0000895421srt:MinimumMemberms:CommodityAndOtherContractsMemberus-gaap:FairValueMeasurementsRecurringMemberms:MeasurementInputCommodityVolatilityMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ValuationTechniqueOptionPricingModelMember2020-12-310000895421us-gaap:IntersegmentEliminationMember2021-01-012021-06-30


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 2017

OR

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

EXCHANGE ACT OF 1934

2021

Commission File Number1-11758

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(Exact Namename of Registrant as specified in its charter)

Delaware

1585 Broadway36-3145972(212)761-4000
(State or other jurisdiction of

incorporation or organization)

1585 Broadway

New York,

NY10036

(I.R.S. Employer Identification No.)(Registrant’s telephone number, including area code)
(Address of principal executive offices, including zip code)

36-3145972

(I.R.S. Employer Identification No.)

(212)761-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of exchange on
which registered
Common Stock, $0.01 par valueMSNew York Stock Exchange
Depositary Shares, each representing 1/1,000th interest in a share of Floating RateMS/PANew York Stock Exchange
Non-Cumulative Preferred Stock, Series A, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating RateMS/PENew York Stock Exchange
Non-Cumulative Preferred Stock, Series E, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating RateMS/PFNew York Stock Exchange
Non-Cumulative Preferred Stock, Series F, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating RateMS/PINew York Stock Exchange
Non-Cumulative Preferred Stock, Series I, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating RateMS/PKNew York Stock Exchange
Non-Cumulative Preferred Stock, Series K, $0.01 par value
Depository Shares, each representing 1/1000th interest in a share of 4.875%MS/PLNew York Stock Exchange
Non-Cumulative Preferred Stock, Series L, $0.01 par value
Global Medium-Term Notes, Series A, Fixed Rate Step-Up Senior Notes Due 2026MS/26CNew York Stock Exchange
of Morgan Stanley Finance LLC (and Registrant’s guarantee with respect thereto)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒     No  ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒Accelerated Filer  ☒

filer		☐

Accelerated Filer  ☐

Non-Accelerated Filer  ☐

Non-accelerated filer		☐

Smaller reporting company  ☐

(Do not check if a smaller reporting company)

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No ☒

As of October 31, 2017,July 30, 2021, there were 1,807,899,1611,824,561,070 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.


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QUARTERLY REPORT ON FORM10-Q

For the quarter ended SeptemberJune 30, 2017

Table of Contents Part Item  Page 

Financial Information

 I     1 

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

   2   1 

Introduction

       1 

Executive Summary

       2 

Business Segments

       7 

Supplemental Financial Information and Disclosures

       18 

Accounting Development Updates

       18 

Critical Accounting Policies

       19 

Liquidity and Capital Resources

       19 

Quantitative and Qualitative Disclosures about Market Risk

   3   32 

Controls and Procedures

   4   42 

Report of Independent Registered Public Accounting Firm

       43 

Financial Statements

   1   44 

Consolidated Financial Statements and Notes

       44 

Consolidated Income Statements (Unaudited)

       44 

Consolidated Comprehensive Income Statements (Unaudited)

       45 

Consolidated Balance Sheets (Unaudited at September 30, 2017)

       46 

Consolidated Statements of Changes in Total Equity (Unaudited)

       47 

Consolidated Cash Flow Statements (Unaudited)

       48 

Notes to Consolidated Financial Statements (Unaudited)

       49 

  1. Introduction and Basis of Presentation

       49 

  2. Significant Accounting Policies

       50 

  3. Fair Values

       51 

  4. Derivative Instruments and Hedging Activities

       63 

  5. Investment Securities

       67 

  6. Collateralized Transactions

       70 

  7. Loans and Allowance for Credit Losses

       72 

  8. Equity Method Investments

       75 

  9. Deposits

       75 

10. Long-Term Borrowings and Other Secured Financings

       75 

11. Commitments, Guarantees and Contingencies

       76 

12. Variable Interest Entities and Securitization Activities

       80 

13. Regulatory Requirements

       83 

14. Total Equity

       86 

15. Earnings per Common Share

       88 

16. Interest Income and Interest Expense

       88 

17. Employee Benefit Plans

       89 

18. Income Taxes

       89 

19. Segment and Geographic Information

       89 

20. Subsequent Events

       91 

Financial Data Supplement (Unaudited)

       92 

Other Information

 II     95 

Legal Proceedings

   1   95 

Unregistered Sales of Equity Securities and Use of Proceeds

   2   96 

Exhibits

   6   96 

Exhibit Index

       E-1 

 

Signatures

      

 

 

 

S-1

 

 

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2021

Table of ContentsPartItemPage
I 
1
Management’s Discussion and Analysis of Financial Condition and Results of Operations
I2 
1
Introduction
  
1
Executive Summary
  
2
Business Segments
  
7
Institutional Securities
8
Wealth Management
11
Investment Management
14
Supplemental Financial Information
  
16
Accounting Development Updates
  
16
Critical Accounting Policies
  
16
Liquidity and Capital Resources
  
16
Balance Sheet
  
16
Regulatory Requirements
  
20
I3 
26
Market Risk
  
26
Credit Risk
  
28
Country and Other Risks
  
33
  
35
I1 
36
Consolidated Income Statements (Unaudited)
  
36
Consolidated Comprehensive Income Statements (Unaudited)
  
36
Consolidated Balance Sheets (Unaudited at June 30, 2021)
  
37
Consolidated Statements of Changes in Total Equity (Unaudited)
  
38
Consolidated Cash Flow Statements (Unaudited)
  
39
Notes to Consolidated Financial Statements (Unaudited)
  
40
1.
Introduction and Basis of Presentation
  
40
2.
Significant Accounting Policies
  
41
3.
Acquisitions
41
4.
Cash and Cash Equivalents
42
5.
Fair Values
  
42
6.
Fair Value Option
48
7.
Derivative Instruments and Hedging Activities
  
49
8.
Investment Securities
  
52
9.
Collateralized Transactions
  
54
10.
Loans, Lending Commitments and Related Allowance for Credit Losses
  
56
11.
Other Assets—Equity Method Investments
  
58
12.
Deposits
  
58
13.
Borrowings and Other Secured Financings
  
58
14.
Commitments, Guarantees and Contingencies
  
59
15.
Variable Interest Entities and Securitization Activities
  
61
16.
Regulatory Requirements
  
63
17.
Total Equity
  
65
18.
Interest Income and Interest Expense
  
67
19.
Income Taxes
  
67
20.
Segment, Geographic and Revenue Information
  
68
  
71
  
72
II 
73
II1 
73
II1A
73
II2 
73
I4 
73
II6 
73
  
74

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Available Information

We file 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 SEC’s public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at1-800-SEC-0330 for information on the public reference room.SEC. The SEC maintains an internet site,a website, www.sec.gov, that contains annual, quarterly and current reports, proxy and information statements and other information that issuers file electronically with the SEC. Our electronic SEC filings are available to the public at the SEC’s internet site.

website.

Our internet sitewebsite iswww.morganstanley.com. You can access our Investor Relations webpage atwww.morganstanley.com/about-us-ir. We make available free of charge, on or through our Investor Relations webpage, our Proxy Statements, Annual Reportsproxy statements, annual reports on Form10-K, Quarterly Reports quarterly reports onForm 10-Q, Current Reports current reports on Form8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange(“Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We also make available, through our Investor Relations webpage, via a link to the SEC’s internet site,website, statements of beneficial ownership of our equity securities filed by our directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.


You can access information about our corporate governance atwww.morganstanley.com/about-us-governance.about-us-governance, our sustainability initiatives at www.morganstanley.com/about-us/sustainability-at-morgan-stanley and our commitment to diversity and inclusion at www.morganstanley.com/about-us/diversity. Our Corporate Governance webpage includes:

webpages include:

•Amended and Restated Certificate of Incorporation;

•Amended and Restated Bylaws;

•Charters for our Audit Committee, Compensation, Management Development and Succession Committee, Nominating and Governance Committee, Operations and Technology Committee, and Risk Committee;

•Corporate Governance Policies;

•Policy Regarding Corporate Political Activities;

•Policy Regarding Shareholder Rights Plan;

•Equity Ownership Commitment;

•Code of Ethics and Business Conduct;

•Code of Conduct;

•Integrity Hotline Information; and

•Environmental and Social Policies.

Policies;

•Sustainability Report;
•Task Force on Climate-related Financial Disclosures Report; and
•Diversity and Inclusion Report.
Our Code of Ethics and Business Conduct applies to all directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer and Deputy Chief Financial Officer. We will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC (“NYSE”) on our internet site.website. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, 1585 Broadway, New York, NY 10036(212-761-4000). The information on our internet sitewebsite is not incorporated by reference into this report.

ii

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Financial Information

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

Introduction

Morgan Stanley a financial holding company, is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms “Morgan Stanley,” “Firm,” “us,” “we,”“we” or “our” mean Morgan Stanley (the “Parent Company”) together with its consolidated subsidiaries.

Disclosures reflect the effects of the acquisitions of E*TRADE Financial Corporation (“E*TRADE”) and Eaton Vance Corp. (“Eaton Vance”) prospectively from the acquisition dates, October 2, 2020 and March 1, 2021, respectively. See the “Glossary of Common Terms and Acronyms” for the definition of certain terms and acronyms used throughout this Form 10-Q.

A description of the clients and principal products and services of each of our business segments is as follows:

Institutional Securities provides investment banking, salesa variety of products and trading, lending and other services to corporations, governments, financial institutions and high to ultra-high net worth clients. Investment banking services consist of capital raising and financial advisory services, including services relating to the underwriting of debt, equity and other securities, as well as advice on mergers and acquisitions, restructurings real estate and project finance. SalesOur Equity and trading servicesFixed Income businesses include sales, financing, and market-making activities in equity and fixed income products, including prime brokerage, market-making, Asia wealth management services global macro, credit and commodities products.certain business-related investments. Lending servicesactivities include originating and/or purchasing corporate loans and commercial real estate loans, providing secured lending facilities, and residential mortgage lending, asset-backed lending,extending securities-based and other financing extended to equities and commodities customers and municipalities.customers. Other servicesactivities include investment and research activities.

research.

Wealth Management provides a comprehensive array of financial services and solutions to individual investors and

small tomedium-sized businesses/ businesses and institutions coveringcovering: financial advisor-led brokerage and investment advisory services,services; self-directed brokerage services; financial and wealth planning services; workplace services including stock plan administration; annuity and insurance products, creditproducts; securities-based lending, residential real estate loans and other lending products, bankingproducts; banking; and retirement plan services.

Investment Managementprovides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products, which are offered through a variety of investment vehicles, include equity, fixed income, alternatives and solutions, and liquidity and alternative/other products.overlay services. Institutional clients include defined benefit/defined contribution plans, foundations, endowments, government entities, sovereign wealth funds, insurance companies, third-party fund sponsors and corporations. Individual clients are servicedgenerally served through intermediaries, including affiliated andnon-affiliated distributors.

Management’s Discussion and Analysis includes certain metrics that we believe to be useful to us, investors, analysts and other stakeholders by providing further transparency about, or an additional means of assessing, our financial condition and operating results. Such metrics, when used, are defined and may be different from or inconsistent with metrics used by other companies.
The results of operations in the past have been, and in the future may continue to be, materially affected byby: competition; risk factors; and legislative, legal and regulatory developments; as well asand other factors. These factors also may have an adverse impact on our ability to achieve our strategic objectives. Additionally, the discussion of our results of operations herein may contain forward-looking statements. These statements, which reflect management’s beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect our future results, see “Forward-Looking Statements” immediately preceding Part I, Item 1,Statements,” “Business—Competition” andCompetition,” “Business—Supervision and Regulation” in Part I, Item 1,Regulation,” and “Risk Factors” in Part I, Item 1A of our Annual Report onthe 2020 Form10-K, for the year ended December 31, 2016 (the “2016 Form10-K”) and “Liquidity and Capital Resources—Regulatory Requirements” herein.

June 2021 Form 10-Q1September 2017 Form 10-Q

Management’s Discussion and AnalysisLOGO
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Executive Summary

Overview of Financial Results

Consolidated Results—Three Months Ended June 30, 2021

•Firm Net revenues were up 8% and Net income applicable to Morgan Stanley was up 10%, with strong contributions from each of our three business segments, and resulting in an annualized ROTCE of 18.6%, or 19.0% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein).
•The Firm expense efficiency ratio was 69%, or 68% excluding the impact of integration-related expenses (see “Selected Non-GAAP Financial Information” herein).
•At June 30, 2021, our standardized Common Equity Tier 1 capital ratio was 16.6%.
•The Firm doubled its quarterly common stock dividend to $0.70 per share and increased its share repurchase authorization of outstanding common stock up to $12 billion over the next 12 months.
•Institutional Securities Net revenues of $7.1 billion reflect strong results as clients remained active across Investment banking and Equity.
•Wealth Management delivered a pre-tax margin of 26.8%, or 27.8% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein). Results

reflect higher asset management fees, growth in bank lending, as well as net new assets of $71 billion and fee-based flows of $34 billion.

•Investment Management results reflect strong asset management fees on AUM of $1.5 trillion, which includes $13.5 billion of positive long-term net flows across all asset classes.
Net Revenues

1

($ in millions)

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1.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.
Net Income Applicable to Morgan Stanley

($ in millions)

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Earnings per Diluted Common Share1

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1.

For the calculation of basic and diluted earnings per common share, see Note 15 to the financial statements.

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1.Adjusted Diluted EPS for the current quarter and the current year period were $1.89 and $4.11, respectively (see “Selected Non-GAAP Financial Information” herein).

We reported net revenues of $9,197 million$14.8 billion in the three monthsquarter ended SeptemberJune 30, 20172021 (“current quarter,” or “3Q 2017”“2Q 2021”), compared with $8,909 million$13.7 billion in the three monthsquarter ended SeptemberJune 30, 20162020 (“prior year quarter,” or “3Q 2016”“2Q 2020”). For the current quarter, net income applicable to Morgan Stanley was $1,781 million,$3.5 billion, or $0.93$1.85 per diluted common share, compared with $1,597 million,$3.2 billion or $0.81$1.96 per diluted common share, in the prior year quarter.

We reported net revenues of $28,445 million$30.5 billion in the ninesix months ended SeptemberJune 30, 20172021 (“current year period,” or “YTD 2017”2021”), compared with $25,610 million$23.4 billion in the nine monthsperiod ended SeptemberJune 30, 20162020 (“prior year period,” or “YTD 2016”2020”). For the current year period, net income applicable to Morgan Stanley was $5,468 million,$7.6 billion, or $2.79$4.04 per diluted common share, compared with $4,313 million,$4.9 billion or $2.11$2.96 per diluted common share, in the prior year period.

2June 2021 Form 10-Q
Management’s Discussion and Analysis
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Non-interest Expenses

1, 2

($ in millions)

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1.The percentages on the bars in the chart represent the contribution of compensation and benefits expenses and non-compensation expenses to the total.
2.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.
•Compensation and benefits expenses of $4,169$6,423 million in the current quarter and $12,887 million in the current year period increased 2% and 9%, respectively,6% from $4,097 million in the prior year quarter, and $11,795 million in the prior year period. The current quarter results primarily reflectedas a result of increases in the formulaic payout to Wealth Management representatives linked todriven by higher compensable revenues and deferredincremental compensation associated with carried interest inas a result of the Investment Management business segment,E*TRADE and Eaton Vance acquisitions, partially offset by a decrease in discretionary incentive compensation mainly driven by lower net revenues in the Institutional Securities business segment. The
Compensation and benefits expenses of $13,221 million in the current year period resultsincreased 28% from the prior year period, primarily reflected increasesas a result of an increase in the fair valueformulaic payout to Wealth Management representatives driven by higher compensable revenues, incremental compensation as a result of investmentsthe E*TRADE and Eaton Vance acquisitions, higher discretionary incentive compensation driven by revenues, and higher expenses related to which certain deferred compensation plans are referenced, discretionary incentive compensation mainlylinked to investment performance and the Firm’s share price.
•Non-compensation expenses of $3,697 million in the current quarter increased 22% from the prior year quarter,
primarily due to incremental expenses as a result of the E*TRADE and Eaton Vance acquisitions, as well as higher professional services expenses and higher investments in technology.
Non-compensation expenses of $7,372 million in the current year period increased 23% from the prior year period, primarily driven by incremental expenses as a result of the E*TRADE and Eaton Vance acquisitions, higher revenues,volume-related expenses, higher investments in technology, as well as higher professional services expenses.
Provision for Credit Losses
The Provision for credit losses on loans and lending commitments in the formulaic payoutcurrent quarter was $73 million, primarily driven by one secured lending facility. The Provision for credit losses on loans and lending commitments of $239 million in the prior year quarter was primarily driven by deterioration in the expected macroeconomic environment at that time.
The Provision for credit losses on loans and lending commitments in the current year period was a net release of $25 million, primarily as a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on corporate loans, including by lower-rated borrowers, partially offset by the provision for one secured lending facility in the current quarter. The Provision for credit losses on loans and lending commitments of $646 million in the prior year period was primarily driven by deterioration in the expected macroeconomic environment at that time.
For further information on the Provision for credit losses, see “Credit Risk” herein.
Income Taxes
The Firm’s effective tax rate of 23.1% is lower in the current quarter compared with the prior year quarter primarily due to

the remeasurement of reserves and interest related to a foreign tax matter in the prior year quarter.

September 2017June 2021 Form 10-Q23

Management’s Discussion and AnalysisLOGO
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Wealth Management representatives linked to higher revenues, and deferred compensation associated with carried interest.

Non-compensation expenses were $2,546

Business Segment Results
Net Revenues by Segment1, 2
($ in millions)
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Net Income Applicable to Morgan Stanley by Segment1
($ in millions)


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1.The percentages on the bars in the charts represent the contribution of each business segment to the total of the applicable financial category and may not sum to 100% due to intersegment eliminations. See Note 20 to the financial statements for details of intersegment eliminations.
2.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.
•Institutional Securities net revenues of $7,092 million in the current quarter and $7,626decreased 14% from the prior year quarter, primarily reflecting lower Fixed income revenues as markets normalized compared to the prior year quarter. Net revenues of $15,669 million in the current year period compared with $2,431increased 17% from the prior year period, primarily reflecting higher underwriting and Equity business revenues.
•Wealth Management net revenues of $6,095 million in the current quarter increased 30% from the prior year quarter and $7,213net revenues of $12,054 million in the prior year period, representing a 5% and a 6% increase, respectively. These increases were primarily as a result of higher volume-driven expenses. In addition,non-compensation expenses increased in the current year period increased 38% from the prior year period, both primarily due to higher Asset management revenues and incremental revenues as a provision related to a United Kingdom (“U.K.”) indirect tax (i.e. value-added tax or “VAT”) matter and higher litigation costs. For further discussionresult of the U.K. VAT matter, see “Institutional Securities—Investments, Other Revenues,Non-interest Expenses and Other Items—Other Items” herein.

E*TRADE acquisition.

Expense Efficiency Ratio

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The expense efficiency ratio was 73.0%•Investment Management net revenues of $1,702 million in the current quarter and 72.1% in the current year period. The expense efficiency ratio was 73.3% inincreased 92% from the prior year quarter and 74.2% in the prior year period (see “SelectedNon-Generally Accepted Accounting Principles(“Non-GAAP”) Financial Information” herein).

Return on Average Common Equity

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The annualized return on average common equity (“ROE”) was 9.6% in the current quarter and 9.8% in the current year period. The annualized ROE was 8.7% in the prior year quarter and 7.7% in the prior year period (see “SelectedNon-Generally Accepted Accounting Principles(“Non-GAAP”) Financial Information” herein).

Business Segment Results

Net Revenues by Segment1, 2

($ in millions)

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43September 2017June 2021 Form 10-Q

Management’s Discussion and AnalysisLOGO
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Net Income Applicable to Morgan Stanley by Segment1, 3

($ in millions)

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1.

The percentages in the charts represent the contribution of each business segment to the total. Amounts do not necessarily total to 100% due to intersegment eliminations, where applicable.

2.

The total amount of Net Revenues by Segment also includes intersegment eliminations of $(74) million and $(77) million in the current

quarter and prior year quarter, respectively, and $(223) million and $(207) million in the current year period and prior year period, respectively.

3.

The total amount of Net Income Applicable to Morgan Stanley by Segment also includes intersegment eliminations of $(4) million in the current quarter and $(2) million in the current year period.

Institutional Securities net revenues of $4,376 million in the current quarter and $14,290 million in the current year period decreased 4% from the prior year quarter and increased 11% from the prior year period. The current quarter results primarily reflected lower revenues from fixed income sales and trading, partially offset by higher underwriting and advisory revenues. The current year period results primarily reflected higher revenues from underwriting and fixed income sales and trading.

Wealth Management net revenues of $4,220 million in the current quarter and $12,429$3,016 million in the current year period increased 91% from the prior year period, both primarily due to higher Asset management and related fees, including incremental revenues related to the Eaton Vance acquisition, as well as higher Performance-based income and other revenues.

Net Revenues by Region1, 2, 3
($ in millions)
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1.The percentages on the bars in the charts represent the contribution of each region to the total.
2.For a discussion of how the geographic breakdown of net revenues is determined, see Note 20 to the financial statements in the 2020 Form 10-K.
3.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.
Americas net revenues in the current quarter increased 9% both from the prior year quarter, andprimarily driven by the Wealth Management business segment. Asia net revenues increased 11% from the prior year period. The current quarter, andprimarily driven by the current year period results reflected growth in asset management fee revenues and Net interest income.

Equity business within the Institutional Securities business segment.

Investment ManagementAmericas net revenues of $675 million in the current quarter and $1,949 million in the current year period increased 22%31% from the prior year quarterperiod, primarily driven by the Wealth Management business segment and the Investment banking business within the Institutional Securities business segment. EMEA net revenues increased 21%29% and Asia net revenues increased 26% from the prior year period. The current quarterperiod, both primarily driven by the Equity and Investment banking businesses within the Institutional Securities business segment.

Selected Financial Information and Other Statistical Data
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Consolidated results
Net revenues1
$14,759 $13,660 $30,478 $23,439 
Earnings applicable to Morgan Stanley common shareholders$3,408 $3,047 $7,390 $4,637 
Earnings per diluted common share$1.85 $1.96 $4.04 $2.96 
Consolidated financial measures
Expense efficiency ratio1, 2
69 %66 %68 %70 %
Adjusted expense efficiency ratio1,2,4
68 %66 %67 %70 %
ROE3
13.8 %15.7 %15.3 %12.2 %
Adjusted ROE3, 4
14.1 %15.7 %15.6 %12.2 %
ROTCE3, 4
18.6 %17.8 %19.8 %13.9 %
Adjusted ROTCE3, 4
19.0 %17.8 %20.1 %13.9 %
Pre-tax margin1, 5
31 %32 %33 %28 %
Effective tax rate23.1 %25.7 %22.5 %22.8 %
Pre-tax margin by segment5
Institutional Securities1
35 %37 %37 %29 %
Wealth Management1
27 %24 %27 %25 %
Wealth Management, adjusted1, 4
28 %24 %28 %25 %
Investment Management25 %24 %27 %23 %
Investment Management, adjusted4
27 %24 %28 %23 %
in millions, except per share and employee dataAt
June 30,
2021		At
December 31,
2020
Liquidity resources6
$343,776 $338,623 
Loans7
$166,059 $150,597 
Total assets$1,161,805 $1,115,862 
Deposits$320,358 $310,782 
Borrowings$224,142 $217,079 
Common shares outstanding1,834 1,810 
Common shareholders' equity$99,120 $92,531 
Tangible common shareholders’ equity4
$73,593 $75,916 
Book value per common share8
$54.04 $51.13 
Tangible book value per common share4, 8
$40.12 $41.95 
Worldwide employees9 (in thousands)
72 68 
Capital Ratios10
Common Equity Tier 1 capital—Standardized16.6 %17.4 %
Tier 1 capital—Standardized18.3 %19.4 %
Common Equity Tier 1 capital—Advanced17.7 %17.7 %
Tier 1 capital—Advanced19.5 %19.8 %
Tier 1 leverage7.5 %8.4 %
SLR11
5.9 %7.4 %
1.Certain prior period amounts have been reclassified to conform to the current year period results primarily reflected higher carried interestpresentation. See “Business Segments” herein and Note 1 to the financial statements for more information.
2.The expense efficiency ratio represents total non-interest expenses as a percentage of net revenues.
3.ROE and ROTCE represent earnings applicable to Morgan Stanley common shareholders as a percentage of average common equity and average tangible common equity, respectively.
4.Represents a non-GAAP financial measure. See “Selected Non-GAAP Financial Information” herein.
5.Pre-tax margin represents income before income taxes as a percentage of net revenues.
6.For a discussion of Liquidity resources, see “Liquidity and Capital Resources—Liquidity Risk Management Framework—Liquidity Resources” herein.
7.Amounts include loans held for investment, gainsnet of ACL, and growthloans held for sale but exclude loans at fair value, which are included in asset management fee revenues.

Trading assets in the balance sheets (see Note 10 to the financial statements).

Net Revenues

8.Book value per common share and tangible book value per common share equal common shareholders’ equity and tangible common shareholders’ equity, respectively, divided by Region1

($common shares outstanding.

9.As of June 30, 2021, the number of employees includes Eaton Vance.
10.For a discussion of our capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein.
11.At December 31, 2020, our SLR reflects the impact of a Federal Reserve interim final rule that was in millions)

LOGO

LOGO

EMEA—Europe, Middle Easteffect until March 31, 2021. For further information, see “Liquidity and Africa

Capital Resources—Regulatory Requirements—Regulatory Developments and Other Matters” herein.
1.

For a discussion of how the geographic breakdown for net revenues is determined, see Note 21 to the consolidated financial statements in the 2016 Form10-K.

September 2017June 2021 Form 10-Q45

Management’s Discussion and AnalysisLOGO

Selected Financial Information and Other Statistical Data

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in millions 2017  2016  2017  2016 

Income from continuing operations applicable to Morgan Stanley

 $1,775  $1,589  $5,489  $4,312  

Income (loss) from discontinued operations applicable to Morgan Stanley

  6   8   (21)   1  

Net income applicable to Morgan Stanley

  1,781   1,597   5,468   4,313  

Preferred stock dividends and other

  93   79   353   314  

Earnings applicable to Morgan Stanley common shareholders

 $1,688  $      1,518  $5,115  $      3,999  

Effective income tax rate from continuing operations

        28.1%   31.5%         29.7%   32.7% 

   At September 30,
2017		  At December 31,
2016		 

 Capital ratios

 

 Common Equity Tier 1 capital ratio1

  16.9%   16.9%  

 Tier 1 capital ratio1

  19.3%   19.0%  

 Total capital ratio1

  22.2%   22.0%  

 Tier 1 leverage ratio

  8.4%   8.4%  

1.

At September 30, 2017, our capital ratios are based on the Standardized Approach transitional rules. At December 31, 2016, our capital ratios were based on the Advanced Approach transitional rules. For a discussion of our regulatory capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein.

in millions, except per share and
employee data		 At September 30,
2017		  At December 31,
2016		 

Loans1

 $104,431  $94,248 

Total assets

 $853,693  $814,949 

Global Liquidity Reserve2

 $189,966  $202,297 

Deposits

 $154,639  $155,863 

Long-term borrowings

 $191,677  $164,775 

Common shareholders’ equity

 $70,458  $68,530 

Common shares outstanding

  1,812   1,852 

Book value per common share3

 $38.87  $36.99 

Worldwide employees

  57,702   55,311 

1.

Amounts include loans held for investment (net of allowance) and loans held for sale but exclude loans at fair value, which are included in Trading assets in the balance sheets (see Note 7 to the financial statements).

2.

For a discussion of Global Liquidity Reserve, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Risk Management Framework—Global Liquidity Reserve” in Part II, Item 7 of the 2016 Form10-K.

3.

Book value per common share equals common shareholders’ equity divided by common shares outstanding.

ms-20210630_g1.jpg

Coronavirus Disease (“COVID-19”) Pandemic
Since its onset, the COVID-19 pandemic has had a significant impact on global economic conditions and the environment in which we operate our businesses and it may continue to do so in the future. Though many of our employees have been working from home for some time, we are preparing for our employees to return to work in our offices on a more regular basis, and an increasing number of employees are returning to our offices in certain locations. The Firm continues to be fully operational, with the majority of employees in both the Americas and globally working from home during the current quarter. Recognizing that local conditions vary for our offices around the world and that the trajectory of the virus continues to be uncertain, we may adjust our plans for employees returning to our offices as deemed necessary.
Refer to “Risk Factors” and “Forward-Looking Statements” in the 2020 Form 10-K for more information on the potential effects of the ongoing COVID-19 pandemic on our future operating results.
SelectedNon-Generally Accepted Accounting Principles(“Non-GAAP”) Non-GAAP Financial Information

We prepare our financial statements using accounting principles generally accepted in the United States of America (“U.S. GAAP”).GAAP. From time to time, we may disclose certain“non-GAAP “non-GAAP financial measures” in this document or in the course of our earnings releases, earnings and other conference calls, financial presentations, Definitive Proxy Statementdefinitive proxy statement and otherwise. A“non-GAAP “non-GAAP financial measure” excludes, or includes, amounts from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. We consider thenon-GAAP financial measures we disclose to be useful to us, investors, analysts and analystsother stakeholders by providing further transparency about, or an alternate means of assessing or comparing our financial condition, operating results prospective regulatoryand capital requirements, or capital adequacy.
These measures are not in accordance with, or a substitute for, U.S. GAAP and may be different from or inconsistent withnon-GAAP financial measures used by other companies. Whenever we refer to anon-GAAP financial measure, we will also generally define it or present the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, along with a reconciliation of the differences between the U.S. GAAP financial measure and thenon-GAAP financial measure.

The principalnon-GAAP financial measures presented in this document are set forth below.

in the following tables.

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

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in millions, except per share data 2017  2016  2017  2016 

Net income applicable to Morgan Stanley

 

 

U.S. GAAP

 $1,781  $    1,597  $5,468  $      4,313 

Impact of discrete tax provision1

  (83)   —    (65)   —  

Net income applicable to Morgan Stanley, excluding discrete taxprovision—non-GAAP

 $1,698  $1,597  $5,403  $4,313 

Earnings per diluted common share

 

 

U.S. GAAP

 $0.93  $0.81  $2.79  $2.11 

Impact of discrete tax provision1

  (0.05)   —    (0.03)   —  

Earnings per diluted common share, excluding discrete taxprovision—non-GAAP

 $0.88  $0.81  $2.76  $2.11 

Effective income tax rate

    

U.S. GAAP

        28.1%   31.5%         29.7%   32.7% 

Impact of discrete tax provision1

  3.3%   —    0.8%   —  

Effective income tax rate from continuing operations, excluding discrete taxprovision—non-GAAP

  31.4%   31.5%   30.5%   32.7% 
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions, except per share data2021202020212020
Earnings applicable to Morgan Stanley common shareholders$3,408 $3,047 $7,390 $4,637 
Impact of adjustments:
Integration-related expenses90 — 165 — 
Related tax benefit(21)— (38)— 
Adjusted earnings applicable to
Morgan Stanley common shareholders—non-GAAP1
$3,477 $3,047 $7,517 $4,637 
Earnings per diluted common share$1.85 $1.96 $4.04 $2.96 
Impact of adjustments0.04 — 0.07 — 
Adjusted earnings per diluted common share—non-GAAP1
$1.89 $1.96 $4.11 $2.96 
Expense efficiency ratio2
69 %66 %68 %70 %
Impact of adjustments(1)%— %(1)%— %
Adjusted expense efficiency ratio—non-GAAP1, 2
68 %66 %67 %70 %
Wealth Management Pre-tax margin2
27 %24 %27 %25 %
Impact of adjustments1 %— %1 %— %
Adjusted Wealth Management pre-tax margin—non-GAAP1, 2
28 %24 %28 %25 %
Investment Management Pre-tax margin25 %24 %27 %23 %
Impact of adjustments2 %— %1 %— %
Adjusted Investment Management pre-tax margin—non-GAAP1
27 %24 %28 %23 %

$ in millionsAt
June 30,
2021		At
December 31,
2020
Tangible equity
Common shareholders' equity$99,120 $92,531 
Less: Goodwill and net intangible assets(25,527)(16,615)
Tangible common shareholders' equity—non-GAAP$73,593 $75,916 
Average Monthly Balance
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Tangible equity
Common shareholders' equity$98,824 $77,598 $96,309 $75,992 
Less: Goodwill and net intangible assets(25,611)(9,268)(21,738)(9,246)
Tangible common shareholders' equity—non-GAAP$73,213 $68,330 $74,571 $66,746 
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in billions2021202020212020
Average common equity
Unadjusted—GAAP$98.8 $77.6 $96.3 $76.0 
Adjusted1—Non-GAAP
98.8 77.6 96.4 76.0 
ROE3
Unadjusted—GAAP13.8 %15.7 %15.3 %12.2 %
Adjusted1—Non-GAAP
14.1 %15.7 %15.6 %12.2 %
Average tangible common equity—Non-GAAP
Unadjusted$73.2 $68.3 $74.6 $66.7 
Adjusted1
73.2 68.3 74.6 66.7 
ROTCE3—Non-GAAP
Unadjusted18.6 %17.8 %19.8 %13.9 %
Adjusted1
19.0 %17.8 %20.1 %13.9 %
65September 2017June 2021 Form 10-Q

Management’s Discussion and AnalysisLOGO

Tangible Equity

        Monthly Average Balance 
        

Three Months
Ended

September 30,

  

Nine Months
Ended

September 30,

 
$ in millions 

At

September 30,
2017

  

At

December 31,
2016

  2017  2016  2017  2016 

U.S. GAAP

      

Common equity

  $70,458  $68,530   $70,487  $69,531  $69,786  $68,859 

Preferred equity

  8,520   7,520    8,520   7,520   8,420   7,520 

Morgan Stanley shareholders’ equity

  78,978   76,050    79,007   77,051   78,206   76,379 

Junior subordinated debentures issued to capital trusts

  —     —      —     1,427   —     2,278 

Less: Goodwill and net intangible assets

  (9,079)   (9,296)   (9,120)   (9,368)   (9,192)   (9,447) 

Morgan Stanley tangible shareholders’equity—non-GAAP

  $69,899  $66,754   $69,887  $69,110  $69,014  $69,210 

U.S. GAAP

      

Common equity

  $70,458  $68,530   $70,487  $69,531  $69,786  $68,859 

Less: Goodwill and net intangible assets

  (9,079)   (9,296)   (9,120)   (9,368)   (9,192)   (9,447) 

Tangible commonequity—non-GAAP

  $61,379  $59,234   $61,367  $60,163  $60,594  $59,412 

ConsolidatedNon-GAAP Financial Measures

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in billions      2017            2016            2017            2016      

Average common equity1, 2

 

   

Unadjusted

 $70.5  $69.5  $69.8  $68.9 

Excluding DVA

  71.3   69.6   70.4   69.0 

Excluding DVA and discrete tax provision (benefit)

  71.2   69.6   70.4   69.0 

Return on average common equity1, 3, 4

 

  

Unadjusted

  9.6%   8.7%   9.8%   7.7% 

Excluding DVA

  9.5%   8.7%   9.7%   7.7% 

Excluding DVA and discrete tax provision (benefit)

  9.0%   8.7%   9.6%   7.7% 

Average tangible common equity1, 2, 5

 

  

Unadjusted

 $61.4  $60.2  $60.6  $59.4 

Excluding DVA

  62.1   60.2   61.2   59.5 

Excluding DVA and discrete tax provision (benefit)

  62.1   60.2   61.3   59.5 

Return on average tangible common equity1, 4

 

 

Unadjusted

  11.0%   10.1%   11.3%   9.0% 

Excluding DVA

  10.9%   10.1%   11.1%   9.0% 

Excluding DVA and discrete tax provision (benefit)

  10.3%   10.1%   11.0%   9.0% 

Expense efficiency ratio6

  73.0%   73.3%   72.1%   74.2% 

   At September 30,
2017		  At December 31,
2016		 
Tangible book value per common share5 $33.86  $31.98 

Non-GAAP Financial Measures by Business Segment

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in billions 2017  2016  2017  2016 

Pre-tax profit margin7

    

Institutional Securities

  28%   30%   31%   30% 

Wealth Management

  27%   23%   25%   22% 

Investment Management

  19%   18%   19%   16% 

Consolidated

  27%   27%   28%   26% 

Average common equity8

 

  

Institutional Securities

 $40.2  $43.2  $40.2  $43.2 

Wealth Management

  17.2   15.3   17.2   15.3 

Investment Management

  2.4   2.8   2.4   2.8 

Parent Company

  10.7   8.2   10.0   7.6 

Consolidated average common equity

 $70.5  $      69.5  $69.8  $      68.9 

Return on average common equity4

 

  

Institutional Securities

  8.9%   8.3%   9.6%   7.1% 

Wealth Management

      15.8%   14.5%       15.0%   13.3% 

Investment Management

  18.8%   9.3%   15.4%   9.0% 

Consolidated

  9.6%   8.7%   9.8%   7.7% 

DVA—Debt valuation adjustment represents the change in the fair value resulting from fluctuations in our credit spreads and other credit factors related to liabilities carried at fair value under the fair value option, primarily certain Long-term and Short-term borrowings.

1.

Beginning in 2017, with the adoption of the accounting updateImprovements to Employee Share-Based Payment Accounting, the income tax consequences related to share-based payments are required to be recognized in Provision for income taxes in the income statements upon the conversion of employee share-based awards, which primarily occur in the first quarter of each year. The impact of the income tax consequences upon conversion of the awards may be either a benefit or a provision and is treated as a discrete item. When excluding discrete tax provision (benefit) above only discrete tax provisions (benefits) other than income tax consequences arising from conversion activity are excluded as we anticipate conversion activity each quarter. See Note 2 to the financial statements for information on the adoption of the accounting updateImprovements to Employee Share-Based Payment Accounting. For further information on the discrete tax provision, see “Supplemental Financial Information and Disclosures—Income Tax Matters” herein.

2.

The impact of DVA on average common equity and average tangible common equity was approximately $(775) million and $(62) million in the current quarter and prior year quarter, respectively, and approximately $(652) million and $(118) million in the current year period and prior year period, respectively.

3.

The calculation used in determining the Firm’s “ROE Target” is return on average common equity excluding DVA and discrete tax items as set forth above.

4.

Return on average common equity and return on average tangible common equity equal annualized net income applicable to Morgan Stanley less preferred dividends as a percentage of average common equity and average tangible common equity, respectively, on a consolidated or business segment basis as indicated. When excluding DVA, it is only excluded from the denominator. When excluding the discrete tax provision (benefit), both the numerator and denominator are adjusted.

5.

Tangible book value per common share equals tangible common equity divided by common shares outstanding.

6.

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

7.

Pre-tax profit margin represents income from continuing operations before income taxes as a percentage of net revenues.

September 2017 Form 10-Q6
Table of Contents

Management’s Discussion and AnalysisLOGO
ms-20210630_g1.jpg

8.

Average common equity for each business segment is determined at the beginning of each year using our Required Capital framework, an internal capital adequacy measure (see “Liquidity and Capital Resources—Regulatory Requirements—Attribution of Average Common Equity According to the Required Capital Framework” herein) and remains fixed throughout the year until the next annual reset.

Non-GAAP Financial Measures by Business Segment
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in billions2021202020212020
Average common equity4
Institutional Securities$43.5 $42.8 $43.5 $42.8 
Wealth Management28.6 18.2 28.6 18.2 
Investment Management10.7 2.6 7.1 2.6 
ROE5
Institutional Securities17 %19 %20 %13 %
Wealth Management17 %18 %17 %18 %
Investment Management13 %23 %17 %18 %
Average tangible common equity4
Institutional Securities$42.9 $42.3 $42.9 $42.3 
Wealth Management13.4 10.4 13.4 10.4 
Investment Management1.0 1.7 1.0 1.7 
ROTCE5
Institutional Securities17 %20 %20 %13 %
Wealth Management37 %32 %36 %32 %
Investment Management172 %36 %117 %27 %
1.Adjusted amounts exclude the effect of costs related to the integrations of E*TRADE and Eaton Vance, net of tax as appropriate. The pre-tax adjustments in the current quarter were as follows: Wealth Management—Compensation expenses of $9 million and Non-compensation expenses of $51 million; Investment Management—Compensation expenses of $16 million and Non-compensation expenses of $14 million. The pre-tax adjustments in the current year period were as follows: Wealth Management—Compensation expenses of $39 million and Non-compensation expenses of $85 million; Investment Management— Compensation expenses of $19 million and Non-compensation expenses of $22 million.
2.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.
3.ROE and ROTCE represent earnings applicable to Morgan Stanley common shareholders as a percentage of average common equity and average tangible common equity, respectively. When excluding integration-related costs, both the numerator and average denominator are adjusted.
4.Average common equity and average tangible common equity for each business segment is determined using our Required Capital framework (see "Liquidity and Capital Resources—Regulatory Requirements—Attribution of Average Common Equity According to the Required Capital Framework” herein). The sums of the segments' Average common equity and Average tangible common equity do not equal the Consolidated measures due to Parent equity.
5.The calculation of ROE and ROTCE by segment uses net income applicable to Morgan Stanley by segment less preferred dividends allocated to each segment as a percentage of average common equity and average tangible common equity, respectively, allocated to each segment.
Return on Tangible Common Equity Target

We have an ROE

In January 2021, we established a 2-year ROTCE Target of 9%14% to 11% to be achieved by 2017. 16%, excluding integration-related expenses.
Our ROEROTCE Target and the related strategies and goals areis a forward-looking statementsstatement that was based on a normal market environment and may be materially affected by many factors, including, among other things: macroeconomic and market conditions;conditions, which may be impacted by the future course of COVID-19; legislative, accounting, tax and regulatory developments; industry trading and investment banking volumes; equity market levels; interest rate environment; outsized legal expenses andor penalties; the ability to reduce expenses in general;control expenses; capital levels; and discrete tax items. mergers and acquisitions.
See “Risk Factors” in the 2020 Form 10-K for further information on market and economic conditions and their potential effects on our future operating results.
For further information on our ROE Target and related assumptions,non-GAAP measures (ROTCE excluding integration-related expenses), see “Management’s Discussion and Analysis of“Selected Non-GAAP Financial Condition and Results of Operations—Executive Summary—Return on Equity Target” in Part II, Item 7 of the 2016 Form10-K.

Information” herein.

Business Segments

Substantially all of our operating revenues and operating expenses are directly attributable to theour business segments.

Certain revenues and expenses have been allocated to each business segment, generally in proportion to its respective net revenues,non-interest expenses or other relevant measures.

As a result See Note 20 to the financial statements for segment net revenues by income statement line item and information on intersegment transactions.

For an overview of treating certain intersegment transactions as transactions with external parties, we include an Intersegment Eliminations category to reconcile the business segment results to our consolidated results.

Net Revenues, Compensation Expense and Income Taxes

For discussionscomponents of our business segments, net revenues, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Net Revenues” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Net Revenues by Segment” in Part II, Item 7 of the 2016 Form10-K. For a discussion of our compensation expense see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Compensation Expense” in Part II, Item 7 of the 2016 Form10-K. For a discussion of income taxes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Income Taxes”Segments” in Part II, Item 7the 2020 Form 10-K.

As part of our effort to continually improve the 2016 Form10-K.

transparency and comparability of our external financial reporting, several updates to our financial presentation were implemented in the first quarter of 2021. Prior period amounts have been reclassified to conform to the current presentation.
Provision for credit losses

7September 2017 Form 10-Q
The Provision for credit losses for loans and lending commitments is presented as a separate line in the income statements. Previously, the provision for credit losses for loans was included in Other revenues and the provision for credit losses for lending commitments was included in Other expense.

Management’s Discussion and AnalysisLOGO

Other revenues

Gains and losses on economic derivative hedges associated with certain held-for-sale and held-for-investment corporate loans, which were previously reported in Trading revenues, are reported within Other revenues in the income statements. This presentation better aligns with the recognition of mark-to-market gains and losses on held-for-sale loans which continue to be reported in Other revenues.
Institutional Securities

Income Statement Information

  Three Months Ended
September 30,		     
$ in millions           2017              2016       % Change 

Revenues

    

Investment banking

 $1,270  $1,104     15% 

Trading

  2,504   2,393     5% 

Investments

  52   36     44% 

Commissions and fees

  561   592     (5)% 

Asset management, distribution and administration fees

  88   68     29% 

Other

  143   243     (41)% 

Totalnon-interest revenues

  4,618   4,436     4% 

Interest income

  1,421   980     45% 

Interest expense

  1,663   863     93% 

Net interest

  (242)   117     N/M 

Net revenues

  4,376   4,553     (4)% 

Compensation and benefits

  1,532   1,657     (8)% 

Non-compensation expenses

  1,608   1,513     6% 

Totalnon-interest expenses

  3,140   3,170     (1)% 

Income from continuing operations before income taxes

  1,236   1,383     (11)% 

Provision for income taxes

  260   381     (32)% 

Income from continuing operations

  976   1,002     (3)% 

Income (loss) from discontinued operations, net of income taxes

  6   8     (25)% 

Net income

  982   1,010     (3)% 

Net income applicable to noncontrolling interests

  9   44     (80)% 

Net income applicable to
Morgan Stanley

 $973  $966     1% 
  

Nine Months Ended

September 30,

     
$ in millions           2017              2016       % Change 

Revenues

    

Investment banking

 $4,100  $3,202     28% 

Trading

  8,241   6,782     22% 

Investments

  155   144     8% 

Commissions and fees

  1,811   1,854     (2)% 

Asset management, distribution and administration fees

  268   210     28% 

Other

  442   385     15% 

Totalnon-interest revenues

  15,017   12,577     19% 

Interest income

  3,788   2,999     26% 

Interest expense

  4,515   2,731     65% 

Net interest

  (727)   268     N/M 

Net revenues

  14,290   12,845     11% 

Compensation and benefits

  5,069   4,664     9% 

Non-compensation expenses

  4,812   4,384     10% 

Totalnon-interest expenses

  9,881   9,048     9% 

Income from continuing operations before income taxes

  4,409   3,797     16% 

Provision for income taxes

  1,132   1,109     2% 

Income from continuing operations

  3,277   2,688     22% 

Income (loss) from discontinued operations, net of income taxes

  (21)   1     N/M 

Net income

  3,256   2,689     21% 

Net income applicable to
noncontrolling interests

  77   144     (47)% 

Net income applicable to
Morgan Stanley

 $3,179  $2,545     25% 

N/M—Not Meaningful

Equity—Financing, Equity—Execution services and Fixed income include certain Investments and Other revenues to the extent directly attributable to those businesses. The remaining Investments and Other revenues not included in those businesses’ results are reported in Other. Other also includes revenues previously reported as Other Sales and Trading.

September 2017 Form 10-Q8

Management’s Discussion and AnalysisLOGO

Investment Banking

Investment Banking Revenues

   Three Months Ended
September 30,		     
$ in millions      2017           2016       % Change 

Advisory

  $555   $504    10% 

Underwriting:

      

Equity

   273    236    16% 

Fixed income

   442    364    21% 

Total underwriting

   715    600    19% 

Total investment banking

  $1,270   $1,104    15% 
   Nine Months Ended
September 30,		     
$ in millions      2017           2016       % Change 

Advisory

  $1,555   $1,592    (2)% 

Underwriting:

      

Equity

   1,068    662    61% 

Fixed income

   1,477    948    56% 

Total underwriting

   2,545    1,610    58% 

Total investment banking

  $4,100   $3,202    28% 

Management
We have renamed the previously disclosed revenue line Asset management to Asset management and related fees and have combined the remaining revenue lines into a new category named Performance-based income and other.

