nine months ended September 30, 2014, there were no material transfers into or out of Level 3.
19 |
MORGAN STANLEY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Quarter Ended September 30, 2013.
Beginning Balance at June 30, 2013 |
Total Realized and Unrealized Gains (Losses)(1) |
Purchases | Sales | Issuances | Settlements | Net Transfers |
Ending Balance at September 30, 2013 |
Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at September 30, 2013(2) |
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(dollars in millions) | ||||||||||||||||||||||||||||||||||||
Assets at Fair Value |
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Trading assets: |
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Other sovereign government obligations |
$ | 4 | $ | | $ | 2 | $ | (4 | ) | $ | | $ | | $ | | $ | 2 | $ | | |||||||||||||||||
Corporate and other debt: |
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Residential mortgage-backed securities |
19 | (2 | ) | 72 | (3 | ) | | | 4 | 90 | (3 | ) | ||||||||||||||||||||||||
Commercial mortgage-backed securities |
181 | (2 | ) | 39 | (61 | ) | | | (7 | ) | 150 | 5 | ||||||||||||||||||||||||
Asset-backed securities |
108 | | 13 | (23 | ) | | | 1 | 99 | | ||||||||||||||||||||||||||
Corporate bonds |
509 | 43 | 76 | (79 | ) | | | (12 | ) | 537 | 36 | |||||||||||||||||||||||||
Collateralized debt obligations |
1,333 | 60 | 269 | (206 | ) | | (55 | ) | (21 | ) | 1,380 | 28 | ||||||||||||||||||||||||
Loans and lending commitments |
5,243 | (72 | ) | 530 | (112 | ) | | (1,279 | ) | (212 | ) | 4,098 | (111 | ) | ||||||||||||||||||||||
Other debt |
12 | | 14 | (5 | ) | | | | 21 | | ||||||||||||||||||||||||||
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Total corporate and other debt |
7,405 | 27 | 1,013 | (489 | ) | | (1,334 | ) | (247 | ) | 6,375 | (45 | ) | |||||||||||||||||||||||
Corporate equities |
256 | (25 | ) | 38 | (20 | ) | | | (6 | ) | 243 | (3 | ) | |||||||||||||||||||||||
Net derivative and other contracts(3): |
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Interest rate contracts |
16 | 262 | 4 | | (72 | ) | 11 | 89 | 310 | 111 | ||||||||||||||||||||||||||
Cre |