Investment Banking Volumes

June 2021 Form 10-Q		7
  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in billions     2017          2016          2017          2016     

Completed mergers and acquisitions1

 $229  $190  $585  $728  

Equity andequity-

related offerings2, 3

  16   13   46   34  

Fixed income offerings2, 4

  60   72   201   185  

Management’s Discussion and Analysis
ms-20210630_g1.jpg
Institutional Securities

Income Statement Information
 Three Months Ended
June 30,		 
$ in millions20212020% Change
Revenues
Advisory$664 $462 44 %
Equity1,072 882 22 %
Fixed income640 707 (9)%
Total Underwriting1,712 1,589 8 %
Total Investment banking2,376 2,051 16 %
Equity1
2,827 2,627 8 %
Fixed income1
1,682 3,041 (45)%
Other1
207 480 (57)%
Net revenues$7,092 $8,199 (14)%
Provision for credit losses1
70 217 (68)%
Compensation and benefits2,433 2,952 (18)%
Non-compensation expenses1
2,091 2,037 3 %
Total non-interest expenses1
4,524 4,989 (9)%
Income before provision for income taxes2,498 2,993 (17)%
Provision for income taxes574 790 (27)%
Net income1,924 2,203 (13)%
Net income applicable to noncontrolling interests20 17 18 %
Net income applicable to Morgan Stanley$1,904 $2,186 (13)%
Six Months Ended
June 30,
$ in millions20212020% Change
Revenues
Advisory$1,144 $824 39 %
Equity2,574 1,218 111 %
Fixed income1,271 1,153 10 %
Total Underwriting3,845 2,371 62 %
Total Investment banking4,989 3,195 56 %
Equity1
5,702 5,076 12 %
Fixed income1
4,648 5,103 (9)%
Other1
330 3 N/M
Net revenues1
$15,669 $13,377 17 %
Provision for credit losses1
(23)605 (104)%
Compensation and benefits5,547 4,766 16 %
Non-compensation expenses1
4,276 4,063 5 %
Total non-interest expenses1
9,823 8,829 11 %
Income before provision for income taxes5,869 3,943 49 %
Provision for income taxes1,310 941 39 %
Net income4,559 3,002 52 %
Net income applicable to noncontrolling interests54 59 (8)%
Net income applicable to Morgan Stanley$4,505 $2,943 53 %
1.Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for additional information.
Investment Banking
Investment Banking Volumes
Three Months Ended
June 30,		Six Months Ended
June 30,
$ in billions2021202020212020
Completed mergers and acquisitions1
$141 $433 $370 $552 
Equity and equity-related offerings2, 3
31 36 68 49 
Fixed income offerings2, 4
100 121 204 214 
Source: Thomson Reuters,Refinitiv data at October 2, 2017.as of July 1, 2021. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal, change in value or change in timing of certain transactions.
1.Includes transactions of $100 million or more. Based on full credit to each of the value ofadvisors in a transaction.

1.

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

2.

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

3.

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

4.

Amounts includenon-convertible preferred stock, mortgage-backed and asset-backed securities, and taxable municipal debt. Amounts include publicly registered and Rule 144A issuances. Amounts exclude leveraged loans andself-led issuances.

2.Based on full credit for single book managers and equal credit for joint book managers.
3.Includes Rule 144A issuances and registered public offerings of common stock, convertible securities and rights offerings.
4.Includes Rule 144A and publicly registered issuances, non-convertible preferred stock, mortgage-backed and asset-backed securities, and taxable municipal debt. Excludes leveraged loans and self-led issuances.
Investment banking revenues are composedBanking Revenues
Revenues of fees from advisory services and revenues from the underwriting of securities offerings and syndication of loans, net of syndication expenses.

Investment banking revenues of $1,270$2,376 million in the current quarter increased 16% compared with the prior year quarter, primarily reflecting an increase in advisory and $4,100equity underwriting revenues.

•Advisory revenues increased primarily due to an increase in the number of completed transactions.
•Equity underwriting revenues increased primarily in initial public offerings on higher volumes, partially offset by lower revenues from convertible issuances and follow-on offerings.
•Fixed income underwriting revenues decreased primarily due to lower investment grade and non-investment grade bond issuances, partially offset by increases in non-investment grade loans and securitized products.
Revenues of $4,989 million in the current year period increased 15% and 28% from56% compared with the comparable prior year periods. Theperiod, primarily reflecting an increase in equity underwriting revenues.
•Advisory revenues increased primarily due to an increase in the current quarter reflected both higher underwriting and advisory revenues. The increase in the current year period was due to higher underwriting revenues.

Advisory revenues increased in the current quarter reflecting the higher volumesnumber of completed merger, acquisition and restructuring transactions (“M&A”) (see Investment Banking Volumes table). Advisory revenues decreased in the current year period reflecting the lower volumes of completed M&A, partially offset by the positive impact of higher fee realizations.

transactions.

•Equity underwriting revenues increased in the current quarter and current year period as a result ofon higher global market volumes, primarily in bothfollow-on and initial public offerings (see Investment Banking Volumes table). In the current year period, equity underwriting revenues also increased as a result of higher levels of deal activity. and secondary block share trades.

•Fixed income underwriting revenues increased in the current quarter primarily due to higherincreased non-investment grade loan and securitized products activity, partially offset by a decrease in investment grade bond fees and loan fees. Fixed income underwriting revenues increased in the current year period primarily due to higher bond fees andnon-investment grade loan fees.

Sales and Trading Net Revenues

By Income Statement Line Item

  Three Months Ended
September 30,		     
$ in millions         2017            2016       % Change 

Trading

 $2,504  $2,393    5% 

Commissions and fees

  561   592    (5)% 

Asset management, distribution and administration fees

  88   68    29% 

Net interest

  (242)   117    N/M 

Total

 $2,911  $3,170    (8)% 
  Nine Months Ended
September 30,		     
$ in millions 2017  2016   % Change 

Trading

 $8,241  $6,782    22% 

Commissions and fees

  1,811   1,854    (2)% 

Asset management, distribution and administration fees

  268   210    28% 

Net interest

  (727)   268    N/M 

Total

 $9,593  $9,114    5% 

N/M—Not Meaningful

issuances.
See “Investment Banking Volumes” herein.


89September 2017June 2021 Form 10-Q

Management’s Discussion and AnalysisLOGO

By Business

  Three Months Ended
September 30,		     
$ in millions       2017            2016       % Change 

Equity

 $    1,891  $1,883    —% 

Fixed income

  1,167   1,479    (21)% 

Other

  (147)   (192)    23% 

Total

 $2,911  $3,170    (8)% 
  Nine Months Ended
September 30,		     
$ in millions       2017            2016       % Change 

Equity

 $6,062  $            6,084    —% 

Fixed income

  4,120   3,649    13% 

Other

  (589)   (619)    5% 

Total

 $9,593  $9,114    5% 

Sales and Trading Activities—Equity and Fixed Income

Following is a description of the sales and trading activities within our equities and fixed income businesses as well as how their results impact the income statement line items, followed by a presentation and explanation of results.

Equities—Financing.We provide financing and prime brokerage services to our clients active in the equity markets through a variety of products including margin lending, securities lending and swaps. Results from this business are largely driven by the difference between financing income earned and financing costs incurred, which are reflected in Net interest for securities and equity lending products and in Trading revenues for derivative products.

Equities—Execution services. We make markets for our clients in equity-related securities and derivative products, including providing liquidity and hedging products. A significant portion of the results for this business is generated by commissions and fees from executing and clearing client transactions on major stock and derivative exchanges as well as fromover-the-counter (“OTC”) transactions. Market-making also generates gains and losses on inventory, which are reflected in Trading revenues.

Fixed income—Within fixed income we make markets in order to facilitate client activity as part of the following products and services.

•

Global macro products. We make markets for our clients in interest rate, foreign exchange and emerging market products, including exchange-traded and OTC securities, loans and derivative instruments. The results of this market-making activity are primarily driven by gains and losses from buying and selling positions to stand ready for and satisfy client demand, and are recorded in Trading revenues.

•

Credit products. We make markets in credit-sensitive products, such as corporate bonds and mortgage securities and

other securitized products, and related derivative instruments. The values of positions in this business are sensitive to changes in credit spreads and interest rates, which result in gains and losses reflected in Trading revenues. Due to the amount and type of the interest-bearing securities and loans making up this business, a significant portion of the results is also reflected in Net interest revenues.

•

Commodities products and Other. We make markets in various commodity products related primarily to electricity, natural gas, oil, and precious metals, with the results primarily reflected in Trading revenues. Other activities include the results from the centralized management of our fixed income derivative counterparty exposures, which are primarily recorded in Trading revenues.

Sales and Trading Net Revenues—Equity and Fixed Income

  

Three Months Ended

September 30, 2017

 
$ in millions     Trading        Fees1    Net
    Interest2  		  Total 

Financing

 $1,029  $92  $(206)  $915 

Execution services

  540   495   (59)   976 

Total Equity

 $1,569  $587  $(265)  $1,891 

Total Fixed income

 $1,073  $65  $29  $1,167 

  

Three Months Ended

September 30, 2016

 
$ in millions     Trading        Fees1    Net
Interest2		  Total 

Financing

 $872  $83  $(110)  $845 

Execution services

  536   541   (39)   1,038 

Total Equity

 $1,408  $624  $(149)  $1,883 

Total Fixed income

 $1,209  $38  $232  $1,479 

  

Nine Months Ended

September 30, 2017

 
$ in millions     Trading        Fees1    Net
    Interest2  		  Total 

Financing

 $3,126  $269  $(621)  $2,774 

Execution services

  1,805   1,643   (160)   3,288 

Total Equity

 $4,931  $1,912  $(781)  $6,062 

Total Fixed income

 $3,785  $167  $168  $4,120 

  

Nine Months Ended

September 30, 2016

 
$ in millions     Trading        Fees1    Net
    Interest2  		  Total 

Financing

 $2,797  $259  $(152)  $2,904 

Execution services

  1,621   1,690   (131)   3,180 

Total Equity

 $4,418  $1,949  $(283)  $6,084 

Total Fixed income

 $2,782  $115  $752  $3,649 

1.

Includes Commissions and fees and Asset management, distribution and administration fees.

2.

Funding costs are allocated to the businesses based on funding usage and are included in Net interest.

September 2017 Form 10-Q10
Table of Contents

Management’s Discussion and AnalysisLOGO
ms-20210630_g1.jpg

We manage each of the sales

Equity, Fixed Income and tradingOther Net Revenues
Equity and Fixed Income Net Revenues
Three Months Ended
June 30, 2021
   
Net Interest2
All Other3
 
$ in millionsTrading
Fees1
Total
Financing$1,138 $121 $117 $3 $1,379 
Execution services818 636 (45)39 1,448 
Total Equity$1,956 $757 $72 $42 $2,827 
Total Fixed Income$1,148 $72 $417 $45 $1,682 
Three Months Ended
June 30, 20204
   
Net Interest2
All Other3
 
$ in millionsTrading
Fees1
Total
Financing$884 $115 $94 $1 $1,094 
Execution services948 651 (73)7 1,533 
Total Equity$1,832 $766 $21 $8 $2,627 
Total Fixed Income$2,468 $67 $504 $2 $3,041 
Six Months Ended
June 30, 2021
   
Net Interest2
All Other3
 
$ in millionsTrading
Fees1
Total
Financing$1,783 $251 $299 $6 $2,339 
Execution services1,932 1,436 (107)102 3,363 
Total Equity$3,715 $1,687 $192 $108 $5,702 
Total Fixed Income$3,461 $153 $856 $178 $4,648 
Six Months Ended
June 30, 20204
   
Net Interest2
All Other3
 
$ in millionsTrading
Fees1
Total
Financing$1,919 $217 $57 $4 $2,197 
Execution services1,527 1,434 (113)31 2,879 
Total Equity$3,446 $1,651 $(56)$35 $5,076 
Total Fixed Income$4,241 $169 $832 $(139)$5,103 
1.Includes Commissions and fees and Asset management revenues.
2.Includes funding costs, which are allocated to the businesses based on its aggregate net revenues, which are comprised offunding usage.
3.Includes Investments and Other revenues.
4.Certain prior period amounts have been reclassified to conform to the income statement line items quantified in the previous table. Trading revenues are affected by a variety of market dynamics, including volumes,bid-offer spreads,current period presentation. See “Business Segments” herein and inventory prices, as well as impacts from hedging activity, which are interrelated. We provide qualitative commentary in the discussion of results that follow on the key drivers of period over period variances, as the quantitative impact of the various market dynamics typically cannot be disaggregated.

For additional information on total Trading revenues, see the table “Trading Revenues by Product Type” in Note 41 to the financial statements.

Salesstatements for additional information.

Equity, Fixed Income and TradingOther Net Revenues during the Revenues—Current Quarter

Equity

Equity sales and trading net

Net revenues of $1,891$2,827 million in the current quarter were relatively unchanged fromincreased 8% compared with the prior year quarter, reflecting higher resultsan increase in our financing business,revenues partially offset by lower results in execution services.

•Financing revenues increased, 8% fromprimarily driven by higher average client balances and higher client activity.

•Execution services revenues decreased, primarily due to the impact of market conditions on inventory held to facilitate client activity in derivatives and cash equities, partially offset by higher client activity in derivatives.
Fixed Income
Net revenues of $1,682 million in the current quarter decreased 45% compared with the prior year quarter reflecting lower results across products.
•Global macro products revenues decreased in rates and foreign exchange products primarily due to higherthe effect of tighter bid-offer spreads and lower market volatility compared with the prior year quarter.
•Credit products revenues decreased primarily due to the impact of market conditions on inventory held to facilitate client activity in equity swaps reflectedsecuritized products compared to particularly strong results in Trading revenues, partially offset by lower Net interest revenues due to a shift in the mix of financing transactions.

Execution services decreased 6% from the prior year quarter, as reducedwell as the effect of tighter bid-offer spreads and lower client activity in corporate credit products.

•Commodities products and other fixed income revenues decreased, primarily driven by the impact of market volumes in the United States resulted in lower commissions and fees, while reduced Trading revenues from derivative products were offset by increased Trading revenues from cash equity products.

conditions on inventory held to facilitate client activity.

Fixed Income

Fixed income net

Other Net Revenues

Net revenues of $1,167$207 million in the current quarter were 21% lower thandecreased 57% compared with the prior year quarter primarily due to losses, net of related economic hedges, on corporate loans held for sale compared with gains in the prior year quarter.
Net Interest
Net interest revenues of $610 million in the current quarter are included within Equity, Fixed Income, and Other, and increased 7% compared with the prior year quarter primarily driven by lower resultsnet costs associated with maintaining liquidity as well as higher revenues from secured lending facilities.
Equity, Fixed Income and Other Net Revenues—Current Year Period
Equity
Net revenues of $5,702 million in the current year period increased 12% compared with the prior year period, primarily reflecting an increase in execution services.
•Financing revenues increased, primarily driven by higher average client balances and higher client activity, partially offset by a credit loss related to a single client in the first quarter of 2021.
•Execution services revenues increased, primarily due to higher client activity and the impact of market conditions on inventory held to facilitate client activity in derivatives, partially offset by trading losses related to the aforementioned credit event.
June 2021 Form 10-Q9
Management’s Discussion and Analysis
ms-20210630_g1.jpg
Fixed Income
Net revenues of $4,648 million in the current year period decreased 9% compared with the prior year period, primarily driven by global macro products.

Credit products, partially offset by credit products.

•Global macro products revenues decreased in rates and foreign exchange products, primarily due to the effect of tighter corporate creditbid-offer spreads and lower market volatility compared with the prior year quarter, which impacted Trading revenues. In addition, Net interestperiod, partially offset by the impact of market conditions on inventory held to facilitate client activity.
•Credit products revenues decreased due to a lower level of interest realized in securitized products in the current quarter.

Global macro products decreased due to lower market and interest rate volatility, which reduced Trading revenues. In addition, Net interest revenues decreasedincreased, primarily due to the impact of market conditions on inventory held to facilitate client activity across all credit products, partially offset by the effect of interest ratetighter bid-offer spreads and lower client activity in corporate credit products inventory management.

compared with the prior year period.

•Commodities products and Other remained relatively unchanged from the prior year quarter.

Sales and Trading Net Revenues during the Current Year Period

Equity

Equity sales and trading net revenues of $6,062 million in the current year period were relatively unchanged from the prior year period, reflecting lower results in our financing business, offset by higher results in execution services.

Financingother fixed income revenues decreased, 4% fromprimarily driven by the prior year period as Net interest revenues declined from higher net interest costs, reflecting increased liquidity requirementsimpact of market conditions on inventory held to facilitate client activity and a shiftlower client activity in the mix of financing transactions,Commodities, partially offset by higher client activity in equity swaps reflected in Trading revenues.

Execution services increased 3% from the prior year period primarily due to improved results in cash equity inventorycounterparty credit risk management reflected in Trading revenues, partially offset by lower commissions and fees driven by reduced market volumes in the United States.

results.

Fixed Income

Fixed income net

Other Net Revenues

Net revenues of $4,120 million in the current year period were 13% higher than the prior year period, driven by higher results across all three product areas.

Credit products increased due to the absence of inventory losses driven by a widening spread environment in the prior year period, which increased Trading revenues. This was partially offset by a lower level of interest realized in securitized products in the current year period, which reduced Net interest revenues.

Global macro products increased due to increased Trading revenues in foreign exchange driven by market volatility, and structured interest rate products driven by higher client activity. This was partially offset by higher interest costs impacting Net interest revenues in the current year period which resulted from interest rate products inventory management.

Commodities products and Other increased due to improved metals trading, commodities lending results and the absence of losses from counterparty risk management incurred in the prior year period.

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

Investments

Net investment gains of $52 million in the current quarter increased from the prior year quarter primarily as a result of higher gains on real estate investments, partially offset by lower gains on equities business related investments.

11September 2017 Form 10-Q

Management’s Discussion and AnalysisLOGO

Net investment gains of $155$330 million in the current year period increased from the prior year period primarily reflectingdue to gains onfrom investments associated with ourcertain employee deferred compensation plans in the current year period compared with losses in the prior year period and lower mark-to-market losses on corporate loans held for sale, net of related economic hedges.

Net Interest
Net interest revenues of $1,248 million in the current year period are included within Equity, Fixed Income, and Other, and increased 21% compared with the prior year period primarily driven by lower net costs associated with maintaining liquidity as well as higher gainsrevenues in secured lending facilities and corporate lending.
Provision for Credit Losses

In the current quarter, the Provision for credit losses on real estate investments,loans and lending commitments was $70 million, primarily driven by one secured lending facility. The Provision for credit losses on loans and lending commitments of $217 million in the prior year quarter was primarily driven by deterioration in the expected macroeconomic environment at that time.

In the current year period, the Provision for credit losses on loans and lending commitments was a net release of $23 million, primarily as a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on corporate loans, including by lower-rated borrowers, partially offset by lower gains the provision for one secured lending facility in the current quarter. The Provision for credit losses
on equities business related investments.

Other

Other revenuesloans and lending commitments of $143$605 million in the prior year period was primarily driven by deterioration in the expected macroeconomic environment at that time.


For further information on the Provision for credit losses, see “Credit Risk” herein.
Non-interest Expenses
Non-interest expenses of $4,524 million in the current quarter decreased from the prior year quarter primarily reflecting lowermark-to-market gains on loans held for sale. Other revenues of $442 million in the current year period increased from the prior year period primarily reflecting a decrease in the provision on loans held for investment.

Non-interest Expenses

Non-interest expenses of $3,140 million in the current quarter were relatively unchanged from9% compared with the prior year quarter, primarily reflecting an 8%18% decrease in Compensation and benefits expenses and a 6% increase inNon-compensationexpenses.Non-interest expenses of $9,881 million in the current year period increased from the prior year period reflecting a 9% increase in Compensation and benefits expenses and a 10% increase inNon-compensation expenses.

•Compensation and benefits expenses decreased in the current quarter, primarily due to decreasesa decrease in discretionary incentive compensation driven mainly by lower revenues,

revenues.

and lower amortization of deferred cash and equity awards. Compensation and benefits expenses increased in the current year period primarily due to increases in discretionary incentive compensation driven mainly by higher revenues and the fair value of investments to which certain deferred compensation plans are referenced.

•Non-compensation expenses increased in the current quarter and current year period primarily due to higher volume-driven expenses and litigation costs. In addition to higher volume-driven expenses and litigation costs,non-compensation expenses increased in the current year period due to a provision related to the U.K. VAT matter (see Other Items below).

Other Items

During the second quarter, the Firm self-identified an issue regarding VAT on intercompany services provided by certain overseas affiliates to our U.K. group. The Firm is reviewing the reporting of U.K. VAT as the focus and nature of services shifted among geographic locations. In the current year period, we have recorded a provision of $86 million that incorporates potential additional VAT, interest and penalties for this exposure. We are actively working with Her Majesty’s Revenue and Customs to resolve this matter. The provision reflected is based on currently available information and analyses, and our review of this matter is continuing.

September 2017 Form 10-Q12

Management’s Discussion and AnalysisLOGO

Wealth Management

Income Statement Information

  Three Months Ended
September 30,		    
 $ in millions         2017            2016    % Change   

 Revenues

   

 Investment banking

 $125  $129   (3)%  

 Trading

  212   229   (7)%  

 Investments

  1   —   N/M  

 Commissions and fees

  402   433   (7)%  

 Asset management, distribution
and administration fees

  2,393   2,133   12%  

 Other

  62   72   (14)%  

 Totalnon-interest revenues

  3,195   2,996   7%  

 Interest income

  1,155   979   18%  

 Interest expense

  130   94   38%  

 Net interest

  1,025   885   16%  

 Net revenues

  4,220   3,881   9%  

 Compensation and benefits

  2,326   2,203   6%  

 Non-compensation expenses

  775   777   —%  

 Totalnon-interest expenses

  3,101   2,980   4%  

 Income from continuing
operations before income taxes

  1,119   901   24%  

 Provision for income taxes

  421   337   25%  

 Net income applicable to
Morgan Stanley

 $698  $564   24% 

  Nine Months Ended
September 30,		    
 $ in millions         2017            20161    % Change   

 Revenues

   

 Investment banking

 $405  $373   9%  

 Trading

  657   675   (3)%  

 Investments

  3   (2)   N/M  

 Commissions and fees

  1,266   1,268   —%  

 Asset management, distribution and administration fees

  6,879   6,269   10%  

 Other

  191   232   (18)%  

 Totalnon-interest revenues

  9,401   8,815   7%  

 Interest income

  3,348   2,813   19%  

 Interest expense

  320   268   19%  

 Net interest

  3,028   2,545   19%  

 Net revenues

  12,429   11,360   9%  

 Compensation and benefits

  6,940   6,443   8%  

 Non-compensation expenses

  2,340   2,371   (1)%  

 Totalnon-interest expenses

  9,280   8,814   5%  

 Income from continuing operations
before income taxes

  3,149   2,546   24%  

 Provision for income taxes

  1,139   973   17%  

 Net income applicable to
Morgan Stanley

 $2,010  $1,573   28%  

N/M – Not Meaningful

1.

Effective July 1, 2016, the Institutional Securities and Wealth Management business segments entered into an agreement, whereby Institutional Securities assumed management of Wealth Management’s fixed income client-driven trading activities and employees. Institutional Securities now pays fees to Wealth Management based on distribution activity (collectively, the “Fixed Income Integration”). Prior periods have not been recast for this new intersegment agreement due to immateriality.

Financial Information and Statistical Data

 $ in billions  At
September 30,
2017 		   At
December 31,
2016		 

 Client assets

  $2,307    $2,103  

 Fee-based client assets1

  $1,003    $877  

 Fee-based client assets as a percentage of total client assets

   43%     42%  

 Client liabilities2

  $78    $73  

 Investment securities portfolio

  $60.6    $63.9  

 Loans and lending commitments

  $76.2    $68.7  

 Wealth Management
representatives

   15,759     15,763  

  Three Months Ended
September 30,		 
             2017                  2016       

Annualized revenues per representative (dollars in thousands)3

 $1,071  $977 

Client assets per representative
(dollars in millions)4

 $146  $132 

Fee-based asset flows5
(dollars in billions)

 $15.8  $13.5 

  Nine Months Ended
September 30,		 
             2017                  2016       

Annualized revenues per representative (dollars in thousands)3

 $1,051  $953  

Client assets per representative
(dollars in millions)4

 $146  $132  

Fee-based asset flows5
(dollars in billions)

 $54.5  $31.4  

1.

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

2.

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

3.

Annualized revenues per representative equal Wealth Management’s annualized revenues divided by the average representative headcount.

4.

Client assets per representative equal totalperiod-end client assets divided byperiod-end representative headcount.

5.

Fee-based asset flows include net newfee-based assets, net account transfers, dividends, interest and client fees and exclude institutional cash management-related activity.

13September 2017 Form 10-Q

Management’s Discussion and AnalysisLOGO

Net Revenues

Transactional Revenues

  Three Months Ended
September 30,		     
 $ in millions           2017                2016     % Change   

 Investment banking

 $125  $129    (3)%  

Trading

  212   229    (7)%  

 Commissions and fees

  402   433    (7)%  

 Total

 $739  $791    (7)%  

  Nine Months Ended
September 30,		     
 $ in millions           2017            2016   % Change   

 Investment banking

 $405  $373    9%  

 Trading

  657   675    (3)%  

 Commissions and fees

  1,266   1,268    —%  

 Total

 $2,328  $2,316    1%  

Transactional revenues of $739 million in the current quarter decreased 7% from the prior year quarter primarily reflecting lower Commissions and fees and Trading revenues.

Transactional revenues of $2,328 million in the current year period increased 1% from the prior year period primarily reflecting higher revenues in Investment banking revenues, partially offset by decreased Trading revenues.

Investment banking revenues were relatively unchanged in the current quarter. The increase in the current year period was due to higher revenues from structured products and equity syndicate activities, partially offset by lower preferred stock syndicate activity.

Trading revenues decreased in the current quarter primarily due to lower client activity in fixed income products. In addition to lower client activity, Trading revenues decreased in the current year period due to lower revenues related to the Fixed Income Integration, partially offset by gains related to investments associated with certain employee deferred compensation plans.

Commissions and fees decreased in the current quarter primarily due to decreased activity in equities, mutual funds and annuities. Commissions and fees were relatively unchanged in the current year period, with decreased activity in annuities and mutual funds essentially offset by the impact of the Fixed Income Integration.

Asset Management

Asset management, distribution and administration fees of $2,393 million in the current quarter and $6,879 million in the current year period increased 12% and 10%, respectively. The increase in both periods is primarily due to market appreciation and net positive flows. See“Fee-Based Client Assets” herein.

Net Interest

Net interest of $1,025 million in the current quarter and $3,028 million in the current year period increased 16% and 19%, respectively, primarily due to higher loan balances and higher interest rates, partially offset by higher interest paid on deposits.

Other

Other revenues of $62 million in the current quarter and $191 million in the current year period decreased 14% and 18%, respectively, due to lower realized gains from the available for sale (“AFS”) securities portfolio.

Non-interest Expenses

Non-interest expenses of $3,101 million in the current quarter and $9,280 million in the current year period increased 4% and 5%, respectively, as a result of the increase in Compensation and benefits expenses.

Compensation and benefits expenses increased in the current quarter, primarily due to investments in technology, professional services and volume-related expenses, partially offset by a decrease in litigation expenses.

Non-interest expenses of $9,823 million in the formulaic payout to Wealth Management representatives linked to higher revenues. In addition tocurrent year period increased 11% compared with the higher formulaic payout, prior year period, primarily reflecting a 16% increase in Compensation and benefits expenses.
•Compensation and benefits expenses increased in the current year period, primarily due to increases in the fair value of investmentshigher expenses related to which certain deferred compensation plans are referenced.

linked to the Firm’s share price and investment performance, and an increase in discretionary incentive compensation driven by higher revenues.

•Non-compensation expenses were relatively unchanged in the current quarter.Non-compensation expenses decreasedincreased in the current year period, primarily due to lower litigationinvestments in technology, volume-related expenses and information processing costs,professional services, partially offset by higher deposit insurance expensea decrease in litigation expenses.

Income Tax Items
The effective tax rate of 23.0% is lower in the current quarter compared with the prior year quarter primarily due to the remeasurement of reserves and higher consulting feesinterest related to strategic initiatives.

a foreign tax matter in the prior year quarter.

Fee-Based Client Assets

10June 2021 Form 10-Q
Management’s Discussion and Analysis
ms-20210630_g1.jpg
Wealth Management
Income Statement Information
 Three Months Ended
June 30,
$ in millions20212020% Change
Revenues
Asset management$3,447 $2,507 37 %
Transactional1
1,172 1,075 9 %
Net interest1,255 1,030 22 %
Other1,2
221 92 140 %
Net revenues6,095 4,704 30 %
Provision for credit losses2
3 22 (86)%
Compensation and benefits3,275 2,729 20 %
Non-compensation expenses1,181 811 46 %
Total non-interest expenses4,456 3,540 26 %
Income before provision for
income taxes
$1,636 $1,142 43 %
Provision for income taxes372 289 29 %
Net income applicable to
Morgan Stanley
$1,264 $853 48 %
 Six Months Ended
June 30,
$ in millions20212020% Change
Revenues
Asset management$6,638 $5,187 28 %
Transactional1
2,400 1,474 63 %
Net interest2,640 1,926 37 %
Other1,2
376 173 117 %
Net revenues12,054 8,760 38 %
Provision for credit losses2
(2)41 (105)%
Compensation and benefits6,445 4,941 30 %
Non-compensation expenses2,375 1,581 50 %
Total non-interest expenses8,820 6,522 35 %
Income before provision for
income taxes
$3,236 $2,197 47 %
Provision for income taxes730 480 52 %
Net income applicable to
Morgan Stanley
$2,506 $1,717 46 %
1.Transactional includes Investment banking, Trading, and Commissions and fees revenues. Other includes Investments and Other revenues.
2.Certain prior period amounts have been reclassified to conform to the current presentation. See "Business Segments" herein and Note 1 to the financial statements for additional information.
Acquisition of E*TRADE
The comparisons of current year results to prior periods are impacted by the acquisition of E*TRADE in the fourth quarter of 2020. For additional information on the acquisition of E*TRADE, see Note 3 to the financial statements in the Form 2020 10-K.
Wealth Management Metrics
$ in billionsAt June 30,
2021		At December 31,
2020
Total client assets$4,546$3,999
U.S. Bank Subsidiary loans$115$98
Margin and other lending1
$27$23
Deposits2
$319$306
Weighted average cost of deposits3
0.16%0.24%
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
Net new assets4
$71.2$20.4$176.1$57.5
1.Margin and other lending represents margin lending arrangements, which allow customers to borrow against the value of qualifying securities and other lending which includes non‐purpose securities-based lending on non‐bank entities.
2.Deposits are sourced from Wealth Management clients and other sources of funding on the U.S. Bank Subsidiaries. Deposits include sweep deposit programs, savings and other, and time deposits. Excludes approximately $8 billion and $25 billion of off-balance sheet deposits as of June 30, 2021 and December 31, 2020, respectively.
3.Weighted average cost of deposits represents the annualized weighted average.
4.Net new assets represent client inflows, including dividends and interest, less client outflows, and exclude activity from business combinations/divestitures and the impact of fees and commissions.
Advisor-led channel
$ in billionsAt June 30,
2021		At December 31,
2020
Advisor-led client assets1
$3,553$3,167
Fee-based client assets2
$1,680$1,472
Fee-based client assets as a
percentage of advisor-led client
assets
47%46%
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Fee-based asset flows3
$33.7$11.1$70.9$29.5
1.Advisor-led client assets represent client assets in accounts that have a Wealth Management representative assigned.
2.Fee‐based client assets represent the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets.
3.Fee-based asset flows include net new fee-based assets, net account transfers, dividends, interest and client fees, and exclude institutional cash management related activity. For a description offee-based the Inflows and Outflows included in Fee-based asset flows, see Fee-based client assets including descriptionsin the 2020 Form 10-K.
Self-directed channel
$ in billionsAt June 30,
2021		At December 31,
2020
Self-directed assets1
$993$832
Self-directed households (in millions)2
7.46.7
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
Daily average revenue trades (“DARTs”) (in thousands)3
1,04261,3246
1.Self-directed assets represent active accounts which are not advisor led. Active accounts are defined as having at least $25 in assets.
2.Self-directed households represent the total number of households that include at least one account with self-directed assets. Individual households or participants that are engaged in one or more of our Wealth Management channels will be included in each of the respective channel counts.
3.DARTs represent the total self-directed trades in a period divided by the number of trading days during that period.
June 2021 Form 10-Q11
Management’s Discussion and Analysis
ms-20210630_g1.jpg
Workplace channel1
$ in billionsAt June 30,
2021		At December 31,
2020
Workplace unvested assets2
$480$435
Number of participants (in millions)3
5.24.9
1.The workplace channel includes equity compensation solutions for companies, their executives and employees.
2.Workplace unvested assets represent the fee basedmarket value of public company securities at the end of the period.
3.Workplace participants represent total accounts with vested and/or unvested assets in the workplace channel. Individuals with accounts in multiple plans are counted as participants in each plan.
Net Revenues
Asset Management
Asset management revenues of $3,447 million in the current quarter and $6,638 million in the current year period increased 37% and 28% from the prior year quarter and the prior year period, respectively, primarily due to higher fee-based asset levels in the current year periods as a result of market appreciation and positive fee-based flows.
See “Fee-Based Client Assets—Rollforwards” herein.
Transactional Revenues
Transactional revenues of $1,172 million in the current quarter increased 9% compared with the prior year quarter, primarily due to incremental revenues as a result of the E*TRADE acquisition and higher revenues from structured product and closed-end fund issuances, partially offset by lower gains from investments associated with certain employee deferred compensation plans.
In the current year period, Transactional revenues increased 63% to $2,400 million compared with the prior year period, primarily due to incremental revenues as a result of the E*TRADE acquisition, gains from investments associated with certain employee deferred compensation plans, and higher revenues from structured product and closed-end fund issuances.
Net Interest
Net interest of $1,255 million increased 22% compared with the prior year quarter, primarily due to incremental net interest as a result of the E*TRADE acquisition and continued growth in bank lending, partially offset by the net effect of lower interest rates and an increase in prepayment amortization related to mortgage-backed securities.
In the current year period, Net interest increased 37% to $2,640 million compared with the prior year period, primarily due to incremental net interest as a result of the E*TRADE acquisition, continued growth in bank lending, and a decrease in prepayment amortization related to mortgage-backed securities. These increases were partially offset by the net effect of lower interest rates.
Other
Other revenues of $221 million in the current quarter and $376 million in the current year period increased 140% and 117% from the prior year quarter and the prior year period, respectively, primarily due to incremental revenues as a result of the E*TRADE acquisition and higher realized gains from the AFS securities portfolio.
Non-interest Expenses
Non-interest expenses of $4,456 million in the current quarter increased 26% compared with the prior year quarter, as a result of both higher Compensation and benefits expenses and Non-compensation expenses.
•Compensation and benefits expenses increased primarily due to an increase in the formulaic payout to Wealth Management representatives driven by higher compensable revenues and incremental compensation as a result of the E*TRADE acquisition, partially offset by lower expenses related to certain deferred compensation plans linked to investment performance.
•Non-compensation expenses increased primarily due to incremental expenses as a result of the E*TRADE acquisition.
In the current year period, Non-interest expenses increased 35% to $8,820 million compared with the prior year period, as a result of both higher Compensation and benefits expenses and Non-compensation expenses.
•Compensation and benefits expenses increased primarily due to an increase in the formulaic payout to Wealth Management representatives driven by higher compensable revenues, incremental compensation as a result of the E*TRADE acquisition, and higher expenses related to certain deferred compensation plans linked to investment performance.
•Non-compensation expenses increased primarily due to incremental expenses as a result of the E*TRADE acquisition.
12June 2021 Form 10-Q
Management’s Discussion and Analysis
ms-20210630_g1.jpg
Fee-Based Client Assets Rollforwards
$ in billionsAt
March 31,
2021		InflowsOutflows
Market
Impact
At
June 30,
2021
Separately managed1
$385 $13 $(4)$13 $407 
Unified managed405 25 (14)20 436 
Advisor188 10 (8)11 201 
Portfolio manager549 29 (17)29 590 
Subtotal$1,527 $77 $(43)$73 $1,634 
Cash management47 8 (9)— 46 
Total fee-based
client assets
$1,574 $85 $(52)$73 $1,680 
$ in billionsAt
March 31,
2020		InflowsOutflows
Market
Impact
At
June 30,
2020
Separately managed1
$329 $7 $(4)$(19)$313 
Unified managed263 13 (10)39 305 
Advisor131 8 (8)18 149 
Portfolio manager379 20 (15)47 431 
Subtotal$1,102 $48 $(37)$85 $1,198 
Cash management32 10 (4)— 38 
Total fee-based
client assets
$1,134 $58 $(41)$85 $1,236 
$ in billionsAt
December 31,
2020		InflowsOutflows
Market
Impact
At
June 30,
2021
Separately managed1
$359 $26 $(11)$33 $407 
Unified managed379 51 (27)33 436 
Advisor177 22 (17)19 201 
Portfolio manager509 59 (32)54 590 
Subtotal$1,424 $158 $(87)$139 $1,634 
Cash management48 15 (17)— 46 
Total fee-based
client assets
$1,472 $173 $(104)$139 $1,680 
$ in billionsAt
December 31,
2019		InflowsOutflows
Market
Impact
At
June 30,
2020
Separately managed1
$322 $19 $(10)$(18)$313 
Unified managed313 29 (22)(15)305 
Advisor155 16 (15)(7)149 
Portfolio manager435 44 (31)(17)431 
Subtotal$1,225 $108 $(78)$(57)$1,198 
Cash management42 9 (13)— 38 
Total fee-based
client assets
$1,267 $117 $(91)$(57)$1,236 
1.Includes non-custody account values reflecting prior quarter-end balances due to a lag in the reporting of asset values by third-party custodians.
Average Fee Rates
 Three Months Ended
June 30,		Six Months Ended
June 30,
Fee rate in bps2021202020212020
Separately managed14 14 14 14 
Unified managed95 99 96 99 
Advisor82 86 82 85 
Portfolio manager93 94 93 94 
Subtotal72 72 73 72 
Cash management5 6 5 5 
Total fee-based client assets71 70 71 70 
For a description of fee-based client asset typesassets and rollforward items in the followingprevious tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—WealthManagement— Management Fee-Based Client Assets Activity and Average Fee Rate by Account Type”Assets” in Part II, Item 7 of the 20162020 Form10-K.

September 2017June 2021 Form 10-Q1413

Management’s Discussion and AnalysisLOGO

Fee-Based Client Assets Rollforward

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

Separately
managed accounts1, 2

 $237  $8  $(5)  $3  $243  

Unified managed accounts2

  228   11   (7)   7   239  

Mutual fund
advisory

  21   1   (1)   —   21  

Representative as advisor

  138   9   (7)   4   144  

Representative as
portfolio
manager

  321   18   (11)   10   338  

Subtotal

 $945  $47  $(31)  $24  $985  

Cash management

  17   3   (2)   —   18  

Totalfee-based
client assets

 $962  $50  $(33)  $24  $1,003  

$ in billions 

At

June 30,
2016

  Inflows  Outflows  Market
Impact		  

At

September 30,
2016

 

Separately
managed
accounts1

 $279  $8  $(15)  $7  $279  

Unified managed
accounts

  120   17   (5)   4   136  

Mutual fund
advisory

  23   —   (1)   1   23  

Representative as
advisor

  117   10   (7)   3   123  

Representative as portfolio manager

  265   19   (12)   6   278  

Subtotal

 $804  $54  $(40)  $21  $839  

Cash management

  16   2   (2)   —   16  

Totalfee-based
client assets

 $820  $56  $(42)  $21  $855  
ms-20210630_g1.jpg

$ in billions 

At

December 31,
2016

  Inflows  Outflows  Market
Impact		  

At

September 30,
2017

 

Separately managed accounts1, 2

 $222  $24  $(16)  $13  $243  

Unified managed accounts2

  204   36   (22)   21   239  

Mutual fund advisory

  21   1   (3)   2   21  

Representative as advisor

  125   27   (20)   12   144  

Representative as portfolio manager

  285   57   (29)   25   338  

Subtotal

 $857  $145  $(90)  $73  $985  

Cash management

  20   9   (11)   —   18  

Totalfee-based client assets

 $877  $154  $(101)  $73  $1,003  

$ in billions 

At

December 31,
2015

  Inflows  Outflows  Market
Impact		  

At

September 30,
2016

 

Separately managed accounts1

 $283  $24  $(31)  $3  $279  

Unified managed accounts

  105   37   (13)   7   136  

Mutual fund advisory

  25   1   (5)   2   23  

Representative as advisor

  115   22   (20)   6   123  

Representative as portfolio manager

  252   48   (32)   10   278  

Subtotal

 $780  $132  $(101)  $28  $839  

Cash management

  15   8   (7)   —   16  

Totalfee-based client assets

 $795  $140  $(108)  $28  $855  

Average Fee Rates3

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
Fee Rate in bps  2017   2016   2017   2016 

Separately managed
accounts2

   17    35    16    36  

Unified managed
accounts2

   97    104    98    106  

Mutual fund advisory

   118    119    118    119  

Representative as
advisor

   84    85    84    85  

Representative as
portfolio manager

   94    98    96    99  

Subtotal

   76    76    76    77  

Cash management

   6    6    6    6  

Totalfee-based
client assets

   75    75    75    76  

bps—Basis points

1.

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

2.

A shift in client assets of approximately $66 billion in the fourth quarter of 2016 from separately managed accounts to unified managed accounts resulted in a lower average fee rate for those platforms but did not impact the average fee rate for totalfee-based client assets.

3.

Certain data enhancements made in the first quarter of 2017 resulted in a modification to the “Fee Rate” calculations. Prior periods have been restated to reflect the revised calculations.

Investment Management

Income Statement Information
 Three Months Ended
June 30,		 
$ in millions20212020% Change
Revenues
Asset management and related fees$1,418 $684 107 %
Performance-based income and other1
284 202 41 %
Net revenues1,702 886 92 %
Compensation and benefits715 354 102 %
Non-compensation expenses557 316 76 %
Total non-interest expenses1,272 670 90 %
Income before provision for income taxes430 216 99 %
Provision for income taxes108 39 177 %
Net income322 177 82 %
Net income (loss) applicable to noncontrolling interests(19)23 (183)%
Net income applicable to Morgan Stanley$341 $154 121 %
 Six Months Ended
June 30,		 
$ in millions20212020% Change
Revenues

Asset management and related fees$2,521 $1,349 87 %
Performance-based income and other1
495 229 116 %
Net revenues3,016 1,578 91 %
Compensation and benefits1,229 611 101 %
Non-compensation expenses987 608 62 %
Total non-interest expenses2,216 1,219 82 %
Income before provision for income taxes800 359 123 %
Provision for income taxes189 64 195 %
Net income611 295 107 %
Net income (loss) applicable to noncontrolling interests(5)63 (108)%
Net income applicable to Morgan Stanley$616 $232 166 %
1.Includes Investments, Trading, Commissions and fees, Net interest, and Other revenues.
Acquisition of Eaton Vance
The comparisons of current year results to prior periods are impacted by the acquisition of Eaton Vance in the first quarter of 2021. For additional information on the acquisition of Eaton Vance, see Note 3 to the financial statements.
Net Revenues
Asset Management and related fees
Asset management and related fees of $1,418 million in the current quarter and $2,521 million in the current year period increased 107% and 87% from the prior year quarter and prior year period, respectively, primarily due to incremental revenues as a result of the Eaton Vance acquisition, and higher average AUM driven by strong investment performance and positive net flows.
See “Assets Under Management or Supervision” herein.
Performance-based income and other
Performance-based income and other revenues of $284 million in the current quarter and $495 million in the current year period increased 41% and 116% from the prior year quarter and prior year period, respectively, primarily due to higher accrued carried interest across strategies, partially offset by the reversal of accrued carried interest and investment losses in an Asia private equity fund.
Non-interest Expenses
Non-interest expenses of $1,272 million in the current quarter increased 90% from the prior year quarter and Non-interest expenses of $2,216 million in the current year period increased 82% from the prior year period, both as a result of higher Compensation and benefits expenses and Non-compensation expenses.
•Compensation and benefits expenses increased primarily due to incremental compensation as a result of the Eaton Vance acquisition, higher compensation associated with carried interest, and an increase in discretionary incentive compensation driven by higher asset management revenues.
•Non-compensation expenses increased primarily due to incremental expenses as a result of the Eaton Vance acquisition and higher fee sharing paid to intermediaries on higher average AUM.
1415September 2017June 2021 Form 10-Q

Management’s Discussion and AnalysisLOGO
ms-20210630_g1.jpg

Investment Management

Income Statement Information

  

Three Months Ended

September 30,

    
$ in millions 2017  2016  % Change 

Revenues

   

Investment banking

 $—  $(2)   N/M 

Trading

  (7)   (3)   (133)% 

Investments

  114   51   124% 

Asset management, distribution
and administration fees

  568   508   12% 

Other

  1   (3)   133% 

Totalnon-interest revenues

  676   551   23% 

Interest income

  1   1   —% 

Interest expense

  2   —   N/M 

Net interest

  (1)   1   (200)% 

Net revenues

  675   552   22% 

Compensation and benefits

  311   237   31% 

Non-compensation expenses

  233   218   7% 

Totalnon-interest expenses

  544   455   20% 

Income from continuing
operations before income taxes

  131   97   35% 

Provision for income taxes

  16   31   (48)% 

Net income

  115   66   74% 

Net income (loss) applicable to noncontrolling interests

  1   (1)   200% 

Net income applicable to
Morgan Stanley

 $114  $67   70% 
  

Nine Months Ended

September 30,

    
$ in millions 2017  2016  % Change 

Revenues

   

 

Investment banking

 $—  $(1)   N/M 

Trading

  (21)   (8)   (163)% 

Investments

  337   37   N/M 

Commissions and fees

  —   3   N/M 

Asset management, distribution and administration fees

  1,624   1,551   5% 

Other

  9   28   (68)% 

Totalnon-interest revenues

  1,949   1,610   21% 

Interest income

  3   5   (40)% 

Interest expense

  3   3   —% 

Net interest

  —   2   N/M 

Net revenues

  1,949   1,612   21% 

Compensation and benefits

  878   688   28% 

Non-compensation expenses

  695   665   5% 

Totalnon-interest expenses

  1,573   1,353   16% 

Income from continuing
operations before income taxes

  376   259   45% 

Provision for income taxes

  87   78   12% 

Net income

  289   181   60% 

Net income (loss) applicable to noncontrolling interests

  8   (14)   157% 

Net income applicable to
Morgan Stanley

 $281  $195   44% 

N/M – Not Meaningful

Net Revenues

Investments

Investments gains of $114 million in the current quarter compared with $51 million in the prior year quarter reflected higher carried interest principally in Infrastructure investments, partially offset by weaker investment performance which resulted in the reversal of previously accrued carried interest in Private Equity.

Investments gains of $337 million in the current year period compared with $37 million in the prior year period reflected higher carried interest and performance gains in all asset classes.

Asset Management, Distribution and Administration Fees

Asset management, distribution and administration fees of $568 million increased 12% in the current quarter compared to the prior year quarter as a result of higher average assets under management or supervision (“AUM”) across all asset classes and higher performance fees.

Asset management, distribution and administration fees of $1,624 million increased 5% in the current year period compared to the prior year period primarily as a result of higher average AUM.

See “Assets Under Management or Supervision” herein.

Non-interest Expenses

Non-interest expenses of $544 million in the current quarter and $1,573 million in the current year period increased 20% and 16% from the comparable prior periods primarily due to higher Compensation and benefits expenses.

Compensation and benefits expenses increased in the current quarter and current year period due to higher discretionary incentive compensation and an increase in deferred compensation associated with carried interest.

Non-compensation expenses increased in the current quarter and current year period primarily due to higher brokerage, clearing and exchange fees.

Assets Under Management or Supervision


Rollforwards
$ in billionsEquityFixed incomeAlternatives and SolutionsLong-term AUM SubtotalLiquidity and Overlay ServicesTotal
March 31, 2021$371 $201 $418 $990 $429 $1,419 
Inflows24 19 29 72 454 526 
Outflows(21)(15)(20)(56)(419)(475)
Market Impact31 3 19 53 4 57 
Other(1)(1)(1)(3)— (3)
June 30, 2021$404 $207 $445 $1,056 $468 $1,524 
$ in billionsEquityFixed incomeAlternatives and SolutionsLong-term AUM SubtotalLiquidity and Overlay ServicesTotal
March 31, 2020$121 $75 $141 $337 $247 $584 
Inflows18 11 7 36 409 445 
Outflows(9)(6)(4)(19)(388)(407)
Market Impact37 4 2 43 — 43 
Other1 — (1)— — — 
June 30, 2020$168 $84 $145 $397 $268 $665 
$ in billionsEquityFixed incomeAlternatives and SolutionsLong-term AUM SubtotalLiquidity and Overlay ServicesTotal
December 31, 2020$242 $98 $153 $493 $288 $781 
Inflows55 32 44 131 913 1,044 
Outflows(44)(24)(30)(98)(852)(950)
Market Impact35 1 29 65 4 69 
Acquired1
119 103 251 473 116 589 
Other(3)(3)(2)(8)(1)(9)
June 30, 2021$404 $207 $445 $1,056 $468 $1,524 
1.Related to the Eaton Vance acquisition.
$ in billionsEquityFixed incomeAlternatives and SolutionsLong-term AUM SubtotalLiquidity and Overlay ServicesTotal
December 31, 2019$138 $79 $139 $356 $196 $552 
Inflows32 21 15 68 855 923 
Outflows(21)(15)(8)(44)(783)(827)
Market Impact19 — (5)14 1 15 
Other— (1)4 3 (1)2 
June 30, 2020$168 $84 $145 $397 $268 $665 
Average AUM
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in billions2021202020212020
Equity$389 $146 $329 $142 
Fixed income205 80 159 80 
Alternatives and Solutions434 143 314 141 
Long-term AUM subtotal1028 369 802 363 
Liquidity and Overlay Services449 266 384 235 
Total AUM$1,477 $635 $1,186 $598 
Average Fee Rates
 Three Months Ended
June 30,		Six Months Ended
June 30,
Fee rate in bps2021202020212020
Equity72 7677 75
Fixed income38 2938 30
Alternatives and Solutions33 5840 59
Long-term AUM49 5955 59
Liquidity and Overlay Services5 166 16
Total AUM35 4139 42
While Asset management and related fees arising from the acquisition are incremental to our revenues, certain Eaton Vance products may have higher or lower average fee rates than similar products prior to the acquisition, with the overall impact yielding a lower average fee rate.
For a description of the asset classes and rollforward items in the followingprevious tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Investment Management—Assets Under Management or Supervision” in Part II, Item 7the 2020 Form 10-K, except for the following updates to the definitions, which reflect the inclusion of certain Eaton Vance products.
•Alternatives and Solutions—includes products in fund of funds, real estate, infrastructure, private equity and credit strategies, multi-asset portfolios as well as custom separate account portfolios.
•Liquidity and Overlay Services—includes liquidity fund products as well as overlay services, which represent investment strategies that use passive exposure instruments to obtain, offset or substitute specific portfolio exposures, beyond those provided by the underlying holdings of the 2016 Form10-K.

fund.

September 2017June 2021 Form 10-Q1615

Management’s Discussion and AnalysisLOGO

AUM Rollforwards

$ in billions 

At

June 30,
2017

  Inflows  Outflows  Market
Impact		  Other1  

At

September 30,
2017

 

Equity

 $      94  $    5  $(6)  $    4  $    —  $      97  

Fixed income

  66   7   (5)   1   —   69  

Liquidity

  154   279   (277)   1   (1)   156  

Alternative /
Other
products

  121   5   (3)   1   1   125  

Total AUM

 $435  $296  $(291)  $7  $—  $447  

Shares of minority
stake assets

  8                   7  
$ in billions 

At

June 30,

2016

  Inflows  Outflows  Market
Impact		  Other1  

At

September 30,
2016

 

Equity

 $      81  $      4  $(6)  $     4  $    —  $                83  

Fixed income

  61   6   (5)   1   —   63  

Liquidity

  149   358   (352)   (1)   —   154  

Alternative /
Other
products

  115   4   (4)   2   —   117  

Total AUM

 $406  $372  $(367)  $6  $—  $417  

Shares of minority
stake assets

  8                   7  

$ in billions 

At

December 31,
2016

  Inflows  Outflows  Market
Impact		  Other1  

At

September 30,
2017

 

Equity

 $        79  $      16  $(16)  $      17  $      1  $              97  

Fixed income

  60   20   (16)   3   2   69  

Liquidity

  163   915   (923)   1   —   156  

Alternative /
Other
products

  115   18   (13)   5   —   125  

Total AUM

 $417  $969  $(968)  $26  $3  $447  

Shares of minority
stake assets

  8                   7  

$ in billions 

At

December 31,
2015

  Inflows  Outflows  Market
Impact		  Other1  

At

September 30,
2016

 

Equity

 $          83  $      14  $(18)  $      4  $      —  $              83  

Fixed income

  60   18   (19)   3   1   63  

Liquidity

  149   985   (979)   (1)   —   154  

Alternative /
Other
products

  114   18   (18)   3   —   117  

Total AUM

 $406  $1,035  $(1,034)  $9  $1  $417  

Shares of minority
stake assets

  8                   7  

Average AUM

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in billions 2017  2016  2017  2016 

Equity

 $             96  $             83  $             90  $             81  

Fixed income

  68   62   65   61  

Liquidity

  156   151   155   149  

Alternative /
Other
products

  123   116   120   115  

Total AUM

 $443  $412  $430  $406  

Shares of minority
stake assets

  7   7   7   8  

Average Fee Rate

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
Fee Rate in bps     2017          2016          2017          2016     

Equity

  75   74   74   72  

Fixed income

  34   32   33   32  

Liquidity

  18   18   18   18  

Alternative /
Other
products

  68   73   69   76  

Total AUM

               47                47                46                48  

AUM—Assets under management or supervision

bps—Basis points

1.

Includes distributions and foreign currency impact.

17September 2017 Form 10-Q
Table of Contents

Management’s Discussion and AnalysisLOGO
ms-20210630_g1.jpg

Supplemental Financial Information and Disclosures

U.S. Bank Subsidiaries

We provide loans to a variety of customers, from large corporate and institutional clients to high net worth individuals, primarily through our

Our U.S. bank subsidiaries, Morgan Stanley Bank N.A. (“MSBNA”) and, Morgan Stanley Private Bank, National Association (“MSPBNA”), E*TRADE Bank (“ETB”), and E*TRADE Savings Bank (“ETSB”) (collectively, “U.S. Bank Subsidiaries”). The lending activities accept deposits, provide loans to a variety of customers, including large corporate and institutional clients as well as high to ultra-high net worth individuals, and invest in securities. Lending activity recorded in the U.S. Bank Subsidiaries from the Institutional Securities business segment primarily include loans orincludes Secured lending commitments to corporate clients. The lending activitiesfacilities and Commercial real estate loans. Lending activity recorded in the U.S. Bank Subsidiaries from the Wealth Management business segment primarily include securities-basedincludes Securities-based lending, thatwhich allows clients to borrow money against the value of qualifying securities, and also include residentialResidential real estate loans. We expect our lending activities to continue to grow through further market penetration of the client base within the Institutional Securities and Wealth Management business segments.
For a further discussion of our credit risks, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Credit Risk.” For a further discussion about loans and lending commitments, see Notes 710 and 1114 to the financial statements.

U.S. Bank Subsidiaries’ Supplemental Financial Information Excluding Transactions with1
$ in billionsAt
June 30,
2021		At
December 31,
2020
Investment securities portfolio:
Investment securities—AFS$73.4 $90.3 
Investment securities—HTM62.8 52.6 
Total investment securities$136.2 $142.9 
Wealth Management Loans2
Residential real estate$38.9 $35.2 
Securities-based lending and Other3
75.8 62.9 
Total, net of ACL$114.7 $98.1 
Institutional Securities Loans2
Corporate$5.5 $7.9 
Secured lending facilities30.5 27.4 
Commercial and Residential real estate9.8 10.1 
Securities-based lending and Other7.1 5.4 
Total, net of ACL$52.9 $50.8 
Total Assets$357.5 $346.5 
Deposits4
$318.7 $309.7 
1.Amounts exclude transactions between the bank subsidiaries, as well as deposits from the Parent Company

$ in billions 

At
September 30,

2017

  At
December 31,
2016		 

U.S. Bank Subsidiaries assets1

 $182.2  $176.8  

U.S. Bank Subsidiaries investment securities portfolio:

  

Investment securities—AFS

  42.7   50.3  

Investment securities—HTM

  18.1   13.6  

Total investment securities

 $60.8  $63.9  

Deposits2

 $154.2  $154.7  

 

Wealth Management U.S. Bank Subsidiaries data

 

Securities-based lending and other loans3

 $40.1  $36.0  

Residential real estate loans

  26.2   24.4  

Total

 $66.3  $60.4  

 

Institutional Securities U.S. Bank Subsidiaries data

 

Corporate loans

 $22.3  $20.3  

Wholesale real estate loans

  10.1   9.9  

Total

 $                    32.4  $                30.2  

AFS—Available for sale

HTM—Held to maturity

1.

Certain revisions have been made to prior periods to conform to the current presentation.

2.

and affiliates.

2.For a further discussion of loans in the Wealth Management and Institutional Securities business segments, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk” herein.
3.Other loans primarily include tailored lending.
4.For further information on deposits, see “Liquidity and Capital Resources—Funding Management—Unsecured Financing” herein.

3.

Other loans primarily include tailored lending.

Income Tax Matters

Effective Tax Rate

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
       2017          2016          2017          2016     

From continuing operations

  28.1%   31.5%   29.7%   32.7% 

The effective tax rate for the current quarter and current year period reflects a recurring-type discrete tax benefit of $11 million and $139 million, respectively, associated with the adoption of new accounting guidance related to employee share-based payments, and other net discrete tax benefits of $83 million and $65 million, respectively, primarily resulting from the remeasurement of certain deferred taxes. See Note 2 to the financial statements for information on the adoption of the accounting updateImprovements to Employee Share-Based Payment Accounting.

deposits, see “Liquidity and Capital Resources—Funding Management—Unsecured Financing” herein.

Accounting Development Updates

The Financial Accounting Standards Board has issued certain accounting updates, that apply to us butwhich we have either determined are not yet effective for the Firm. Accounting updates not listed below were assessed and determined to be either not applicable or are not expected to have a significant impact on our financial statements.

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

•

Revenue from Contracts with Customers. This accounting update aims to clarify the principles of revenue recognition, develop a common revenue recognition standard across all industries for U.S. GAAP and provide enhanced disclosures for users of the financial statements. The core principle of this guidance is that an entity should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update is not applicable to financial instruments. We will adopt the guidance on January 1, 2018 and apply the modified retrospective method of adoption.

This accounting update will change the presentation of certain costs related to underwriting and advisory activities so that such costs will be recorded in the relevantnon-interest expense line item versus the current practice of netting such costs against Investment banking revenues. This change is estimated to gross up Investment banking revenues and affected expenses for the Institutional Securities segment by approximately5%-10%. Similarly, certain costs related to the selling and distribution of investment funds will no longer be netted against Asset management, distribution and administration fees, and therefore is expected to result in a gross up of such Investment

September 2017 Form 10-Q18

Management’s Discussion and AnalysisLOGO

Management revenues and affected expenses by less than 5%. These changes will not have an impact on net income.

In addition, the timing of the recognition of certain performance fees from fund management activities, not in the form of carried interest, is generally expected to be deferred within a fiscal year until the fees are no longer probable of being reversed. Thus, the recognition of such revenues, which are recorded in Asset management, distribution and administration fees within the Investment Management segment, which approximated $60 million in 2016 and were recognized throughout the year, are generally expected to be recognized in the fourth quarter of each fiscal year based on current fee arrangements.

The recognition of performance fees from fund management activities in the form of carried interest that are subject to reversal will remain essentially unchanged. We will apply the equity method of accounting to such carried interest, thus excluding them from the scope of this standard.

We will continue to assess the impact of the new standard as we progress through the implementation process and as industry interpretations are resolved; therefore, additional impacts may be identified prior to adoption.

•

Hedge Accounting.This accounting update aims to better align the hedge accounting requirements with an entity’s risk management strategies and improve the financial reporting of hedging relationships. It will also result in simplification of the application of hedge accounting related to the assessment of hedge effectiveness. This update is effective as of January 1, 2019 with early adoption permitted.

•

Leases. This accounting update requires lessees to recognize on the balance sheet all leases with terms exceeding one year, which results in the recognition of a right of use asset and corresponding lease liability, including for those leases that we currently classify as operating leases. The right of use asset and lease liability will initially be measured using the present value of the remaining rental payments. The accounting for leases where we are the lessor is largely unchanged. This update is effective as of January 1, 2019 with early adoption permitted.

•

Financial Instruments–Credit Losses. This accounting update impacts the impairment model for certain financial assets measured at amortized cost by requiring a current expected credit loss (“CECL”) methodology to estimate expected credit losses over the entire life of the financial asset, recorded at inception or purchase. CECL will replace the loss model currently applicable to loans held for invest-

ment, HTM securities and other receivables carried at amortized cost.

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

Under the update, there may be an ability to determine there are no expected credit losses in certain circumstances, e.g., based on collateral arrangements for lending and financing transactions or based on the credit quality of the borrower or issuer.

Overall, the amendments in this update are expected to accelerate the recognition of credit losses for portfolios where CECL models will be applied. This update is effective as of January 1, 2020 with early adoption permitted as of January  1, 2019.

Critical Accounting Policies

Our financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions (see Note 1 to the financial statements). We believe that of our significant accounting policies (see Note 2 to the consolidated financial statements in the 20162020 Form10-K and Note 2 to the financial statements), the fair value, goodwill and intangible assets, legal and regulatory contingencies and income taxes policies involve a higher degree of judgment and complexity. For a further discussion about our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in Part II, Item 7the 2020 Form 10-K. As discussed in Note 2 to the financial statements, our acquisition of Eaton Vance on March 1, 2021 included indefinite lived intangible assets. The initial valuation of an intangible asset, including indefinite lived intangible assets, as part of the 2016 Form10-K.

acquisition method of accounting and the subsequent valuation of intangible assets as part of impairment assessments are subjective and based, in part, on inputs that are unobservable. These inputs include, but are not limited to, forecasted cash flows, revenue growth rates, attrition rates and discount rates.

Liquidity and Capital Resources

Senior management, with oversight by the Asset/Liability Management Committee and the Board of Directors (“Board”), establishes and maintains our liquidity and capital policies. Through various risk and control committees, senior management reviews business performance relative to these policies, monitors the availability of alternative sources of financing, and oversees the liquidity, interest rate and currency sensitivity of our asset and liability position. TheOur Treasury Department,department, Firm Risk Committee, Asset and Asset/Liability Management Committee, and other committees and control groups assist in evaluating, monitoring and controlling the impact that our business activities have on our balance sheets,sheet, liquidity and capital structure. Liquidity and capital matters are reported regularly to the Board of Directors (the “Board”) and the Board’s Risk Committee.

Committee of the Board.

19September 2017 Form 10-Q

Management’s Discussion and AnalysisLOGO

The Balance Sheet

We monitor and evaluate the composition and size of our balance sheet on a regular basis. Our balance sheet management process includes quarterly planning, business-specific thresholds, monitoring of business-specific usage versus key performance metrics and new business impact assessments.

We establish balance sheet thresholds at the consolidated and business segment levels. We monitor balance sheet utilization and review variances resulting from business activity orand market fluctuations. On a regular basis, we review current performance versus established thresholds and assess the need tore-allocate our balance sheet based on business unit needs. We also monitor key metrics, including asset and liability size and capital usage.

16June 2021 Form 10-Q
Management’s Discussion and Analysis
ms-20210630_g1.jpg
Total Assets by Business Segment

  At September 30, 2017 

$ in millions

 Institutional
Securities		  Wealth
Management		  Investment
Management		    Total   

Assets

    

Cash and cash equivalents1

 $31,100  $17,026  $65  $48,191  

Trading assets at fair value

  282,555   68   2,465   285,088  

Investment securities

  18,532   60,554   —   79,086  

Securities purchased under
agreements to resell

  84,223   5,883   —   90,106  

Securities borrowed

  132,597   295   —   132,892  

Customer and other
receivables

  35,725   18,061   602   54,388  

Loans, net of allowance

  38,171   66,255   5   104,431  

Other assets2

  45,378   12,486   1,647   59,511  

Total assets

 $668,281  $180,628  $4,784  $853,693  

  At December 31, 2016 
$ in millions Institutional
Securities		  Wealth
Management		  Investment
Management		  Total 

Assets

    

Cash and cash equivalents1

 $25,291  $18,022  $68  $43,381  

Trading assets at fair value

  259,680   64   2,410   262,154  

Investment securities

  16,222   63,870   —   80,092  

Securities purchased under
agreements to resell

  96,735   5,220   —   101,955  

Securities borrowed

  124,840   396   —   125,236  

Customer and other
receivables

  26,624   19,268   568   46,460  

Loans, net of allowance

  33,816   60,427   5   94,248  

Other assets2

  45,941   13,868   1,614   61,423  

Total assets

 $629,149  $181,135  $4,665  $814,949  

1.

Cash and cash equivalents include cash and due from banks and interest bearing deposits with banks.

2.

Other assets primarily includes Cash deposited with clearing organizations or segregated under federal and other regulations or requirements; Other investments; Premises, equipment and software costs; Goodwill; Intangible assets and deferred tax assets.

At June 30, 2021
$ in millionsISWMIMTotal
Assets
Cash and cash equivalents$88,778 $37,124 $578 $126,480 
Trading assets at fair value314,961 1,180 5,004 321,145 
Investment securities40,310 135,032 — 175,342 
Securities purchased under agreements to resell79,414 16,516 — 95,930 
Securities borrowed125,358 1,345 — 126,703 
Customer and other receivables66,965 32,714 1,242 100,921 
Loans1
51,329 114,708 22 166,059 
Other assets2
15,142 22,517 11,566 49,225 
Total assets$782,257 $361,136 $18,412 $1,161,805 

At December 31, 2020
$ in millionsISWMIMTotal
Assets
Cash and cash equivalents$74,281 $31,275 $98 $105,654 
Trading assets at fair value308,413 280 4,045 312,738 
Investment securities41,630 140,524 — 182,154 
Securities purchased under agreements to resell84,998 31,236 — 116,234 
Securities borrowed110,480 1,911 — 112,391 
Customer and other receivables67,085 29,781 871 97,737 
Loans1
52,449 98,130 18 150,597 
Other assets2
13,986 22,458 1,913 38,357 
Total assets$753,322 $355,595 $6,945 $1,115,862 
1.Amounts include loans held for investment, net of ACL, and loans held for sale but exclude loans at fair value, which are included in Trading assets in the balance sheets (see Note 10 to the financial statements).
2.Other assets primarily includes Goodwill and Intangible assets, premises, equipment and software, ROU assets related to leases, other investments, and deferred tax assets.
A substantial portion of total assets consists of liquid marketable securities and short-term receivables arising principally from sales and trading activities inreceivables. In the Institutional Securities business segment.segment, these arise from market-making, financing and prime brokerage activities, and in the Wealth Management business segment, these arise from banking activities, including management of the investment portfolio, comprising Investment securities, Cash and cash equivalents and Securities purchased under agreements to resell. Total assets increased slightly to $853.7$1,162 billion at SeptemberJune 30, 20172021 from $814.9$1,116 billion at December 31, 2016, primarily driven by an increase in trading inventory within Institutional Securities, along with loan growth across both Institutional Securities and Wealth Management. The change in trading inventory reflects increased trading activity in U.S. government and agency securities and Other sovereign government obligations, along with higher market values for corporate equities compared with December 31, 2016.

Securities Repurchase Agreements and Securities Lending

Securities borrowed or securities purchased under agreements to resell and securities loaned or securities sold under agreements to repurchase are treated as collateralized financings (see Note 2 to the consolidated financial statements in the 2016 Form10-K and Note 6 to the financial statements).

Collateralized Financing Transactions

$ in millions  At
September 30,
2017		   At
December 31,
2016		 

Securities purchased under agreements to resell and Securities borrowed

  $222,998   $227,191  

Securities sold under agreements
to repurchase and Securities loaned

  $69,613   $70,472  

Securities received as collateral1

  $12,995   $13,737  

  

Daily Average Balance

Three Months Ended

 

$ in millions

 September 30,
2017		  December 31, 
2016		 

Securities purchased under agreements
to resell and Securities borrowed

 $227,146  $224,355  

Securities sold under agreements
to repurchase and Securities loaned

 $68,563  $68,908  

1.

Included in Trading assets in the balance sheets.

Customer Securities Financing

The customer receivable portion of the securities financing transactions primarily includes customer margin loans, collateralized by customer-owned securities, which are segregated in accordance with regulatory requirements. The customer payable portion of the securities financing transactions primarily includes payables to our prime brokerage customers. Our risk exposure on these transactions is mitigated by collateral maintenance policies that limit our credit exposure to customers and liquidity reserves held against this risk exposure.

2020.

September 2017 Form 10-Q20

Management’s Discussion and AnalysisLOGO

Liquidity Risk Management Framework

The primary goal of our Liquidity Risk Management Framework is to ensure that we have access to adequate funding across a wide range of market conditions and time horizons. The framework is designed to enable us to fulfill our financial obligations and support the execution of our business strategies.

The core components of our Liquidity Risk Management Framework are the Required Liquidity Framework, Liquidity Stress Tests and the Global Liquidity Reserve (“GLR”),Resources, which support our target liquidity profile. For a further discussion about the Firm’s Required Liquidity Framework and Liquidity Stress Tests, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Risk Management Framework” in Part II, Item 7 of the 20162020 Form10-K.

At SeptemberJune 30, 20172021 and December 31, 2016,2020, we maintained sufficient liquidity to meet current and contingent funding obligations as modeled in our Liquidity Stress Tests.

Global

Liquidity Reserve

Resources

We maintain sufficient global liquidity reserves pursuantresources, which consist of HQLA and cash deposits with banks (“Liquidity Resources”) to ourcover daily funding needs and to meet strategic liquidity targets sized by the Required Liquidity Framework. For further discussionFramework and Liquidity Stress Tests. The total amount of Liquidity Resources is actively managed by us considering the following components: unsecured debt maturity profile; balance sheet size and composition; funding needs in a stressed environment, inclusive of contingent cash outflows; legal entity, regional and segment liquidity requirements; regulatory requirements; and collateral requirements.
The amount of Liquidity Resources we hold is based on our GLR, see “Management’s Discussionrisk tolerance and Analysis of Financial Conditionis subject to change depending on market and Results of Operations—Firm-specific events. The Liquidity Resources are primarily held within the Parent Company and Capital Resources—its major operating subsidiaries. The Total HQLA values in the tables immediately following are different from Eligible HQLA, which, in accordance with the LCR rule, also takes into account certain regulatory weightings and other operational considerations.
Liquidity Risk Management Framework—Global Liquidity Reserve” in Part II, Item 7 of the 2016 Form10-K.

GLRResources by Type of Investment

$ in millions  

At

September 30,

2017

   

At

December 31,
2016

 

 Cash deposits with banks

  $9,684   $                8,679  

 Cash deposits with central banks

   33,566    30,568  

 Unencumbered highly liquid securities:

    

 U.S. government obligations

   67,677    78,615  

 U.S. agency and agency mortgage-backed securities

   51,676    46,360  

 Non-U.S. sovereign obligations1

   24,110    30,884  

 Investments in money market funds

   2    —   

Other investment grade securities

   3,251    7,191  

Total

  $189,966   $202,297  

$ in millionsAt
June 30,
2021		At
December 31,
2020
Cash deposits with central banks$67,662 $49,669 
Unencumbered HQLA Securities1:
U.S. government obligations127,603 136,555 
U.S. agency and agency mortgage-backed securities109,294 99,659 
Non-U.S. sovereign obligations2
29,204 39,745 
Other investment grade securities793 2,053 
Total HQLA1
$334,556 $327,681 
Cash deposits with banks (non-HQLA)9,220 10,942 
Total Liquidity Resources$343,776 $338,623 
1.HQLA is presented prior to applying weightings and includes all HQLA held in subsidiaries.
2.Primarily composed of unencumbered Japanese, U.K., German, French and Italian government obligations.
Liquidity Resources by Bank and Non-Bank Legal Entities
At
June 30,
2021		At
December 31,
2020		Average Daily Balance
Three Months Ended
$ in millionsJune 30, 2021
Bank legal entities
U.S.$172,944 $178,033 $176,625 
Non-U.S.9,845 7,670 8,473 
Total Bank legal entities182,789 185,703 185,098 
Non-Bank legal entities
U.S.:
Parent Company67,997 59,468 63,911 
Non-Parent Company41,037 33,368 43,511 
Total U.S.109,034 92,836 107,422 
Non-U.S.51,953 60,084 59,394 
Total Non-Bank legal entities160,987 152,920 166,816 
Total Liquidity Resources$343,776 $338,623 $351,914 
1.

Non-U.S. sovereign obligations are primarily composed

June 2021 Form 10-Q17
Management’s Discussion and Japanese government obligations.

Analysis
ms-20210630_g1.jpg

GLR Managed by Bank

Liquidity Resources may fluctuate from period to period based on the overall size andNon-Bank Legal Entities

  

At

September 30,
2017

   

At

December 31,
2016

   

Daily Average
Balance

Three Months
Ended

 
 $ in millions     September 30,
2017		 

 Bank legal entities

 

 Domestic

 $                72,567   $                74,411   $                68,746  

 Foreign

  4,248    4,238    4,297  

 Total Bank legal entities

  76,815    78,649    73,043  

 Non-Bank legal entities

 

 Domestic:

     

 Parent Company

  39,747    66,514    50,893  

 Non-Parent Company

  31,754    18,801    33,934  

 Total Domestic

  71,501    85,315    84,827  

 Foreign

  41,650    38,333    44,244  

 TotalNon-Bank legal entities

  113,151    123,648    129,071  

 Total

 $189,966   $202,297   $202,114  

composition of our balance sheet, the maturity profile of our unsecured debt and estimates of funding needs in a stressed environment, among other factors.

Regulatory Liquidity Framework

Liquidity Coverage Ratio

The Basel Committee on Banking Supervision’s (“Basel Committee”) Liquidity Coverage Ratio (“LCR”) standardFirm, MSBNA and MSPBNA are required to maintain a minimum LCR of 100% and ETB is subject to this requirement beginning in July 2021. The LCR requirements are designed to ensure that banking organizations have sufficient high-quality liquid assets (“HQLA”)Eligible HQLA to cover net cash outflows arising from significant stress over 30 calendar days. The standard’s objective is to promotedays, thus promoting the short-term resilience of the liquidity risk profile of banking organizations. WeIn determining Eligible HQLA for LCR purposes, weightings (or asset haircuts) are applied to HQLA, and our U.S. Bank Subsidiaries are subject tocertain HQLA held in subsidiaries is excluded.
As of June 30, 2021, the LCR requirements issued by U.S. banking regulators (“U.S. LCR”), which are based on the Basel Committee’s LCR, including a requirement to calculate each entity’s U.S. LCR on each business day. WeFirm, MSBNA and our U.S. Bank SubsidiariesMSPBNA are compliant with the minimum required U.S. LCR of 100%.

HQLA by Type of Asset and

Liquidity Coverage Ratio
Average Daily Balance
Three Months Ended
$ in millionsJune 30, 2021March 31, 2021
Eligible HQLA1
Cash deposits with central banks$56,430 $50,815 
Securities2
171,729 166,060 
Total Eligible HQLA1
$228,159 $216,875 
LCR126 %125 %
1.Under the LCR

  

At

September 30,
2017

  

    At    

    December 31,    
    2016    

  

Daily Average

Balance

Three Months

Ended

 
 $ in millions   

September 30,

2017

 
  

 HQLA

   

 Cash deposits with central banks

 $33,614  $30,569  $40,841 

 Securities1

  125,426   129,524   134,363 

 Total

 $159,040  $160,093  $175,204 

 LCR

          130% 

1.

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

21September 2017 Form 10-Q

Management’s Discussion and AnalysisLOGO

The regulatory definition of rule, Eligible HQLA is substantially the same as our GLR. GLRcalculated using weightings and excluding certain HQLA held in subsidiaries.

2.Primarily includes cash placed at institutions other than central banks that is considered an inflow for LCR purposes. HQLA includes a portion of cash placed at central banks, certain unencumberedU.S. Treasuries, U.S. agency mortgage-backed securities, sovereign bonds and investment grade corporate bonds and publicly traded common equities, which do not meet the definition of our GLR.

bonds.

Net Stable Funding Ratio

The objective ofU.S. banking agencies have finalized a rule to implement the Net Stable Funding Ratio (“NSFR”) is to reduce funding risk over aone-year horizon by requiringNSFR, which requires large banking organizations to fund their activities withmaintain sufficiently stable sources of funding in orderover a one-year time horizon, and applies to mitigate the riskFirm, MSBNA, MSPBNA and ETB. The Firm and each of future funding stress.

The Basel Committee finalizedthese individual entities are compliant with the 100% minimum NSFR framework in 2014. In May 2016, the U.S. banking regulators issued a proposal to implement the NSFR in the U.S., which would apply to us and our U.S. Bank Subsidiaries. Our preliminary estimates, based on the current proposal, indicate that actions will be necessary to meet the requirement, which we expect to accomplish byas of July 1, 2021, the effective date of any final rule. For an additional discussion of NSFR, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Liquidity Framework—Net Stable Funding Ratio” in Part II, Item 7 of the 2016 Form10-K.

requirements.

Funding Management

We manage our funding in a manner that reduces the risk of disruption to our operations. We pursue a strategy of diversification of secured and unsecured funding sources (by product, investor and region) and attempt to ensure that the tenor of our liabilities equals or exceeds the expected holding period of the assets being financed.

We fund our balance sheet on a global basis through diverse sources. These sources may include our equity capital, long-term borrowings, securities sold under agreements to repurchase, (“repurchase agreements”), securities lending, deposits, letters of credit and lines of credit. We have
active financing programs for both standard and structured products targeting global investors and currencies.

Secured Financing

For a discussion of our secured financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Funding Management—Secured Financing” in Part II, Item 7 of the 20162020 Form 10-K.

At September 30, 2017

Collateralized Financing Transactions
$ in millionsAt
June 30,
2021		At
December 31,
2020
Securities purchased under agreements to resell and Securities borrowed$222,633 $228,625 
Securities sold under agreements to repurchase and Securities loaned$67,219 $58,318 
Securities received as collateral1
$7,166 $4,277 
 Average Daily Balance
Three Months Ended
$ in millionsJune 30,
2021		December 31,
2020
Securities purchased under agreements to resell and Securities borrowed$225,988 $195,376 
Securities sold under agreements to repurchase and Securities loaned$67,568 $54,528 
1.Included within Trading assets in the balance sheets.
See “Total Assets by Business Segment” herein for additional information on the assets shown in the previous table and December 31, 2016,Note 2 to the weighted average maturityfinancial statements in the 2020 Form 10-K and Note 9 to the financial statements for additional information on collateralized financing transactions.
In addition to the collateralized financing transactions shown in the previous table, we engage in financing transactions collateralized by customer-owned securities, which are segregated in accordance with regulatory requirements. Receivables under these financing transactions, primarily margin loans, are included in Customer and other receivables in the balance sheets, and payables under these financing transactions, primarily to prime brokerage customers, are included in Customer and other payables in the balance sheets. Our risk exposure on these transactions is mitigated by collateral maintenance policies and the elements of our secured financing of less liquid assets was greater than 120 days.

Liquidity Risk Management Framework.

Unsecured Financing

For a discussion of our unsecured financing activities, see “Management’s Discussion and Analysis of FinancingFinancial Condition and Results of Operations—Liquidity and Capital Resources—Funding Management—Unsecured Financing” in Part II, Item 7the 2020 Form 10-K.
18June 2021 Form 10-Q
Management’s Discussion and Analysis
ms-20210630_g1.jpg
Deposits
$ in millionsAt
June 30,
2021		At
December 31,
2020
Savings and demand deposits:
Brokerage sweep deposits1
$256,730 $232,071 
Savings and other42,951 47,150 
Total Savings and demand deposits299,681 279,221 
Time deposits20,677 31,561 
Total2
$320,358 $310,782 
1.Amounts represent balances swept from client brokerage accounts.
2.Excludes approximately $8 billion and $25 billion of the 2016 Form10-Koff-balance sheet deposits at unaffiliated financial institutions as of June 30, 2021 and see Note 4 to the financial statements.

Deposits

$ in millions  

At

September 30,

2017

   

At

December 31,

2016

 

Savings and demand deposits: Brokerage sweep deposits1

  

$

          135,152 

 

  

$

          153,042 

 

Savings and other

   5,555     1,517  

Total Savings and demand deposits

   140,707     154,559  

Time deposits2

   13,932     1,304  

Total

  $154,639    $155,863  

1.

Represents balances swept from client brokerage accounts. Also referred to as the Bank Deposit program.

2.

Certain time deposit accounts are carried at fair value under the fair value option (see Note 3 to the financial statements).

December 31, 2020, respectively. This client cash held by third parties is not reflected in our balance sheets and is not immediately available for liquidity purposes.

Deposits are primarily sourced from our Wealth Management clients and are considered to have stable,low-cost funding characteristics. Totalcharacteristics. The increase in total deposits as of September 30, 2017 were relatively unchanged compared with December 31, 2016, within the decrease in brokerage sweep deposits,current year period was primarily due to client deploymentthe onboarding in the first quarter of cash into the markets, largely2021 of approximately $20 billion of E*TRADE Brokerage sweep deposits previously held off-balance sheet at unaffiliated financial institutions, partially offset by an increasematurities of time deposits.
Borrowings by Remaining Maturity at June 30, 20211
$ in millionsParent CompanySubsidiariesTotal
Original maturities of one year or less$— $5,538 $5,538 
Original maturities greater than one year
2021$7,320 $2,600 $9,920 
202211,181 6,853 18,034 
202317,043 5,484 22,527 
202420,839 8,194 29,033 
202514,839 6,802 21,641 
Thereafter91,456 25,993 117,449 
Total$162,678 $55,926 $218,604 
Total Borrowings$162,678 $61,464 $224,142 
Maturities over next 12 months2
 $16,891 
1.Original maturity in time deposits and savings and other deposits, primarily due to growth in certificates of deposits and savings products.

Short-Term Borrowings

$ in millions  

At

September 30,

2017

   

At

December 31,

2016

 

Short-term borrowings

  $1,087   $941  

Our unsecured short-termthe table is generally based on contractual final maturity. For borrowings primarily consist of structured notes, bank loans and bank noteswith put options, remaining maturity represents the earliest put date.

2.Includes only borrowings with original maturities greater than one year.
Borrowings of 12 months or less.

Long-Term Borrowings

$224 billion as of June 30, 2021 increased slightly when compared with $217 billion at December 31, 2020.

We believe that accessing debt investors through multiple distribution channels helps provide consistent access to the unsecured markets. In addition, the issuance of long-term borrowings with original maturities greater than one year allows us to reduce reliance on short-term credit sensitive instruments. Long-term borrowingsBorrowings with original maturities greater than one year are generally managed to achieve staggered maturities, thereby mitigating refinancing risk, and to maximize investor diversification through sales to global institutional and retail clients across regions, currencies and product types. Availability
The availability and cost of financing to us can vary depending on market conditions, the volume of certain trading and lending activities, our credit ratings and the overall availability of credit.

September 2017 Form 10-Q22

Management’s Discussion and AnalysisLOGO

We mayalso engage in, various transactionsand may continue to

engage in, repurchases of our borrowings in the credit markets (including, for example, debt retirements) that we believe are in our investors’ best interests.

Long-term Borrowings by Maturity at September 30, 2017

$ in millions  

Parent

Company

   Subsidiaries   Total 

2017

  $4,605   $3,685   $8,290 

2018

   18,816    2,244    21,060 

2019

   21,841    2,033    23,874 

2020

   19,362    2,075    21,437 

2021

   15,862    1,449    17,311 

Thereafter

   88,786    10,919    99,705 

Total

  $                169,272   $                22,405   $                191,677 

Maturities over next 12 months

 

  $25,792 

Long-term Borrowings increased to $191,677 million asordinary course of September 30, 2017, compared with $164,775 million at December 31, 2016. This increase is a result of issuances, partially offset by maturities and retirements, presented in the table below.

$ in millions  Nine Months Ended
September 30, 2017		 

Issued

  $45,334 

Matured or retired

   24,480 

business.

For further information on long-term borrowings,Borrowings, see Note 1013 to the financial statements.

Credit Ratings

We rely on external sources to finance a significant portion of our daily operations. TheOur credit ratings are one of the factors in the cost and availability of financing generally are impacted by our credit ratings, among other things. In addition, our credit ratingsand can have an impact on certain trading revenues, particularly in those businesses where longer-term counterparty performance is a key consideration, such as certain OTC derivative transactions, includingtransactions. When determining credit derivatives and interest rate swaps. Ratingratings, rating agencies consider both company-specific factors; other industry factors such asand industry-wide factors. These include regulatory or legislative changes, and the macroeconomic environment and perceived levels of support, among other things.

Our credit ratings do not include any uplift from perceived government support from any rating agency given See also “Risk Factors— Liquidity Risk” in the significant progress of the U.S. financial reform legislation and regulations. Some rating agencies have stated that they currently incorporate various degrees of credit rating uplift fromnon-governmental third-party sources of potential support.

2020 Form 10-K.

Parent Company, MSBNA and MSBNA’s Senior UnsecuredMSPBNA Issuer Ratings at October 31, 2017

July 30, 2021
Parent Company
Short-Term
Debt		Short-term
Long-Term
Debt		Long-term
Debt		Rating

Outlook

DBRS, Inc.

R-1 (middle)A (high)Stable

Fitch Ratings, Inc.

F1F1AAStable

Moody’s Investors Service, Inc.

P-1P-2A1A3Stable

Rating and Investment Information, Inc.

a-1a-1AA-Stable

Standard & Poor’sS&P Global Ratings

A-2A-2BBB+Positive
BBB+Stable  
Morgan Stanley Bank, N.A.MSBNA
Short-Term
Debt		Short-term
Long-Term
Debt		Long-term
Debt		Rating

Outlook

Fitch Ratings, Inc.

F1F1A+A+Stable

Moody’s Investors Service, Inc.

P-1P-1Aa3A1Stable

Standard & Poor’sS&P Global Ratings

A-1A-1A+A+Stable

MSPBNA
Short-Term
Debt		Long-Term
Debt		Rating
Outlook
Moody’s Investors Service, Inc.P-1Aa3Stable
S&P Global RatingsA-1A+Stable
On May 24, 2021, S&P Global Ratings revised the Parent Company outlook from stable to positive.
Incremental Collateral or Terminating Payments
In connection with certain OTC trading agreementsderivatives and certain other agreements where we are a liquidity provider to certain financing vehicles associated with the Institutional Securities business segment, we may be required to provide additional collateral, immediately settle any outstanding liability balances with certain counterparties or pledge additional collateral to certain exchanges and clearing organizations in the event of a future credit rating downgrade irrespective of whether we are in a net asset or net liability position.

The See Note 7 to the financial statements for additional collateral or termination paymentsinformation on OTC derivatives that may be called in the event of a future credit rating downgrade vary by contract andcan be based on ratings by either or both of Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Global Ratings (“S&P”). The following table shows the future potential collateral amounts and termination payments that could be called or required by counterparties or exchanges and clearing organizations in the event ofone-notch ortwo-notch downgrade scenarios, from the lowest of Moody’s or S&P ratings, based on the relevant contractual downgrade triggers.

Incremental Collateral or Terminating Payments upon Potential Future Rating Downgrade

$ in millions  At September 30,
2017		   At December 31,
2016		 

One-notch downgrade

  $856   $1,292 

Two-notch downgrade

   635    875 

contain such contingent features.

June 2021 Form 10-Q19
Management’s Discussion and Analysis
ms-20210630_g1.jpg
While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact it would have on our business and results of operations in future periods is inherently uncertain and would depend on a number of interrelated factors, including, among others,other things, the magnitude of the downgrade, the rating relative to peers, the rating assigned by the relevant agencypre-downgrade, individual client behavior and future mitigating actions we might take. The liquidity impact of additional collateral requirements is included in our Liquidity Stress Tests.

23September 2017 Form 10-Q

Management’s Discussion and AnalysisLOGO

Capital Management

We view capital as an important source of financial strength and actively manage our consolidated capital position based upon, among other things, business opportunities, risks, capital availability and rates of return together with internal capital policies, regulatory requirements and rating agency guidelines and, therefore, inguidelines. In the future, we may expand or contract our capital base to address the changing needs of our businesses. We attempt to maintain total capital,
Common Stock Repurchases
 Three Months Ended
June 30,		Six Months Ended
June 30,
in millions, except for per share data2021202020212020
Number of shares34 — 62 29 
Average price per share$86.21 $— $82.31 $46.01 
Total$2,939 $— $5,074 $1,347 
For additional information on a consolidated basis, at least equalour common stock repurchases, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Action Supervisory Restrictions” herein and Note 17 to the sum of our operating subsidiaries’ required equity.

Common Stock

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
$ in millions  2017  2016     2017      2016   

Repurchases of
common stock

  $        1,250  $        1,250   $        2,500  $        2,500 

From time to time we repurchase our outstanding common stock which includes our share repurchase program. financial statements.

For a description of our share repurchase program, see “Unregistered Sales of Equity Securities and Use of Proceeds.”

The Board determines the declaration and payment of dividends on a quarterly basis. On October 17, 2017, we announced that the Board declared a quarterly dividend per common share of $0.25. The dividend is payable on November 15, 2017 to common shareholders of record on October 31, 2017.

For a description of our 2017 capital plan, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Tests.”

PreferredCapital Buffer” herein.

Common Stock

On September 15, 2017, we announced that the Board declared quarterly dividends for preferred stock shareholders of record on September 29, 2017 that were paid on October 16, 2017.

Dividend Announcement

Announcement dateJuly 15, 2021
Amount per share$0.70 
Date to be paidAugust 13, 2021
Shareholders of record as ofJuly 30, 2021
For additional information on our common stock dividends, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Action Supervisory Restrictions” herein.
For additional information on our common stock and information on our preferred stock, see Note 17 to the financial statements.
Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance Sheet Arrangements
We enter into various off-balance sheet arrangements, including through unconsolidated SPEs and lending-related
financial instruments (e.g., guarantees and commitments), primarily in connection with the Institutional Securities and Investment Management business segments.
We utilize SPEs primarily in connection with securitization activities. For information on our securitization activities, see Note 16 to the financial statements in the 2020 Form 10-K.
For information on our commitments, obligations under certain guarantee arrangements and indemnities, see Note 14 to the financial statements.

For a further discussion of our lending commitments, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk—Loans and Lending Commitments” herein.

Contractual Obligations
For a discussion about our contractual obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations” in the 2020 Form 10-K.
Regulatory Requirements

Regulatory Capital Framework

We are a financial holding companyan FHC under the Bank Holding Company Act of 1956, as amended (the “BHC(“BHC Act”), and are subject to the regulation and oversight of the Board of Governors of the Federal Reserve System (the “Federal Reserve”).Reserve. The Federal Reserve establishes capital requirements for us,

including well-capitalized“well-capitalized” standards, and evaluates our compliance with such capital requirements. The Office of the Comptroller of the Currency (“OCC”) establishes similarRegulatory capital requirements and standards for our U.S. Bank Subsidiaries. The regulatory capital requirementsestablished by the Federal Reserve are largely based on the Basel III capital standards established by the Basel Committee and also implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank(“Dodd-Frank Act”).

The Basel Committee has published revisionsOCC establishes similar capital requirements and standards for our U.S. Bank Subsidiaries. For us to certainremain an FHC, we must remain well-capitalized in accordance with standards in its capital framework, and is actively considering potential revisions to other capital standards, that, if adoptedestablished by the Federal Reserve, and our U.S. banking agencies, could substantially changeBank Subsidiaries must remain well-capitalized in accordance with standards established by the U.S.OCC. For additional information on regulatory capital framework.requirements for our U.S. Bank Subsidiaries, see Note 16 to the financial statements.

Regulatory Capital Requirements
We are required to maintain minimum risk-based and leverage-based capital and TLAC ratios. For additional discussion of regulatory capital framework,more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Capital Framework”Requirements” in Part II, Item 7 of the 20162020 Form10-K.

Regulatory Capital Requirements

We are required to maintain minimum risk-based For additional information on TLAC, see “Total Loss-Absorbing Capacity, Long-Term Debt and leverage capital ratios under the regulatory capital requirements. A summary of the calculations of regulatory capital, risk-weighted assets (“RWAs”) and transition provisions follows.

Clean Holding Company Requirements” herein.

Risk-Based Regulatory Capital.Minimum risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital (which includes Tier 2
20June 2021 Form 10-Q
Management’s Discussion and Analysis
ms-20210630_g1.jpg
capital). CertainCapital standards require certain adjustments to, and deductions from, capital are required for purposes of determining these ratios, such as goodwill, intangible assets, certain deferred tax assets, other amounts in Accumulated other comprehensive income (loss) (��AOCI”)ratios.
Risk-Based Regulatory Capital Ratio Requirements
At June 30, 2021 and December 31, 2020
StandardizedAdvanced
Capital buffers
Capital conservation buffer—2.5%
SCB1
5.7%N/A
G-SIB capital surcharge2
3.0%3.0%
CCyB3
0%0%
Capital buffer requirement4
8.7%5.5%
At June 30, 2021 and December 31, 2020
Regulatory MinimumStandardizedAdvanced
Required ratios5
Common Equity Tier 1 capital ratio4.5 %13.2%10.0%
Tier 1 capital ratio6.0 %14.7%11.5%
Total capital ratio8.0 %16.7%13.5%
1.For additional information on the SCB, see “Capital Plans, Stress Tests and investmentsthe Stress Capital Buffer” herein and in the 2020 Form 10-K.
2.For a further discussion of the G-SIB capital instrumentssurcharge, see “Management’s Discussion and Analysis of unconsolidated financial institutions. CertainFinancial Condition and Results of these adjustmentsOperations—Liquidity and deductions are also subjectCapital Resources—Regulatory Requirements—G-SIB Capital Surcharge” in the 2020 Form 10-K.
3.The CCyB can be set up to transitional provisions.

In addition to2.5%, but is currently set by the minimum risk-basedU.S. banking agencies at zero.

4.The capital ratio requirements, on a fullyphased-in basis by 2019, we will be subject to:

A greater than 2.5%buffer requirement represents the amount of Common Equity Tier 1 capital we must maintain above the minimum risk-based capital requirements in order to avoid restrictions on our ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers. Our Standardized Approach capital buffer requirement is equal to the sum of our SCB, G-SIB capital surcharge and CCyB, and our Advanced Approach capital buffer requirement is equal to our 2.5% capital conservation buffer;

buffer, G-SIB capital surcharge and CCyB.

5.Required ratios represent the regulatory minimum plus the capital buffer requirement.

Our risk-based capital ratios are computed under both (i) the standardized approaches for calculating credit risk and market risk RWA (“Standardized Approach”) and (ii) the applicable advanced approaches for calculating credit risk, market risk and operational risk RWA (“Advanced Approach”). The Common Equitycredit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWA using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At June 30, 2021 and December 31, 2020, the differences between the actual and required ratios were lower under the Standardized Approach.
Leverage-Based Regulatory Capital. Minimum leverage-based capital requirements include a Tier 1 global systemically important bank(“G-SIB”) capital surcharge, currently at 3%;leverage ratio and

Up an SLR. We are required to a 2.5% Common Equity Tier 1 countercyclicalmaintain an SLR of 5%, inclusive of an enhanced SLR capital buffer (“CCyB”), currently set by U.S. banking regulatorsof at zero (collectively,least 2%.

As of June 30, 2021 and December 31, 2020, our risk-based and leverage-based capital amounts and ratios, as well as RWA, adjusted average assets and supplementary leverage exposure are calculated excluding the “buffers”).

In 2017, thephase-in amount for eacheffect of the adoption of CECL based on our election to defer this effect over a five-year transition period which began on January 1, 2020. For further information, see “Liquidity and Capital Resources—

Regulatory Requirements—Regulatory Developments” in the2020 Form 10-K.
Regulatory Capital Ratios
$ in millions
Required
Ratio1
At June 30, 2021At December 31, 2020
Risk-based capital—
Standardized
Common Equity Tier 1 capital$76,815 $78,650 
Tier 1 capital 84,612 88,079 
Total capital 92,782 97,213 
Total RWA 462,808 453,106 
Common Equity Tier 1 capital ratio13.2 %16.6 %17.4 %
Tier 1 capital ratio14.7 %18.3 %19.4 %
Total capital ratio16.7 %20.0 %21.5 %
$ in millions
Required
Ratio1
At June 30, 2021At December 31, 2020
Risk-based capital—
Advanced
Common Equity Tier 1 capital$76,815 $78,650 
Tier 1 capital 84,612 88,079 
Total capital 92,550 96,994 
Total RWA 434,741 445,151 
Common Equity Tier 1 capital ratio10.0 %17.7 %17.7 %
Tier 1 capital ratio11.5 %19.5 %19.8 %
Total capital ratio13.5 %21.3 %21.8 %
$ in millions
Required
Ratio1
At June 30, 2021At December 31, 2020
Leverage-based capital
Adjusted average assets2
$1,135,262 $1,053,510 
Tier 1 leverage ratio4.0 %7.5 %8.4 %
Supplementary leverage exposure3,4
$1,439,971 $1,192,506 
SLR4
5.0 %5.9 %7.4 %
1.Required ratios are inclusive of any buffers is 50%applicable as of the fullyphased-in buffer requirement.date presented. Failure to main-

September 2017 Form 10-Q24

Management’s Discussion and AnalysisLOGO

tainmaintain the buffers would result in restrictions on our ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers.

2.Adjusted average assets represents the denominator of the Tier 1 leverage ratio and is composed of the average daily balance of consolidated on-balance sheet assets for the quarters ending on the respective balance sheet dates, reduced by disallowed goodwill, intangible assets, investments in covered funds, defined benefit pension plan assets, after-tax gain on sale from assets sold into securitizations, investments in our own capital instruments, certain deferred tax assets and other capital deductions.
3.Supplementary leverage exposure is the sum of Adjusted average assets used in the Tier 1 leverage ratio and other adjustments, primarily: (i) for derivatives, potential future exposure and the effective notional principal amount of sold credit protection offset by qualifying purchased credit protection; (ii) the counterparty credit risk for repo-style transactions; and (iii) the credit equivalent amount for off-balance sheet exposures.
4.Our SLR and Supplementary leverage exposure as of December 31, 2020 reflect the exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks based on a Federal Reserve interim final rule that was in effect until March 31, 2021. As of December 31, 2020, the impact of the interim final rule on our SLR was an increase of 80 bps. For a further discussion of theG-SIB capital surcharge,information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity“Liquidity and Capital Resources—RegulatoryRequirements—G-SIBRegulatory Developments and Other Matters” herein and “Liquidity and Capital Surcharge” in Part II, Item 7 of the 2016 Form10-K.

See “Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements” herein for additional capital requirements effective January 1, 2019.

Risk-Weighted Assets.RWAs reflect both ouron- andoff-balance sheet risk as well as capital charges attributable to the risk of loss arising from the following:

Credit risk: The failure of a borrower, counterparty or issuer to meet its financial obligations to us;

Market risk: Adverse changesResources—Regulatory Requirements—Regulatory Developments" in the level of one or more market prices, rates, indices, volatilities, correlations or other market factors, such as market liquidity; and

2020 Form 10-K.


•

Operational risk: Inadequate or failed processes or systems, human factors or from external events (e.g., fraud, theft, legal and compliance risks, cyber attacks or damage to physical assets).

For a further discussion of our market, credit and operational risks, see “Quantitative and Qualitative Disclosures about Market Risk.”

Our risk-based capital ratios for purposes of determining regulatory compliance are the lower of the capital ratios computed under (i) the standardized approaches for calculating credit risk and market risk RWAs (the “Standardized Approach”) and (ii) the applicable advanced approaches for calculating credit risk, market risk and operational risk RWAs (the “Advanced Approach”). The credit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWAs using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At September 30, 2017, our ratios are based on the Standardized Approach transitional rules. For prior periods, the ratios were based on the Advanced Approach transitional rules.

The methods for calculating each of our risk-based capital ratios will change through January 1, 2022 as aspects of the capital rules are phased in. These changes may result in differences in our reported capital ratios from one reporting period to the next that are independent of changes to our capital base, asset composition,off-balance sheet exposures or risk profile.

Minimum Risk-Based Capital Ratios: Transitional Provisions

LOGO

1.

These ratios assume the requirements for theG-SIB capital surcharge (3.0%) and CCyB (zero) remain at current levels. See “Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements” herein for additional capital requirements effective January 1, 2019.

Transitional and FullyPhased-In Regulatory Capital Ratios

  At September 30, 2017 
  Transitional  Pro Forma Fully Phased-In 
$ in millions Standardized  Advanced  Standardized  Advanced 

Risk-based capital

    

Common Equity Tier 1
capital

 $62,214   $    62,214   $61,603   $    61,603  

Tier 1 capital

  71,006    71,006    70,276    70,276  

Total capital

  81,861    81,652    81,148    80,939  

Total RWAs

  368,629    358,219    378,334    368,507  

Common Equity Tier 1
capital ratio

  16.9%   17.4%   16.3%   16.7% 

Tier 1 capital ratio

  19.3%   19.8%   18.6%   19.1% 

Total capital ratio

  22.2%   22.8%   21.4%   22.0% 

Leverage-based capital

    

Adjusted average assets1

 $    841,360    N/A   $    840,845    N/A  

Tier 1 leverage ratio2

  8.4%   N/A    8.4%   N/A  

  At December 31, 2016 
  Transitional  Pro Forma Fully Phased-In 
$ in millions Standardized  Advanced  Standardized  Advanced 

Risk-based capital

    

Common Equity
Tier 1 capital

 $60,398  $60,398  $58,616  $58,616 

Tier 1 capital

  68,097   68,097   66,315   66,315 

Total capital

  78,917   78,642   77,155   76,881 

Total RWAs

  340,191   358,141   351,101   369,709 

Common Equity
Tier 1 capital ratio

  17.8%   16.9%   16.7%   15.9% 

Tier 1 capital ratio

  20.0%   19.0%   18.9%   17.9% 

Total capital ratio

  23.2%   22.0%   22.0%   20.8% 

Leverage-based capital

    

Adjusted average assets1

 $811,402   N/A  $810,288   N/A 

Tier 1 leverage ratio2

  8.4%   N/A   8.2%   N/A 

N/A—Not Applicable

1.

Adjusted average assets represent the denominator of the Tier 1 leverage ratio and are composed of the average daily balance of consolidatedon-balance sheet assets under U.S. GAAP during the current quarter and the quarter ended December 31, 2016 adjusted for disallowed goodwill, transitional intangible assets, certain deferred tax assets, certain investments in the capital instruments of unconsolidated financial institutions and other adjustments.

2.

The minimum Tier 1 leverage ratio requirement is 4.0%.

25September 2017June 2021 Form 10-Q21

Management’s Discussion and AnalysisLOGO

The fullyphased-in pro forma estimates in the previous tables are based on our current understanding of the capital rules and other factors, which may be subject to change as we receive additional clarification and implementation guidance from the Federal Reserve and as the interpretation of the regulations evolves over time. These fullyphased-in pro forma estimates arenon-GAAP financial measures because they were not yet effective at September 30, 2017. These preliminary estimates are subject to risks and uncertainties that may cause actual results to differ materially and should not be taken as a projection of what our capital, capital ratios, RWAs, earnings or other results will actually be at future dates. For a discussion of risks and uncertainties that may affect our future results, see “Risk Factors” in Part I, Item 1A of the 2016 Form10-K.

Well-Capitalized Minimum Regulatory Capital Ratios for U.S. Bank Subsidiaries

At September 30, 2017

Common Equity Tier 1 risk-based capital ratio

6.5%

Tier 1 risk-based capital ratio

8.0%

Total risk-based capital ratio

10.0%

Tier 1 leverage ratio

5.0%

For us to remain a financial holding company, our U.S. Bank Subsidiaries must qualify as well-capitalized by maintaining the minimum ratio requirements set forth in the previous table. The Federal Reserve has not yet revised the well-capitalized standard for financial holding companies to reflect the higher capital standards required for us under the capital rules. Assuming that the Federal Reserve would apply the same or very similar well-capitalized standards to financial holding companies, each of our risk-based capital ratios and Tier 1 leverage ratio at September 30, 2017 would have exceeded the revised well-capitalized standard. The Federal Reserve may require us to maintain risk- and leverage-based capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a financial holding company’s particular condition, risk profile and growth plans.

Table of Contents

Regulatory Capital Calculated under Transitional Rules

$ in millions  

At

September 30,

2017

  

At
December 31,

2016

 

Common Equity Tier 1 capital

   

Common stock and surplus

  $15,448  $17,494 

Retained earnings

   57,554   53,679 

AOCI

   (2,544)   (2,643) 

Regulatory adjustments and deductions:

 

Net goodwill

   (6,519)   (6,526) 

Net intangible assets (other than goodwill and mortgage servicing assets)

   (1,991)   (1,631) 

Other adjustments and deductions1

   266   25 

Total Common Equity Tier 1 capital

  $62,214  $60,398 

Additional Tier 1 capital

   

Preferred stock

  $8,520  $7,520 

Noncontrolling interests

   544   613 

Other adjustments and deductions2

   33   (246) 

Additional Tier 1 capital

  $9,097  $7,887 

Deduction for investments in covered funds

   (305)   (188) 

Total Tier 1 capital

  $71,006  $68,097 

Standardized Tier 2 capital

   

Subordinated debt

  $10,341  $10,303 

Noncontrolling interests

   95   62 

Eligible allowance for credit losses

   426   464 

Other adjustments and deductions

   (7)   (9) 

Total Standardized Tier 2 capital

  $10,855  $10,820 

Total Standardized capital

  $81,861  $78,917 

Advanced Tier 2 capital

   

Subordinated debt

  $10,341  $10,303 

Noncontrolling interests

   95   62 

Eligible credit reserves

   217   189 

Other adjustments and deductions

   (7)   (9) 

Total Advanced Tier 2 capital

  $10,646  $10,545 

Total Advanced capital

  $81,652  $78,642 

September 2017 Form 10-Q26

Management’s Discussion and AnalysisLOGO

Regulatory Capital Rollforward Calculated under Transitional Rules

$ in millions  Nine Months Ended
 September 30, 2017 		 
  

Common Equity Tier 1 capital

  

Common Equity Tier 1 capital at December 31, 2016

  $60,398  

Change related to the following items:

  

Value of shareholders’ common equity

   1,928  

Net goodwill

   7  

Net intangible assets (other than goodwill and mortgage servicing assets)

   (360) 

Other adjustments and deductions1

   241  

Common Equity Tier 1 capital at September 30, 2017

  $62,214  

Additional Tier 1 capital

  

Additional Tier 1 capital at December 31, 2016

  $7,887  

New issuance of qualifying preferred stock

   1,000  

Change related to the following items:

  

Noncontrolling interests

   (69) 

Other adjustments and deductions2

   279  

Additional Tier 1 capital at September 30, 2017

   9,097  

Deduction for investments in covered funds at
December 31, 2016

   (188) 

Change in deduction for investments in covered funds

   (117) 

Deduction for investments in covered funds at
September 30, 2017

   (305) 

Tier 1 capital at September 30, 2017

  $71,006  

Standardized Tier 2 capital

  

Tier 2 capital at December 31, 2016

  $10,820  

Change related to the following items:

  

Eligible allowance for credit losses

   (38) 

Other changes, adjustments and deductions3

   73  

Standardized Tier 2 capital at September 30, 2017

  $10,855  

Total Standardized capital at September 30, 2017

  $81,861  

Advanced Tier 2 capital

  

Tier 2 capital at December 31, 2016

  $10,545  

Change related to the following items:

  

Eligible credit reserves

   28  

Other changes, adjustments and deductions3

   73  

Advanced Tier 2 capital at September 30, 2017

  $10,646  

Total Advanced capital at September 30, 2017

  $81,652  

1.

Other adjustments and deductions used in the calculation of Common Equity Tier 1 capital include credit spread premium over risk-free rate for derivative liabilities, net deferred tax assets, netafter-tax DVA and adjustments related to AOCI.

2.

Other adjustments and deductions used in the calculation of Additional Tier 1 capital include credit spread premium over risk-free rate for derivatives liabilities, net deferred tax assets and netafter-tax DVA.

3.

Other changes, adjustments and deductions used in the calculations of Standardized and Advanced Tier 2 capital include changes in subordinated debt and noncontrolling interests.

ms-20210630_g1.jpg

RWAs

Regulatory Capital
$ in millionsAt
June 30,
2021		At
December 31,
2020		Change
Common Equity Tier 1 capital
Common stock and surplus$16,852 $15,799 $1,053 
Retained earnings85,043 78,978 6,065 
AOCI(2,523)(1,962)(561)
Regulatory adjustments and deductions:
Net goodwill(16,693)(11,527)(5,166)
Net intangible assets(7,032)(4,165)(2,867)
Other adjustments and deductions1
1,168 1,527 (359)
Total Common Equity Tier 1
capital		$76,815 $78,650 $(1,835)
Additional Tier 1 capital
Preferred stock$7,750 $9,250 $(1,500)
Noncontrolling interests561 619 (58)
Additional Tier 1 capital$8,311 $9,869 $(1,558)
Deduction for investments in covered funds(514)(440)(74)
Total Tier 1 capital$84,612 $88,079 $(3,467)
Standardized Tier 2 capital
Subordinated debt$7,107 $7,737 $(630)
Eligible ACL1,168 1,265 (97)
Other adjustments and deductions(105)132 (237)
Total Standardized Tier 2
capital		$8,170 $9,134 $(964)
Total Standardized capital$92,782 $97,213 $(4,431)
Advanced Tier 2 capital
Subordinated debt$7,107 $7,737 $(630)
Eligible credit reserves936 1,046 (110)
Other adjustments and
deductions		(105)132 (237)
Total Advanced Tier 2 capital$7,938 $8,915 $(977)
Total Advanced capital$92,550 $96,994 $(4,444)
1.Other adjustments and deductions used in the calculation of Common Equity Tier 1 capital primarily includes net after-tax DVA, the credit spread premium over risk-free rate for derivative liabilities, defined benefit pension plan assets, after-tax gain on sale from assets sold into securitizations, investments in our own capital instruments and certain deferred tax assets.
RWA Rollforward Calculated under Transitional Rules

   Nine Months Ended 
   September 30, 20171 
$ in millions  Standardized   Advanced 

Credit risk RWAs

    

Balance at December 31, 2016

  $       278,874   $       169,231 

Change related to the following items:

    

Derivatives

   7,013     166  

Securities financing transactions

   5,892     3,246  

Securitizations

   1,559     1,224  

Investment securities

   (3,044)    (1,467) 

Commitments, guarantees and loans

   213     (4,317) 

Cash

   (103)    (592) 

Equity investments

   (889)    (946) 

Other credit risk2

   1,795     1,650  

Total change in credit risk RWAs

  $12,436    $(1,036) 

Balance at September 30, 2017

  $291,310    $168,195  

Market risk RWAs

    

Balance at December 31, 2016

  $61,317    $60,872  

Change related to the following items:

    

Regulatory VaR

   523     523  

Regulatory stressed VaR

   11,304     11,304  

Incremental risk charge

   2,662     2,662  

Comprehensive risk measure

   (3,923)    (3,543) 

Specific risk:

    

Non-securitizations

   4,065     4,065  

Securitizations

   1,371     1,409  

Total change in market risk RWAs

  $16,002    $16,420  

Balance at September 30, 2017

  $77,319    $77,292  

Operational risk RWAs

    

Balance at December 31, 2016

  $N/A    $128,038  

Change in operational risk RWAs

   N/A     (15,306) 

Balance at September 30, 2017

  $N/A    $112,732  

Total RWAs

  $368,629    $358,219  

 Six Months Ended
June 30, 2021
$ in millionsStandardizedAdvanced
Credit risk RWA
Balance at December 31, 2020$387,066 $284,930 
Change related to the following items:
Derivatives3,182 (18,766)
Securities financing transactions4,750 350 
Investment securities(2,422)(257)
Commitments, guarantees and loans415 5,862 
Equity investments1,696 1,754 
Other credit risk1
4,992 4,444 
Total change in credit risk RWA$12,613 $(6,613)
Balance at June 30, 2021$399,679 $278,317 
Market risk RWA
Balance at December 31, 2020$66,040 $66,040 
Change related to the following items:
Regulatory VaR(6,687)(6,687)
Regulatory stressed VaR768 768 
Incremental risk charge(720)(720)
Comprehensive risk measure(303)(343)
Specific risk4,031 4,031 
Total change in market risk RWA$(2,911)$(2,951)
Balance at June 30, 2021$63,129 $63,089 
Operational risk RWA
Balance at December 31, 2020N/A$94,181 
Change in operational risk RWAN/A(846)
Balance at June 30, 2021N/A$93,335 
Total RWA$462,808 $434,741 

Regulatory VaR—Value-at-Risk

N/A—Not Applicable

1.

The RWAs for eachVaR for regulatory capital requirements

1.Amounts reflect assets not in a defined category, in the table reflect bothon- andoff-balance sheet exposures, where appropriate.

2.

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

The decrease of $15,306 million in operationalexposures and unsettled transactions.

Credit risk RWAsRWA in the current year period increased under the Standardized Approach, while it decreased under the Advanced Approach. Under the Standardized Approach, reflectsthe increase was primarily from Securities financing transactions and Derivatives driven by increased exposure. Under the Advanced Approach, the decrease was primarily driven by a reduction in the internal loss data relatedCVA due to litigation utilizedlower credit spread volatility, partially offset by increased exposure in the operationalevent lending within Institutional Securities business segment.
Market risk capital model.

Regulatory stressed VaR increased $11,304 millionRWA decreased in the current year period under both the Standardized and the Advanced Approaches. These increases wereApproaches primarily driven by increasesdue to a decrease in trading inventory across the equities, global macro, and credit businesses within Institutional Securities, in response to client demand.

27September 2017 Form 10-Q

Management’s Discussion and AnalysisLOGO

Supplementary Leverage Ratio

We and our U.S. Bank Subsidiaries are required to publicly disclose our supplementary leverage ratios, which will become effectiveRegulatory VaR mainly as a capital standard on January 1, 2018. By January 1, 2018, we must also maintain a Tier 1 supplementary leverage capital bufferresult of at least 2%reduced volatility as the peak COVID-19 market stress in addition2020 is no longer included in VaR. This was partially offset by an increase in non-securitization charges due to the 3% minimum supplementary leverage ratio (for a total of at least 5%), in order to avoid limitations on capital distributions, including dividends and stock repurchases, and discretionary bonus payments to executive officers. In addition, beginning in 2018, our U.S. Bank Subsidiaries must maintain a supplementary leverage ratio of 6% to be considered well-capitalized.

Pro Forma Supplementary Leverage Exposure and Ratio

  At September 30, 2017  At December 31, 2016 

$ in millions

 Transitional
basis		  Fully
phased-in1		  Transitional
basis		  Fully
phased-in1		 

Average total assets2

 $850,616  $850,616  $820,536  $820,536 

Adjustments3, 4

  237,305   236,789   242,113   240,999 

Pro forma supplementary leverage exposure

 $1,087,921  $1,087,405  $1,062,649  $1,061,535 

 

Pro forma supplementary leverage ratio

  6.5%   6.5%   6.4%   6.2% 

1.

Estimated amounts utilize fullyphased-in Tier 1 capital and take into consideration the Tier 1 capital deductions that would be applicable in 2018 after thephase-in period has ended.

2.

Computed as the average daily balance of consolidated total assets under U.S. GAAP during the current quarter and the quarter ended December 31, 2016.

3.

Computed as the arithmetic mean of themonth-end balances over the current quarter and the quarter ended December 31, 2016.

4.

Adjustments are to: (i) incorporate derivative exposures, including adding the related potential future exposure (including for derivatives cleared for clients), grossing up cash collateral netting where qualifying criteria are not met and adding the effective notional principal amount of sold credit protection offset by qualifying purchased credit protection; (ii) reflect the counterparty credit risk for repo-style transactions; (iii) add the credit equivalent amount foroff-balance sheet exposures; and (iv) apply other adjustments to Tier 1 capital, including disallowed goodwill, transitional intangible assets, certain deferred tax assets and certain investments in the capital instruments of unconsolidated financial institutions.

The pro forma fullyphased-in supplementary leverage exposure and ratios, shown in the previous table, are based on our current understanding of rules and other factors.

U.S. Subsidiary Banks’ Pro Forma Supplementary Leverage Ratios on a Transitional Basis

    At September 30, 2017   At December 31, 2016 

MSBNA

   8.9%    7.7% 

MSPBNA

   9.4%    10.2% 

The pro forma transitional and fullyphased-in supplementary leverage exposures and ratios arenon-GAAP financial measures because they have not yet become effective. Our estimates are subject to risks and uncertainties that may cause actual results to differ materially from estimates based on these regulations. Further, these expectations should not be

increased exposure.

taken as projections of what our supplementary leverage ratios, earnings, assets or exposures will actually be at future dates. For a discussion of risks and uncertainties that may affect our future results, see “Risk Factors” in Part I, Item 1A of the 2016 Form10-K.

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

On December 15, 2016, the


The Federal Reserve adopted a final rule fortop-tier bank holding companies of U.S.G-SIBs (“covered BHCs”), including the Parent Company, that establisheshas established external total loss-absorbing capacity (“TLAC”),TLAC, long-term debt (“LTD”) and clean holding company requirements.requirements for top-tier BHCs of U.S. G-SIBs (“covered BHCs”), including the Parent Company. These requirements are designed to ensure that covered BHCs will have enough loss-absorbing resources at the point of failure to be recapitalized
22June 2021 Form 10-Q
Management’s Discussion and Analysis
ms-20210630_g1.jpg
through the conversion of eligible LTD to equity or otherwise by imposing losses on eligible LTD or other forms of TLAC where an SPOE resolution strategy is used.
Required and Actual TLAC and Eligible LTD Ratios
 
Actual
Amount/Ratio
$ in millionsRegulatory Minimum
Required Ratio1
At
June 30,
2021		At
December 31,
2020
External TLAC2
$225,830 $216,129 
External TLAC as a % of RWA18.0 %21.5 %49.0 %47.7 %
External TLAC as a % of leverage exposure7.5 %9.5 %15.7 %18.1 %
Eligible LTD3
$131,951 $120,561 
Eligible LTD as a % of RWA9.0 %9.0 %28.5 %26.6 %
Eligible LTD as a % of leverage exposure4.5 %4.5 %9.2 %10.1 %
1.Required ratios are inclusive of applicable buffers. The final rule contains various definitionsimposes TLAC buffer requirements on top of both the risk-based and leverage exposure-based external TLAC minimum requirements. The risk-based TLAC buffer is equal to the sum of 2.5%, our Method 1 G-SIB surcharge and the CCyB, if any, as a percentage of total RWA. The leverage exposure-based TLAC buffer is equal to 2% of our total leverage exposure. Failure to maintain the buffers would result in restrictions suchon our ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers.
2.External TLAC consists of Common Equity Tier 1 capital and Additional Tier 1 capital (each excluding any noncontrolling minority interests), as requiringwell as eligible LTD.
3.Consists of TLAC-eligible LTD reduced by 50% for amounts of unpaid principal due to be issued by the covered BHC and be unsecured, have a maturity ofpaid in more than one year or morebut less than two years from the date of issuance and not have certain derivative-linked features typically associated with certain types of structured notes. each respective balance sheet date.
We expect to beare in compliance with all TLAC requirements as of the rule by January 1, 2019, the date that compliance is required.

June 30, 2021 and December 31, 2020. For a further discussion of TLAC and LTDrelated requirements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Capital Requirements—Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements” in Part II, Item 7 of the 20162020 Form10-K. For discussions about the interaction between the single point of entry resolution strategy

Capital Plans, Stress Tests and the TLAC and LTD requirements, see “Business—Supervision and Regulation—Financial Holding Company—Resolution and Recovery Planning” in Part I, Item 1 and “Risk Factors—Legal, Regulatory and Compliance Risk” in Part I, Item 1A of the 2016 Form10-K.

Stress Capital Plans and Stress Tests

Buffer

Pursuant to the Dodd-Frank Act, the Federal Reserve has adopted capital planning and stress test requirements for large bank holding companies, including us,BHCs, which form part of the Federal Reserve’s annual Comprehensive Capital AnalysisCCAR framework.
We must submit, on at least an annual basis, a capital plan to the Federal Reserve, taking into account the results of separate annual stress tests designed by us and Review (“CCAR”) framework.

Wethe Federal Reserve, so that the Federal Reserve may assess our systems and processes that incorporate forward-looking projections of revenues and losses to monitor and maintain our internal capital adequacy. As banks with less than $250 billion of total assets, our U.S. Bank Subsidiaries are not subject to company-run stress test regulatory requirements.

For the 2021 capital planning and stress test cycle, we submitted our 2017 capital plan andcompany-run stress test results to the Federal Reserve on April 5, 2017.2021. On June 22, 2017,24, 2021, the Federal Reserve published summary results of the Dodd-Frank Actits supervisory stress tests of each large bank holding company, including us. On June 28, 2017,BHC, and following the Federal Reserve published summary
publication of the supervisory stress test results, we announced that our SCB will remain at 5.7% from October 1, 2021 through September 30, 2022. Together with other features of the regulatory capital framework, this SCB results in an aggregate Standardized Approach Common Equity Tier 1 required ratio of 13.2%. Generally, our SCB is determined annually based on the results of CCARthe supervisory stress test.
We also disclosed a summary of the results of our company-run stress tests on our Investor Relations website, and announced that they did not object to our 2017 Capital Plan (“Capital Plan”). The Capital Plan includesBoard of Directors authorized the repurchaseincrease of up to $5.0 billion of outstanding common stock for the period beginning July 1, 2017 through June 30, 2018, an increase

September 2017 Form 10-Q28

Management’s Discussion and AnalysisLOGO

from $3.5 billion in the 2016 Capital Plan. Additionally, the Capital Plan includes an increase in our quarterly common stock dividend to $0.25$0.70 per share from $0.20$0.35 per share beginning with the common stock dividend declaredannounced on July 19, 2017. We disclosed a summary15, 2021, and authorized the repurchase of up to $12 billion of outstanding common stock from July 1, 2021 through June 30, 2022, from time to time as conditions warrant, which supersedes the results ofprevious common stock repurchase authorization.

For additional information on ourcompany-run capital planning and stress tests, on June 23, 2017 on our Investor Relations website. In addition, we submittedincluding the results of ourmid-cyclecompany-run stress test to the Federal Reserve on October 5, 2017 and disclosed a summary of the results on October 20, 2017 on our Investor Relations website.

The Dodd-Frank Act also requires each of our U.S. Bank Subsidiaries to conduct an annual stress test. MSBNA and MSPBNA submitted their 2017 annualcompany-run stress tests to the OCC on April 5, 2017 and published a summary of their stress test results on June 23, 2017 on our Investor Relations website.

For a further discussion of our capital plans and stress tests,SCB, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Tests”Capital Buffer” in Part II, Item 7the 2020 Form 10-K.

Capital Action Supervisory Restrictions
Under the modified capital action restrictions announced previously by the Federal Reserve, in the first two quarters of 2021 large BHCs were permitted to pay common stock dividends, provided they did not increase the amount of common stock dividends to be larger than the level paid in the second quarter of 2020, and make share repurchases that, in the aggregate, did not exceed an amount equal to the average of the 2016firm’s net income for the four preceding calendar quarters; make share repurchases that equal the amount of share issuances related to expensed employee compensation; and redeem and make scheduled payments on additional Tier 1 and Tier 2 capital instruments.
The Federal Reserve subsequently announced that the restrictions described above would end on June 30, 2021 for all firms whose capital levels are above minimum risk-based requirements in the Federal Reserve’s annual supervisory stress test. Based on the results of the 2021 supervisory stress tests, the temporary capital action supervisory restrictions previously applicable to us ended on June 30, 2021. As of July 1, 2021, the Firm is permitted, in its discretion, to adjust its capital distributions without seeking prior approval from the Federal Reserve, provided that it remains in compliance with all applicable regulatory capital requirements, including the SCB.
For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Action Supervisory Restrictions” in the 2020 Form10-K.

June 2021 Form 10-Q23
Management’s Discussion and Analysis
ms-20210630_g1.jpg
Attribution of Average Common Equity According to the Required Capital Framework

Our required capital (“Required Capital”) estimation is based on the Required Capital framework, an internal capital adequacy measure. Common equity attribution to the business segments is based on capital usage calculated byunder the Required Capital framework, as well as each business segment’s relative contribution to our total Required Capital. Required Capital is assessed for each business segment and further attributed to product lines. This process is intended to align capital with the risks in each business segment in order to allow senior management to evaluate returns on a risk-adjusted basis.

The Required Capital framework is a risk-based and leverageuse-of-capitalleverage-based capital measure, which is compared with our regulatory capital to ensure that we maintain an amount of going concern capital after absorbing potential losses from stress events, where applicable, at a point in time. The amount of capital allocated to the business segments is generally set at the beginning of each year and remains fixed throughout the year until the next annual reset unless a significant business change occurs (e.g., acquisition or disposition). We define the difference between our total average common equity and the sum of the average common equity amounts allocated to our business segments as Parent Companycommon equity. We generally hold Parent Companycommon equity for prospective regulatory requirements, organic growth, potential future acquisitions and other capital needs.

Average Common equity estimation andEquity Attribution under the Required Capital Framework1
Three Months Ended
June 30,		Six Months Ended
June 30,
$ in billions2021202020212020
Institutional Securities$43.5 $42.8 $43.5 $42.8 
Wealth Management2
28.6 18.2 28.6 18.2 
Investment Management3
10.7 2.6 7.1 2.6 
Parent16.0 14.0 17.1 12.4 
Total$98.8 $77.6 $96.3 $76.0 
1.The attribution to the business segments are based on our pro forma fullyphased-in regulatory capital estimates, including supplementary leverage, and incorporates our internal stress tests. The amount of capital

allocatedaverage common equity to the business segments is set ata non-GAAP financial measure. See “Selected Non-GAAP Financial Information” herein.

2.The total average common equity and the beginning of each yearallocation to the Wealth Management business segment in 2021 reflect the E*TRADE acquisition on October 2, 2020.
3. The total average common equity and remains fixed throughout the year untilallocation to the next annual reset. Differences between available and Required Capital are attributedInvestment Management business segment in 2021 reflect the Eaton Vance acquisition on March 1, 2021.
The Firm has made updates to Parent Company equity during the year.

Theits Required Capital framework is expected to evolve over time in response to changes in the businessfor 2021 and regulatory environment. We will continuecontinues to evaluate the framework with respect to the impact of futureevolving regulatory requirements, as appropriate.

Average Common Equity Attribution

   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
$ in billions      2017           2016           2017           2016     

Institutional Securities

  $40.2   $43.2   $40.2   $43.2  

Wealth Management

   17.2    15.3    17.2    15.3  

Investment Management

   2.4    2.8    2.4    2.8  

Parent Company

   10.7    8.2    10.0    7.6  

Total1

  $70.5   $69.5   $69.8   $68.9  

1.

Average common equity is anon-GAAP financial measure.

Regulatory Developments

Resolution and Recovery Planning

Pursuant to the Dodd-Frank Act, we are required to periodically submit to the Federal Reserve and the Federal Deposit Insurance Corporation (“FDIC”) an annualFDIC a resolution plan that describes our strategy for a rapid and orderly resolution under the U.S. Bankruptcy Code in the event of our material financial distress or failure.

Our preferred resolution strategy, which is set out in our 2017 resolution plan, is a single point of entry strategy. We submitted our full 20172021 targeted resolution plan on June 30, 2017. We previously submitted a status report in respect of certain shortcomings identified2021.

As described in our 2015most recent resolution plan, on September 30, 2016. As indicated in our 2017preferred resolution plan,strategy is an SPOE strategy. In line with our SPOE strategy, the Parent Company has transferred, and has agreed to transfer on an ongoing basis, certain assets to its wholly owned, direct subsidiary Morgan Stanley Holdings LLC (the “Funding IHC”). In addition, the Parent Company
has entered into an amended and restated its support agreement with its material entities (including the Funding IHC) and certain other subsidiaries. UnderIn the amended and restated support agreement, upon the occurrenceevent of a resolution scenario, the Parent Company would be obligated to contribute or loan on a subordinated basis all of its Contributable Assets to our material assets, other than shares in subsidiaries ofentities and/or the Parent Company and certain intercompany receivables,Funding IHC. The Funding IHC would be obligated to provide capital and liquidity, as applicable, to our material subsidiaries.entities. The obligationscombined implication of the SPOE resolution strategy and the requirement to maintain certain levels of TLAC is that losses in resolution would be imposed on the holders of eligible long-term debt and other forms of eligible TLAC issued by the Parent Company under the amended and restated support agreementbefore any losses are securedimposed on a senior basis by the assets of the Parent Company (other than shares in subsidiaries of the Parent Company). As a result, claimscreditors of our material subsidiaries against the assets of the Parent Company (other than shares in subsidiaries of the Parent Company) are effectively senior to unsecured obligations of the Parent Company.

entities and without requiring taxpayer or government financial support.

29September 2017 Form 10-Q

Management’s Discussion and AnalysisLOGO

In September 2017, the Federal Reserve and the FDIC extended the next resolution plan filing deadline for eight large domestic banks, including us, by one year to July 1, 2019.

In September 2016, the OCC issued final guidelines that establish enforceable standards for recovery planning by national banks and certain other institutions with total consolidated assets of $50 billion or more, calculated on a rolling four-quarter average basis, including MSBNA and MSPBNA. The guidelines were effective on January 1, 2017; MSBNA must be in compliance by January 1, 2018 and MSPBNA must be in compliance by October 1, 2018.

In September 2017, the Federal Reserve issued a final rule that would impose contractual requirements on certain “qualified financial contracts” (“covered QFCs”) to which U.S.G-SIBs, including us, and their subsidiaries (“covered entities”) are parties. While national banks and savings associations are not “covered entities” under the final Federal Reserve rule, the OCC is expected to issue a final rule that would subject national banks that are subsidiaries of U.S.G-SIBs, including our U.S. Bank Subsidiaries, as well as certain other institutions, to substantively identical requirements. Under the Federal Reserve’s final rule, covered QFCs must generally expressly provide that transfer restrictions and default rights against a covered entity are limited to the same extent as they would be under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Act and their implementing regulations. In addition, covered QFCs may not, among other things, permit the exercise of any cross-default right against a covered entity based on an affiliate’s entry into insolvency, resolution or similar proceedings, subject to certain creditor protections. There is aphased-in compliance schedule based on counterparty type, with the first compliance date of January 1, 2019.

For more information about resolution and recovery planning requirements and our activities in these areas, including the implications of such activities in a resolution scenario, see “Business—Supervision and Regulation—Financial Holding Company—Resolution and Recovery Planning” in Part I, Item 1,Planning,” “Risk Factors—Legal, Regulatory and Compliance Risk” in Part I, Item 1A and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Developments—Requirements—Resolution and Recovery Planning” in Part II, Item 7the 2020 Form 10-K.

Regulatory Developments and Other Matters
Expiration of the 2016 Form10-K.

Legacy Covered Funds underSupplementary Leverage Ratio Interim Final Rule

On March 19, 2021, the Volcker Rule

The Volcker Rule prohibits “banking entities,”Federal Reserve announced that the temporary change to the SLR for bank holding companies, which allowed for the exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks, would expire as scheduled on March 31, 2021. As a result, this exclusion was eliminated beginning in the second quarter of 2021. For a summary of the impact of this interim final rule, see “Regulatory Capital Requirements” herein.

Planned Replacement of London Interbank Offered Rate and Replacement or Reform of Other Interest Rates
Central banks around the world, including usthe Federal Reserve, have commissioned committees and our affiliates, from engaging in certain “proprietary trading” activities,working groups of market participants and official sector representatives to replace LIBOR and replace or reform other interest rate benchmarks (collectively, the “IBORs”). On March 5, 2021, ICE Benchmark Administration, which administers LIBOR publication, announced that it will cease the publication of most LIBOR rates as of the end of December 2021, except for the publication until June 30, 2023 of the most widely used U.S. dollar LIBOR tenors, and the U.K. Financial Conduct Authority (“FCA”), which regulates LIBOR publication, announced that it would not compel panel banks to submit to LIBOR beyond those dates.

Subsequently, the International Swaps and Derivatives Association (“ISDA”) confirmed that the FCA’s
24June 2021 Form 10-Q
Management’s Discussion and Analysis
ms-20210630_g1.jpg
announcement constituted an “Index Cessation Event” as defined in the Volcker Rule, subjectIBOR Fallbacks Supplement, which amended ISDA’s interest rate definitions to

exemptions include robust fallbacks for underwriting, market-making-related activities, risk-mitigating hedgingderivatives linked to LIBOR and certain other activities.interest rate benchmarks, and the ISDA 2020 IBOR Fallbacks Protocol, which incorporates the fallbacks into legacy non-cleared derivatives entered into between Protocol adherents. The Volcker RuleFCA’s announcement therefore triggered a fixing of the ISDA fallback spread adjustments for all LIBOR benchmarks, to be effective when the contractual fallbacks are implemented. The Alternative Reference Rates Committee (“ARRC”) also prohibitsconfirmed that the ICE Benchmark Administration and FCA announcements also constituted a “Benchmark Transition Event” with respect to all U.S. dollar LIBOR settings pursuant to the ARRC’s fallback recommendations for new issuances or originations of certain investmentscash products.

Separately, the U.S. banking agencies and relationshipsthe FCA have encouraged banks to cease entering into new contracts referencing LIBOR as soon as practicable, and no later than December 31, 2021.
Further, New York State has enacted legislation that is intended to minimize legal and economic uncertainty following U.S. dollar LIBOR’s cessation by banking entities with “covered funds,”replacing LIBOR references in certain contracts governed by New York law with a number of exemptions and exclusions. In June 2017, we received approval frombenchmark based on the Secured Overnight Financing Rate, including any spread adjustment, recommended by the Federal Reserve, the Federal Reserve Bank of New York or the ARRC.
We remain a party to a significant number of LIBOR-linked contracts, many of which extend beyond 2021 and, in the case of U.S. dollar LIBOR, June 30, 2023, composed of derivatives, securitizations, floating rate notes, loans and mortgages and we continue to execute against our applicationFirm-wide IBOR transition plan to promote the transition to alternative reference rates in accordance with industry transition timelines. Our IBOR transition plan is overseen by a global steering committee, with senior management oversight. Firm entities engaged in derivative activities have adhered to the ISDA 2020 IBOR Fallbacks Protocol. As noted above, the Protocol is designed to facilitate the transition of covered derivatives contracts to alternative reference rates. The New York State legislation also provides safeguards that help facilitate the transition to alternative reference rates for certain U.S. dollar LIBOR contracts, although additional regulatory clarity may be needed in some instances.
See also “Risk Factors—Risk Management” in the 2020 Form 10-K for a five-year extensionfurther discussion of risks related to the planned replacement of the transition period to conform investments in certain legacy Volcker covered funds that are also illiquid funds. The approval covers essentially allIBORs and/or reform of ournon-conforming investments in,interest rate benchmarks.
For a further discussion of regulatory developments and relationships with, legacy covered funds subject to the Volcker Rule.

For more information about Volcker Rule requirements and our activities in these areas, including the conformance periods applicable to certain covered funds and our application for a statutory extension,other matters, see “Business—Supervision and Regulation—Financial Holding Company—Activities Restrictions under the Volcker Rule” in Part I, Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Developments—Legacy Covered Funds under the Volcker Rule” in Part II, Item 7 of the 2016 Form10-K.

U.S. Department of Labor Conflict of Interest Rule

The U.S. Department of Labor’s final Conflict of Interest Rule went into effect on June 9, 2017, with certain aspects subject tophased-in compliance. Full compliance is currently scheduled to be required by January 1, 2018, but the U.S. Department of Labor recently proposed to delay the full compliance date to July 1, 2019. In addition, the U.S. Department of Labor is undertaking an examination of the rule which may result in changes to the rule or related exemptions or a further change in the full compliance date. For a discussion of the U.S. Department of Labor Conflict of Interest Rule, see “Business—SupervisionRequirements—Regulatory Developments” and Regulation—Institutional Securities and Wealth Management” in Part I, Item 1 of the 2016 Form10-K.

U.K. Referendum

Following the U.K. electorate vote to leave the European Union, the U.K. invoked Article 50 of the Lisbon Treaty on March 29, 2017. For further discussion of U.K. referendum’s potential impact on our operations, see “Risk Factors—International Risk” in Part I, Item 1A of the 2016 Form10-K. For further information regarding our exposure to the U.K., see also “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Credit Risk—Country Risk Exposure.”

September 2017 Form 10-Q30

Management’s Discussion and AnalysisLOGO

Expected Replacement of LIBOR

Central banks around the world, including the Federal Reserve, have commissioned working groups of market participants and others with the goal of finding suitable replacements for the London Interbank Offered Rate (“LIBOR”) based more fully on observable market transactions. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next several years.

Effects of Inflation and Changes in Interest and Foreign Exchange Rates

For a discussion of the effects of inflation and changes in interest and foreign exchange rates on our business and financial results and strategies to mitigate potential exposures, see “Management’s Discussion

and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Effects of Inflation and ChangesRegulatory Requirements—Other Matters,” respectively, in Interest and Foreign Exchange Rates” in Part II, Item 7 of the 20162020 Form10-K.

Off-Balance Sheet Arrangements

We enter into variousoff-balance sheet arrangements, including through unconsolidated special purpose entities (“SPEs”) and lending-related financial instruments (e.g., guarantees and commitments), primarily in connection with the Institutional Securities and Investment Management business segments.

We utilize SPEs primarily in connection with securitization activities. For information on our securitization activities, see Note 12 to the financial statements.

For information on our commitments, obligations under certain guarantee arrangements and indemnities, see Note 11 to the financial statements. For further information on our lending commitments, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Credit Risk—Lending Activities.”

31September 2017June 2021 Form 10-Q25

Table of ContentsQuantitative and Qualitative Disclosures about Market Risk
LOGO
ms-20210630_g1.jpg

Quantitative and Qualitative Disclosures about Risk Management

Management believes effective risk management is vital to the success of our business activities. For a discussion of our Enterprise Risk Management framework and risk management functions, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management” in Part II, Item 7A of the 20162020 Form10-K.

Market Risk

Market risk refers to the risk that a change in the level of one or more market prices, rates, spreads, indices, volatilities, correlations or other market factors, such as market liquidity, will result in losses for a position or portfolio. Generally, we incur market risk as a result of trading, investing and client facilitation activities, principally within the Institutional Securities business segment where the substantial majority of ourValue-at-Risk (“VaR”) VaR for market risk exposures is generated. In addition, we incur non-trading market risk, principally within the Wealth Management and Investment Management business segments. The Wealth Management business segment primarily incursnon-trading market risk (including interest rate risk) from lending and deposit-taking activities. The Investment Management business segment primarily incursnon-trading market risk from capital investments in real estate fundsalternative and investments in private equity vehicles.other funds. For a further discussion of market risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Market Risk” in Part II, Item 7Athe 2020 Form 10-K.
Trading Risks
We are exposed to a wide range of risks related to interest rates and credit spreads, equity prices, foreign exchange rates and commodity prices, and the 2016 Form10-K.

VaR

associated implied volatilities and spreads, related to the global markets in which we conduct our trading activities.

The statistical technique known as VaR is one of the tools we use to measure, monitor and review the market risk exposures of our trading portfolios. The Market Risk Department calculates and distributes daily VaR-based risk measures to various levels of management.

VaR Methodology, Assumptions and Limitations.

For information regarding our primary risk exposures and market risk management, VaR methodology, assumptions and limitations, see “Quantitative and Qualitative Disclosures about Risk—Market Risk—Risk Management—Market Risk—Sales and Trading and Related Activities—VaR Methodology, Assumptions and Limitations”Risks” in Part II, Item 7A of the 20162020 Form10-K.

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

The portfolio of positions used for our VaR for risk management purposes (“Management VaR”) differs from that used for regulatory capital requirements (“Regulatory VaR”).

Management VaR contains certain positions that are excluded from Regulatory VaR. Examples include counterparty credit valuation adjustment (“CVA”) and related hedges, as well as loans that are carried at fair value and associated hedges.

The following table presents the

95%/One-Day Management VaR for the Trading portfolio,Portfolio
 Three Months Ended
June 30, 2021
$ in millions
Period
End
Average
High2
Low2
Interest rate and credit spread$29 $31 $39 $28 
Equity price21 24 32 19 
Foreign exchange rate8 8 15 5 
Commodity price10 11 16 8 
Less: Diversification benefit1
(28)(29)N/AN/A
Primary Risk Categories$40 $45 $58 $37 
Credit Portfolio12 13 17 11 
Less: Diversification benefit1
(9)(10)N/AN/A
Total Management VaR$43 $48 $60 $41 
 Three Months Ended
March 31, 2021
$ in millions
Period
End
Average
High2
Low2
Interest rate and credit spread$31 $33 $41 $29 
Equity price30 31 170 19 
Foreign exchange rate11 14 24 8 
Commodity price14 18 27 13 
Less: Diversification benefit1
(36)(38)N/AN/A
Primary Risk Categories$50 $58 $171 $44 
Credit Portfolio17 24 31 17 
Less: Diversification benefit1
(15)(13)N/AN/A
Total Management VaR$52 $69 $175 $50 
1.Diversification benefit equals the difference between the total VaR and the sum of the component VaRs. This benefit arises because the simulated one-day losses for each of the components occur on aperiod-end, quarterly average and quarterlydifferent days; similar diversification benefits also are taken into account within each component.
2.The high and low basis. To further enhanceVaR values for the transparencytotal Management VaR and each of the traded market risk,component VaRs might have occurred on different days during the Credit Portfolio VaR has been disclosed as a separate category fromquarter, and therefore, the Primary Risk Categories. The Credit Portfolio includes counterparty CVA and related hedges, as well as loans that are carried at fair value and associated hedges.

Trading Risks

95% /One-Day Management VaR

  

95%/One-Day VaR for

the Three Months Ended

 
  September 30, 2017 

$ in millions

 

Period

End

  Average  High  Low 

Interest rate and credit spread

 $28  $31  $42  $25 

Equity price

  13   14   18   12 

Foreign exchange rate

  9   9   13   6 

Commodity price

  9   9   10   7 

Less: Diversification benefit1, 2

  (26)   (25)   N/A   N/A 

Primary Risk Categories

 $33  $38  $47  $32 

Credit Portfolio

  10   11   11   10 

Less: Diversification benefit1, 2

  (6)   (6)   N/A   N/A 

Total Management VaR

 $37  $43  $50  $36 
  95%/One-Day VaR for
the Three Months Ended		 
  June 30, 2017 
$ in millions 

Period

End

  Average  High  Low 

Interest rate and credit spread

 $35  $35  $44   $27  

Equity price

  15   18   26    15  

Foreign exchange rate

  10   11   15    8  

Commodity price

  9   9   10    8  

Less: Diversification benefit1, 2

  (27)   (27)         N/A         N/A 

Primary Risk Categories

 $          42  $          46  $60   $36  

Credit Portfolio

  11   12   14    11  

Less: Diversification benefit1, 2

  (7)   (7)   N/A    N/A 

Total Management VaR

 $46  $51  $64   $41  

N/A—Not Applicable

1.

Diversification benefit equals the difference between thediversification benefit is not an applicable measure.

Average total Management VaR and the sum of the component VaRs. This benefit arises because the simulatedone-day losses for each of the components occur on different days; similar diversification benefits also are taken into account within each component.

2.

The high and low VaR values for the total Management VaR and each of the component VaRs might have occurred on different days during the quarter, and therefore, the diversification benefit is not an applicable measure.

September 2017 Form 10-Q32

Risk DisclosuresLOGO

The average total Management VaR for the three months ended September 30, 2017 (“current quarter”) was $43 million compared with $51 million for the three months ended June 30, 2017 (“last quarter”). The average Management VaR for the Primary Risk Categories decreased in the current quarter from the three months ended March 31, 2021 primarily as a result of reduced volatility as the peak COVID-19 market stress in 2020 is no longer included in VaR. Additionally, the high for the current quarter was $38 million compared with $46 million last quarter. These decreases were primarily driven by reduced market volatility and decreasesfrom the peak day in trading inventory across the equities andthree months ended March 31, 2021, as increased equity exposure in the first quarter of 2021 resulted from the aforementioned credit businesses within Institutional Securities.

event for a single client.

Distribution of VaR Statistics and Net Revenues for the Current Quarter.One method of evaluating the reasonableness of our VaR model as a measure of our potential volatility of net revenues is to compare VaR with corresponding actual trading revenues. Assuming no intraday trading, for a95%/one-day VaR, the expected number of times that trading losses should exceed VaR during the year is 13, and, in general, if trading losses were to exceed VaR more than 21 times in a year, the adequacy of the VaR model would be questioned.
We evaluate the reasonableness of our VaR model by comparing the potential declines in portfolio values generated by the model with corresponding actual trading results for the Firm, as well as individual business units. For days where losses exceed the VaR statistic, we examine the drivers of trading losses to evaluate the VaR model’s accuracy relative to realized trading results.

The distribution of VaR Statistics and Net Revenues is presentedresults. There was one loss day in the following histograms for the Total Trading populations.

Total Trading.As shown in the95%/One-Day Management VaR table on the preceding page, the average95%/one-day total Management VaR for the current quarter was $43 million. The following histogram presents the distribution of the daily95%/one-day total Management VaR for the current quarter, which was in a range between $35 million and $50 million for approximately 97% of trading days duringdid not exceed the current quarter.

Firm’s VaR.

26June 2021 Form 10-Q
Risk Disclosures
ms-20210630_g1.jpg
Daily 95%/One-dayOne-Day Total Management VaR for the Three Months Ended September 30, 2017

Current Quarter

($ in millions)

LOGO

ms-20210630_g13.jpg

Daily Net Trading Revenues for the Current Quarter
($ in millions)
ms-20210630_g14.jpg
The followingprevious histogram shows the distribution for the current quarter of daily net trading revenues includingfor the current quarter. Daily net trading revenues include profits and losses from Interest rate and credit spread, Equity price, Foreign exchange rate, Commodity price, and Credit Portfolio positions and intraday trading activities for our Tradingtrading businesses. Daily net trading revenues also include intraday trading activities but exclude certainCertain items not captured in the VaR model, such as fees, commissions, and net interest income. Dailyincome, and counterparty default risk are excluded from daily net trading revenues differ fromand the definition of revenuesVaR model. Revenues required for Regulatory VaR backtesting which further excludesexclude intraday trading. During the current quarter, we experienced net trading losses on three days, which were not in excess of the95%/one-day Total Management VaR.

Daily Net Trading Revenues for the Three Months Ended September 30, 2017

($ in millions)

LOGO

Non-Trading Risks

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

Counterparty Exposure Related to Our Own

Credit Spread.The credit spread risk sensitivity ofSpread Risk Sensitivity1
$ in millionsAt
June 30,
2021		At
March 31,
2021
Derivatives$7 $7 
Borrowings carried at fair value48 47 
1.Amounts represent the counterparty exposure related to our own credit spread corresponded to an increase in value of approximately $6 millionpotential gain for each 1 basis pointbps widening inof our credit spread level at both September 30, 2017 and June 30, 2017.

Funding Liabilities.spread.

U.S. Bank Subsidiaries’ Net Interest Income Sensitivity Analysis
$ in millionsAt
June 30,
2021		At
March 31,
2021
Basis point change
+100$1,463 $1,671 
 -100(498)(560)
The credit spread risk sensitivity of ourmark-to-market structured note liabilities corresponded to an increase in value of approximately $28 million and $26 million for each 1 basis point widening in our credit spread level at September 30, 2017 and June 30, 2017, respectively.

Interest Rate Risk Sensitivity.The followingprevious table presents an analysis of selected instantaneous upward and downward parallel interest rate shocks (subject to a floor of zero percent in the downward scenario) on net interest income over the next 12 months for our U.S. Bank Subsidiaries. These shocks

33September 2017 Form 10-Q

Risk DisclosuresLOGO

are applied to our12-month forecast for our U.S. Bank Subsidiaries, which incorporates market expectations of interest rates and our forecasted business activity, including our deposit deployment strategy and asset-liability management hedges.

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

$ in millions 

At

September 30, 2017

  

At

June 30, 2017

 

Basis point change

  

+200

 $566  $716  

+100

  433   413  

-100

  (647)   (577) 

activity.

We do not manage to any single rate scenario but rather manage net interest income in our U.S. Bank Subsidiaries to optimize across a range of possible outcomes.outcomes, including non-parallel rate change scenarios. The sensitivity analysis assumes that we take no action in response to these scenarios, assumes there are no changes in other macroeconomic variables normally correlated with changes in interest rates, and includes subjective assumptions regarding customer and marketre-pricing behavior and other factors. The change in sensitivity to interest rates between June 30, 20172021 and September 30, 2017 is related to overallMarch 31, 2021 was primarily driven by the effects of changes in the mix of our asset-liability positioningassets and higherliabilities and lower market rates.

Investments.

Investments Sensitivity, Including Related Carried Interest
 Loss from 10% Decline
$ in millionsAt
June 30,
2021		At
March 31,
2021
Investments related to Investment Management activities$477 $472 
Other investments:
MUMSS172 174 
Other Firm investments232 223 
We have exposure to public and private companies through direct investments, as well as through funds that invest in these assets. These investments are predominantly equity positions with long investment horizons, a portion of which areis for business facilitation purposes. The market risk related to these investments is measured by estimating the potential reduction in net incomerevenues associated with a 10% decline in investment values and related impact on performance fees.

Investmentsperformance-based income, as applicable.

June 2021 Form 10-Q27
Risk Disclosures
ms-20210630_g1.jpg
Asset Management Revenue Sensitivity Including Related Performance Fees

  10% Sensitivity 
$ in millions 

At

September 30,

2017

  

At

June 30,

        2017        

 

Investments related to Investment Management activities

 $321  $326  

Other investments:

  

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

  174   171  

Other Firm investments

  155   151  

Equity Market Sensitivity.    InCertain asset management revenues in the Wealth Management and Investment Management business segments certainfee-based revenue streams are driven by the valuederived from management fees, which are based on fee-based client assets in Wealth Management or AUM in Investment Management (together, “client holdings”). The assets underlying client holdings are primarily composed of clients’ equity, holdings.fixed income and alternative investments, and are sensitive to changes in related markets. The overall level of revenues for these streams alsorevenues depends on multiple additional factors that include, but are not limited to, the level and duration of the equitya market increase or decline, price volatility, the geographic and industry mix of client assets, and client behavior such as the rate and magnitude of client investments and redemptions, and the impact of such market increase or decline and price volatility on client behavior.redemptions. Therefore, overall revenues do not correlate completely with changes in the equityrelated markets.

Credit Risk

Credit risk refers to the risk of loss arising when a borrower, counterparty or issuer does not meet its financial obligations to us. We are primarily incurexposed to credit risk exposure tofrom institutions and individuals through our Institutional Securities and Wealth Management business segments. For a further discussion of our credit risks, see “Quantitative and Qualitative Disclosures about Market Risk–Risk Management–Risk—Credit Risk” in Part II, Item 7Athe 2020 Form 10-K.
Loans and Lending Commitments
 At June 30, 2021
$ in millionsHFIHFSFVOTotal
Institutional Securities:
Corporate$4,724 $7,098 $13 $11,835 
Secured lending facilities28,217 3,951 666 32,834 
Commercial and Residential real estate6,707 620 4,270 11,597 
Securities-based lending and Other586 5 9,353 9,944 
Total Institutional Securities40,234 11,674 14,302 66,210 
Wealth Management:
Residential real estate38,917 10 — 38,927 
Securities-based lending and Other75,877 12 — 75,889 
Total Wealth Management114,794 22 — 114,816 
Total Investment Management1
5 17 843 865 
Total loans2
155,033 11,713 15,145 181,891 
ACL(687)(687)
Total loans, net of ACL$154,346 $11,713 $15,145 $181,204 
Lending commitments3
$139,257 
Total exposure



$320,461 
 At December 31, 2020
$ in millionsHFIHFSFVOTotal
Institutional Securities:
Corporate$6,046 $8,580 $13 $14,639 
Secured lending facilities25,727 3,296 648 29,671 
Commercial and Residential real estate7,346 859 3,061 11,266 
Securities-based lending and Other1,279 55 7,001 8,335 
Total Institutional Securities40,398 12,790 10,723 63,911 
Wealth Management:
Residential real estate35,268 11 — 35,279 
Securities-based lending and Other62,947 — — 62,947 
Total Wealth Management98,215 11 — 98,226 
Total Investment Management1
6 12 425 443 
Total loans2
138,619 12,813 11,148 162,580 
ACL(835)(835)
Total loans, net of ACL$137,784 $12,813 $11,148 $161,745 
Lending commitments3
$127,855 
Total exposure



$289,600 
HFI—Held for investment; HFS—Held for sale; FVO—Fair value option
Total exposure—consists of Total loans, net of ACL, and Lending commitments
1.Investment Management business segment loans are related to certain of our activities as an investment advisor and manager. At June 30, 2021 and December 31, 2020, loans held at fair value are predominantly the result of the 2016 Form10-K. Also, see Notes 7 and 11consolidation of CLO vehicles, managed by Investment Management, composed primarily of senior secured loans to corporations.
2.FVO also includes the financial statementsfair value of certain unfunded lending commitments.
3.Lending commitments represent the notional amount of legally binding obligations to provide funding to clients for additional information about our loans and lending transactions. Since commitments respectively.

Lending Activities included in Loans and Trading Assets

associated with these business activities may expire unused or may not be utilized to full capacity, they do not necessarily reflect the actual future cash funding requirements.

We provide loans and lending commitments to a variety of customers, fromincluding large corporate and institutional clients, as well as high to highultra-high net worth individuals. In addition, we purchase loans in the secondary market. InLoans and lending commitments are either held for investment, held for sale or carried at fair value. For more information on these loan classifications, see Note 2 to the balance sheets, thesefinancial statements in the 2020 Form 10-K.
Total loans and lending commitments are carriedincreased by approximately $31 billion since December 31, 2020, primarily due to growth in Securities-based loans and Residential real estate loans within the Wealth Management business segment, as held for investment, which are recorded at amortized cost;well as held for sale, which are recorded atincreases in Secured lending facilities and event-driven lending commitments within the lower of cost or fair value; or at fair value with changes in fair value recorded in earnings. Loans held for investment and loans held for sale are classified in Loans, and loans held at fair value are classified in Trading assets in the balance sheets. Institutional Securities business segment.
See Notes 3, 75, 6, 10 and 1114 to the financial statements for further information.

Beginning late in the first quarter of 2020 and following in part from the U.S. government’s enactment of the CARES Act, we have granted requests from certain clients for modifications of their credit agreements with us, which in some cases include deferral of their loan payments. In addition to these principal and interest deferrals, we continue to work with certain clients regarding modifications of other terms under their original loan agreements that do not impact contractual loan payments. We do not believe these

September 201728June 2021 Form 10-Q34

Risk DisclosuresLOGO
ms-20210630_g1.jpg

modifications have had a material impact on the risk profile of our loan portfolio.
Requests for deferrals and other modifications could continue in future periods. See “Executive Summary—Coronavirus Disease (COVID-19) Pandemic” herein and “Risk Factors” and “Forward Looking Statements” in the 2020 Form 10-K.
For additional information on regulatory guidance which permits certain loan modifications for borrowers impacted by COVID-19 to not be accounted for and reported as TDRs as well as the Firm’s accounting policies for such modifications, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments” and Note 2 to the financial statements in the 2020 Form 10-K, respectively. For information on HFI loans on nonaccrual status and HFI loans modified and reported as TDRs, see “Status of Loans Held for Investment” herein and Note 10 to the financial statements, and for a discussion of the related accounting policies see Note 2 to the financial statements in the 2020 Form 10-K.
Allowance for Credit Losses—Loans and Lending Commitments

  At September 30, 2017 

$ in millions

 IS  WM  IM1  Total 

Corporate loans

 $    16,201  $    13,480  $        5  $    29,686 

Consumer loans

  —   26,616   —   26,616 

Residential real estate loans

  —   26,150   —   26,150 

Wholesale real estate loans

  9,000   —   —   9,000 

Loans held for investment,
gross of allowance

  25,201   66,246   5   91,452 

Allowance for loan losses

  (203)   (42)   —   (245) 

Loans held for investment,
net of allowance

  24,998   66,204   5   91,207 

Corporate loans

  12,524   —   —   12,524 

Residential real estate loans

  9   51   —   60 

Wholesale real estate loans

  640   —   —   640 

Loans held for sale

  13,173   51   —   13,224 

Corporate loans

  6,420   —   21   6,441 

Residential real estate loans

  690   —   —   690 

Wholesale real estate loans

  1,157   —   —   1,157 

Loans held at fair value

  8,267   —   21   8,288 

Total loans

  46,438   66,255   26   112,719 

Lending commitments2,3

  89,329   9,994   —   99,323 

Total loans and lending commitments2,3

 $135,767  $76,249  $26  $212,042 

  At December 31, 2016 

$ in millions

 IS  WM  IM1  Total 

Corporate loans

 $    13,858  $    11,162  $        5  $    25,025  

Consumer loans

  —   24,866   —   24,866  

Residential real estate loans

  —   24,385   —   24,385  

Wholesale real estate loans

  7,702   —   —   7,702  

Loans held for investment,
gross of allowance

  21,560   60,413   5   81,978  

Allowance for loan losses

  (238)   (36)   —   (274) 

Loans held for investment,
net of allowance

  21,322   60,377   5   81,704  

Corporate loans

  10,710   —   —   10,710  

Residential real estate loans

  11   50   —   61  

Wholesale real estate loans

  1,773   —   —   1,773  

Loans held for sale

  12,494   50   —   12,544  

Corporate loans

  7,199   —   18   7,217  

Residential real estate loans

  966   —   —   966  

Wholesale real estate loans

  519   —   —   519  

Loans held at fair value

  8,684   —   18   8,702  

Total loans

  42,500   60,427   23   102,950  

Lending commitments2,3

  90,143   8,299   —   98,442  

Total loans and lending commitments2,3

 $132,643  $68,726  $23  $201,392  

IS—Institutional Securities

WM—Wealth Management

IM—Investment Management

1.

Loans

$ in Investment Management are entered into in conjunction with certain investment advisory activities.

millions
2.

ACL—Loans$835 
ACL—Lending Commitments396 
Total at December 31, 20201,231 
Gross charge-offs(102)
Provision for credit losses(25)
Other(5)
Total at June 30, 2021$1,099
ACL—Loans$687
ACL—Lending commitments represent the notional amount of legally binding obligations to provide funding to clients for lending transactions. Since commitments associated with these business activities may expire unused or may not be utilized to full capacity, they do not necessarily reflect the actual future cash funding requirements.

412
3.

For syndications led by us, any lending commitments accepted by the borrower but not yet closed are net of amounts syndicated. For syndications that we participate in and do not lead, any lending commitments accepted by the borrower but not yet closed include only the amount that we expect will be

allocated from the lead syndicate bank. Due to the nature of our obligations under the commitments, these amounts include certain commitments participated to third parties.

Our creditProvision for Credit Losses by Business Segment

Three Months Ended June 30, 2021Six Months Ended June 30, 2021
$ in millionsISWMTotalISWMTotal
Loans$12 $4 $16 $(41)$(1)$(42)
Lending commitments58 (1)57 18 (1)17 
Total$70 $3 $73 $(23)$(2)$(25)
Credit exposure arising from our loans and lending commitments is measured in accordance with our internal risk management standards. Risk factors considered in determining the aggregate allowance for loan and commitment losses include the borrower’s financial strength, seniority of the loan, collateral type, volatility of collateral value, debt cushion,loan-to-valueindustry, facility structure, LTV ratio, debt service ratio, covenantscollateral and counterparty type.covenants. Qualitative and environmental factors such as economic and business conditions, nature and volume of the portfolio and lending terms, and volume and severity of past due loans may also be considered.

Allowance for Loans and Lending Commitments Held for Investment

$ in millions  At September 30,
2017		   At December 31,
2016		 

Loans

  $245   $274  

Commitments

   181    190  

The aggregate allowance for loanloans and commitment losseslending commitments decreased duringin the current year period, primarily due toreflecting charge-offs and a release in thecharge-off allowance for credit losses within the Institutional Securities business segment. The allowance release was primarily a result of an energyimprovements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated
borrowers, partially offset by the provision for one Secured lending facility. The base scenario used in our ACL models as of June 30, 2021 was generated using a combination of industry related loan.consensus economic forecasts, forward rates, and internally developed and validated models. Given the nature of our lending portfolio, the most sensitive model input is U.S. gross domestic product. The base scenario, among other things, assumes continued growth over the forecast period with U.S. GDP reaching a year-over-year growth rate of approximately 6% by the fourth quarter of 2021, supported by fiscal stimulus and accommodative monetary policy. See Note 7Notes 10 and 14 to the financial statements for further information.

See Note 2 to the financial statements in the 2020 Form 10-K for a discussion of the Firm’s ACL methodology under CECL.

Status of Loans Held for Investment

   At September 30,
2017		  At December 31,
2016		 
        IS          WM          IS          WM     

Current

   99.4%   99.9%   98.6%   99.9% 

Non-accrual1

   0.6%   0.1%   1.4%   0.1% 

1.

These loans are on nonaccrual status because the loans were past due for a period of 90 days or more or payment of principal or interest was in doubt.

Institutional Securities

In connection with certain

At June 30, 2021At December 31, 2020
ISWMISWM
Accrual98.8 %99.3 %99.2 %99.7 %
Nonaccrual1
1.2 %0.7 %0.8 %0.3 %
1.These loans are on nonaccrual status because the loans were past due for a period of 90 days or more or payment of principal or interest was in doubt.
Institutional Securities business segment activities, we provide loansLoans and lending commitments to a diverse group of corporate and other institutional clients. These activities include originating and purchasing corporate loans, commercial and residential mortgage lending, asset-backed lending, financing extended to equities and commodities customers and municipalities. These loans and lending commitments may have varying terms; may be senior or subordinated; may be secured or unsecured; are generally contingent upon representations, warranties and contractual conditions applicable to the borrower; and may be syndicated, traded or hedged by us.

We also participate in securitization activities whereby we extend short-term or long-term funding to clients through

Lending Commitments1
 At June 30, 2021
 Contractual Years to Maturity 
$ in millionsLess than 11-33-5Over 5Total
Loans
AA$38 $9 $— $69 $116 
A824 707 408 370 2,309 
BBB6,297 5,113 2,287 578 14,275 
BB11,581 9,095 4,234 1,285 26,195 
Other NIG5,370 6,134 4,161 3,223 18,888 
Unrated2
194 587 485 2,582 3,848 
Total loans, net of ACL24,304 21,645 11,575 8,107 65,631 
Lending commitments
AAA— 50 — — 50 
AA3,173 1,118 2,240 — 6,531 
A4,822 6,600 10,180 584 22,186 
BBB10,168 19,803 18,561 659 49,191 
BB3,017 12,323 7,837 152 23,329 
Other NIG1,649 6,663 8,292 6,915 23,519 
Unrated2
— 14 66 2 82 
Total lending commitments22,829 46,571 47,176 8,312 124,888 
Total exposure$47,133 $68,216 $58,751 $16,419 $190,519 

35September 2017June 2021 Form 10-Q29

Risk DisclosuresLOGO
ms-20210630_g1.jpg

loans and lending commitments that

 At December 31, 2020
 Contractual Years to Maturity 
$ in millionsLess than 11-33-5Over 5Total
Loans
AA$279 $10 $— $— $289 
A759 798 36 391 1,984 
BBB5,043 5,726 2,746 469 13,984 
BB10,963 7,749 5,324 503 24,539 
Other NIG5,214 6,956 4,002 3,269 19,441 
Unrated2
141 142 330 2,322 2,935 
Total loans, net of ACL22,399 21,381 12,438 6,954 63,172 
Lending commitments
AAA— 50 — — 50 
AA4,047 1,038 2,135 — 7,220 
A6,025 8,359 9,808 425 24,617 
BBB6,783 17,782 15,500 460 40,525 
BB4,357 8,958 7,958 3,103 24,376 
Other NIG664 7,275 6,077 2,652 16,668 
Unrated2
4 — — — 4 
Total lending commitments21,880 43,462 41,478 6,640 113,460 
Total exposure$44,279 $64,843 $53,916 $13,594 $176,632 
NIG–Non-investment grade
1.Counterparty credit ratings are securedinternally determined by the assets of the borrower and generally provide for over-collateralization, including commercial real estate loans, loans secured by loan pools, commercial company loans, and secured lines of revolving credit. Credit risk with respect to these loans and lending commitments arises from the failure of a borrower to perform according to the terms of the loan agreement or a decline in the underlying collateral value. See Note 12 to the financial statements for information about our securitization activities. In addition, a collateral management group monitors collateral levels against requirements and oversees the administration of the collateral function. See Note 6 to the financial statements for additional information about our collateralized transactions.

Institutional SecuritiesCRM.

2.Unrated loans and lending commitments are mainly relatedprimarily trading positions that are measured at fair value and risk-managed as a component of market risk. For a further discussion of our market risk, see “Market Risk” herein.
Institutional Securities Loans and Lending Commitments by Industry
$ in millionsAt
June 30,
2021		At
December 31,
2020
Industry
Financials$50,318 $44,358 
Real estate30,622 25,484 
Healthcare17,471 12,650 
Industrials17,069 15,861 
Communications services12,481 12,600 
Information technology11,704 11,358 
Consumer discretionary10,626 11,177 
Utilities10,355 9,504 
Energy8,603 10,064 
Consumer staples8,464 9,088 
Materials5,808 6,084 
Insurance4,583 3,889 
Other2,415 4,515 
Total exposure$190,519 $176,632 
Sectors Currently in Focus due to relationship-basedCOVID-19
The economic effects of COVID-19 have impacted borrowers in many sectors and event-drivenindustries, though certain sectors remain more sensitive to the current economic environment and are continuing to receive heightened focus. The sectors currently in focus are: air travel, retail, lodging and leisure, upstream energy, and healthcare services and systems. As of June 30, 2021, exposures to these sectors are included across the Industrials, Financials, Real estate, Consumer discretionary, Energy and Healthcare industries in the previous table, and in aggregate represent approximately 10% of total Institutional Securities business segment lending exposure. Further, as of
June 30, 2021, approximately 90% of these exposures are either investment grade and/or secured by collateral. The future developments of COVID-19 and its effect on the economic environment remain uncertain; therefore, the sectors impacted may change over time. Refer to select corporate clients. Relationship-based“Risk Factors” in the 2020 Form 10-K.
Institutional Securities Lending Activities
The Institutional Securities business segment lending activities include Corporate, Secured lending facilities, Commercial real estate and Securities-based lending and Other. As of June 30, 2021, over 90% of our total lending exposure, which consists of loans and lending commitments, are used for general corporate purposes, working capital and liquidity purposesis investment grade and/or secured by our investment banking clients and typically consistcollateral. For a description of revolving lines of credit, letter of credit facilities and term loans. In connection with the relationship-basedInstitutional Securities’ lending activities, we had hedges (which included single-namesee “Quantitative and index hedges) with a notional amount of $17.1 billionQualitative Disclosures about Risk—Credit Risk” in the 2020 Form 10-K.
Institutional Securities Event-Driven Loans and $20.2 billion at September 30, 2017 and December 31, 2016, respectively.

Lending Commitments

At June 30, 2021
Contractual Years to Maturity
$ in millionsLess than 11-33-5Over 5Total
Loans, net of ACL$1,415 $382 $498 $2,217 $4,512 
Lending commitments4,865 6,254 3,359 6,844 21,322 
Total exposure$6,280 $6,636 $3,857 $9,061 $25,834 
 At December 31, 2020
 Contractual Years to Maturity 
$ in millionsLess than 11-33-5Over 5Total
Loans, net of ACL$1,241 $907 $873 $2,090 $5,111 
Lending commitments2,810 4,649 2,678 4,650 14,787 
Total exposure$4,051 $5,556 $3,551 $6,740 $19,898 
Event-driven loans and lending commitments are associated with a particular event or transaction, such as to support client merger, acquisition, recapitalization andor project finance activities. Event-driven loansBalances may fluctuate as such lending is related to transactions that vary in timing and lending commitments typically consist of revolving lines of credit, term loans and bridge loans.

Institutional Securities Loans and Lending Commitments by Credit Rating1

   At September 30, 2017 
   Years to Maturity     
$ in millions  Less than 1   1-3   3-5   Over 5   Total 

Loans

          

AAA

  $—   $—   $—   $—   $—  

AA

   —    —    32    5    37  

A

   1,437    1,911    1,061    705    5,114  

BBB

   2,186    4,537    3,105    379    10,207  

NIG

   5,658    13,017    4,838    5,455    28,968  

Unrated2

   211    149    244    1,508    2,112  

Total Loans

   9,492    19,614    9,280    8,052    46,438  

Lending Commitments

          

AAA

   —    165    —    —    165  

AA

   3,726    473    3,731    —    7,930  

A

   2,824    5,288    11,672    647    20,431  

BBB

   3,321    10,245    16,935    395    30,896  

NIG

   2,486    11,796    12,278    3,266    29,826  

Unrated2

   17    31    12    21    81  

Total Lending Commitments

   12,374    27,998    44,628    4,329    89,329  

Total Exposure

  $21,866   $47,612   $53,908   $12,381   $135,767  
size from period to period.
   At December 31, 2016 
   Years to Maturity     
$ in millions  Less than 1   1-3   3-5   Over 5   Total 

Loans

          

AAA

  $—   $—   $—   $—   $— 

AA

   —    —    38    —    38 

A

   235    775    1,391    552    2,953 

BBB

   1,709    6,473    2,768    1,362    12,312 

NIG

   4,667    12,114    5,629    2,304    24,714 

Unrated2

   699    126    175    1,483    2,483 

Total Loans

   7,310    19,488    10,001    5,701    42,500 

Lending Commitments

 

        

AAA

   50    105    50    —    205 

AA

   3,724    451    3,989    —    8,164 

A

   1,994    4,610    11,135    392    18,131 

BBB

   6,261    9,006    18,148    653    34,068 

NIG

   2,839    8,934    14,267    3,418    29,458 

Unrated2

   107    6    —    4    117 

Total Lending Commitments

   14,975    23,112    47,589    4,467    90,143 

Total Exposure

  $22,285   $42,600   $57,590   $10,168   $132,643 

1.

Obligor credit ratings are determined by the Credit Risk Management Department.

2.

Unrated loans and lending commitments are primarily trading positions that are measured at fair value and risk managed as a component of Market Risk. For a further discussion of our Market Risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Market Risk” herein.

Institutional Securities Loans and Lending Commitments by Industry

$ in millions  At September 30,
2017		   At December 31,
2016		 

Industry1

    

Real estate

  $23,235   $19,807 

Information technology

   13,907    8,602 

Consumer discretionary

   12,129    12,059 

Industrials

   12,110    11,465 

Energy

   11,074    11,757 

Funds, exchanges and
other financial services2

   10,639    11,481 

Healthcare

   10,014    11,534 

Utilities

   9,407    9,216 

Consumer staples

   7,282    7,329 

Materials

   6,129    7,630 

Mortgage finance

   5,826    6,296 

Telecommunications services

   4,722    6,156 

Insurance

   3,986    4,190 

Consumer finance

   2,949    2,847 

Other

   2,358    2,274 

Total

  $135,767   $132,643 

1.

Industry categories are based on the Global Industry Classification Standard®.

2.

Includes mutual funds, pension funds, private equity and real estate funds, exchanges and clearinghouses, and diversified financial services.

September 201730June 2021 Form 10-Q36

Risk DisclosuresLOGO
ms-20210630_g1.jpg

Event-Driven

Institutional Securities Loans and Lending Commitments

  At September 30, 2017 
  Years to Maturity    
$ in millions Less than 1  1-3  3-5  Over 5  Total 

Loans

 $996  $1,738  $749  $4,568  $8,051 

Lending commitments

  3,001   1,559   2,601   2,304   9,465 

Total loans and lending commitments

 $3,997  $3,297  $3,350  $6,872  $17,516 
  At December 31, 2016 
  Years to Maturity    
$ in millions Less than 1  1-3  3-5  Over 5  Total 

Loans

 $666  $1,593  $1,216  $1,622  $5,097 

Lending commitments

  6,594   1,460   4,807   3,391   16,252 

Total loans and lending commitments

 $  7,260  $  3,053  $  6,023  $  5,013  $  21,349 

Held for Investment

At June 30, 2021
$ in millionsLoansLending CommitmentsTotal
Corporate$4,724 $72,175 $76,899 
Secured lending facilities28,217 11,387 39,604 
Commercial real estate6,707 308 7,015 
Other586 661 1,247 
Total, before ACL$40,234 $84,531 $124,765 
ACL$(579)$(397)$(976)
At December 31, 2020
$ in millionsLoansLending CommitmentsTotal
Corporate$6,046 $69,488 $75,534 
Secured lending facilities25,727 8,312 34,039 
Commercial real estate7,346 334 7,680 
Other1,279 1,135 2,414 
Total, before ACL$40,398 $79,269 $119,667 
ACL$(739)$(391)$(1,130)
Institutional Securities Allowance for Credit Losses—Loans and Lending Exposures RelatedCommitments
$ in millionsCorporateSecured lending facilitiesCommercial real estateOtherTotal
ACL—Loans$309 $198 $211 $21 $739 
ACL—Lending commitments323 38 11 19 391 
Total at December 31, 2020$632 $236 $222 $40 $1,130 
Gross charge-offs(14)(67)(21)— (102)
Provision for credit losses(77)49 5 — (23)
Other1
(2)(1)(2)(24)(29)
Total at June 30, 2021$539 $217 $204 $16 $976 
ACL—Loans$199 $177 $194 $9 $579 
ACL—Lending commitments340 40 10 7 397 
1.Other primarily reflects the allowance for credit losses associated with the Community Development Fund loans portfolio that was transferred to the Energy Industry.At September 30, 2017,Wealth Management business segment from the Institutional Securities’ loansSecurities business segment in the second quarter of 2021.
Institutional Securities HFI Loans—Ratios of Allowance for Credit Losses to Balance Before Allowance
At
June 30,
2021		At
December 31,
2020
Corporate4.2 %5.1 %
Secured lending facilities0.6 %0.8 %
Commercial real estate2.9 %2.9 %
Other1.5 %1.7 %
Total Institutional Securities loans1.4 %1.8 %
Wealth Management Loans and lending commitments related to the energy industry were $11.1 billion, of which approximately 68% are accounted for as held for investment and 32% are accounted for as either held for sale or at fair value. Additionally, approximately 55% of the total energy industry loans and lending commitments were to investment grade counterparties.

At September 30, 2017, the energy industry portfolio included $1.1 billion in loans and $2.1 billion in lending commitments to Oil and Gas Exploration and Production (“E&P”) companies. The E&P loans were tonon-investment grade counterparties, which are generally subject to periodic borrowing base reassessments based on the value of the underlying oil and gas reserves pledged as collateral. In limited situations, we may extend the period related to borrowing base reassessments typically in conjunction with taking certain risk mitigating actions with the borrower. Approximately 51% of the E&P lending commitments were to investment grade counterparties. To the extent oil and natural gas prices deteriorate, we may incur lending losses.

Wealth Management

Lending Commitments

 At June 30, 2021
 Contractual Years to Maturity 
$ in millionsLess than 11-33-5Over 5Total
Securities-based lending and Other$65,156 $6,641 $2,236 $1,804 $75,837 
Residential real estate7 — 6 38,858 38,871 
Total loans, net of ACL$65,163 $6,641 $2,242 $40,662 $114,708 
Lending commitments11,104 2,771 170 324 14,369 
Total exposure$76,267 $9,412 $2,412 $40,986 $129,077 
 At December 31, 2020
 Contractual Years to Maturity 
$ in millionsLess than 11-33-5Over 5Total
Securities-based lending and Other$54,483 $4,587 $2,167 $1,672 $62,909 
Residential real estate9 1 1 35,210 35,221 
Total loans, net of ACL$54,492 $4,588 $2,168 $36,882 $98,130 
Lending commitments11,666 2,356 120 253 14,395 
Total exposure$66,158 $6,944 $2,288 $37,135 $112,525 
The principal Wealth Management business segment lending activities include securities-basedSecurities-based lending and residentialResidential real estate loans.

Securities-based lending providedallows clients to our retail clients is primarily conducted through our Portfolio Loan Account (“PLA”) and Liquidity Access Line (“LAL”) platforms.borrow money against the value of qualifying securities, generally for any purpose other than purchasing, trading or carrying securities, or refinancing margin debt. For more information about our securities-basedSecurities-based lending and residentialResidential real estate loans, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Credit Risk—Lending Activities”Risk” in Part II, Item 7A of the 20162020 Form 10-K.

For

June 2021 Form 10-Q31
Risk Disclosures
ms-20210630_g1.jpg
Wealth Management Allowance for Credit Losses—Loans and Lending Commitments
$ in millions
ACL—Loans$96 
ACL—Lending commitments5 
Total at December 31, 2020101 
Provision for credit losses(2)
Other1
24
Total at June 30, 2021$123
ACL—Loans$108
ACL—Lending commitments15
1.Other primarily reflects the current quarter, loans and lending commitmentsallowance for credit losses associated with the Community Development Fund loans portfolio that was transferred to the Wealth Management business segment lending activities increased by approximately 3%, primarily due to growthfrom the Institutional Securities business segment in securities-based lending and other loans.

the second quarter of 2021.

At June 30, 2021, more than 75% of Wealth Management LoansResidential real estate loans were to borrowers with “Exceptional” or “Very Good” FICO scores (i.e., exceeding 740). Additionally, Wealth Management’s Securities-based lending portfolio remains well-collateralized and Lending Commitments by Remaining Contractual Maturity

  At September 30, 2017 
  Years to Maturity    
$ in millions Less than 1  1-3  3-5  Over 5  Total 

Securities-based lending
and other loans1

 $33,947  $3,303  $1,713  $1,114  $40,077  

Residential real estate loans

  —   16   27   26,135   26,178  

Total Loans

 $33,947  $3,319  $1,740  $27,249  $66,255  

Lending commitments

  6,950   2,515   228   301   9,994  

Total loans and lending commitments

 $40,897  $5,834  $1,968  $27,550  $76,249  
  At December 31, 2016 
  Years to Maturity    
$ in millions Less than 1  1-3  3-5  Over 5  Total 

Securities-based lending
and other loans1

 $  30,547  $  2,983  $  1,304  $1,179  $36,013  

Residential real estate loans

  —   —   45     24,369   24,414  

Total Loans

 $30,547  $2,983  $1,349  $25,548  $  60,427  

Lending commitments

  6,372   1,413   268   246   8,299  

Total loans and lending commitments

 $36,919  $4,396  $1,617  $25,794  $68,726  

1.

PLA and LAL platforms had an outstanding loan balance of $31.8 billion and $29.7 billion at September 30, 2017 and December 31, 2016, respectively.

Lending Activities included in subject to daily client margining, which includes requiring customers to deposit additional collateral, or reduce debt positions, when necessary.

Customer and Other Receivables

Margin Loans

  At September 30, 2017 
$ in millions Institutional
Securities		   Wealth
Management		   Total 

Net customer receivables representing margin loans

 $16,613   $11,996   $    28,609  

  At December 31, 2016 
$ in millions Institutional
Securities		   Wealth
Management		   Total 

Net customer receivables representing margin loans

 $11,876   $12,483   $    24,359  

and Other lending

$ in millionsAt
June 30,
2021		At
December 31,
2020
Institutional Securities$46,020 $51,570 
Wealth Management26,922 23,144 
Total$72,942 $74,714 
The Institutional Securities and Wealth Management business segments provide margin lending arrangements whichthat allow the clientcustomers to borrow against the value of qualifying securities. securities, primarily for the purpose of purchasing additional securities, as well as to collateralize short positions. Institutional Securities primarily includes margin loans in the Equity Financing business. Wealth Management includes margin loans as well as non-purpose securities-based lending on non-bank entities.
Margin lending activities generally have minimallower credit risk due to the value of collateral held and their short-term nature.

Amounts may fluctuate from period to period as overall client balances change as a result of market levels, client positioning and leverage.
Employee Loans

37September 2017 Form 10-Q

Risk DisclosuresLOGO

Employee Loans

$ in millions (except repayment terms)  At
September 30,
2017		  At
December 31,
2016		 

Employee loans:

   

Balance

  $4,317  $4,804  

Allowance for loan losses

   (79)   (89)  

Balance, net

  $4,238  $4,715  

Repayment term range, in years

   1 to 20   1 to 12  

EmployeeFor information on employee loans are generally granted to retain and recruit certain employees, are full recourse and generally require periodic repayments. We establish an allowance for loan amounts to terminated employees that we do not consider recoverable, which is recorded in Compensation and benefits expense. Seerelated ACL, see Note 710 to the financial statements for a further descriptionstatements.

Derivatives
Fair Value of our employee loans.

Credit Exposure—Derivatives

OTC Derivative Assets
 
Counterparty Credit Rating1
 
$ in millionsAAAAAABBBNIGTotal
At June 30, 2021
Less than 1 year$1,344 $12,729 $36,065 $20,945 $11,900 $82,983 
1-3 years633 4,916 14,962 12,941 8,197 41,649 
3-5 years471 4,702 8,440 8,095 3,690 25,398 
Over 5 years4,237 26,890 66,977 48,258 10,438 156,800 
Total, gross$6,685 $49,237 $126,444 $90,239 $34,225 $306,830 
Counterparty netting(3,141)(36,880)(98,646)(66,879)(16,635)(222,181)
Cash and securities collateral(3,064)(8,779)(22,973)(17,233)(8,166)(60,215)
Total, net$480 $3,578 $4,825 $6,127 $9,424 $24,434 

 
Counterparty Credit Rating1
 
$ in millionsAAAAAABBBNIGTotal
At December 31, 2020
Less than 1 year$1,179 $16,166 $52,164 $26,088 $12,175 $107,772 
1-3 years572 5,225 17,560 13,750 8,134 45,241 
3-5 years359 4,326 11,328 8,363 4,488 28,864 
Over 5 years4,545 32,049 84,845 63,084 13,680 198,203 
Total, gross$6,655 $57,766 $165,897 $111,285 $38,477 $380,080 
Counterparty netting(3,269)(44,306)(134,310)(84,171)(22,227)(288,283)
Cash and securities collateral(3,124)(10,973)(26,712)(20,708)(8,979)(70,496)
Total, net$262 $2,487 $4,875 $6,406 $7,271 $21,301 
$ in millionsAt
June 30,
2021		At
December 31,
2020
Industry
Financials$7,613 $6,195 
Utilities4,750 3,954 
Consumer discretionary2,314 1,866 
Energy2,040 965 
Healthcare1,011 1,494 
Industrials953 1,291 
Information technology929 1,104 
Regional governments843 806 
Not-for-profit organizations661 701 
Real estate600 378 
Communications services496 529 
Insurance451 518 
Sovereign governments373 650 
Materials329 430 
Consumer staples291 339 
Other780 81 
Total$24,434 $21,301 
1.Counterparty credit ratings are determined internally by the CRM.
We incurare exposed to credit risk as a dealer in OTC derivatives. Credit risk with respect to derivative instruments arises from the possibility that a counterparty may fail to perform according to the terms of the contract. In connection with our OTC derivative activities, we generally enter into master netting agreementsFor more information on derivatives, see “Quantitative and collateral arrangements with counterparties. These agreements provide us with the ability to demand collateral, as well as to liquidate collateral and offset receivables and payables covered under the same master netting agreementQualitative Disclosures about Risk—Credit Risk—Derivatives” in the event of counterparty default.

Fair values as shown below represent2020 Form 10-K and Note 7 to the Firm’s net exposure to counterparties related to its OTC derivative products. Obligor credit ratings are determined internally by the Credit Risk Management Department.

financial statements.

Counterparty Credit Rating and Remaining Contractual Maturity of OTC Derivative Assets

  Fair Value at September 30, 2017 
  Contractual Years to Maturity  Total
Derivative
Assets		 
$ in millions Less than 1  1-3  3-5  Over 5  

Credit Rating

     

AAA

 $129  $328  $359  $3,183  $3,999  

AA

  1,666   1,716   1,987   7,822   13,191  

A

  6,536   5,597   3,760   19,947   35,840  

BBB

  3,554   2,718   1,712   12,806   20,790  

Non-investment grade

  2,551   2,634   3,539   2,472   11,196  

Total

 $14,436  $12,993  $11,357  $46,230  $85,016  

   Fair Value at September 30, 2017 
$ in millions  Total
Derivative
Assets		   

Cross-
Maturity

and Cash

Collateral

Netting1

  

Net Amounts

Post-cash

Collateral

   

Net Amounts

Post-
collateral2

 

Credit Rating

       

AAA

  $3,999   $(3,011)  $988   $913  

AA

   13,191    (8,178)   5,013    2,397  

A

   35,840    (26,352)   9,488    5,108  

BBB

   20,790    (14,388)   6,402    4,609  

Non-investment grade

   11,196    (5,277)   5,919    2,542  

Total

  $85,016   $(57,206)  $27,810   $15,569  

  Fair Value at December 31, 2016 
  Contractual Years to Maturity  Total
Derivative
Assets		 
$ in millions Less than 1  1-3  3-5  Over 5  

Credit Rating

     

AAA

 $150  $428  $918  $2,931  $4,427  

AA

  3,177   2,383   2,942   10,194   18,696  

A

  9,244   6,676   5,495   21,322   42,737  

BBB

  4,423   3,085   2,434   13,023   22,965  

Non-investment grade

  2,283   1,702   1,722   1,794   7,501  

Total

 $19,277  $    14,274  $    13,511  $    49,264  $96,326  

   Fair Value at December 31, 2016 
$ in millions  Total
Derivative
Assets		   

Cross-
Maturity

and Cash

Collateral
Netting1

  Net Amounts
Post-cash
Collateral		   Net
Amounts
Post-
collateral2		 

Credit Rating

       

AAA

  $4,427   $(3,900)  $527   $485  

AA

   18,696    (11,813)   6,883    4,114  

A

   42,737    (31,425)   11,312    6,769  

BBB

   22,965    (16,629)   6,336    4,852  

Non-investment grade

   7,501    (4,131)   3,370    1,915  

Total

  $96,326   $(67,898)  $28,428   $18,135  

1.

Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity categories. Receivable and payable balances with the same counterparty in the same maturity category are netted within such maturity category, where appropriate. Cash collateral received is netted on a counterparty basis, provided legal right of offset exists.

2.

Fair value is shown net of collateral received (primarily cash and U.S. government and agency securities).

September 201732June 2021 Form 10-Q38

Risk DisclosuresLOGO
ms-20210630_g1.jpg

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

$ in millions  At
September 30,
2017		   At
December 31,
20161		 

Industry2

    

Utilities

  $4,020   $4,184  

Funds, exchanges and
other financial services3

   2,707    2,756  

Regional governments

   1,069    1,352  

Sovereign governments

   1,044    709  

Industrials

   1,032    1,644  

Healthcare

   949    1,103  

Banks and securities firms

   772    1,485  

Not-for-profit organizations

   717    830  

Information technology

   542    267  

Hedge funds

   539    233  

Energy

   464    533  

Consumer discretionary

   445    590  

Insurance

   313    570  

Materials

   284    235  

Special purpose vehicles

   228    821  

Consumer staples

   176    567  

Other

   268    256  

Total4

  $15,569   $18,135  

1.

The amounts included in the December 31, 2016 industry categories have been revised due to previous misclassifications. The total remains unchanged.

2.

Industry categories are based on the Global Industry Classification Standard®.

3.

Amounts include mutual funds, pension funds, private equity and real estate funds, exchanges and clearinghouses, consumer finance, mortgage finance and other diversified financial services.

4.

For further information on derivative instruments and hedging activities, see Note 4 to the financial statements.

We manage our trading positions by employing a variety of risk mitigation strategies. These strategies include diversification of risk exposures and hedging. Hedging activities consist of the purchase or sale of positions in related securities and financial instruments, including a variety of derivative products (e.g., futures, forwards, swaps and options). For a discussion of our credit exposure and related credit derivative contracts, see “Quantitative and Qualitative Disclosures about Market Risk–Risk Management–Credit Risk–Credit Exposure–Derivatives” in Part II, Item 7A of the 2016 Form10-K.

Credit Derivative Portfolio by Counterparty Type

  At September 30, 2017 
  Fair Values1  Notionals 
$ in millions Receivable   Payable   Net  Protection
Purchased		   Protection
Sold		 

Banks and
securities firms

 $5,191   $5,623   $(432)  $208,611   $178,670  

Insurance and other
financial institutions

  3,679    4,358    (679)   163,291    160,493  

Non-financial
entities

  34    52    (18)   3,146    1,195  

Total

 $8,904   $10,033   $(1,129)  $375,048   $340,358  

   At December 31, 2016 
   Fair Values1  Notionals 
$ in millions  Receivable   Payable   Net  Protection
Purchased		   Protection
Sold		 

Banks and securities firms

  $8,516   $9,397   $(881)  $319,830   $273,462  

Insurance and other financial institutions

   3,619    3,901    (282)   144,527    151,999  

Non-financial entities

   94    127    (33)   5,832    4,269  

Total

  $12,229   $13,425   $(1,196)  $470,189   $429,730  

1.

Our Credit Default Swaps (“CDS”) are classified in either Level 2 or Level 3 of the fair value hierarchy. Approximately 4% of receivable fair values represented Level 3 amounts at September 30, 2017 and December 31, 2016. Approximately 7% of payable fair values represented Level 3 amounts at September 30, 2017 and December 31, 2016. See Note 3 to the financial statements for further information.

The fair values shown in the previous table are before the application of contractual netting or collateral. For additional credit exposure information on our credit derivative portfolio, see Note 4 to the financial statements.

Country Risk Exposure

Country risk exposure is the risk that events in, or that affect, a foreign country (any country other than the U.S.) might adversely affect us. We actively manage country risk exposure through a comprehensive risk management framework that combines credit and market fundamentals and allows us to effectively identify, monitor and limit country risk. Country risk exposure before and after hedging is monitored and managed. For a further discussion of our country risk exposure see “Quantitative and Qualitative Disclosures about Market Risk–Risk Management–Risk—Country Risk Exposure” in Part II, Item 7A of the 2016 Form10-K.

Our sovereign exposures consist of financial instruments entered into with sovereign and local governments. Ournon-sovereign exposures consist of exposures to primarily corporations and financial institutions. The following table shows our 10 largestnon-U.S. country risk net exposures at September 30, 2017. Index credit derivatives are includedOther Risks” in the country risk2020 Form 10-K.

Top 10 Non-U.S. Country Exposures at June 30, 2021
$ in millionsUnited KingdomJapanGermanyFranceSpain
Sovereign
Net inventory1
$(43)$5,101 $54 $(471)$(197)
Net counterparty exposure2
1 45 85 6 29 
Exposure before hedges(42)5,146 139 (465)(168)
Hedges3
(310)(79)(287)(6)— 
Net exposure$(352)$5,067 $(148)$(471)$(168)
Non-sovereign
Net inventory1
$1,084 $615 $7 $(338)$72 
Net counterparty exposure2
11,117 4,257 2,788 3,068 391 
Loans3,648 381 1,725 513 3,351 
Lending commitments6,165 180 5,979 6,118 1,313 
Exposure before hedges22,014 5,433 10,499 9,361 5,127 
Hedges3
(1,388)(162)(1,015)(734)(266)
Net exposure$20,626 $5,271 $9,484 $8,627 $4,861 
Total net exposure$20,274 $10,338 $9,336 $8,156 $4,693 
$ in millionsChinaIndiaAustraliaCanadaBrazil
Sovereign
Net inventory1
$(89)$1,178 $570 $(447)$2,115 
Net counterparty exposure2
102 2 45 21 — 
Exposure before hedges13 1,180 615 (426)2,115 
Hedges3
(82)— — — (12)
Net exposure$(69)$1,180 $615 $(426)$2,103 
Non-sovereign
Net inventory1
$1,548 $850 $228 $228 $233 
Net counterparty exposure2
780 891 1,061 1,713 320 
Loans744 235 489 141 188 
Lending commitments1,489 — 905 1,483 183 
Exposure before hedges4,561 1,976 2,683 3,565 924 
Hedges3
(131)— (185)(85)(25)
Net exposure$4,430 $1,976 $2,498 $3,480 $899 
Total net exposure$4,361 $3,156 $3,113 $3,054 $3,002 
1.Net inventory represents exposure table. Each reference entity within anto both long and short single-name and index is allocated to that reference entity’s country of risk. Index exposures are allocated to the underlying reference entities in proportion to the notional weighting of each reference entity in the index, adjusted for anypositions (i.e., bonds and equities at fair value receivable/payable for that reference entity. Where credit risk crosses multiple jurisdictions, for example, aand CDS purchased from an issuer in a specific country that references bonds issued by an entity in a different country, the fair value of the CDS is reflected in the Net Counterparty Exposure column based on the country of the CDS issuer. Further, thea notional amount of the CDSassuming zero recovery adjusted for the fair value of any receivable or payable).
2.Net counterparty exposure (e.g., repurchase transactions, securities lending and OTC derivatives) is net of the receivable/payablebenefit of collateral received and also is reflectednet by counterparty when legally enforceable master netting agreements are in the Net Inventory columnplace. For more information, see “Additional Information—Top 10 Non-U.S. Country Exposures” herein.
3.Amounts represent net CDS hedges (purchased and sold) on net counterparty exposure and lending executed by trading desks responsible for hedging counterparty and lending credit risk exposures. Amounts are based on the countryCDS notional amount assuming zero recovery adjusted for any fair value receivable or payable. For further description of the underlying reference entity.

contractual terms for purchased credit protection and whether they may limit the effectiveness of our hedges, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk—Derivatives” in the 2020 Form 10-K.
Additional Information—Top 10 Non-U.S. Country Exposures

Collateral Held against Net Counterparty Exposure1
$ in millions39September 2017 Form 10-Q

At
June 30,
2021
Country of Risk
Collateral2
Risk DisclosuresGermanyItaly, Croatia and SpainLOGO

Top Ten Country Exposures at September 30, 2017

$ in millions Net Inventory1  

Net

Counterparty

Exposure2

  Loans  Lending
Commitments		  Exposure
Before Hedges		  Hedges3  Net Exposure 

Country

       

United Kingdom:

       

Sovereigns

 $487  $29  $—  $—  $516  $(280)  $236 

Non-sovereigns

  306   8,516   1,843   5,976   16,641   (1,916)   14,725 

Total

 $793  $8,545  $1,843  $5,976  $17,157  $(2,196)  $14,961 

Japan:

       

Sovereigns

 $5,391  $54  $—  $—  $5,445  $(103)  $5,342 

Non-sovereigns

  696   3,365   65   —   4,126   (114)   4,012 

Total

 $6,087  $3,419  $65  $—  $9,571  $(217)  $9,354 

Brazil:

       

Sovereigns

 $3,729  $—  $—  $—  $3,729  $(11)  $3,718 

Non-sovereigns

  196   577   755   75   1,603   (343)   1,260 

Total

 $3,925  $577  $755  $75  $5,332  $(354)  $4,978 

Canada:

       

Sovereigns

 $84  $25  $—  $—  $109  $—  $109 

Non-sovereigns

  211   1,885   110   1,605   3,811   (384)   3,427 

Total

 $295  $1,910  $110  $1,605  $3,920  $(384)  $3,536 

India:

       

Sovereigns

 $1,503  $—  $—  $—  $1,503  $—  $1,503 

Non-sovereigns

  615   467   —   —   1,082   —   1,082 

Total

 $2,118  $467  $—  $—  $2,585  $—  $2,585 

Italy:

       

Sovereigns

 $1,201  $(14)  $—  $—  $1,187  $9  $1,196 

Non-sovereigns

  99   447   348   748   1,642   (286)   1,356 

Total

 $1,300  $433  $348  $748  $2,829  $(277)  $2,552 

China:

       

Sovereigns

 $(24)  $227  $—  $—  $203  $(79)  $124 

Non-sovereigns

  774   215   657   524   2,170   (10)   2,160 

Total

 $750  $442  $657  $524  $2,373  $(89)  $2,284 

Singapore:

       

Sovereigns

 $1,670  $107  $—  $—  $1,777  $—  $1,777 

Non-sovereigns

  70   189   106   37   402   —   402 

Total

 $1,740  $296  $106  $37  $2,179  $—  $2,179 

Netherlands:

       

Sovereigns

 $(286)  $—  $—  $—  $(286)  $(20)  $(306) 

Non-sovereigns

  125   565   922   1,156   2,768   (383)   2,385 

Total

 $(161)  $565  $922  $1,156  $2,482  $(403)  $2,079 

Ireland:

       

Sovereigns

 $(57)  $3  $—  $—  $(54)  $(81)  $(135) 

Non-sovereigns

  52   205   1,770   149   2,176   —   2,176 

Total

 $(5)  $208  $1,770  $149  $2,122  $(81)  $2,041 

1.$

Net inventory represents exposure to both long and short single-name and index positions (i.e., bonds and equities at fair value and CDS based on a notional amount assuming zero recovery adjusted for any fair value receivable or payable).

2.

Net counterparty exposure (i.e., repurchase transactions, securities lending and OTC derivatives) takes into consideration legally enforceable master netting agreements and collateral.

3.

Amounts represent CDS hedges (purchased and sold) on net counterparty exposure and lending executed by trading desks responsible for hedging counterparty and lending credit risk exposures for us. Amounts are based on the CDS notional amount assuming zero recovery adjusted for any fair value receivable or payable. For a further description of the contractual terms for purchased credit protection and whether they may limit the effectiveness of our hedges, see “Credit Exposure—Derivatives” herein.

11,765
September 2017 Form 10-QUnited KingdomU.K., U.S. and Spain4010,434
OtherJapan, Italy, and France17,737

Risk DisclosuresLOGO

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

Credit Derivatives Included in Net Inventory

$ in millions  At September 30,
2017		 

Gross purchased protection

  $(61,795) 

Gross written protection

   60,031 

Net exposure

  $(1,764) 

Net counterparty exposure shown in the Top Ten Country Exposure table above includes the1.The benefit of collateral received which is typically composedreflected in the Top 10 Non-U.S. Country Exposures at June 30, 2021.

2.Primarily consists of cash, andas well as government obligations.

Benefitobligations of Collateral Received Against Counterparty Credit Exposure

$ in millions  At September 30,
2017		 

U.K.1

  $8,334 

Japan2

   4,824 

Other3

   5,133 

1.

Primarily obligations of the U.K., the U.S. and Italy.

2.

Primarily obligations of Japan.

3.

Primarily obligations of the Netherlands and the U.K.

the countries listed.

Country Risk Exposures Related to the United Kingdom.U.K.
At SeptemberJune 30, 2017,2021, our country risk exposures in the U.K. included net exposures of $14,961$20,274 million as(as shown in the table above,Top 10 Non-U.S. Country Exposures table) and overnight deposits of $7,137$9,017 million. The $14,725$20,626 million of exposures tonon-sovereigns were diversified across both names and sectors. Of these exposures, $4,699sectors and include $9,253 million were to U.K. focusedU.K.-focused counterparties that generate more thanone-third of their revenues in the U.K., $4,858$4,131 million were to geographically diversified counterparties, and $4,934$6,212 million were to exchanges and clearing houses.

Country Risk Exposures Related to Brazil.    At September 30, 2017, our country risk exposures in Brazil included net exposures of $4,978 million as shown in the table above. Our sovereign net exposures in Brazil were principally in the form of local currency government bonds held onshore to support client activity. The $1,260 million of exposures tonon-sovereigns were diversified across both names and sectors.

clearinghouses.

June 2021 Form 10-Q33
Risk Disclosures
ms-20210630_g1.jpg
Operational Risk

Operational risk refers to the risk of loss, or of damage to our reputation, resulting from inadequate or failed processes or systems, from human factors or from external events (e.g., fraud,

theft, legal and compliance risks, cyber attacks or damage to physical assets). We may incur operational risk across the full scope of our business activities, including revenue-generating activities (e.g., sales and trading) and support and control groups (e.g., information technology and trade processing). For a further discussion about our operational risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Operational Risk” in Part II, Item 7Athe 2020 Form 10-K. In addition, for further information on market and economic conditions and their effects on risk in general, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—Coronavirus Disease (COVID-19) Pandemic” herein and “Risk Factors” in the 20162020 Form10-K.

Model Risk

Model risk refers to the potential for adverse consequences from decisions based on incorrect or misused model outputs. Model risk can lead to financial loss, poor business and strategic decision making or damage to the Firm’sour reputation. The risk inherent in a model is a function of the materiality, complexity and uncertainty around inputs and assumptions. Model risk is generated from the use of models impacting financial statements, regulatory filings, capital adequacy assessments and the formulation of business strategies.strategy. For a further discussion about our model risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Model Risk” in Part II, Item 7A of the 20162020 Form10-K.

Liquidity Risk

Liquidity risk refers to the risk that we will be unable to finance our operations due to a loss of access to the capital markets or difficulty in liquidating our assets. Liquidity risk also encompasses our ability (or perceived ability) to meet our financial obligations without experiencing significant business disruption or reputational damage that may threaten our viability as a going concern. For a further discussion about our liquidity risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Liquidity Risk” in Part II, Item 7A of the 20162020 Form10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” herein. In addition, for further information on market and economic conditions and their effects on risk in Part I, Item 2.

general, see “Risk Factors” in the 2020 Form 10-K.

Legal and Compliance Risk

Legal and compliance risk includes the risk of legal or regulatory sanctions, material financial loss, including fines, penalties, judgments, damages and/or settlements, or loss to reputation that we may suffer as a result of failure to comply
with laws, regulations, rules, related self-regulatory organization standards and codes of conduct applicable to our business activities. This risk also includes contractual and commercial risk, such as the risk that a counterparty’s performance obligations will be unenforceable. It also includes compliance with anti-money launderingAML, terrorist financing, and terrorist financinganti-corruption rules and regulations. For a further discussion about our legal and compliance risk, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management—Legal and Compliance Risk” in Part II, Item 7A of the 20162020 Form10-K.

3441September 2017June 2021 Form 10-Q

LOGO

Controls and Procedures

Under the supervision and with the participation of the Firm’s management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the Firm’s disclosure controls and procedures (as defined in Rule13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

No change in the Firm’s internal control over financial reporting (as defined in Rule13a-15(f) of the Exchange Act) occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.

September 2017 Form 10-Q42


Report of Independent Registered Public Accounting Firm


To the Shareholders and the Board of Directors and Shareholders of Morgan Stanley:

Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheet of Morgan Stanley and subsidiaries (the “Firm”) as of SeptemberJune 30, 2017,2021, and the related condensed consolidated income statements, and comprehensive income statements for the three-month and nine-month periods ended September 30, 2017 and 2016, and the cash flow statements and statements of changes in total equity for the nine-monththree-month and six-month periods ended SeptemberJune 30, 20172021 and 2016. These condensed consolidated2020, and the cash flow statements for the six-month periods ended June 30, 2021 and 2020, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements areinformation for it to be in conformity with accounting principles generally accepted in the responsibilityUnited States of the management of the Firm.

America.

We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Firm as of December 31, 2020, and the related consolidated income statement, comprehensive income statement, cash flow statement and statement of changes in total equity for the year then ended (not presented herein) included in the Firm’s Annual Report on Form 10-K; and in our report dated February 26, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results
This interim financial information is the responsibility of the Firm’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Firm in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Firm as of December 31, 2016, and the consolidated income statement, comprehensive income statement, cash flow statement and statement of changes in total equity for the year then ended (not presented herein) included in the Firm’s Annual Report on Form10-K; and in our report dated February 27, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.







/s/ Deloitte & Touche LLP

New York, New York

November 3, 2017

August 2, 2021



43September 2017June 2021 Form 10-Q35

Financial StatementsLOGO

Consolidated Financial Statements and Notes

Consolidated Income Statements

(Unaudited)

  Three Months Ended
September 30,		     Nine Months Ended
September 30,		 
in millions, except per share data        2017                 2016                    2017                2016        

Revenues

      

Investment banking

 $1,380   $1,225       $4,455  $3,556  

Trading

  2,704    2,609        8,870   7,420  

Investments

  167    87        495   179  

Commissions and fees

  937    991        2,997   3,066  

Asset management, distribution and administration fees

  3,026    2,686        8,695   7,943  

Other

  200    308        628   631  

Totalnon-interest revenues

  8,414    7,906        26,140   22,795  

Interest income

  2,340    1,734        6,411   5,148  

Interest expense

  1,557    731        4,106   2,333  

Net interest

  783    1,003        2,305   2,815  

Net revenues

  9,197    8,909        28,445   25,610  

Non-interest expenses

      

Compensation and benefits

  4,169    4,097        12,887   11,795  

Occupancy and equipment

  330    339        990   997  

Brokerage, clearing and exchange fees

  522    491        1,556   1,440  

Information processing and communications

  459    456        1,320   1,327  

Marketing and business development

  128    130        419   418  

Professional services

  534    489        1,622   1,550  

Other

  573    526        1,719   1,481  

Totalnon-interest expenses

  6,715    6,528        20,513   19,008  

Income from continuing operations before income taxes

  2,482    2,381        7,932   6,602  

Provision for income taxes

  697    749        2,358   2,160  

Income from continuing operations

  1,785    1,632        5,574   4,442  

Income (loss) from discontinued operations, net of income taxes

  6    8        (21)   1  

Net income

 $1,791   $1,640       $5,553  $4,443  

Net income applicable to noncontrolling interests

  10    43        85   130  

Net income applicable to Morgan Stanley

 $1,781   $1,597       $5,468  $4,313  

Preferred stock dividends and other

  93    79        353   314  

Earnings applicable to Morgan Stanley common shareholders

 $1,688   $1,518       $5,115  $3,999  

Earnings per basic common share

      

Income from continuing operations

 $0.95   $0.82       $2.87  $2.15  

Income (loss) from discontinued operations

  —    0.01        (0.01)   —  

Earnings per basic common share

 $0.95   $0.83       $2.86  $2.15  

Earnings per diluted common share

      

Income from continuing operations

 $0.93   $0.80       $2.81  $2.11  

Income (loss) from discontinued operations

  —    0.01        (0.02)   —  

Earnings per diluted common share

 $0.93   $0.81       $2.79  $2.11  

Dividends declared per common share

 $0.25   $0.20       $0.65  $0.50  

Average common shares outstanding

      

Basic

  1,776    1,838        1,789   1,863  

Diluted

  1,818    1,879        1,830   1,898  

September 2017 Form 10-Q
Consolidated Income Statements
(Unaudited)		44See Notes to Consolidated Financial Statements
ms-20210630_g1.jpg

 Three Months Ended
June 30,		Six Months Ended
June 30,
in millions, except per share data2021202020212020
Revenues
Investment banking$2,560 $2,142 $5,400 $3,413 
Trading3,330 4,803 7,555 7,604 
Investments381 275 699 313 
Commissions and fees1,308 1,102 2,934 2,462 
Asset management4,973 3,265 9,371 6,682 
Other342 473 626 9 
Total non-interest revenues12,894 12,060 26,585 20,483 
Interest income2,212 2,358 4,649 5,861 
Interest expense347 758 756 2,905 
Net interest1,865 1,600 3,893 2,956 
Net revenues14,759 13,660 30,478 23,439 
Provision for credit losses73 239 (25)646 
Non-interest expenses
Compensation and benefits6,423 6,035 13,221 10,318 
Brokerage, clearing and exchange fees795 716 1,705 1,456 
Information processing and communications765 589 1,498 1,152 
Professional services746 535 1,370 984 
Occupancy and equipment414 365 819 730 
Marketing and business development146 63 292 195 
Other831 763 1,688 1,457 
Total non-interest expenses10,120 9,066 20,593 16,292 
Income before provision for income taxes4,566 4,355 9,910 6,501 
Provision for income taxes1,054 1,119 2,230 1,485 
Net income$3,512 $3,236 $7,680 $5,016 
Net income applicable to noncontrolling interests1 40 49 122 
Net income applicable to Morgan Stanley$3,511 $3,196 $7,631 $4,894 
Preferred stock dividends103 149 241 257 
Earnings applicable to Morgan Stanley common shareholders$3,408 $3,047 $7,390 $4,637 
Earnings per common share
Basic$1.88 $1.98 $4.10 $3.00 
Diluted$1.85 $1.96 $4.04 $2.96 
Average common shares outstanding
Basic1,814 1,541 1,804 1,548 
Diluted1,841 1,557 1,829 1,565 
Consolidated Comprehensive Income Statements
(Unaudited)
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Net income$3,512 $3,236 $7,680 $5,016 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments41 21 (178)(111)
Change in net unrealized gains (losses) on available-for-sale securities(7)295 (783)1,620 
Pension and other12 (1)17 24 
Change in net debt valuation adjustment186 (2,496)323 1,307 
Total other comprehensive income (loss)$232 $(2,181)$(621)$2,840 
Comprehensive income$3,744 $1,055 $7,059 $7,856 
Net income applicable to noncontrolling interests1 40 49 122 
Other comprehensive income (loss) applicable to noncontrolling interests1 (87)(60)51 
Comprehensive income applicable to Morgan Stanley$3,742 $1,102 $7,070 $7,683 

Consolidated Comprehensive Income Statements

(Unaudited)

LOGO

   

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
$ in millions        2017              2016              2017              2016       

Net income

  $1,791  $1,640  $5,553  $4,443  

Other comprehensive income (loss), net of tax:

     

Foreign currency translation adjustments

  $61  $43   223   360  

Change in net unrealized gains (losses) onavailable-for-sale securities

   26   (99)   218   439  

Pension, postretirement and other

   —   (1)   4   (5) 

Change in net debt valuation adjustment

   (149)   (93)   (323)   255  

Total other comprehensive income (loss)

  $(62)  $(150)  $122  $1,049  

Comprehensive income

  $1,729  $1,490  $5,675  $5,492  

Net income applicable to noncontrolling interests

   10   43   85   130  

Other comprehensive income (loss) applicable to noncontrolling interests

   (6)   15   23   151  

Comprehensive income applicable to Morgan Stanley

  $1,725  $1,432  $5,567  $5,211  

June 2021 Form 10-Q36See Notes to Consolidated Financial Statements45September 2017 Form 10-Q

Consolidated Balance SheetsLOGO

$ in millions, except share data  (Unaudited)
At
September 30,
2017		  At
December 31,
2016		 

Assets

   

Cash and due from banks

  $24,047  $22,017  

Interest bearing deposits with banks

   24,144   21,364  

Trading assets at fair value ($158,445and $152,548 were pledged to various parties)

   285,088   262,154  

Investment securities (includes$54,954 and $63,170 at fair value)

   79,086   80,092  

Securities purchased under agreements to resell (includes$101 and $302 at fair value)

   90,106   101,955  

Securities borrowed

   132,892   125,236  

Customer and other receivables

   54,388   46,460  

Loans:

   

Held for investment (net of allowance of$245 and $274)

   91,207   81,704  

Held for sale

   13,224   12,544  

Goodwill

   6,590   6,577  

Intangible assets (net of accumulated amortization of$2,651 and $2,421)

   2,491   2,721  

Other assets

   50,430   52,125  

Total assets

  $853,693  $814,949  

Liabilities

   

Deposits (includes$174 and $63 at fair value)

  $154,639  $155,863  

Short-term borrowings (includes$658 and $406 at fair value)

   1,087   941  

Trading liabilities at fair value

   127,237   128,194  

Securities sold under agreements to repurchase (includes$810 and $729 at fair value)

   53,983   54,628  

Securities loaned

   15,630   15,844  

Other secured financings (includes$6,514and $5,041 at fair value)

   14,244   11,118  

Customer and other payables

   198,792   190,513  

Other liabilities and accrued expenses

   16,290   15,896  

Long-term borrowings (includes$46,231 and $38,736 at fair value)

   191,677   164,775  

Total liabilities

   773,579   737,772  

Commitments and contingent liabilities (see Note 11)

   

Equity

   

Morgan Stanley shareholders’ equity:

   

Preferred stock

   8,520   7,520  

Common stock, $0.01 par value:

   

Shares authorized:3,500,000,000; Shares issued:2,038,893,979; Shares outstanding:1,812,472,419 and 1,852,481,601

   20   20  

Additionalpaid-in capital

   23,389   23,271  

Retained earnings

   57,554   53,679  

Employee stock trusts

   2,899   2,851  

Accumulated other comprehensive income (loss)

   (2,544)   (2,643) 

Common stock held in treasury at cost, $0.01 par value (226,421,560and 186,412,378 shares)

   (7,961)   (5,797) 

Common stock issued to employee stock trusts

   (2,899)   (2,851) 

Total Morgan Stanley shareholders’ equity

   78,978   76,050  

Noncontrolling interests

   1,136   1,127  

Total equity

   80,114   77,177  

Total liabilities and equity

  $853,693  $814,949  

September 2017 Form 10-Q
Consolidated Balance Sheets
46
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$ in millions, except share data
(Unaudited)
At
June 30,
2021
At
December 31,
2020
Assets
Cash and cash equivalents$126,480 $105,654 
Trading assets at fair value ($108,288 and $132,578 were pledged to various parties)
321,145 312,738 
Investment securities (includes $93,222 and $110,383 at fair value)
175,342 182,154 
Securities purchased under agreements to resell (includes $10 and $15 at fair value)
95,930 116,234 
Securities borrowed126,703 112,391 
Customer and other receivables100,921 97,737 
Loans:
Held for investment (net of allowance for credit losses of $687 and $835)
154,346 137,784 
Held for sale11,713 12,813 
Goodwill16,838 11,635 
Intangible assets (net of accumulated amortization of $3,518 and $3,265)
8,690 4,980 
Other assets23,697 21,742 
Total assets$1,161,805 $1,115,862 
Liabilities
Deposits (includes $2,672 and $3,521 at fair value)
$320,358 $310,782 
Trading liabilities at fair value169,074 157,631 
Securities sold under agreements to repurchase (includes $1,028 and $1,115 at fair value)
57,645 50,587 
Securities loaned9,574 7,731 
Other secured financings (includes $6,574 and $11,701 at fair value)
11,232 15,863 
Customer and other payables233,810 227,437 
Other liabilities and accrued expenses27,808 25,603 
Borrowings (includes $75,508 and $73,701 at fair value)
224,142 217,079 
Total liabilities1,053,643 1,012,713 
Commitments and contingent liabilities (see Note 14)


0
0Equity
Morgan Stanley shareholders’ equity:
Preferred stock7,750 9,250 
Common stock, $0.01 par value:
Shares authorized: 3,500,000,000; Shares issued: 2,038,893,979; Shares outstanding: 1,834,370,291 and 1,809,624,144
20 20 
Additional paid-in capital28,030 25,546 
Retained earnings84,791 78,694 
Employee stock trusts3,768 3,043 
Accumulated other comprehensive income (loss)(2,523)(1,962)
Common stock held in treasury at cost, $0.01 par value (204,523,688 and 229,269,835 shares)
(11,198)(9,767)
Common stock issued to employee stock trusts(3,768)(3,043)
Total Morgan Stanley shareholders’ equity106,870 101,781 
Noncontrolling interests1,292 1,368 
Total equity108,162 103,149 
Total liabilities and equity$1,161,805 $1,115,862 
See Notes to Consolidated Financial Statements37June 2021 Form 10-Q

Consolidated Statements of Changes in Total Equity


(Unaudited)

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$ in millions

  

Preferred

Stock

   

Common

Stock

   

Additional

Paid-in

Capital

  

Retained

Earnings

  

Employee

Stock

Trusts

  

Accumulated

Other

Comprehensive

Income (Loss)

  

Common

Stock

Held in

Treasury

at Cost

  

Common

Stock

Issued to

Employee

Stock

Trusts

  

Non-

controlling

Interests

  

Total

Equity

 

Balance at December 31, 2016

  $7,520   $20   $23,271  $53,679  $2,851  $(2,643)  $(5,797)  $(2,851)  $1,127   $     77,177  

Cumulative adjustment for accounting
changes1

   —    —    45   (35)   —   —   —   —   —   10  

Net income applicable to Morgan Stanley

   —    —    —   5,468   —   —   —   —   —   5,468  

Net income applicable to noncontrolling interests

   —    —    —   —   —   —   —   —   85   85  

Dividends

   —    —    —   (1,558)   —   —   —   —   —   (1,558) 

Shares issued under employee plans

   —    —    79   —   48   —   844   (48)   —   923  

Repurchases of common stock and employee tax withholdings

   —    —    —   —   —   —   (3,008)   —   —   (3,008) 

Net change in Accumulated other comprehensive income (loss)

   —    —    —   —   —   99   —   —   23   122  

Issuance of preferred stock

   1,000    —    (6)   —   —   —   —   —   —   994  

Other net decreases

   —    —    —   —   —   —   —   —   (99)   (99) 

Balance at September 30, 2017

  $8,520   $20   $23,389  $57,554  $2,899  $(2,544)  $(7,961)  $(2,899)  $1,136   $     80,114  

Balance at December 31, 2015

  $7,520   $20   $24,153  $49,204  $2,409  $(1,656)  $(4,059)  $(2,409)  $1,002   $     76,184  

Cumulative adjustment for accounting change related to DVA2

   —    —    —   312   —   (312)   —   —   —   —  

Net adjustment for accounting change related to consolidation3

   —    —    —   —   —   —   —   —   106   106  

Net income applicable to Morgan Stanley

   —    —    —   4,313   —   —   —   —   —   4,313  

Net income applicable to noncontrolling interests

   —    —    —   —   —   —   —   —   130   130  

Dividends

   —    —    —   (1,284)   —   —   —   —   —   (1,284) 

Shares issued under employee plans and related tax effects

   —    —    (1,168)   —   430   —   2,106   (430)   —   938  

Repurchases of common stock and employee tax withholdings

   —    —    —   —   —   —   (2,908)   —   —   (2,908) 

Net change in Accumulated other comprehensive income (loss)

   —    —    —   —   —   898   —   —   151   1,049  

Other net increase (decreases)

   —    —    10   —   —   —   —   —   (76)   (66) 

Balance at September 30, 2016

  $7,520   $20   $    22,995  $    52,545  $2,839  $(1,070)  $(4,861)  $(2,839)  $1,313   $     78,462  


Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Preferred Stock
Beginning balance$7,750 $8,520 $9,250 $8,520 
Redemption of Series J preferred stock— — (1,500)— 
Ending balance7,750 8,520 7,750 8,520 
Common Stock
Beginning and ending balance20 20 20 20 
Additional Paid-in Capital
Beginning balance27,406 23,428 25,546 23,935 
Share-based award activity624 354 292 (153)
Issuance of common stock for the acquisition of Eaton Vance— — 2,185 — 
Other net increases (decreases)— — 7 — 
Ending balance28,030 23,782 28,030 23,782 
Retained Earnings
Beginning balance82,034 71,518 78,694 70,589 
Cumulative adjustment related to the adoption of financial instruments-credit losses accounting update1
0 0 0 (100)
Net income applicable to Morgan Stanley3,511 3,196 7,631 4,894 
Preferred stock dividends2
(103)(149)(241)(257)
Common stock dividends2
(651)(550)(1,286)(1,111)
Other net increases (decreases)— — (7)— 
Ending balance84,791 74,015 84,791 74,015 
Employee Stock Trusts
Beginning balance3,861 3,088 3,043 2,918 
Share-based award activity(93)(70)725 100 
Ending balance3,768 3,018 3,768 3,018 
Accumulated Other Comprehensive Income (Loss)
Beginning balance(2,754)2,095 (1,962)(2,788)
Net change in Accumulated other comprehensive income (loss)231 (2,094)(561)2,789 
Ending balance(2,523)1 (2,523)1 
Common Stock Held in Treasury at Cost
Beginning balance(8,197)(19,721)(9,767)(18,727)
Share-based award activity17 56 1,037 844 
Repurchases of common stock and employee tax withholdings(3,018)(28)(5,600)(1,810)
Issuance of common stock for the acquisition of Eaton Vance— — 3,132 — 
Ending balance(11,198)(19,693)(11,198)(19,693)
Common Stock Issued to Employee Stock Trusts
Beginning balance(3,861)(3,088)(3,043)(2,918)
Share-based award activity93 70 (725)(100)
Ending balance(3,768)(3,018)(3,768)(3,018)
Noncontrolling Interests
Beginning balance1,329 1,368 1,368 1,148 
Net income applicable to noncontrolling interests1 40 49 122 
Net change in Accumulated other comprehensive income (loss) applicable to noncontrolling interests1 (87)(60)51 
Other net increases (decreases)(39)43 (65)43 
Ending balance1,292 1,364 1,292 1,364 
Total Equity$108,162 $88,009 $108,162 $88,009 
1.See Notes 2 and 18 in the 2020 Form 10-K for further information regarding cumulative adjustments for accounting changes.
2.See Note 17 for information regarding dividends per share for each class of stock.
1.

The cumulative adjustment relates to the adoption of the following accounting updates on January 1, 2017: Improvements to Employee Share-Based Payment Accounting,for which the Firm recorded a cumulativecatch-up adjustment to reflect its election to account for forfeitures as they occur (see Note 2 for further information); andIntra-Entity Transfers of Assets Other Than Inventory, for which the Firm recorded a cumulativecatch-up adjustment to reflect the tax impact from an intercompany sale of assets.

2.

Debt valuation adjustment (“DVA”) represents the change in the fair value resulting from fluctuations in the Firm’s credit spreads and other credit factors related to liabilities carried at fair value under the fair value option, primarily related to certain Long-term and Short-term borrowings. In accordance with the early adoption of a provision of the accounting updateRecognition and Measurement of Financial Assets and Financial Liabilities, a cumulativecatch-up adjustment was recorded as of January 1, 2016 to move the cumulative unrealized DVA amount, net of noncontrolling interests and tax, related to outstanding liabilities under the fair value option election from Retained earnings into Accumulated other comprehensive income (loss) (“AOCI”). See Note 2 to the consolidated financial statements in the Firm’s Annual Report on Form10-K for the year ended December 31, 2016 (the “2016 Form10-K”) and Note 14 for further information.

3.

In accordance with the accounting updateAmendments to the Consolidation Analysis, a net adjustment was recorded as of January 1, 2016 to both consolidate and deconsolidate certain entities under the new guidance. See Note 2 to the consolidated financial statements in the 2016 Form10-K for further information.

June 2021 Form 10-Q38See Notes to Consolidated Financial Statements47September 2017 Form 10-Q

Consolidated Cash Flow Statements

(Unaudited)

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Nine Months Ended

September 30,

 
$ in millions  2017  2016 

Cash flows from operating activities

   

Net income

  $5,553  $4,443  

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

   

(Income) loss from equity method investments

   —   39  

Compensation payable in common stock and options

   775   794  

Depreciation and amortization

   1,340   1,357  

Net gain on sale ofavailable-for-sale securities

   (27)   (127) 

Impairment charges

   13   102  

Provision for credit losses on lending activities

   32   138  

Other operating adjustments

   (48)   (36) 

Changes in assets and liabilities:

   

Trading assets, net of Trading liabilities

   (18,599)   (20,509) 

Securities borrowed

   (7,656)   16,136  

Securities loaned

   (214)   (2,843) 

Customer and other receivables and other assets

   (6,682)   (2,800) 

Customer and other payables and other liabilities

   8,196   3,849  

Securities purchased under agreements to resell

   11,849   (2,922) 

Securities sold under agreements to repurchase

   (645)   10,244  

Net cash provided by (used for) operating activities

   (6,113)   7,865  

Cash flows from investing activities

   

Proceeds from (payments for):

   

Other assets—Premises, equipment and software, net

   (1,177)   (941) 

Changes in loans, net

   (9,350)   (7,709) 

Investment securities:

   

Purchases

   (19,713)   (41,230) 

Proceeds from sales

   16,111   28,960  

Proceeds from paydowns and maturities

   5,378   5,956  

Other investing activities

   (77)   (24) 

Net cash provided by (used for) investing activities

   (8,828)   (14,988) 

Cash flows from financing activities

   

Net proceeds from (payments for):

   

Short-term borrowings

   64   (1,233) 

Noncontrolling interests

   (43)   (47) 

Other secured financings

   1,400   (278) 

Deposits

   (1,224)   (4,191) 

Proceeds from:

   

Derivatives financing activities

   73   —  

Issuance of preferred stock, net of issuance costs

   994   —  

Issuance of long-term borrowings

   45,334   27,528  

Payments for:

   

Long-term borrowings

   (24,480)   (22,902) 

Derivatives financing activities

   (73)   (120) 

Repurchases of common stock and employee tax withholdings

   (3,008)   (2,908) 

Cash dividends

   (1,562)   (1,311) 

Other financing activities

   58   —  

Net cash provided by (used for) financing activities

   17,533   (5,462) 

Effect of exchange rate changes on cash and cash equivalents

   2,218   1,054  

Net increase (decrease) in cash and cash equivalents

   4,810   (11,531) 

Cash and cash equivalents, at beginning of period

   43,381   54,083  

Cash and cash equivalents, at end of period

  $48,191  $42,552  

Cash and cash equivalents include:

   

Cash and due from banks

  $24,047  $26,899  

Interest bearing deposits with banks

   24,144   15,653  

Cash and cash equivalents, at end of period

  $                  48,191  $                  42,552  

Supplemental Disclosure of Cash Flow Information

Cash payments for interest were$3,422 millionand $1,784 million.

Cash payments for income taxes, net of refunds, were$967 millionand $504 million.

September 2017 Form 10-Q
Consolidated Cash Flow Statements
(Unaudited)		48
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 Six Months Ended
June 30,
$ in millions20212020
Cash flows from operating activities
Net income$7,680 $5,016 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Stock-based compensation expense1,136 548 
Depreciation and amortization1,944 1,510 
Provision for credit losses(25)646 
Other operating adjustments(165)599 
Changes in assets and liabilities:
Trading assets, net of Trading liabilities(1,526)17,539 
Securities borrowed(14,312)(285)
Securities loaned1,843 1,987 
Customer and other receivables and other assets(2,360)(7,789)
Customer and other payables and other liabilities9,917 (1,005)
Securities purchased under agreements to resell20,304 (8,388)
Securities sold under agreements to repurchase7,058 (3,352)
Net cash provided by (used for) operating activities31,494 7,026 
Cash flows from investing activities
Proceeds from (payments for):
Other assets—Premises, equipment and software, net(1,039)(782)
Changes in loans, net(17,426)(8,700)
Investment securities:
Purchases(40,125)(33,195)
Proceeds from sales17,546 3,581 
Proceeds from paydowns and maturities24,479 5,616 
Cash paid as part of the Eaton Vance acquisition, net of cash acquired(2,648)0 
Other investing activities(231)(138)
Net cash provided by (used for) investing activities(19,444)(33,618)
Cash flows from financing activities
Net proceeds from (payments for):
Other secured financings(1,107)332 
Deposits9,643 46,287 
Proceeds from issuance of Borrowings49,100 32,914 
Payments for:
Borrowings(40,300)(24,632)
Repurchases of common stock and employee tax withholdings(5,600)(1,810)
Cash dividends(1,501)(1,328)
Other financing activities(186)(164)
Net cash provided by (used for) financing activities10,049 51,599 
Effect of exchange rate changes on cash and cash equivalents(1,273)(902)
Net increase (decrease) in cash and cash equivalents20,826 24,105 
Cash and cash equivalents, at beginning of period105,654 82,171 
Cash and cash equivalents, at end of period$126,480 $106,276 
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest$881 $2,742 
Income taxes, net of refunds2,033 679 
See Notes to Consolidated Financial Statements39June 2021 Form 10-Q

Notes to Consolidated Financial Statements


(Unaudited)

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1. Introduction and Basis of Presentation

The Firm

Morgan Stanley a financial holding company, is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms “Morgan Stanley” or the “Firm” mean Morgan Stanley (the “Parent Company”) together with its consolidated subsidiaries.

See the “Glossary of Common Terms and Acronyms” for the definition of certain terms and acronyms used throughout this Form 10-Q.

A description of the clients and principal products and services of each of the Firm’s business segments is as follows:

Institutional Securities provides investment banking, salesa variety of products and trading, lending and other services to corporations, governments, financial institutions and high to ultra-high net worth clients. Investment banking services consist of capital raising and financial advisory services, including services relating to the underwriting of debt, equity and other securities, as well as advice on mergers and acquisitions, restructurings real estate and project finance. SalesOur Equity and trading servicesFixed Income businesses include sales, financing, and market-making activities in equity and fixed income products, including prime brokerage, market-making, Asia wealth management services global macro, credit and commodities products.certain business-related investments. Lending servicesactivities include originating and/or purchasing corporate loans and commercial real estate loans, providing secured lending facilities, and residential mortgage lending, asset-backed lending,extending securities-based and other financing extended to equities and commodities customers and municipalities.customers. Other servicesactivities include investment and research activities.

research.

Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small tomedium-sized businesses/ businesses and institutions coveringcovering: financial advisor-led brokerage and investment advisory services,services; self-directed brokerage services; financial and wealth planning services; workplace services including stock plan administration; annuity and insurance products, creditproducts; securities-based lending, residential real estate loans and other lending products, bankingproducts; banking; and retirement plan services.

Investment Managementprovides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products, which are offered through a variety of investment vehicles, include equity, fixed income, alternatives and solutions, and liquidity and alternative/other products.overlay services. Institutional clients include defined benefit/defined contribution plans, foundations,
endowments, government entities, sovereign wealth funds, insurance companies, third-party fund sponsors and corporations. Individual clients are servicedgenerally served through intermediaries, including affiliated andnon-affiliated distributors.

Basis of Financial Information

The unaudited consolidated financial statements (“financial statements”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”),GAAP, which requirerequires the Firm to make estimates and assumptions regarding the valuations of certain financial instruments, the valuationvaluations of goodwill and intangible assets, compensation, deferred tax assets, the outcome of legal and tax matters, allowance for credit lossesdeferred tax assets, ACL, and other matters that affect its financial statements and related disclosures. The Firm believes that the estimates utilized in the preparation of its financial statements are prudent and reasonable. Actual results could differ materially from these estimates. Intercompany balances and transactions have been eliminated. Certain
The financial statements reflect the effects of the following reclassifications have been made to prior periodsperiod amounts. The Provision for credit losses for loans and lending commitments is presented as a separate line in the income statements. Previously, the provision for credit losses for loans was included in Other revenues, and the provision for credit losses for lending commitments was included in Other expenses. In addition, economic hedges of certain held-for-sale and held-for-investment loans, which were previously reported in Trading revenues, are reported in Other revenues.
The Notes are an integral part of the Firm’s financial statements. The Firm has evaluated subsequent events for adjustment to conform toor disclosure in these financial statements through the current presentation.

date of this report and has not identified any recordable or disclosable events not otherwise reported in these financial statements or the notes thereto.

The accompanying financial statements should be read in conjunction with the Firm’s consolidated financial statements and notes thereto included in the 20162020 Form10-K. Certain footnote disclosures included in the 20162020 Form10-K have been condensed or omitted from these financial statements as they are not required for interim reporting under U.S. GAAP. The financial statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The results of operations for interim periods are not necessarily indicative of results for the entire year.

Consolidation

The financial statements include the accounts of the Firm, its wholly owned subsidiaries and other entities in which the Firm has a controlling financial interest, including certain variable interest entities (“VIE”)VIEs (see Note 12)15). Intercompany balances and transactions have been eliminated. For consolidated subsidiaries that are less thannot wholly owned, the third-party holdings of equity interests are referred to as noncontrollingNoncontrolling interests. The net income attributable to noncontrollingNoncontrolling interests for such subsidiaries is
June 2021 Form 10-Q40
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
presented as Net income applicable to noncontrolling interests in the consolidated income statements (“income statements”).statements. The portion of shareholders’ equity that is attributable to noncontrolling interests for such subsidiaries is presented as noncontrolling interests, a component of totalTotal equity, in the consolidated balance sheets (“balance sheets”).

sheets.

For a discussion of the Firm’s involvement with VIEs and its significant regulated U.S. and international subsidiaries and its involvement with VIEs, see NotesNote 1 and 2 to the consolidated financial statements in the 20162020 Form10-K.

49September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

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2. Significant Accounting Policies

For a detailed discussion about the Firm’s significant accounting policies and for further information on accounting updates adopted in the prior year, see Note 2 to the consolidated financial statements in the 20162020 Form10-K.

During the ninesix months ended SeptemberJune 30, 2017(“2021 (“current year period”), other than the following, there were no significant updates made to the Firm’s significant accounting policies.

Accounting Standards Adopted

policies, other than as described below and in Note 1 to the financial statements.

The Firm’s acquisition of Eaton Vance Corp. (“Eaton Vance”) on March 1, 2021 added indefinite lived intangible assets to the Firm’s balance sheet. Indefinite lived intangible assets are not amortized but are tested for impairment on an annual basis and on an interim basis when certain events or circumstances exist. For both the annual and interim tests, the Firm adoptedhas the following accounting update on Januaryoption to either (i) perform a quantitative impairment test or (ii) first perform a qualitative assessment to determine whether it is more likely than not that the asset is impaired, in which case the quantitative test would be performed.
3. Acquisitions
Acquisition of Eaton Vance
On March 1, 2017.

•

Improvements to Employee Share-Based Payment Accounting. This accounting update simplifies the accounting for employee share-based payments, including the recognition of forfeitures, the classification of income tax consequences, and the classification within the consolidated cash flow statements (“cash flow statements”).

Beginning2021, the Firm completed the acquisition of 100% of Eaton Vance in 2017,a stock and cash transaction, which increases the income tax consequences related to share-based payments are required to be recognized in Provision for income taxes in the income statements upon the conversion of employee share-based awards instead of additionalpaid-in capital. The impactscale and breadth of the income tax consequences upon conversionInvestment Management business segment. Total consideration for the transaction was approximately $8.7 billion, which consists of the awards may be either a benefit or a provision. Conversion$5.3 billion fair value of employee share-based awards69 million common shares issued from Common stock held in treasury and cash of approximately $3.4 billion.

Upon acquisition, the assets and liabilities of Eaton Vance were adjusted to Firm shares will primarily occurtheir respective fair values as of the closing date of the transaction, including the identifiable intangible assets acquired. In addition, the excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill. The fair value estimates used in the first quarter of each year. The impact of recognizing excess tax benefits upon conversion of awardsvaluing certain acquired assets and liabilities are based, in the quarter in which the accounting update was adopted (three months ended March 31, 2017) was a $112 million benefitpart, on inputs that are unobservable. For intangible assets, these include, but are not limited to, Provision for income taxes. The classification offorecasted future cash flows, from excess tax benefits was moved from the financing section to the operating section of the cash flow statements,revenue growth rates, attrition rates and was applied on a retrospective basis.

discount rates.

In addition, this accounting update permits an entity to elect whether to continue to estimate the total forfeitures, or to account for forfeitures on an actual basis as they occur. The Firm has elected to account for forfeitures on an actual basis as they occur. This change is required to be applied using a modified retrospective approach, and upon adoption, the Firm recorded a cumulativecatch-up adjustment, decreasing Retained earnings by approximately $30 million net of tax, increasing Additionalpaid-in capital by approximately $45 million and increasing deferred tax assets by approximately $15 million.

Goodwill

The Firm completed its annual goodwill impairment testing as of July 1, 2017. The Firm’s impairment testing did not indicate any goodwill impairment, as each of the Firm’s reporting units with goodwill had a fair value that was substantially in excess of its carrying value.

Eaton Vance Purchase Price Allocation

September 2017 Form 10-Q$ in millionsAt
March 1,
2021
Assets50
Cash and cash equivalents$691
Trading assets at fair value:
Loans and lending commitments445
Investments299
Corporate and other debt52
Customer and other receivables331
Goodwill5,270
Intangible assets3,956
Other assets836
Total assets$11,880
Liabilities
Other secured financings$399
Other liabilities and accrued expenses2,147
Borrowings678
Total liabilities$3,224

Acquired Intangible Assets
$ in millionsWeighted
average life
(years)		At
March 1,
2021
Non-amortizable
Management contractsindefinite$2,120 
Amortizable
Customer relationships161,455 
Tradenames23221 
Management contracts16160 
Total acquired Intangible assets$3,956 
Eaton Vance Results Included in the Firm’s Consolidated Results
$ in millionsThree Months Ended
June 30, 2021
Six Months Ended
June 30, 20211
Net revenues$535 $709 
Net income119 150 
1.Reflects Eaton Vance results from March 1, 2021 through June 30, 2021.
Morgan Stanley and Eaton Vance Proforma Combined Financial Information
Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions
20211
202020212020
Net revenues$14,759 $14,076 $30,774 $24,241 
Net income3,512 3,282 7,780 4,691 
1.Amounts are the same as those presented in the Consolidated Income Statement for the current quarter.

The proforma financial information presented in the previous table was computed by combining the historical financial information of the Firm and Eaton Vance along with the effects of the acquisition method of accounting for business combinations as though the companies were combined on January 1, 2020.
The proforma information does not reflect the potential benefits of cost and funding synergies, opportunities to earn additional revenues, or other factors, and therefore does not represent what the actual Net revenues and Net income would

41June 2021 Form 10-Q
Notes to Consolidated Financial Statements


(Unaudited)

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ms-20210630_g1.jpg

3.

have been had the companies actually been combined as of this date.
4. Cash and Cash Equivalents
Cash and cash equivalents consist of Cash and due from banks and Interest bearing deposits with banks. Cash equivalents are highly liquid investments with remaining maturities of three months or less from the acquisition date that are readily convertible to cash and are not held for trading purposes.
$ in millionsAt
June 30,
2021		At
December 31,
2020
Cash and due from banks$8,943 $9,792 
Interest bearing deposits with banks117,537 95,862 
Total Cash and cash equivalents$126,480 $105,654 
Restricted cash$41,203 $38,202 
Cash and cash equivalents also include Restricted cash such as cash segregated in compliance with federal or other regulations, including minimum reserve requirements set by the Federal Reserve Bank and other central banks, and the Firm’s initial margin deposited with clearing organizations.
5. Fair Values

Recurring Fair Value Measurement

Measurements    

Assets and Liabilities Measured at Fair Value on a Recurring Basis

  At September 30, 2017 
$ in millions Level 1  Level 2  Level 3  Netting1  Total 

Assets at Fair Value

     

Trading assets:

     

U.S. Treasury and
agency securities

 $27,538  $23,186  $—    $—    $50,724 

Other sovereign
government
obligations2

  25,428   6,201   104   —     31,733 

Corporate and other debt:

 

    

State and municipal
securities

  —     2,123   10   —     2,133 

MABS

  —     2,399   274   —     2,673 

Corporate bonds

  —     14,164   419   —     14,583 

CDO

  —     313   76   —     389 

Loans and lending
commitments3

  —     3,423   4,865   —     8,288 

Other debt

  —     1,041   193   —     1,234 

Total corporate
and other debt

  —     23,463   5,837   —     29,300 

Corporate equities4

  137,028   425   296   —     137,749 

Derivative and
other contracts:

     

Interest rate

  581   183,561   1,658   —     185,800 

Credit

  —     8,527   377   —     8,904 

Foreign exchange

  93   53,842   47   —     53,982 

Equity

  1,056   44,986   3,402   —     49,444 

Commodity and
other

  1,240   4,929   4,107   —     10,276 

Netting1

  (2,896)   (225,857)   (1,853)   (46,425)   (277,031) 

Total derivative and
other contracts

  74   69,988   7,738   (46,425)   31,375 

Investments5

  316   257   925   —     1,498 

Physical commodities

  —     157   —     —     157 

Total trading assets5

  190,384   123,677   14,900   (46,425)   282,536 

Investment securities— AFS

  25,022   29,932   —     —     54,954 

Securities purchased
under agreements
to resell

  —     101   —     —     101 

Intangible assets

  —     3   —     —     3 

Total assets
at fair value

 $215,406  $153,713  $14,900  $(46,425)  $337,594 

  At September 30, 2017 
$ in millions Level 1  Level 2  Level 3  Netting1  Total 

Liabilities at Fair Value

     

Deposits

 $—  $68  $106  $—  $174 

Short-term borrowings

  —   658   —   —   658 

Trading liabilities:

     

U.S. Treasury and
agency securities

  14,574   61   —   —   14,635 

Other sovereign
government
obligations2

  24,351   1,432   —   —   25,783 

Corporate and other debt:

 

    

Corporate bonds

  —   7,044   6   —   7,050 

Other debt

  —   342   2   —   344 

Total corporate and other debt

  —   7,386   8   —   7,394 

Corporate equities4

  54,778   157   51   —   54,986 

Derivative and other contracts:

     

Interest rate

  478   165,399   582   —   166,459 

Credit

  —   9,353   680   —   10,033 

Foreign exchange

  52   54,198   125   —   54,375 

Equity

  1,252   47,603   2,171   —   51,026 

Commodity and
other

  1,233   3,879   2,573   —   7,685 

Netting1

  (2,896)   (225,857)   (1,853)   (34,533)   (265,139) 

Total derivative and
other contracts

  119   54,575   4,278   (34,533)   24,439 

Total trading liabilities

  93,822   63,611   4,337   (34,533)   127,237 

Securities sold under agreements to repurchase

  —   661   149   —   810 

Other secured
financings

  —   6,264   250   —   6,514 

Long-term borrowings

  35   43,593   2,603   —   46,231 

Total liabilities
at fair value

 $93,857  $114,855  $7,445  $(34,533)  $181,624 
At June 30, 2021
$ in millionsLevel 1Level 2Level 3
Netting1
Total
Assets at fair value
Trading assets:
U.S. Treasury and agency securities$48,097 $28,134 $25 $— $76,256 
Other sovereign government obligations32,496 5,020 78 — 37,594 
State and municipal securities0 2,002 4 — 2,006 
MABS0 1,424 357 — 1,781 
Loans and lending commitments2
0 10,249 4,896 — 15,145 
Corporate and other debt0 31,781 1,801 — 33,582 
Corporate equities3
104,834 508 150 — 105,492 
Derivative and other contracts:
Interest rate1,805 174,122 1,241 — 177,168 
Credit0 7,673 636 — 8,309 
Foreign exchange41 70,710 95 — 70,846 
Equity1,051 68,919 387 — 70,357 
Commodity and other4,932 17,576 2,557 — 25,065 
Netting1
(6,406)(250,928)(975)(52,481)(310,790)
Total derivative and other contracts1,423 88,072 3,941 (52,481)40,955 
Investments4
638 571 978 — 2,187 
Physical commodities0 2,106 0 — 2,106 
Total trading assets4
187,488 169,867 12,230 (52,481)317,104 
Investment securities—AFS46,234 46,988 0 — 93,222 
Securities purchased under agreements to resell0 10 0 — 10 
Total assets at fair value$233,722 $216,865 $12,230 $(52,481)$410,336 

At June 30, 2021
$ in millionsLevel 1Level 2Level 3
Netting1
Total
Liabilities at fair value
Deposits$0 $2,586 $86 $— $2,672 
Trading liabilities:
U.S. Treasury and agency securities14,504 377 0 — 14,881 
Other sovereign government obligations27,980 2,030 0 — 30,010 
Corporate and other debt0 12,367 9 — 12,376 
Corporate equities3
73,195 471 50 — 73,716 
Derivative and other contracts:
Interest rate1,855 158,946 573 — 161,374 
Credit0 8,354 839 — 9,193 
Foreign exchange32 66,144 62 — 66,238 
Equity1,274 79,795 1,224 — 82,293 
Commodity and other4,750 16,103 1,127 — 21,980 
Netting1
(6,406)(250,928)(975)(44,678)(302,987)
Total derivative and other contracts1,505 78,414 2,850 (44,678)38,091 
Total trading liabilities117,184 93,659 2,909 (44,678)169,074 
Securities sold under agreements to repurchase0 579 449 — 1,028 
Other secured financings0 6,173 401 — 6,574 
Borrowings0 73,533 1,975 — 75,508 
Total liabilities at fair value$117,184 $176,530 $5,820 $(44,678)$254,856 
 At December 31, 2020
$ in millionsLevel 1Level 2Level 3
Netting1
Total
Assets at fair value
Trading assets:
U.S. Treasury and agency securities$43,084 $31,524 $9 $— $74,617 
Other sovereign government obligations26,174 5,048 268 — 31,490 
State and municipal securities0 1,135 0 — 1,135 
MABS0 1,070 322 — 1,392 
Loans and lending commitments2
0 5,389 5,759 — 11,148 
Corporate and other debt0 30,093 3,435 — 33,528 
Corporate equities3
111,575 1,142 86 — 112,803 
Derivative and other contracts:
Interest rate4,458 227,818 1,210 — 233,486 
Credit0 6,840 701 — 7,541 
Foreign exchange29 93,770 260 — 94,059 
Equity1,132 65,943 1,369 — 68,444 
Commodity and other1,818 10,108 2,723 — 14,649 
Netting1
(5,488)(310,534)(1,351)(62,956)(380,329)
Total derivative and other contracts1,949 93,945 4,912 (62,956)37,850 
Investments4
624 234 828 — 1,686 
Physical commodities0 3,260 0 — 3,260 
Total trading assets4
183,406 172,840 15,619 (62,956)308,909 
Investment securities—AFS46,354 61,225 2,804 — 110,383 
Securities purchased under agreements to resell0 12 3 — 15 
Total assets at fair value$229,760 $234,077 $18,426 $(62,956)$419,307 
51September 2017June 2021 Form 10-Q42

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

  At December 31, 2016 

$ in millions

 Level 1  Level 2  Level 3  Netting1  Total 

Assets at Fair Value

     

Trading assets:

     

U.S. Treasury and
agency securities

 $27,579  $20,392  $74  $—  $48,045  

Other sovereign
government
obligations

  14,005   5,497   6   —   19,508  

Corporate and other debt:

State and municipal
securities

  —   2,355   250   —   2,605  

MABS

  —   1,691   217   —   1,908  

Corporate bonds

  —   11,051   232   —   11,283  

CDO

  —   602   63   —   665  

Loans and lending
commitments3

  —   3,580   5,122   —   8,702  

Other debt

  —   1,360   180   —   1,540  

Total corporate and
other debt

  —   20,639   6,064   —   26,703  

Corporate equities4

  131,574   352   446   —   132,372  

Derivative and other
contracts:

     

Interest rate

  1,131   300,406   1,373   —   302,910  

Credit

  —   11,727   502   —   12,229  

Foreign exchange

  231   74,921   13   —   75,165  

Equity

  1,185   35,736   1,708   —   38,629  

Commodity and
other

  2,808   6,734   3,977   —   13,519  

Netting1

  (4,378)   (353,543)   (1,944)   (51,381)   (411,246) 

Total derivative and
other contracts

  977   75,981   5,629   (51,381)   31,206  

Investments5

  237   197   958   —   1,392  

Physical commodities

  —   112   —   —   112  

Total trading assets5

  174,372   123,170   13,177   (51,381)   259,338  

Investment securities—AFS

  29,120   34,050   —   —   63,170  

Securities purchased
under agreements to
resell

  —   302   —   —   302  

Intangible assets

  —   3   —   —   3  

Total assets
at fair value

 $  203,492  $157,525  $13,177  $(51,381)  $322,813  
  At December 31, 2016 
$ in millions Level 1  Level 2  Level 3  Netting1  Total 

Liabilities at Fair Value

     

Deposits

 $—  $21  $42  $—  $63  

Short-term borrowings

  —   404   2   —   406  

Trading liabilities:

     

U.S. Treasury and
agency securities

  11,636   61   —   —   11,697  

Other sovereign
government
obligations

  20,658   2,430   —   —   23,088  

Corporate and other debt:

 

    

Corporate bonds

  —   5,572   34   —   5,606  

Other debt

  —   549   2   —   551  

Total corporate
and other debt

  —   6,121   36   —   6,157  

Corporate equities4

  57,847   54   35   —   57,936  

Derivative and other
contracts:

     

Interest rate

  1,244   285,379   953   —   287,576  

Credit

  —   12,550   875   —   13,425  

Foreign exchange

  17   75,510   56   —   75,583  

Equity

  1,162   37,828   1,524   —   40,514  

Commodity and
other

  2,663   6,845   2,377   —   11,885  

Netting1

  (4,378)   (353,543)   (1,944)   (39,803)   (399,668) 

Total derivative and
other contracts

  708   64,569   3,841   (39,803)   29,315  

Physical commodities

  —   1   —   —   1  

Total trading liabilities

  90,849   73,236   3,912   (39,803)   128,194  

Securities sold under
agreements to
repurchase

  —   580   149   —   729  

Other secured
financings

  —   4,607   434   —   5,041  

Long-term borrowings

  47   36,677   2,012   —   38,736  

Total liabilities
at fair value

 $90,896  $115,525  $6,551  $(39,803)  $173,169  

MABS—Mortgage- and asset-backed securities

AFS—Available for sale

CDO—Collateralized debt obligations, including collateralized loan obligations

1.

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

2.

During the current year period, the Firm transferred from Level 2 to Level 1 $1.3 billion and $1.8 billion of Trading assets—Other sovereign government obligations and Trading liabilities—Other sovereign government obligations, respectively, due to increased market activity in these instruments.

3.

For further breakdown by type, see the following Loans and Lending Commitments at Fair Value table.

4.

For trading purposes, the Firm holds or sells short equity securities issued by entities in diverse industries and of varying sizes.

5.

Amounts exclude certain investments that are measured at fair value using the net asset value (“NAV”) per share, which are not classified in the fair value hierarchy. For additional disclosure about such investments, see “Fair Value of Investments Measured at NAV” herein.

Loans and Lending Commitments at Fair Value 
$ in millions  

At

September 30, 2017

   

At

December 31, 2016 

 

Corporate

  $6,441   $7,217  

Residential real estate

   690    966  

Wholesale real estate

   1,157    519  

Total

  $8,288   $8,702  

September 2017 Form 10-Q52
Table of Contents

Notes to Consolidated Financial Statements


(Unaudited)

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ms-20210630_g1.jpg

Unsettled Fair Value of Futures Contracts1 
$ in millions  

At

September 30, 2017

   

At

December 31, 2016

 

Long

    

Customer and other receivables

  $977   $784  

Short

    

Customer and other payables

  $140   $174  

1.

These contracts are primarily Level 1, actively traded, valued based on quoted prices from the exchange and are excluded from the previous recurring fair value tables.

At December 31, 2020
$ in millionsLevel 1Level 2Level 3
Netting1
Total
Liabilities at fair value
Deposits$0 $3,395 $126 $— $3,521 
Trading liabilities:
U.S. Treasury and agency securities10,204 1 0 — 10,205 
Other sovereign government obligations24,209 1,738 16 — 25,963 
Corporate and other debt0 8,468 0 — 8,468 
Corporate equities3
67,822 172 63 — 68,057 
Derivative and other contracts:
Interest rate4,789 213,321 528 — 218,638 
Credit0 7,500 652 — 8,152 
Foreign exchange11 94,698 199 — 94,908 
Equity1,245 81,683 3,600 — 86,528 
Commodity and other1,758 9,418 1,014 — 12,190 
Netting1
(5,488)(310,534)(1,351)(58,105)(375,478)
Total derivative and other contracts2,315 96,086 4,642 (58,105)44,938 
Total trading liabilities104,550 106,465 4,721 (58,105)157,631 
Securities sold under agreements to repurchase0 671 444 — 1,115 
Other secured financings0 11,185 516 — 11,701 
Borrowings0 69,327 4,374 — 73,701 
Total liabilities at fair value$104,550 $191,043 $10,181 $(58,105)$247,669 
MABS—Mortgage- and asset-backed securities
1.For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled “Netting.” Positions classified within the same level that are with the same counterparty are netted within that level. For further information on derivative instruments and hedging activities, see Note 7.
2.For a further breakdown by type, see the following Detail of Loans and Lending Commitments at Fair Value table.
3.For trading purposes, the Firm holds or sells short equity securities issued by entities in diverse industries and of varying sizes.
4.Amounts exclude certain investments that are measured based on NAV per share, which are not classified in the fair value hierarchy. For additional disclosure about such investments, see “Net Asset Value Measurements” herein.
Detail of Loans and Lending Commitments at Fair Value
$ in millionsAt
June 30,
2021		At
December 31,
2020
Corporate$13$13
Secured lending facilities666648
Commercial Real Estate2,441916
Residential Real Estate1,8292,145
Securities-based lending and Other loans10,1967,426
Total$15,145$11,148
Unsettled Fair Value of Futures Contracts1
$ in millionsAt
June 30,
2021		At
December 31,
2020
Customer and other receivables, net$323 $434 
1.These contracts are primarily Level 1, actively traded, valued based on quoted prices from the exchange and are excluded from the previous recurring fair value tables.
For a description of the valuation techniques applied to the Firm’s major categories of assets and liabilities measured at fair value on a recurring basis, see Note 35 to the consolidated financial statements in the 20162020 Form10-K. During the current year period,quarter, there were no significant updatesrevisions made to the Firm’s valuation techniques.

Changes in

Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
U.S. Treasury and agency securities
Beginning balance$12 $99 $9 $22 
Realized and unrealized gains (losses)44 (3)59 (20)
Purchases22 81 25 108 
Sales(68)(38)(68)(23)
Net transfers15 (42)0 10 
Ending balance$25 $97 $25 $97 
Unrealized gains (losses)$44 $(1)$58 $(21)
Other sovereign government obligations
Beginning balance$17 $17 $268 $5 
Realized and unrealized gains (losses)0 (1)0 0 
Purchases75 0 76 9 
Sales(16)(3)(260)(4)
Net transfers2 (2)(6)1 
Ending balance$78 $11 $78 $11 
Unrealized gains (losses)$0 $(1)$0 $0 
State and municipal securities
Beginning balance$0 $1 $0 $1 
Purchases4 0 4 0 
Net transfers0 (1)0 (1)
Ending balance$4 $0 $4 $0 
Unrealized gains (losses)$0 $0 $0 $0 
MABS
Beginning balance$374 $483 $322 $438 
Realized and unrealized gains (losses)8 11 59 (62)
Purchases21 274 128 384 
Sales(58)(401)(123)(418)
Net transfers12 12 (29)37 
Ending balance$357 $379 $357 $379 
Unrealized gains (losses)$6 $8 $1 $(60)
Loans and lending commitments
Beginning balance$5,045 $5,980 $5,759 $5,073 
Realized and unrealized gains (losses)22 (2)3 (119)
Purchases and originations1,527 808 2,673 1,160 
Sales(1,438)(672)(2,569)(755)
Settlements(712)(901)(933)(1,508)
Net transfers1
452 (1,145)(37)217 
Ending balance$4,896 $4,068 $4,896 $4,068 
Unrealized gains (losses)$38 $5 $9 $(116)
Corporate and other debt
Beginning balance$3,319 $1,708 $3,435 $1,396 
Realized and unrealized gains (losses)207 55 135 (87)
Purchases and originations883 2,859 1,413 2,522 
Sales(908)(1,726)(1,087)(861)
Settlements0 (232)0 (311)
Net transfers2
(1,700)22 (2,095)27 
Ending balance$1,801 $2,686 $1,801 $2,686 
Unrealized gains (losses)$264 $46 $248 $(92)
43June 2021 Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Corporate equities
Beginning balance$114 $146 $86 $97 
Realized and unrealized gains (losses)12 (12)26 (100)
Purchases25 13 50 24 
Sales(36)(25)(38)(127)
Net transfers35 (39)26 189 
Ending balance$150 $83 $150 $83 
Unrealized gains (losses)$15 $(9)$28 $(91)
Investments
Beginning balance$924 $725 $828 $858 
Realized and unrealized gains (losses)47 (23)107 (49)
Purchases28 14 92 17 
Sales(9)(11)(24)(20)
Net transfers(12)54 (25)(47)
Ending balance$978 $759 $978 $759 
Unrealized gains (losses)$47 $(22)$94 $(50)
Investment securities —AFS
Beginning balance$127 $0 $2,804 $0 
Realized and unrealized gains (losses)0 0 (4)0 
Sales(11)0 (203)0 
Net transfers3
(116)0 (2,597)0 
Ending balance$0 $0 $0 $0 
Unrealized gains (losses)$0 $0 $0 $0 
Securities purchased under agreements to resell
Beginning balance$0 $0 $3 $0 
Net transfers0 0 (3)0 
Ending balance$0 $0 $0 $0 
Unrealized gains (losses)$0 $0 $0 $0 
Net derivatives: Interest rate
Beginning balance$691 $873 $682 $777 
Realized and unrealized gains (losses)(43)(126)(388)70 
Purchases41 11 57 129 
Issuances(52)(24)(66)(27)
Settlements18 (12)103 (26)
Net transfers13 38 280 (163)
Ending balance$668 $760 $668 $760 
Unrealized gains (losses)$(40)$(160)$(370)$27 
Net derivatives: Credit
Beginning balance$(82)$198 $49 $124 
Realized and unrealized gains (losses)(88)(74)(75)(60)
Purchases17 13 25 44 
Issuances(24)(22)(38)(39)
Settlements36 54 (60)102 
Net transfers(62)(38)(104)(40)
Ending balance$(203)$131 $(203)$131 
Unrealized gains (losses)$(76)$(143)$(75)$(63)
Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Net derivatives: Foreign exchange
Beginning balance$(110)$(150)$61 $(31)
Realized and unrealized gains (losses)96 122 (26)94 
Purchases2 0 4 3 
Issuances0 0 (2)(9)
Settlements1 2 (67)(11)
Net transfers44 43 63 (29)
Ending balance$33 $17 $33 $17 
Unrealized gains (losses)$(49)$44 $25 $35 
Net derivatives: Equity
Beginning balance$(2,117)$(1,376)$(2,231)$(1,684)
Realized and unrealized gains (losses)283 (135)344 181 
Purchases28 149 71 237 
Issuances(143)(391)(461)(595)
Settlements105 10 5 (52)
Net transfers2
1,007 (141)1,435 29 
Ending balance$(837)$(1,884)$(837)$(1,884)
Unrealized gains (losses)$(36)$(156)$(25)$(4)
Net derivatives: Commodity and other
Beginning balance$1,944 $1,849 $1,709 $1,612 
Realized and unrealized gains (losses)122 338 348 448 
Purchases0 3 10 21 
Issuances0 (2)(13)(17)
Settlements(170)(119)(222)7 
Net transfers(466)18 (402)16 
Ending balance$1,430 $2,087 $1,430 $2,087 
Unrealized gains (losses)$(63)$182 $69 $257 
Deposits
Beginning balance$177 $117 $126 $179 
Realized and unrealized losses (gains)4 6 2 3 
Settlements(2)(4)(2)(9)
Net transfers(93)(29)(40)(83)
Ending balance$86 $90 $86 $90 
Unrealized losses (gains)$4 $7 $2 $3 
Nonderivative trading liabilities
Beginning balance$62 $64 $79 $37 
Realized and unrealized losses (gains)(4)5 4 (10)
Purchases(38)(42)(43)(45)
Sales16 24 16 22 
Settlements0 0 0 3 
Net transfers23 23 3 67 
Ending balance$59 $74 $59 $74 
Unrealized losses (gains)$(2)$5 $4 $(10)
Securities sold under agreements to repurchase
Beginning balance$441 $0 $444 $0 
Realized and unrealized losses (gains)8 (31)6 (31)
Issuances0 471 0 471 
Net transfers0 0 (1)0 
Ending balance$449 $440 $449 $440 
Unrealized losses (gains)$8 $(31)$6 $(31)
June 2021 Form 10-Q44
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Other secured financings
Beginning balance$555 $389 $516 $109 
Realized and unrealized losses (gains)9 0 4 (12)
Issuances37 5 407 7 
Settlements(176)(88)(498)(203)
Net transfers(24)(6)(28)399 
Ending balance$401 $300 $401 $300 
Unrealized losses (gains)$10 $0 $4 $(12)
Borrowings
Beginning balance$4,262 $3,998 $4,374 $4,088 
Realized and unrealized losses (gains)125 500 36 (202)
Issuances146 385 276 766 
Settlements(217)(92)(326)(283)
Net transfers2
(2,341)(656)(2,385)(234)
Ending balance$1,975 $4,135 $1,975 $4,135 
Unrealized losses (gains)$121 $496 $29 $(200)
Portion of Unrealized losses (gains) recorded in OCI—Change in net DVA(4)281 (8)(125)
1.Net transfers in the prior year periods reflect the largely offsetting impacts of the transfer in of $857 million of equity margin loans in the first quarter of the prior year and transfers out of $707 million of equity margin loans in the prior year quarter. The following tables present additional information aboutloans were transferred into Level 3 assetsin the first quarter of the prior year as the significance of the margin loan rate input increased as a result of reduced liquidity, and liabilities measured attransferred out of Level 3 in the prior year quarter as liquidity conditions improved, reducing the significance of the input.
2.Net transfers from Level 3 to Level 2 in the current quarter reflect $2.0 billion of Corporate and Other Debt, $1.0 billion of net Equity derivatives, and $2.2 billion of Borrowings as the unobservable inputs were not significant to the overall fair value on a recurring basis for the three months ended Septembermeasurements as of June 30, 2017

2021.

(“current quarter”), the three months ended September 30, 2016 (“prior year quarter”),3.Net transfers in the current year period also reflect the transfer in the first quarter of $2.5 billion of AFS securities from Level 3 to Level 2 due to increased trading activity and the nine months ended September 30, 2016 (“prior year period”). observability of pricing inputs.

Level 3 instruments may be hedged with instruments classified in Level 1 and Level 2. As a result, theThe realized and unrealized gains (losses)or losses for assets and liabilities within the Level 3 category presented in the followingprevious tables do not reflect the related realized and unrealized gains (losses)or losses on hedging instruments that have been classified by the Firm within the Level 1 and/or Level 2 categories.

Additionally, both observable and unobservable inputs may be used to determine the fair value of positions that the Firm has classified within the Level 3 category. As a result, the

The unrealized gains (losses) during the period for assets and liabilities within the Level 3 category presented in the following tables herein may include changes in fair value during the period that were attributable to both observable and unobservable inputs. Total realized and unrealized gains (losses) are primarily included in Trading revenues in the income statements.

RollforwardAdditionally, in the previous tables, consolidations of Level 3 AssetsVIEs are included in Purchases, and Liabilities Measured at Fair Value on a Recurring Basis for the Current Quarter

$ in millions Beginning
Balance at
June 30, 2017		  Realized
and
Unrealized
Gains
(Losses)		  Purchases1  Sales and
Issuances2		  Settlements1  Net
Transfers		  Ending
Balance at
September 30,
2017		  Unrealized
Gains
(Losses) at
September 30,
2017		 

Assets at Fair Value

        

Trading assets:

        

Other sovereign government obligations

 $100  $2  $86  $(82)  $—  $(2)  $104  $1 

Corporate and other debt:

        

State and municipal securities

  9   —   4   (3)   —   —   10   — 

MABS

  264   4   52   (54)   —   8   274   1 

Corporate bonds

  449   29   120   (144)   —   (35)   419   27 

CDO

  58   7   20   (15)   (4)   10   76   6 

Loans and lending commitments

  4,864   25   1,772   (1,431)   (236)   (129)   4,865   17 

Other debt

  186   5   80   (82)   —   4   193   1 

Total corporate and other debt

  5,830   70   2,048   (1,729)   (240)   (142)   5,837   52 

Corporate equities

  500   (9)   24   (268)   —   49   296   — 

Net derivative and other contracts3:

        

Interest rate

  970   105   13   (29)   33   (16)   1,076   92 

Credit

  (305)   (33)   7   (9)   35   2   (303)   (33) 

Foreign exchange

  2   (59)   9   —   17   (47)   (78)   (50) 

Equity

  1,093   114   60   (77)   79   (38)   1,231   110 

Commodity and other

  1,509   158   1   (1)   (112)   (21)   1,534   45 

Total net derivative and other contracts

  3,269   285   90   (116)   52   (120)   3,460   164 

Investments

  946   (4)   13   (17)   (16)   3   925   (5) 

Liabilities at Fair Value

        

Deposits

 $79  $(1)  $—  $32  $—  $(6)  $106  $(1) 

Trading liabilities:

        

Corporate and other debt:

        

Corporate bonds

  13   (2)   (18)   9   —   —   6   (1) 

Other debt

  2   —   —   —   —   —   2   — 

Total corporate and other debt

  15   (2)   (18)   9   —   —   8   (1) 

Corporate equities

  28   1   (10)   24   —   10   51   2 

Securities sold under agreements to repurchase

  148   (1)   —   —   —   —   149   (1) 

Other secured financings

  244   (5)   —   2   (1)   —   250   (5) 

Long-term borrowings

  2,646   (53)   —   679   (49)   (726)   2,603   (47) 

1.

Loan originations and consolidations of VIEs are included in purchases and deconsolidations of VIEs are included in settlements.

2.

Amounts related to entering into Net derivatives and other contracts, Deposits, Short-term borrowings, Other secured financings and Long-term borrowings primarily represent issuances. Amounts for other line items primarily represent sales.

3.

Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts.

53September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Prior Year Quarter

$ in millions Beginning
Balance at
June 30, 2016		  Realized
and
Unrealized
Gains
(Losses)		  Purchases1  Sales and
Issuances2		  Settlements1  Net
Transfers		  Ending
Balance at
September 30,
2016		  

Unrealized
Gains

(Losses) at
September 30,
2016

 

Assets at Fair Value

        

Trading assets:

        

U.S. Treasury and agency securities

 $20  $—  $—  $(18)  $—  $6  $8  $— 

Other sovereign government obligations

  2   —   6   (1)   —   5   12   — 

Corporate and other debt:

        

State and municipal securities

  10   1   —   (7)   —   —   4   — 

MABS

  355   (7)   74   (156)   —   (2)   264   (15) 

Corporate bonds

  276   (55)   20   (23)   —   (19)   199   (55) 

CDO

  109   6   9   (38)   —   (1)   85   10 

Loans and lending commitments

  5,418   (12)   501   (206)   (733)   (813)   4,155   (12) 

Other debt

  528   —   191   (212)   —   (261)   246   — 

Total corporate and other debt

  6,696   (67)   795   (642)   (733)   (1,096)   4,953   (72) 

Corporate equities

  572   (28)   43   (36)   —   (214)   337   (26) 

Net derivative and other contracts3:

        

Interest rate

  (235)   (60)   3   (15)   11   337   41   (45) 

Credit

  (1,114)   147   —   —   2   82   (883)   147 

Foreign exchange

  (1)   (27)   —   —   (42)   (37)   (107)   (27) 

Equity

  (1,473)   220   31   (39)   567   834   140   239 

Commodity and other

  1,287   269   —   (14)   (170)   (78)   1,294   104 

Total net derivative and other contracts

  (1,536)   549   34   (68)   368   1,138   485   418 

Investments

  974   (41)   2   (8)   (27)   36   936   (36) 

Liabilities at Fair Value

        

Deposits

 $30  $1  $—  $5  $—  $(3)  $31  $1 

Short-term borrowings

  —   —   —   —   —   2   2   — 

Trading liabilities:

        

Corporate and other debt:

        

Corporate bonds

  6   (1)   (3)   2   —   7   13   (1) 

Other debt

  3   —   —   —   —   —   3   — 

Total corporate and other debt

  9   (1)   (3)   2   —   7   16   (1) 

Corporate equities

  26   2   (2)   3   —   (5)   20   — 

Securities sold under agreements to repurchase

  150   1   —   —   —   —   149   2 

Other secured financings

  441   (11)   —   —   (2)   —   450   (11) 

Long-term borrowings

  1,929   (88)   —   193   (147)   (21)   2,042   (87) 

1.

Loan originations and consolidations of VIEs are included in purchases and deconsolidations of VIEs are included in settlements.

2.

Amounts related to entering into Net derivatives and other contracts, Deposits, Short-term borrowings, Other secured financings and Long-term borrowings primarily represent issuances. Amounts for other line items primarily represent sales.

3.

Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts.

September 2017 Form 10-Q54
VIEs are included in Settlements.

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Current Year Period

$ in millions Beginning
Balance at
December 31,
2016		  Realized
and
Unrealized
Gains
(Losses)		  Purchases1  Sales and
Issuances2		  Settlements1  Net
Transfers		  Ending
Balance at
September 30,
2017		  Unrealized
Gains
(Losses) at
September 30,
2017		 

Assets at Fair Value

        

Trading assets:

        

U.S. Treasury and agency securities

 $74  $(1)  $—  $(240)  $—  $167  $—  $— 

Other sovereign government obligations

  6   —   104   (5)   —   (1)   104   — 

Corporate and other debt:

        

State and municipal securities

  250   3   6   (81)   —   (168)   10   — 

MABS

  217   49   120   (120)   (16)   24   274   13 

Corporate bonds

  232   30   310   (205)   —   52   419   (6) 

CDO

  63   6   33   (18)   (7)   (1)   76   3 

Loans and lending commitments

  5,122   88   2,470   (1,927)   (964)   76   4,865   85 

Other debt

  180   31   94   (160)   —   48   193   6 

Total corporate and other debt

  6,064   207   3,033   (2,511)   (987)   31   5,837   101 

Corporate equities

  446   8   74   (604)   —   372   296   3 

Net derivative and other contracts3:

        

Interest rate

  420   137   36   (42)   658   (133)   1,076   146 

Credit

  (373)   (18)   6   (9)   96   (5)   (303)   (34) 

Foreign exchange

  (43)   (92)   9   —   48   —   (78)   (72) 

Equity

  184   168   816   (231)   209   85   1,231   277 

Commodity and other

  1,600   523   13   (21)   (431)   (150)   1,534   88 

Total net derivative and other contracts

  1,788   718   880   (303)   580   (203)   3,460   405 

Investments

  958   16   96   (44)   (78)   (23)   925   10 

Liabilities at Fair Value

        

Deposits

 $42  $(2)  $—  $62  $—  $—  $106  $(2) 

Short-term borrowings

  2   —   —   —   (2)   —   —   — 

Trading liabilities:

        

Corporate and other debt:

        

Corporate bonds

  34   (1)   (54)   98   —   (73)   6   — 

Other debt

  2   —   (1)   1   —   —   2   — 

Total corporate and other debt

  36   (1)   (55)   99   —   (73)   8   — 

Corporate equities

  35   —   (69)   27   —   58   51   (1) 

Securities sold under agreements to repurchase

  149   —   —   —   —   —   149   1 

Other secured financings

  434   (28)   —   54   (223)   (43)   250   (21) 

Long-term borrowings

  2,012   (142)   —   1,418   (326)   (643)   2,603   (136) 

1.

Loan originations and consolidations of VIEs are included in purchases and deconsolidations of VIEs are included in settlements.

2.

Amounts related to entering into Net derivatives and other contracts, Deposits, Short-term borrowings, Other secured financings and Long-term borrowings primarily represent issuances. Amounts for other line items primarily represent sales.

3.

Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts.

55September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Prior Year Period

$ in millions  

Beginning

Balance at
December 31,
2015

  Realized
and
Unrealized
Gains
(Losses)		  Purchases1  Sales and
Issuances2		  Settlements1  Net
Transfers		  Ending
Balance at
September 30,
2016		  Unrealized
Gains
(Losses) at
September 30,
2016		 

Assets at Fair Value

         

Trading assets:

         

U.S. Treasury and agency securities

  $—  $—  $3  $(37)  $—  $42  $8  $—  

Other sovereign government obligations

   4   —   10   (6)   —   4   12   —  

Corporate and other debt:

         

State and municipal securities

   19   —   —   (16)   —   1   4   —  

MABS

   438   (35)   88   (314)   —   87   264   (31) 

Corporate bonds

   267   (4)   146   (276)   —   66   199   (17) 

CDO

   430   9   13   (295)   —   (72)   85   16  

Loans and lending commitments

   5,936   (65)   921   (860)   (986)   (791)   4,155   (51) 

Other debt

   448   1   92   (35)   —   (260)   246   65  

Total corporate and other debt

   7,538   (94)   1,260   (1,796)   (986)   (969)   4,953   (18) 

Corporate equities

   434   (57)   62   (324)   —   222   337   (80) 

Net derivative and other contracts3:

         

Interest rate

   260   257   3   (15)   (59)   (405)   41   (156) 

Credit

   (844)   (255)   1   —   155   60   (883)   (277) 

Foreign exchange

   141   (104)   —   —   (224)   80   (107)   (102) 

Equity

   (2,031)   334   816   (168)   1,083   106   140   172  

Commodity and other

   1,050   377   33   (20)   (312)   166   1,294   162  

Total net derivative and other contracts

   (1,424)   609   853   (203)   643   7   485   (201) 

Investments

   707   (60)   374   (37)   (67)   19   936   (63) 

Intangible assets

   5   —   —   —   —   (5)   —   —  

Liabilities at Fair Value

         

Deposits

  $19  $(1)  $—  $15  $—  $(4)  $31  $(1) 

Short-term borrowings

   1   —   —   —   (1)   2   2   —  

Trading liabilities:

         

Corporate and other debt:

         

Corporate bonds

   —   (3)   (7)   32   —   (15)   13   (3) 

Other debt

   4   —   (1)   —   —   —   3   —  

Total corporate and other debt

   4   (3)   (8)   32   —   (15)   16   (3) 

Corporate equities

   18   4   (37)   14   —   29   20   32  

Securities sold under agreements to repurchase

   151   2   —   —   —   —   149   3  

Other secured financings

   461   (42)   —   69   (44)   (78)   450   (42) 

Long-term borrowings

   1,987   (103)   —   366   (262)   (152)   2,042   91  

1.

Loan originations and consolidations of VIEs are included in purchases and deconsolidations of VIEs are included in settlements.

2.

Amounts related to entering into Net derivatives and other contracts, Deposits, Short-term borrowings, Other secured financings and Long-term borrowings primarily represent issuances. Amounts for other line items primarily represent sales.

3.

Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts.

Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements

Valuation Techniques and Unobservable Inputs

Balance / Range (Average1)
$ in millions, except inputsAt June 30, 2021At December 31, 2020
Assets at Fair Value on a Recurring Basis
Other sovereign government obligations$78 $268 
Comparable pricing:
Bond price132 to 153 points (143 points)106 points
MABS$357 $322 
Comparable pricing:
Bond price0 to 81 points (55 points)0 to 80 points (50 points)
Loans and lending
commitments		$4,896 $5,759 
Margin loan model:
Margin loan rate0% to 4% (2%)1% to 5% (3%)
Comparable pricing:
Loan price75 to 101 points (98 points)75 to 102 points (93 points)
Corporate and
other debt		$1,801 $3,435 
Comparable pricing:
Bond price90 to 102 points (98 points)10 to 133 points (101 points)
Discounted cash flow:
Recovery rate40% to 62% (46% / 40%)40% to 62% (46% / 40%)
Option model:
Equity volatility37% to 47% (41%)18% to 21% (19%)
Corporate equities$150 $86 
Comparable pricing:
Equity price100%100%
Investments$978 $828 
Discounted cash flow:
WACC10% to 16% (15%)8% to 18% (15%)
Exit multiple8 to 17 times (12 times)7 to 17 times (12 times)
Market approach:
EBITDA multiple8 to 40 times (10 times)8 to 32 times (11 times)
Comparable pricing:
Equity price43% to 100% (99%)45% to 100% (99%)
Investment securities —AFS$0 $2,804 
Comparable pricing:
Bond priceN/A97 to 107 points (101 points)
Net derivative and other contracts:
Interest rate$668 $682 
Option model:
IR volatility skew25% to 104% (60% / 59%)0% to 349% (62% / 59%)
IR curve correlation69% to 98% (84% / 83%)54% to 99% (87% / 89%)
Bond volatility4% to 25% (10% / 6%)6% to 24% (13% / 13%)
Inflation volatility25% to 66% (45% / 43%)25% to 66% (45% / 43%)
IR curve1% to 2% (2%)1%
45June 2021 Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
Balance / Range (Average1)
$ in millions, except inputsAt June 30, 2021At December 31, 2020
Credit$(203)$49 
Credit default swap model:
Cash-synthetic basis7 points7 points
Bond price0 to 85 points (46 points)0 to 85 points (47 points)
Credit spread14 to 474 bps (90 bps)20 to 435 bps (74 bps)
Funding spread21 to 95 bps (62 bps)65 to 118 bps (86 bps)
Correlation model:
Credit correlation26% to 42% (29%)27% to 44% (32%)
Foreign exchange2
$33 $61 
Option model:
IR - FX correlation53% to 57% (55% 55%)55% to 59% (56% / 56%)
IR volatility skew25% to 104% (60% / 59%)0% to 349% (62% / 59%)
IR curve6% to 7% (7% / 7%)6% to 8% (7% / 8%)
Foreign exchange volatility skew -6% to -3% (-5% / -5%) -22% to 28% (3% / 1%)
Contingency probability95%50% to 95% (83% / 93%)
Equity2
$(837)$(2,231)
Option model:
Equity volatility5% to 91% (23%)16% to 97% (43%)
Equity volatility skew -3% to 0% (-1%) -3% to 0% (-1%)
Equity correlation35% to 98% (68%)24% to 96% (74%)
FX correlation -85% to 65% (-35%) -79% to 60% (-16%)
IR correlation 15% to 40% (38%) -13% to 47% (21% / 20%)
Commodity and other$1,430 $1,709 
Option model:
Forward power price$-1 to $258 ($33) per MWh$-1 to $157 ($28) per MWh
Commodity volatility8% to 176% (19%)8% to 183% (19%)
Cross-commodity correlation43% to 100% (94%)43% to 99% (92%)
Liabilities Measured at Fair Value on a Recurring Basis
Deposits$86 $126 
Option model:
Equity volatility7%7% to 22% (8%)
 Nonderivative trading liabilities
—Corporate equities		$50 $63 
Comparable pricing:
Equity price100%100%
Securities sold under agreements to repurchase$449 $444 
Discounted cash flow:
Funding spread100 to 116 bps (111 bps)107 to 127 bps (115 bps)
Other secured financings$401 $516 
Discounted cash flow:
Funding spreadN/A111 bps (111 bps)
Comparable pricing:
Loan price30 to 101 points (82 points)30 to 101 points (56 points)
Balance / Range (Average1)
$ in millions, except inputsAt June 30, 2021At December 31, 2020
Borrowings$1,975 $4,374 
Option model:
Equity volatility 7% to 61% (17%)6% to 66% (23%)
Equity volatility skew -1% to 0% (0%) -2% to 0% (0%)
Equity correlation39% to 95% (81%)37% to 95% (78%)
Equity - FX correlation -32% to 10% (-23%) -72% to 13% (-24%)
IR FX Correlation -28% to 7% (-5% / -5%) -28% to 6% (-6% / -6%)
Discounted cash flow:
Recovery rate40% to 62% (46% / 40%)N/M
Nonrecurring Fair Value Measurement
Loans$1,202 $3,134 
Corporate loan model:
Credit spread45 to 526 bps (237 bps)36 to 636 bps (336 bps)
Comparable pricing:
Loan price40 to 88 points (76 points)N/M
Warehouse model:
Credit spread217 to 309 bps (291 bps)200 to 413 bps (368 bps)
Comparable pricing:
Bond PriceN/A88 to 99 bps (94 bps)
Points—Percentage of par
IR—Interest rate
FX—Foreign exchange
1.A single amount is disclosed for range and average when there is no significant difference between the minimum, maximum and average. Amounts represent weighted averages except where simple averages and the median of the inputs are more relevant.
2.Includes derivative contracts with multiple risks (i.e., hybrid products).
The following disclosuresprevious tables provide information on the valuation techniques, significant unobservable inputs, and theirthe ranges and averages for each major category of assets and liabilities measured at fair value on a recurring and nonrecurring basis with a significant Level 3 balance. The level of aggregation and breadth of products cause the range of inputs to be wide and not evenly distributed across the inventory.inventory of financial instruments. Further, the range of unobservable inputs may differ across firms in the financial services industry because of diversity in the types of products included in each firm’s inventory. For

qualitative information on the sensitivity of the fair value measurements to changes in the significant unobservable inputs, see Note 3 to the consolidated financial statements in the 2016 Form10-K. ThereGenerally, there are no predictable relationships between multiple significant unobservable inputs attributable to a given valuation technique. A single amount is disclosed when there is no significant difference between the minimum, maximum and average (weighted average or simple average / median).

September 2017 Form 10-Q56

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

Valuation Techniques and Sensitivity of Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements

   

Predominant Valuation Techniques/

Significant Unobservable Inputs

  Range (Weighted Average or Simple Average/Median)1
$ in millions            At September 30, 2017                  At December 31, 2016        

Recurring Fair Value Measurement

    

Assets at Fair Value

    

U.S. Treasury and agency securities($— and $74)

    

Comparable pricing:

  Comparable bond price  N/A  96 to 105 points (102 points)

Other sovereign government obligations ($104 and $6)

    

Comparable pricing:

  Comparable bond price  86 to 97 points (88 points)  N/M 

State and municipal securities ($10 and $250)

    

Comparable pricing:

  Comparable bond price  N/M  53 to 100 points (91 points) 

MABS ($274 and $217)

    

Comparable pricing:

  Comparable bond price  0 to 100 points (33 points)  0 to 86 points (27 points) 

Corporate bonds ($419 and $232)

    

Comparable pricing:

  Comparable bond price  3 to 132 points (60 points)  3 to 130 points (70 points) 

Discounted cash flow:

  Recovery rate  5% to 33% (25%)  N/A 

Option model:

  At the money volatility  16% to 35% (25%)  23% to 33% (30%) 

CDO ($76 and $63)

    

Comparable pricing:

  Comparable bond price  15 to 101 points (66 points)  0 to 103 points (50 points) 

Correlation model:

  Credit correlation  43% to 54% (51%)  N/M 

Loans and lending commitments ($4,865and $5,122)

    

Corporate loan model:

  Credit spread  N/M  402 to 672 bps (557 bps) 

Expected recovery:

  Asset coverage  37% to 100% (83%)  43% to 100% (83%) 

Margin loan model:

  Discount rate  1% to 3% (1%)  2% to 8% (3%) 
   Volatility skew  8% to 43% (19%)  21% to 63% (33%) 

Comparable pricing:

  Comparable loan price  46 to 102 points (92 points)  45 to 100 points (84 points) 

Discounted cash flow:

  Implied weighted average cost of capital  N/M  5% 
   Capitalization rate  N/M  4% to 10% (4%) 

Other debt ($193 and $180)

    

Option model:

  At the money volatility  17% to 52% (47%)  16% to 52% (52%) 

Discounted cash flow:

  Discount rate  7% to 18% (9%)  7% to 12% (11%) 

Comparable pricing:

  Comparable loan price  1 to 5 points (2 points)  1 to 74 points (23 points) 

Corporate equities ($296 and $446)

    

Comparable pricing:

  Comparable equity price  100%  100% 

Net derivative and other contracts2:

    

Interest rate ($1,076 and $420)

    

Option model:

  Interest rate — Foreign exchange correlation  N/M  28% to 58% (44% / 43%) 
   Interest rate volatility skew  29% to 106% (44% / 44%)  19% to 117% (55% / 56%) 
   Interest rate quanto correlation  N/M  -17% to 31% (1% /-5%) 
   Interest rate curve correlation  30% to 96% (75% / 78%)  28% to 96% (68% / 72%) 
   Inflation volatility  24% to 64% (45% / 43%)  23% to 55% (40% / 39%) 
   Interest rate curve  1% to 2% (1% / 1%)  N/M 

Credit ($(303)and $(373))

    

Comparable pricing:

  Cash synthetic basis  14 to 15 points (14 points)  5 to 12 points (11 points) 
   Comparable bond price  0 to 70 points (25 points)  0 to 70 points (23 points) 

Correlation model:

  Credit correlation  29% to 99% (51%)  32% to 70% (45%) 

Foreign exchange3 ($(78)and $(43))

    

Option model:

  Interest rate — Foreign exchange correlation  27% to 59% (44% / 44%)  28% to 58% (44% / 43%) 
   Interest rate volatility skew  N/M  34% to 117% (55% / 56%) 
   Contingency probability  95%  N/M 
   Interest rate quanto correlation  N/M  -17% to 31% (1% /-5%) 

57September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

   

Predominant Valuation Techniques/

Significant Unobservable Inputs

  Range (Weighted Average or Simple Average/Median)1
$ in millions            At September 30, 2017                  At December 31, 2016        

Equity3 ($1,231and $184)

    

Option model:

  At the money volatility  5% to 55% (36%)  7% to 66% (33%) 
   Volatility skew  -3% to 0%(-1%)  -4% to 0%(-1%) 
   Equity — Equity correlation  5% to 99% (73%)  25% to 99% (73%) 
   Equity — Foreign exchange correlation  -70% to 30%(-28%)  -63% to 30%(-43%) 
   Equity — Interest rate correlation  -7% to 52% (17% / 21%)  -8% to 52% (12% / 4%) 

Commodity and other ($1,534and $1,600)

    

Option model:

  Forward power price  $6 to $84 ($30) per MWh  $7 to $90 ($32) per MWh 
   Commodity volatility  5% to 56% (16%)  6% to 130% (18%) 
   Cross-commodity correlation  5% to 99% (92%)  5% to 99% (92%) 

Investments ($925 and $958)

    

Discounted cash flow:

  Implied weighted average cost of capital  N/M  10% 
   Exit multiple  N/M  10 to 24 times (11 times) 

Market approach:

  EBITDA multiple  6 to 24 times (12 times)  6 to 24 times (12 times) 

Comparable pricing:

  Comparable equity price  45% to 100% (90%)  75% to 100% (93%) 

Liabilities at Fair Value

    

Deposits ($106and $42)

    

Option model:

  At the money volatility  15% to 37% (32%)  N/M 
   Volatility skew  -1% to 0%(-1%)  N/M 

Securities sold under agreements to repurchase ($149and $149)

    

Discounted cash flow:

  Funding spread  145 to 154 bps (151 bps)  118 to 127 bps (121 bps) 

Other secured financings ($250 and $434)

    

Discounted cash flow:

  Funding spread  38 to 81 bps (60 bps)  63 to 92 bps (78 bps) 

Option model:

  Volatility skew  -1%  -1% 
   At the money volatility  10% to 40% (25%)  N/M 

Comparable pricing:

  Comparable bond price  14 to 58 points (30 points)  N/M 

Discounted cash flow:

  Discount rate  N/M  4% 

Long-term borrowings ($2,603and $2,012)

    

Option model:

  At the money volatility  5% to 35% (21%)  7% to 42% (30%) 
   Volatility skew  -3% to 0%(-1%)  -2% to 0%(-1%) 
   Equity — Equity correlation  36% to 98% (88%)  35% to 99% (84%) 
   Equity — Foreign exchange correlation  -51% to 10%(-32%)  -63% to 13%(-40%) 

Option model:

  Interest rate volatility skew  

29% to 106% (44% / 44%)

  25% 
   Equity volatility discount  8% to 11% (9% / 8%)  7% to 11% (10% / 10%) 
   Interest rate — Foreign exchange correlation  21% to 22% (23% / 22%)  N/M 

Comparable pricing:

  Comparable equity price  100%  N/M 

Nonrecurring Fair Value Measurement

    

Assets at Fair Value

    

Loans ($1,448and $2,443)

    

Corporate loan model:

  Credit spread  86 to 563 bps (229 bps)  90 to 487 bps (208 bps) 

Expected recovery:

  Asset coverage  73% to 95% (84%)  73% to 99% (97%) 

bps—Basis points. One basis point equals 1/100th of 1%.

Points—Percentage of par

MWh—Megawatt hours

EBITDA—Earnings before interest, taxes, depreciation and amortization

N/A—Not Applicable

N/M—Not Meaningful

1.

Amounts represent weighted averages except where simple averages and the median of the inputs are provided when more relevant.

2.

Credit valuation adjustment (“CVA”) and funding valuation adjustments (“FVA”) are included in the balance but excluded from the Valuation Technique(s) and Significant Unobservable Inputs in the previous table. CVA is a Level 3 input when the underlying counterparty credit curve is unobservable. FVA is a Level 3 input in its entirety given the lack of observability of funding spreads in the principal market.

3.

Includes derivative contracts with multiple risks (i.e., hybrid products).

September 2017 Form 10-Q58

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

For a description of the Firm’s significant unobservable inputs and related sensitivity,qualitative information about the effect of hypothetical changes in the values of those inputs, see Note 35 to the consolidated financial statements in the 20162020 Form10-K. The following During the current quarter, there were no significant revisions made to the descriptions of the Firm’s significant unobservable inputs were addedinputs.

June 2021 Form 10-Q46
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
Net Asset Value Measurements
Fund Interests
 At June 30, 2021At December 31, 2020
$ in millions
Carrying
Value
Commitment
Carrying
Value
Commitment
Private equity$2,448 $576 $2,367 $644 
Real estate1,518 216 1,403 136 
Hedge1
75 3 59 0 
Total$4,041 $795 $3,829 $780 
1.Investments in hedge funds may be subject to initial period lock-up or gate provisions, which restrict an investor from withdrawing from the fund during a certain initial period or restrict the current year period.

•

Contingency probability—probability associated with the realization of an underlying event upon whichredemption amount on any redemption date, respectively.

Amounts in the previous table represent the Firm’s carrying value of an asset is contingent. In general, an increase (decrease) to the contingency probability for an asset would result in a higher (lower) fair value.

•

Recovery rate—amount expressed as a percentage of par that is expected to be received when a credit event occurs. In general, an increase (decrease) to the recovery rate for an asset would result in a higher (lower) fair value.

Fair Value of Investments Measured atgeneral and limited partnership interests in fund investments, as well as any related performance-based income in the form of carried interest. The carrying amounts are measured based on the NAV

of the fund taking into account the distribution terms applicable to the interest held. This same measurement applies whether the fund investments are accounted for under the equity method or fair value.

For a description of the Firm’s investments in private equity funds, real estate funds and hedge funds, which are measured at fair value based on NAV, see Note 35 to the consolidated financial statements in the 20162020 Form10-K.

Investments in Certain Funds Measured

See Note 14 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received. See Note 20 for information regarding unrealized carried interest at NAV per Share

   At September 30, 2017  At December 31, 2016 
$ in millions  Fair Value  Commitment  Fair Value  Commitment   

Private equity

 $1,580  $359  $1,566  $335   

Real estate

  885   168   1,103   136   

Hedge1

  87   4   147   4   

Total

 $2,552  $531  $2,816  $475   

1.

Investments in hedge funds may be subject to initial periodlock-up or gate provisions, which restrict an investor from withdrawing from the fund during a certain initial period or restrict the redemption amount on any redemption date, respectively.

risk of reversal.

Nonredeemable Funds by Contractual Maturity

  Fair Value at September 30, 2017 
$ in millions     Private Equity           Real Estate     

Less than 5 years

 $408   $77 

5-10 years

  1,005    490 

Over 10 years

  167    318 

Total

 $1,580   $885 

 Carrying Value at June 30, 2021
$ in millionsPrivate EquityReal Estate
Less than 5 years$1,148 $434 
5-10 years1,087 401 
Over 10 years213 683 
Total$2,448 $1,518 
Nonrecurring Fair Value Measurements
Carrying and Fair Values
 At June 30, 2021
 Fair Value
$ in millionsLevel 2
Level 31
Total
Assets
Loans$3,787 $1,202 $4,989 
Other assets—Other investments0 79 79 
Total$3,787 $1,281 $5,068 
Liabilities
Other liabilities and accrued expenses—Lending commitments$154 $69 $223 
Total$154 $69 $223 
 At December 31, 2020
 Fair Value
$ in millionsLevel 2
Level 31
Total
Assets
Loans$2,566 $3,134 $5,700 
Other assets—Other investments$0 $16 $16 
Other assets—ROU assets21 0 21 
Total$2,587 $3,150 $5,737 
Liabilities
Other liabilities and accrued expenses—Lending commitments$193 $72 $265 
Total$193 $72 $265 
1.For significant Level 3 balances, refer to “Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements” section herein for details of the significant unobservable inputs used for nonrecurring fair value measurement.
Gains (Losses) from Fair Value Remeasurements1
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Assets
Loans2
$(38)$(13)$(55)$(488)
Goodwill0 0 (8)0 
Intangibles(1)0 (3)0 
Other assets—Other investments3
(2)(52)(53)(52)
Other assets—Premises, equipment and software4
(2)(3)(4)(6)
Total$(43)$(68)$(123)$(546)
Liabilities
Other liabilities and accrued expenses—Lending commitments2
$5 $130 $40 $(88)
Total$5 $130 $40 $(88)
1.Gains and losses for Loans and Other assets—Other investments are classified in Other revenues. For other items, gains and losses are recorded in Other revenues if the item is held for sale; otherwise, they are recorded in Other expenses.
2.Nonrecurring changes in the fair value of loans and lending commitments were calculated as follows: for the held-for-investment category, based on the value of the underlying collateral; and for the held-for-sale category, based on recently executed transactions, market price quotations, valuation models that incorporate market observable inputs where possible, such as comparable loan or debt prices and CDS spread levels adjusted for any basis difference between cash and derivative instruments, or default recovery analysis where such transactions and quotations are unobservable.
3.Losses related to Other assets—Other investments were determined using techniques that included discounted cash flow models, methodologies that incorporate multiples of certain comparable companies and recently executed transactions.
4.Losses related to Other assets—Premises, equipment and software generally include impairments as well as write-offs related to the disposal of certain assets.
47June 2021 Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
Financial Instruments Not Measured at Fair Value
 At June 30, 2021
 Carrying
Value		Fair Value
$ in millionsLevel 1Level 2Level 3Total
Financial assets
Cash and cash equivalents$126,480 $126,480 $0 $0 $126,480 
Investment securities—HTM82,120 30,623 51,282 972 82,877 
Securities purchased under agreements to resell95,920 0 94,399 1,526 95,925 
Securities borrowed126,703 0 126,703 0 126,703 
Customer and other receivables97,370 0 94,071 3,218 97,289 
Loans1
166,059 0 21,535 145,503 167,038 
Other assets504 0 504 0 504 
Financial liabilities
Deposits$317,686 $0 $318,107 $0 $318,107 
Securities sold under agreements to repurchase56,617 0 56,666 0 56,666 
Securities loaned9,574 0 9,575 0 9,575 
Other secured financings4,658 0 4,661 0 4,661 
Customer and other payables233,810 0 233,810 0 233,810 
Borrowings148,634 0 155,115 5 155,120 
 Commitment
Amount
Lending commitments2
$137,508 $0 $680 $406 $1,086 
 At December 31, 2020
 Carrying
Value		Fair Value
$ in millionsLevel 1Level 2Level 3Total
Financial assets
Cash and cash equivalents$105,654 $105,654 $0 $0 $105,654 
Investment securities—HTM71,771 31,239 42,281 900 74,420 
Securities purchased under agreements to resell116,219 0 114,046 2,173 116,219 
Securities borrowed112,391 0 112,392 0 112,392 
Customer and other receivables92,907 0 89,832 3,041 92,873 
Loans1
150,597 0 16,635 135,277 151,912 
Other assets485 0 485 0 485 
Financial liabilities
Deposits$307,261 $0 $307,807 $0 $307,807 
Securities sold under agreements to repurchase49,472 0 49,315 195 49,510 
Securities loaned7,731 0 7,731 0 7,731 
Other secured financings4,162 0 4,162 0 4,162 
Customer and other payables224,951 0 224,951 0 224,951 
Borrowings143,378 0 150,824 5 150,829 
 Commitment
Amount
Lending commitments2
$125,498 $0 $709 $395 $1,104 
1.Amounts include loans measured at fair value on a nonrecurring basis.
2.Represents Lending commitments accounted for as Held for Investment and Held for Sale. For a further discussion on lending commitments, see Note 14.
The previous tables exclude all non-financial assets and liabilities, such as the value of the long-term relationships with the Firm’s deposit customers, and certain financial instruments such as equity method investments and certain receivables.
6. Fair Value Option

The Firm has elected the fair value option for certain eligible instruments that are risk managed on a fair value basis to mitigate income statement volatility caused by measurement basis differences between the elected instruments and their associated risk management transactions or to eliminate complexities of applying certain accounting models.

Earnings Impact of Instruments under the Fair Value Option

$ in millions

 

Trading

Revenues

  

Interest

Income

(Expense)

  Net
Revenues		 

Three Months Ended September 30, 2017

 

  

Securities purchased under
agreements to resell

 $(1)  $1  $ —  

Deposits

  (1)   —   (1) 

Short-term borrowings

  (7)   —   (7) 

Securities sold under agreements
to repurchase

  6   (5)   1  

Long-term borrowings

  (957)   (107)   (1,064) 

Three Months Ended September 30, 2016

 

  

Securities purchased under
agreements to resell

 $(1)  $2  $1  

Deposits

  2   —   2  

Short-term borrowings

  (39)   —   (39) 

Securities sold under agreements
to repurchase

  7   (4)   3  

Long-term borrowings

  (1,068)   (116)   (1,184) 

Nine Months Ended September 30, 2017

 

  

Securities purchased under
agreements to resell

 $(2)  $3  $1 

Deposits

  (2)   —   (2) 

Short-term borrowings

  (16)   (1)   (17) 

Securities sold under agreements to repurchase

  5   (13)   (8) 

Long-term borrowings

  (3,468)   (337)   (3,805) 

Nine Months Ended September 30, 2016

 

  

Securities purchased under
agreements to resell

 $(2)  $6  $4  

Deposits

  (1)   (1)   (2) 

Short-term borrowings

  (3)   —   (3) 

Securities sold under agreements to repurchase

  (5)   (9)   (14) 

Long-term borrowings

  (3,322)   (385)   (3,707) 

Gains (losses) are mainly attributable to changes in foreign currency rates or interest rates or movements in the reference price or index for short-term and long-term borrowings before the impact of related hedges.

The amounts in the previous table are included within Net revenues and do not reflect any gains or losses on related hedging instruments. In addition to the amounts in the previous table, as discussed in Note 2 to the consolidated financial statements in the 2016 Form10-K, instruments within Trading assets or Trading liabilities are measured at fair value.

59September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

Gains (Losses) Due to Changes in Instrument-Specific Credit Risk 
   Three Months Ended September 30, 
   2017  2016 

$ in millions

  Trading
Revenues		   OCI  Trading
Revenues		  OCI 

Short-term and long-term borrowings1

  $9   $(226)  $(5)  $(140) 

Securities sold under agreements to repurchase1

   —    (3)   —   (3) 

Loans and other debt2

   49    —   26   — 

Lending commitments3

   —    —   —   — 
   Nine Months Ended September 30, 
   2017  2016 

$ in millions

  Trading
Revenues		   OCI  Trading
Revenues		  OCI 

Short-term and long-term borrowings1

  $1   $(493)  $36  $405 

Securities sold under agreements to repurchase1

   —    (6)   —   — 

Loans and other debt2

   94    —   (88)   — 

Lending commitments3

   —    —   3   — 

$ in millions  

At

September 30, 2017

  

At

December 31, 2016

 

Cumulativepre-tax DVA gain

(loss) recognized in AOCI

  $(1,420)  $(921) 

OCI—Other comprehensive income (loss)

1.

Unrealized DVA gains (losses) are recorded in OCI and, when realized, in Trading revenues. See Note 2 to the consolidated financial statements in the 2016 Form10-K and Note 14 for further information.

2.

Loans and other debt instrument-specific credit gains (losses) were determined by excluding thenon-credit components of gains and losses.

3.

Gains (losses) on lending commitments were generally determined based on the difference between estimated expected client yields and contractual yields at each respectiveperiod-end.

Short-Term and Long-Term Borrowings Measured at Fair Value on a Recurring Basis

$ in millions  

At

September 30,

2017

   

At

December 31,

2016

 

Business Unit Responsible for Risk Management

 

Equity

  $25,300   $21,066  

Interest rates

   19,822    16,051  

Foreign exchange

   782    1,114  

Credit

   753    647  

Commodities

   232    264  

Total

  $46,889   $39,142  

Excess
$ in millionsAt
June 30,
2021		At
December 31,
2020
Business Unit Responsible for Risk Management
Equity$35,924 $33,952 
Interest rates29,684 31,222 
Commodities6,373 5,078 
Credit1,211 1,344 
Foreign exchange2,316 2,105 
Total$75,508 $73,701 

Net Revenues from Borrowings under the Fair Value Option
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Trading revenues$(2,931)$(3,439)$(446)$8 
Interest expense84 81 157 164 
Net revenues1
$(3,015)$(3,520)$(603)$(156)
1.Amounts do not reflect any gains or losses from related economic hedges.
Gains (losses) from changes in fair value are recorded in Trading revenues and are mainly attributable to movements in the reference price or index, interest rates or foreign exchange rates.
Gains (Losses) Due to Changes in Instrument-Specific Credit Risk
 Three Months Ended June 30,
 20212020
$ in millionsTrading
Revenues		OCITrading
Revenues		OCI
Loans and other debt1
$95 $0 $(40)$0 
Lending commitments1 0 (1)0 
Deposits0 10 0 (63)
Borrowings(10)237 (1)(3,237)

June 2021 Form 10-Q48
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
 Six Months Ended June 30,
 20212020
$ in millionsTrading
Revenues		OCITrading
Revenues		OCI
Loans and other debt1
$253 $0 $(239)$0 
Lending commitments1 0 1 0 
Deposits0 9 0 9 
Borrowings(27)422 (6)1,711 
$ in millionsAt
June 30,
2021		At
December 31,
2020
Cumulative pre-tax DVA gain (loss) recognized in AOCI$(2,926)$(3,357)
1.Loans and other debt instrument-specific credit gains (losses) were determined by excluding the non-credit components of gains and losses.
Difference Between Contractual Principal Amount Overand Fair Value

$ in millions  

At

September 30,

2017

   

At

December 31,

2016

 

Loans and other debt1

  $12,911   $13,495  

Loans 90 or more days past due and/or on nonaccrual status1

   11,116    11,502  

Short-term and long-term borrowings2

   906    720  

1.

The majority of the difference between principal and fair value amounts for loans and other debt relates to distressed debt positions purchased at amounts well below par.

2.

Short-term and long-term1

$ in millionsAt
June 30,
2021		At
December 31,
2020
Loans and other debt2
$13,124 $14,042 
Nonaccrual loans2
10,883 11,551 
Borrowings3
(2,298)(3,773)
1.Amounts indicate contractual principal greater than or (less than) fair value.
2.The majority of the difference between principal and fair value amounts for loans and other debt relates to distressed debt positions purchased at amounts well below par.
3.Excludes borrowings do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in a reference price or index.

Fair Value Loans on Nonaccrual Status

$ in millions  

At

September 30,

2017

   

At

December 31,

2016

 

Nonaccrual loans

  $1,429   $1,536  

Nonaccrual loans 90 or more
days past due

  $760   $787  

changes in a reference price or index.

The previous tables excludenon-recourse debt from consolidated VIEs, liabilities related to failed salestransfers of financial assets treated as collateralized financings, pledged commodities and other liabilities that have specified assets attributable to them.

Fair Value Loans on Nonaccrual Status
$ in millionsAt
June 30,
2021		At
December 31,
2020
Nonaccrual loans$770 $1,407 
Nonaccrual loans 90 or more days past due$203 $239 

7. Derivative Instruments and Hedging Activities
Fair Values of Derivative Contracts
 Assets at June 30, 2021
$ in millions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate$654 $11 $0 $665 
Foreign exchange219 18 0 237 
Total873 29 0 902 
Not designated as accounting hedges
Economic loan hedges
Credit1 16 0 17 
Other derivatives
Interest rate168,475 7,702 326 176,503 
Credit5,356 2,936 0 8,292 
Foreign exchange69,108 1,425 76 70,609 
Equity32,308 0 38,049 70,357 
Commodity and other18,601 0 6,464 25,065 
Total293,849 12,079 44,915 350,843 
Total gross derivatives$294,722 $12,108 $44,915 $351,745 
Amounts offset
Counterparty netting(212,181)(10,000)(41,074)(263,255)
Cash collateral netting(45,922)(1,613)0 (47,535)
Total in Trading assets$36,619 $495 $3,841 $40,955 
Amounts not offset1
Financial instruments collateral(12,680)0 0 (12,680)
Net amounts$23,939 $495 $3,841 $28,275 
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable$4,132 
 Liabilities at June 30, 2021
$ in millions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate$0 $5 $0 $5 
Foreign exchange5 15 0 20 
Total5 20 0 25 
Not designated as accounting hedges
Economic loan hedges
Credit15 246 0 261 
Other derivatives
Interest rate154,804 6,154 411 161,369 
Credit5,428 3,504 0 8,932 
Foreign exchange64,788 1,333 97 66,218 
Equity43,053 0 39,240 82,293 
Commodity and other15,510 0 6,470 21,980 
Total283,598 11,237 46,218 341,053 
Total gross derivatives$283,603 $11,257 $46,218 $341,078 
Amounts offset
Counterparty netting(212,181)(10,000)(41,074)(263,255)
Cash collateral netting(38,774)(958)0 (39,732)
Total in Trading liabilities$32,648 $299 $5,144 $38,091 
Amounts not offset1
Financial instruments collateral(6,634)0 (1,103)(7,737)
Net amounts$26,014 $299 $4,041 $30,354 
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable7,394 
September 2017June 2021 Form 10-Q6049

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Gains (Losses)1

   Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in millions  2017  2016  2017  2016 

Assets

     

Loans2

  $—  $111  $41  $41   

Other Assets—Other
investments3

   (6)   (3)   (6)   (44)  

Other assets—Premises,
equipment and
software costs4

   (1)   (29)   (7)   (56)  

Intangible assets5

   —   (2)   —   (2)  

Total

  $(7)  $77  $28  $(61)  

Liabilities

     

Other liabilities and
accrued expenses—
Lending commitments2

  $4  $52  $64  $98   

Total

  $4  $52  $64  $        98   

1.

Gains and losses for Loans and Other assets—Other investments are classified in Other revenues. For other items, gains and losses are recorded in Other revenues if the item is held for sale, otherwise in Other expenses.

2.

Nonrecurring changes in the fair value of loans and lending commitments were calculated as follows: for the held for investment category, based on the value of the underlying collateral; and for the held for sale category, based on recently executed transactions, market price quotations, valuation models that incorporate market observable inputs where possible, such as comparable loan or debt prices and credit default swap spread levels adjusted for any basis difference between cash and derivative instruments, or default recovery analysis where such transactions and quotations are unobservable.

3.

Losses related to Other assets—Other investments were determined using techniques that included discounted cash flow models, methodologies that incorporate multiples of certain comparable companies and recently executed transactions.

4.

Losses related to Other assets—Premises, equipment and software costs were determined using techniques that included a default recovery analysis and recently executed transactions.

5.

Losses related to Intangible assets were determined using techniques that included discounted cash flow models and methodologies that incorporate multiples of certain comparable companies.

Carrying and Fair Values

  At September 30, 2017 
     Fair Value by Level 

$ in millions

 Total  Level 2  Level 31 

Assets

   

 

Loans

 

 

$

 

2,713

 

 

 

 

$

 

1,265

 

 

 

 

$

 

1,448

 

 

Other Assets—Other
investments

  42   —   42 

Total assets

 $            2,755  $            1,265  $            1,490 

Liabilities

   

Other liabilities and
accrued expenses—
Lending commitments

 $196  $154  $42 

Total liabilities

 $196  $154  $42 
  At December 31, 2016 
     Fair Value by Level 

$ in millions

 Total  Level 2  Level 31 

Assets

   

 

Loans

 

 

$

 

4,913

 

 

 

 

$

 

2,470

 

 

 

 

$

 

2,443

 

 

Other assets—Other
investments

  123   —   123 

Other assets—Premises,
equipment and
software costs

  25   22   3 

Total assets

 $5,061  $2,492  $2,569 

Liabilities

   

Other liabilities and
accrued expenses—
Lending commitments

 $226  $166  $60 

Total liabilities

 $            226  $            166  $            60 

1.

For significant Level 3 balances, refer to “Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements” section herein for details of the significant unobservable inputs used for nonrecurring fair value measurement.

Financial Instruments Not Measured at Fair Value

  At September 30, 2017 
  

Carrying  

Value  

  Fair Value 

$ in millions

  Level 1  Level 2  Level 3  Total 

Financial Assets

                    

Cash and due
from banks

 $24,047  $24,047  $—  $—  $24,047 

Interest bearing
deposits with banks

  24,144   24,144   —   —   24,144 

Investment securities—HTM

  24,132   11,260   12,250   247   23,757 

Securities purchased under agreements to resell

  90,005   —   85,679   4,282   89,961 

Securities borrowed

  132,892   —   132,883   10   132,893 

Customer and other
receivables1

  48,579   —   44,340   4,115   48,455 

Loans2

  104,431   —   19,476   86,223   105,699 

Other assets3

  32,731   32,731   —   —   32,731 

Financial Liabilities

     

Deposits

 $    154,465  $        —  $    154,465  $        —  $    154,465 

Short-term borrowings

  429   —   429   —   429 

Securities sold under agreements to repurchase

  53,173   —   48,505   4,656   53,161 

Securities loaned

  15,630   —   15,240   402   15,642 

Other secured
financings

  7,730   —   6,440   1,297   7,737 

Customer and
other payables1

  195,304   —   195,304   —   195,304 

Long-term
borrowings

  145,446   —   150,625   39   150,664 

61September 2017 Form 10-Q
Table of Contents

Notes to Consolidated Financial Statements


(Unaudited)

LOGO

  At December 31, 2016 
  

Carrying

Value

  Fair Value 

$ in millions

  Level 1  Level 2  Level 3  Total 

Financial Assets

 

Cash and due
from banks

 $22,017  $22,017  $—  $—  $22,017  

Interest bearing
deposits with
banks

  21,364   21,364   —   —   21,364  

Investment securities—
HTM

  16,922   5,557   10,896   —   16,453  

Securities purchased
under agreements
to resell

  101,653   —   97,825   3,830   101,655  

Securities borrowed

  125,236   —   125,093   147   125,240  

Customer and other receivables1

  41,679   —   36,962   4,575   41,537  

Loans2

  94,248   —   20,906     74,121   95,027  

Other assets3

  33,979   33,979   —   —   33,979  

Financial Liabilities

 

Deposits

 $155,800  $—  $155,800  $—  $155,800  

Short-term
borrowings

  535   —   535   —   535  

Securities sold
under agreements
to repurchase

  53,899   —   50,941   2,972   53,913  

Securities loaned

  15,844   —   15,853   —   15,853  

Other secured
financings

  6,077   —   4,792   1,290   6,082  

Customer and
other payables1

  187,497   —   187,497   —   187,497  

Long-term
borrowings

    126,039   —     129,826   51     129,877  

HTM—Held to maturity

1.

Accrued interest, fees, and dividend receivables and payables where carrying value approximates fair value have been excluded.

2.

Amounts include loans measured at fair value on a nonrecurring basis.

3.

Cash deposited with clearing organizations or segregated under federal and other regulations or requirements.

ms-20210630_g1.jpg

Lending Commitments—Held for Investment and Held for Sale

$ in millions

 

Commitment

amount1

  Fair Value 
  Total  Level 2  Level 3 

September 30, 2017

 $96,939  $    1,084  $        636  $        448 

December 31, 2016

  97,409   1,241   973   268 

1.

For further discussion on lending commitments, see Note 11.

The previous tables exclude certain financial instruments such as equity method investments and allnon-financial assets and liabilities such as the value of the long-term relationships with the Firm’s deposit customers. For further discussion of the contents and valuation techniques of financial instruments not measured at fair value, see Note 3

 Assets at December 31, 2020
$ in millions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate$946 $2 $0 $948 
Foreign exchange5 2 0 7 
Total951 4 0 955 
Not designated as accounting hedges
Economic loan hedges
Credit1
2 51 0 53 
Other derivatives
Interest rate221,895 10,343 300 232,538 
Credit1
5,341 2,147 0 7,488 
Foreign exchange92,334 1,639 79 94,052 
Equity34,278 0 34,166 68,444 
Commodity and other11,095 0 3,554 14,649 
Total364,945 14,180 38,099 417,224 
Total gross derivatives$365,896 $14,184 $38,099 $418,179 
Amounts offset
Counterparty netting(276,682)(11,601)(35,260)(323,543)
Cash collateral netting(54,921)(1,865)0 (56,786)
Total in Trading assets$34,293 $718 $2,839 $37,850 
Amounts not offset2
Financial instruments collateral(13,319)0 0 (13,319)
Other cash collateral(391)0 0 (391)
Net amounts$20,583 $718 $2,839 $24,140 
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable$3,743 
 Liabilities at December 31, 2020
$ in millions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate$0 $19 $0 $19 
Foreign exchange291 99 0 390 
Total291 118 0 409 
Not designated as accounting hedges
Economic loan hedges
Credit1
18 177 0 195 
Other derivatives
Interest rate210,015 7,965 639 218,619 
Credit1
5,275 2,682 0 7,957 
Foreign exchange92,975 1,500 43 94,518 
Equity49,943 0 36,585 86,528 
Commodity and other8,831 0 3,359 12,190 
Total367,057 12,324 40,626 420,007 
Total gross derivatives$367,348 $12,442 $40,626 $420,416 
Amounts offset
Counterparty netting(276,682)(11,601)(35,260)(323,543)
Cash collateral netting(51,112)(823)0 (51,935)
Total in Trading liabilities$39,554 $18 $5,366 $44,938 
Amounts not offset2
Financial instruments collateral(10,598)0 (1,520)(12,118)
Other cash collateral(62)(3)0 (65)
Net amounts$28,894 $15 $3,846 $32,755 
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable$6,746 
1.Certain prior period amounts have been reclassified to conform to the consolidated financial statementscurrent presentation.
2.Amounts relate to master netting agreements and collateral agreements that have been determined by the Firm to be legally enforceable in the 2016 Form10-K. During the current year period, there were no significant updates made to the Firm’s valuation techniques for financial instrumentsevent of default but where certain other criteria are not measured at fair value.

met in accordance with applicable offsetting accounting guidance.

September 2017 Form 10-Q62

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

4. Derivative Instruments and Hedging Activities

Derivative Fair Values

At September 30, 2017

  Assets 

$ in millions

 Bilateral
OTC		  Cleared
OTC1		  Exchange-
Traded		  Total 

Designated as accounting hedges

 

Interest rate contracts

 $1,380  $1  $—  $1,381 

Foreign exchange contracts

  93   9   —   102 

Total

  1,473   10   —   1,483 

Not designated as accounting hedges

 

Interest rate contracts

  177,955   6,223   241   184,419 

Credit contracts

  6,599   2,305   —   8,904 

Foreign exchange contracts

  53,024   763   93   53,880 

Equity contracts

  26,915   —   22,529   49,444 

Commodity and other contracts

  8,117   —   2,159   10,276 

Total

  272,610   9,291   25,022   306,923 

Total gross derivatives

 $274,083  $9,301  $25,022  $308,406 

Amounts offset

    

Counterparty netting

  (206,283)   (6,917)   (21,470)   (234,670) 

Cash collateral netting

  (40,379)   (1,982)   —   (42,361) 

Total in Trading assets

 $27,421  $402  $3,552  $31,375 

Amounts not offset2

    

Financial instruments collateral

  (12,241)   —   —   (12,241) 

Other cash collateral

  (13)   —   —   (13) 

Net amounts3

 $15,167  $402  $3,552  $19,121 

Not subject to legally enforceable master netting or
collateral agreements3

 

Derivative assets

             $3,848 

  Liabilities 

$ in millions

 Bilateral
OTC		  Cleared
OTC1		  Exchange-
Traded		  Total 

Designated as accounting hedges

 

Interest rate contracts

 $66  $—  $—  $66 

Foreign exchange contracts

  47   21   —   68 

Total

  113   21��  —   134 

Not designated as accounting hedges

 

Interest rate contracts

  161,790   4,419   184   166,393 

Credit contracts

  7,475   2,558   —   10,033 

Foreign exchange contracts

  53,580   675   52   54,307 

Equity contracts

  29,189   —   21,837   51,026 

Commodity and other contracts

  5,596   —   2,089   7,685 

Total

  257,630   7,652   24,162   289,444 

Total gross derivatives

 $257,743  $7,673  $24,162  $289,578 

Amounts offset

    

Counterparty netting

  (206,283)   (6,917)   (21,470)   (234,670) 

Cash collateral netting

  (30,021)   (448)   —   (30,469) 

Total in Trading liabilities

 $21,439  $308  $2,692  $24,439 

Amounts not offset2

    

Financial instruments collateral

  (5,035)   —   (497)   (5,532) 

Other cash collateral

  (10)   (81)   —   (91) 

Net amounts3

 $16,394  $227  $2,195  $18,816 

Not subject to legally enforceable master netting or
collateral agreements3

 

Derivative liabilities

             $3,508 

At December 31, 2016

  Assets 

$ in millions

 Bilateral
OTC		  Cleared
OTC		  Exchange-
Traded		  Total 

Designated as accounting hedges

 

Interest rate contracts

 $1,924  $1,049  $—  $2,973  

Foreign exchange contracts

  249   18   —   267  

Total

  2,173   1,067   —   3,240  

Not designated as accounting hedges

 

Interest rate contracts

  200,336   99,217   384   299,937  

Credit contracts

  9,837   2,392   —   12,229  

Foreign exchange contracts

  73,645   1,022   231   74,898  

Equity contracts

  20,710   —   17,919   38,629  

Commodity and other contracts

  9,792   —   3,727   13,519  

Total

  314,320   102,631   22,261   439,212  

Total gross derivatives

 $316,493  $103,698  $22,261  $442,452  

Amounts offset

    

Counterparty netting

  (243,488)   (100,477)   (19,607)   (363,572)  

Cash collateral netting

  (45,875)   (1,799)   —   (47,674)  

Total in Trading assets

 $27,130  $1,422  $2,654  $31,206  

Amounts not offset2

    

Financial instruments collateral

  (10,293)   —   —   (10,293)  

Other cash collateral

  (124)   —   —   (124)  

Net amounts3

 $16,713  $1,422  $2,654  $20,789  

Not subject to legally enforceable master netting or
collateral agreements3

 

Derivative assets

             $3,656  

  Liabilities 

$ in millions

 Bilateral
OTC		  Cleared
OTC		  Exchange-
Traded		  Total 

Designated as accounting hedges

 

Interest rate contracts

 $77  $647  $—  $724  

Foreign exchange contracts

  15   25   —   40  

Total

  92   672   —   764  

Not designated as accounting hedges

 

Interest rate contracts

  183,063   103,392   397   286,852  

Credit contracts

  11,024   2,401   —   13,425  

Foreign exchange contracts

  74,575   952   16   75,543  

Equity contracts

  22,531   —   17,983   40,514  

Commodity and other contracts

  8,303   —   3,582   11,885  

Total

  299,496   106,745   21,978   428,219  

Total gross derivatives

 $299,588  $107,417  $21,978  $428,983  

Amounts offset

    

Counterparty netting

  (243,488)   (100,477)   (19,607)   (363,572)  

Cash collateral netting

  (30,405)   (5,691)   —   (36,096)  

Total in Trading liabilities

 $25,695  $1,249  $2,371  $29,315  

Amounts not offset2

    

Financial instruments collateral

  (7,638)   —   (585)   (8,223)  

Other cash collateral

  (10)   (1)   —   (11)  

Net amounts3

 $18,047  $1,248  $1,786  $21,081  

Not subject to legally enforceable master netting or
collateral agreements3

 

Derivative liabilities

             $3,497  

63September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

OTC—Over-the-counter

1.

Effective in the first quarter of 2017, the Chicago Mercantile Exchange amended its rulebook for cleared OTC derivatives, resulting in the characterization of variation margin transfers as settlement payments as opposed to cash posted as collateral. In the quarter of adoption, the cleared OTC gross derivative assets and liabilities, and related counterparty and cash collateral netting amounts in total decreased by approximately $13 billion and $20 billion, respectively. Effective in the third quarter of 2017, derivatives cleared through LCH Clearnet Limited became subject to the rulebook under which variation margin transfers are settlement payments. As a result, cleared OTC gross derivative assets and liabilities, and related counterparty and cash collateral netting amounts in total decreased by approximately $62 billion and $59 billion, respectively.

2.

Amounts relate to master netting agreements and collateral agreements that have been determined by the Firm to be legally enforceable in the event of default but where certain other criteria are not met in accordance with applicable offsetting accounting guidance.

3.

Net amounts include transactions that are either not subject to master netting agreements or collateral agreements, or are subject to such agreements but the Firm has not determined the agreements to be legally enforceable.

See Note 35 for information related to the unsettled fair value of futures contracts not designated as accounting hedges, which are excluded from the table above.

previous tables.

Notionals of Derivative Notionals

At September 30, 2017

   Assets 

$ in billions

  Bilateral
OTC		   Cleared
OTC		   Exchange-
Traded		   Total 

Designated as accounting hedges

 

Interest rate contracts

  $24   $44   $        —   $68 

Foreign exchange contracts

   6    1    —    7 

Total

   30    45    —    75 

Not designated as accounting hedges

 

Interest rate contracts

   3,952    6,675    2,880    13,507 

Credit contracts

   242    110    —    352 

Foreign exchange contracts

   2,224    77    30    2,331 

Equity contracts

   388            —    323    711 

Commodity and other contracts

   85    —    80    165 

Total

   6,891    6,862    3,313    17,066 

Total gross derivatives

  $6,921   $6,907   $3,313   $17,141 

   Liabilities 

$ in billions

  Bilateral
OTC		   Cleared
OTC		   Exchange-
Traded		   Total 

Designated as accounting hedges

 

Interest rate contracts

  $2   $97   $—   $99 

Foreign exchange contracts

   3    1    —            4 

Total

   5    98    —    103 

Not designated as accounting hedges

 

Interest rate contracts

   3,919    6,749    1,028    11,696 

Credit contracts

   271    92            —    363 

Foreign exchange contracts

   2,137    74    14    2,225 

Equity contracts

   409    —    381    790 

Commodity and other contracts

   67    —    69    136 

Total

   6,803    6,915    1,492    15,210 

Total gross derivatives

  $6,808   $7,013   $1,492   $15,313 
Contracts

At December 31, 2016

   Assets 

$ in billions

  Bilateral
OTC		   Cleared
OTC		   Exchange-
Traded		   Total 

Designated as accounting hedges

 

Interest rate contracts

  $30   $38   $—   $68 

Foreign exchange contracts

   6    —    —    6 

Total

   36    38    —    74 

Not designated as accounting hedges

 

Interest rate contracts

   3,586    6,224    2,586    12,396 

Credit contracts

   333    112    —    445 

Foreign exchange contracts

   1,580    52    13    1,645 

Equity contracts

   338    —    242    580 

Commodity and other contracts

   67    —    79    146 

Total

   5,904    6,388    2,920    15,212 

Total gross derivatives

  $    5,940       $6,426   $2,920   $    15,286 

    Liabilities 

$ in billions

  Bilateral
OTC		   Cleared
OTC		   Exchange-
Traded		   Total 

Designated as accounting hedges

 

Interest rate contracts

  $2   $52   $—   $54 

Foreign exchange contracts

   1    1    —    2 

Total

   3    53    —    56 

Not designated as accounting hedges

 

Interest rate contracts

   3,462    6,087    897    10,446 

Credit contracts

   359    96    —    455 

Foreign exchange contracts

   1,557    48    14    1,619 

Equity contracts

   321    —    273    594 

Commodity and other contracts

   78    —    59    137 

Total

   5,777    6,231    1,243    13,251 

Total gross derivatives

  $    5,780   $6,284   $1,243   $    13,307 

For information related
 Assets at June 30, 2021
$ in billions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate$4 $109 $0 $113 
Foreign exchange13 2 0 15 
Total17 111 0 128 
Not designated as accounting hedges
Economic loan hedges
Credit0 0 0 0 
Other derivatives
Interest rate4,095 7,338 576 12,009 
Credit188 107 0 295 
Foreign exchange3,494 97 12 3,603 
Equity483 0 410 893 
Commodity and other128 0 77 205 
Total8,388 7,542 1,075 17,005 
Total gross derivatives$8,405 $7,653 $1,075 $17,133 

 Liabilities at June 30, 2021
$ in billions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate$0 $90 $0 $90 
Foreign exchange1 1 0 2 
Total1 91 0 92 
Not designated as accounting hedges
Economic loan hedges
Credit0 7 0 7 
Other derivatives
Interest rate4,084 7,156 523 11,763 
Credit197 113 0 310 
Foreign exchange3,425 90 23 3,538 
Equity535 0 766 1,301 
Commodity and other118 0 76 194 
Total8,359 7,366 1,388 17,113 
Total gross derivatives$8,360 $7,457 $1,388 $17,205 
 Assets at December 31, 2020
$ in billions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate$6 $123 $0 $129 
Foreign exchange2 0 0 2 
Total8 123 0 131 
Not designated as accounting hedges
Economic loan hedges
Credit1
0 1 0 1 
Other derivatives
Interest rate3,847 6,946 409 11,202 
Credit1
140 87 0 227 
Foreign exchange3,046 103 10 3,159 
Equity444 0 367 811 
Commodity and other107 0 68 175 
Total7,584 7,137 854 15,575 
Total gross derivatives$7,592 $7,260 $854 $15,706 
June 2021 Form 10-Q50
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
 Liabilities at December 31, 2020
$ in billions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate$0 $80 $0 $80 
Foreign exchange11 3 0 14 
Total11 83 0 94 
Not designated as accounting hedges
Economic loan hedges
Credit1
1 5 0 6 
Other derivatives
Interest rate4,000 6,915 511 11,426 
Credit1
142 93 0 235 
Foreign exchange3,180 102 11 3,293 
Equity474 0 591 1,065 
Commodity and other93 0 68 161 
Total7,890 7,115 1,181 16,186 
Total gross derivatives$7,901 $7,198 $1,181 $16,280 
1.Certain prior period amounts have been reclassified to offsettingconform to the current presentation.
The notional amounts of certain collateralized transactions, see Note 6. derivative contracts generally overstate the Firm’s exposure. In most circumstances, notional amounts are used only as a reference point from which to calculate amounts owed between the parties to the contract. Furthermore, notional amounts do not reflect the benefit of legally enforceable netting arrangements or risk mitigating transactions.
For a discussion of the Firm’s derivative instruments and hedging activities, see Note 47 to the consolidated financial statements in the 20162020 Form10-K.

Gains (Losses) on Accounting Hedges
 Three Months EndedSix Months Ended
June 30,June 30,
$ in millions2021202020212020
Fair value hedges—Recognized in Interest income
Interest rate contracts$(331)$(16)$500 $(80)
Investment Securities—AFS345 23 (427)89 
Fair value hedges—Recognized in Interest expense
Interest rate contracts$1,238 $245 $(2,870)$6,912 
Deposits22 46 58 (215)
Borrowings(1,270)(327)2,751 (6,759)
Net investment hedges—Foreign exchange contracts
Recognized in OCI$(106)$(96)$299 $314 
Forward points excluded from hedge effectiveness testing—Recognized in Interest income(14)(8)(13)25 
Fair Value Hedges

   Recognized in Interest Expense 
   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
$ in millions  2017  2016   2017  2016 

Derivatives

  $    (218)  $    (733)   $(878)  $2,386 

Borrowings

   175   790    670       (2,492) 

Total

  $(43)  $57   $    (208)  $(106) 
Hedges—Hedged Items 
$ in millionsAt
June 30,
2021		At
December 31,
2020
Investment Securities—AFS
Amortized cost basis currently or previously hedged$18,009 $16,288 
Basis adjustments included in amortized cost1
$(371)$(39)
Deposits
Carrying amount currently or previously hedged
$6,316 $15,059 
Basis adjustments included in carrying amount1
$35 $93 
Borrowings
Carrying amount currently or previously hedged$114,420 $114,349 
Basis adjustments included in carrying amount—Outstanding hedges
$3,799 $6,575 
Basis adjustments included in carrying amount—Terminated hedges
$(757)$(756)

September 2017 Form 10-Q64
1.Hedge accounting basis adjustments are primarily related to outstanding hedges.

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

Gains (Losses) on Net InvestmentEconomic Loan Hedges

   Three Months
Ended
September 30,		  Nine Months
Ended
September 30,		 
$ in millions  2017  2016  2017  2016 

Foreign exchange contracts

                 

Effective portion—OCI

  $    (88)  $    (60)  $    (340)  $    (396) 

Forward points excluded from hedge effectiveness testing—Interest income

  $(3)  $(20)  $(22)  $(59) 

Trading Revenues by Product Type

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in millions     2017           2016        2017       2016   

Interest rate contracts

 $648   $357  $1,693   $983  

Foreign exchange contracts

  181    170   613    769  

Equity security and index contracts1

  1,416    1,415   4,875    4,360  

Commodity and other contracts

  223    63   522    (61) 

Credit contracts

  236    604   1,167    1,369  

Total

 $2,704   $2,609  $8,870   $7,420  

1.

Dividend income is included within equity security and index contracts.

The previous table summarizes gains and losses included in Trading revenues in the income statements. These activities include revenues

 Three Months EndedSix Months Ended
June 30,June 30,
$ in millions2021202020212020
Recognized in Other revenues
Credit contracts1
$(44)$(120)$(149)$135 
1.Amounts related to derivativehedges of certain held-for-investment andnon-derivative financial instruments. held-for-sale loans.
Net Derivative Liabilities and Collateral Posted
$ in millionsAt
June 30,
2021		At
December 31,
2020
Net derivative liabilities with credit risk-related contingent features$20,227 $30,421 
Collateral posted14,954 23,842 
The Firm generally utilizes financial instruments across a variety of product types in connection with its market-making and related risk management strategies. Accordingly, the trading revenues presented in the previous table are not representative of the manner in which the Firm manages its business activities and are prepared in a manner similar to the presentation of trading revenues for regulatory reporting purposes.

Credit Risk-Related Contingencies

In connection with certain OTC trading agreements, the Firm may be required to provide additional collateral or immediately settle any outstanding liability balances with certain counterparties in the event of a credit rating downgrade of the Firm.

The following table presents the aggregate fair value of certain derivative contracts that contain credit risk-related contingent features that are in a net liability position for which the Firm has posted collateral in the normal course of business.

Net Derivative Liabilities

Incremental Collateral and Collateral Posted

$ in millions

  At September 30,
2017		   At December 31, 
2016		 

Net derivative liabilities with credit risk-related contingent features

  $19,359   $22,939  

Collateral posted

   14,499    17,040  
Termination Payments upon Potential Future Ratings Downgrade

$ in millionsAt
June 30,
2021
One-notch downgrade$227
Two-notch downgrade328
Bilateral downgrade agreements included in the amounts above1
$489

1.Amount represents arrangements between the Firm and other parties where upon the downgrade of one party, the downgraded party must deliver collateral to the other party. These bilateral downgrade arrangements are used by the Firm to manage the risk of counterparty downgrades.
The additional collateral or termination payments that may be called in the event of a future credit rating downgrade vary by contract and can be based on ratings by either or both of Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’sS&P Global Ratings (“S&P”).The followingRatings. The previous table shows the future potential collateral amounts and termination payments that could be called or required by counterparties or exchange and clearing organizations in the
51June 2021 Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
event ofone-notch ortwo-notch downgrade scenarios based on the relevant contractual downgrade triggers.

Incremental Collateral or Termination Payments upon

Maximum Potential Future Ratings Downgrade

$ in millions  At September 30, 20171 

One-notch downgrade

  $592 

Two-notch downgrade

   512 

1.

Amounts include $873 million related to bilateral arrangements between the Firm and other parties where upon the downgradePayout/Notional of one party, the downgraded party must deliver collateral to the other party. These bilateral downgrade arrangements are used by the Firm to manage the risk of counterparty downgrades.

Credit DerivativesProtection Sold1

 Years to Maturity at June 30, 2021
$ in billions< 11-33-5Over 5Total
Single-name CDS
Investment grade$9 $23 $30 $9 $71 
Non-investment grade6 12 16 2 36 
Total$15 $35 $46 $11 $107 
Index and basket CDS
Investment grade$2 $7 $89 $16 $114 
Non-investment grade6 15 37 15 73 
Total$8 $22 $126 $31 $187 
Total CDS sold$23 $57 $172 $42 $294 
Other credit contracts1 0 0 0 1 
Total credit protection sold$24 $57 $172 $42 $295 
CDS protection sold with identical protection purchased$248 
 Years to Maturity at December 31, 2020
$ in billions< 11-33-5Over 5Total
Single-name CDS
Investment grade$9 $19 $32 $9 $69 
Non-investment grade7 10 17 2 36 
Total$16 $29 $49 $11 $105 
Index and basket CDS
Investment grade$2 $5 $39 $14 $60 
Non-investment grade6 9 29 14 58 
Total$8 $14 $68 $28 $118 
Total CDS sold$24 $43 $117 $39 $223 
Other credit contracts0 0 0 0 0 
Total credit protection sold$24 $43 $117 $39 $223 
CDS protection sold with identical protection purchased$196 
Fair Value Asset (Liability) of Credit Protection Sold1
$ in millionsAt
June 30,
2021		At
December 31,
2020
Single-name CDS
Investment grade$1,495 $1,230 
Non-investment grade147 (22)
Total$1,642 $1,208 
Index and basket CDS
Investment grade$1,331 $843 
Non-investment grade(617)(824)
Total$714 $19 
Total CDS sold$2,356 $1,227 
Other credit contracts(3)(4)
Total credit protection sold$2,353 $1,223 
1.Investment grade/non-investment grade determination is based on the internal credit rating of the reference obligation. Internal credit ratings serve as the CRM’s assessment of credit risk and Other Credit Contracts

the basis for a comprehensive credit limits framework used to control credit risk. The Firm uses quantitative models and judgment to estimate the various risk parameters related to each obligor.

Protection Purchased with CDS
Notional
$ in billionsAt
June 30,
2021		At
December 31,
2020
Single name$118 $116 
Index and basket185 116 
Tranched index and basket15 14 
Total$318 $246 
Fair Value Asset (Liability)
$ in millionsAt
June 30,
2021		At
December 31,
2020
Single name$(1,906)$(1,452)
Index and basket(999)(57)
Tranched index and basket(335)(329)
Total$(3,240)$(1,838)
The Firm enters into credit derivatives, principally credit default swaps,CDS, under which it receives or provides protection against the risk of default on a set of debt obligations issued by a specified reference entity or entities. A majority of the Firm’s counterparties for these derivatives are banks, broker-dealers, and insurance and other financial institutions.

The fair value amounts as shown in the previous tables are prior to cash collateral or counterparty netting. For further information on credit derivatives and other credit contracts, see Note 47 to the consolidated financial statements in the 20162020 Form10-K.

Protection Sold

8. Investment Securities
AFS and Purchased with Credit Default Swaps

   At September 30, 2017 
   Protection Sold  Protection Purchased 

$ in millions

  Notional   

Fair Value
(Asset)/

Liability

  Notional   

Fair Value
(Asset)/

Liability

 

Credit default swaps

       

Single name

  $173,202   $(1,400)  $189,290   $1,803 

Index and basket

   145,107    (237)   141,565    264 

Tranched index and basket

   22,049    (367)   44,193    1,066 

Total

  $340,358   $(2,004)  $375,048   $3,133 

Portion of single name and non-tranched index and basket with identical underlying reference obligations

  $315,931    —  $327,959    — 
HTM Securities
 At June 30, 2021
$ in millions
Amortized
Cost1
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair 
Value
AFS securities
U.S. Treasury securities$45,594 $654 $38 $46,210 
U.S. agency securities2
28,855 422 136 29,141 
Agency CMBS15,467 424 47 15,844 
State and municipal securities230 31 5 256 
FFELP student loan ABS3
1,769 13 11 1,771 
Total AFS securities91,915 1,544 237 93,222 
HTM securities
U.S. Treasury securities29,429 1,235 40 30,624 
U.S. agency securities2
49,247 306 760 48,793 
Agency CMBS2,513 0 25 2,488 
Non-agency CMBS931 42 1 972 
Total HTM securities82,120 1,583 826 82,877 
Total investment securities$174,035 $3,127 $1,063 $176,099 

65September 2017June 2021 Form 10-Q52

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

   At December 31, 2016 
   Protection Sold  Protection Purchased 

$ in millions

  Notional   

Fair Value
(Asset)/

Liability

  Notional   

Fair Value
(Asset)/

Liability

 

Credit default swaps

       

Single name

  $266,918   $(753)  $269,623   $826  

Index and basket

   130,383    374   122,061    (481) 

Tranched index and basket

   32,429    (670)   78,505    1,900  

Total

  $429,730   $(1,049)  $470,189   $2,245  

Portion of single name and non-tranched index and basket with identical underlying reference obligations

  $395,536    —  $389,221    —  

Fair value amounts as shown in the table below are on a gross basis prior to cash collateral or counterparty netting. In order to provide an indication of the current payment status or performance risk of the credit default swaps, a breakdown of credit default swaps based on the Firm’s internal credit ratings by investment grade andnon-investment grade is provided. Internal credit ratings serve as the Credit Risk Management Department’s assessment of credit risk and the basis for a comprehensive credit limits framework used to control credit risk. The Firm uses quantitative models and judgment to estimate the various risk parameters related to each obligor.

Credit Ratings of Reference Obligation and Maturities of Credit Protection Sold

   At September 30, 2017 
   Maximum Potential Payout/Notional   

Fair Value

(Asset)/

Liability

 
   Years to Maturity   
$ in millions  Less than 1   1-3   3-5   Over 5   Total   

Single name credit default swaps

            

Investment grade

  $46,372   $44,877   $21,662   $11,411   $124,322   $(1,220) 

Non-investment grade

   20,527    19,378    6,959    2,016    48,880    (180) 

Total single name credit default swaps

   66,899    64,255    28,621    13,427    173,202    (1,400) 

Index and basket credit default swaps

            

Investment grade

   23,097    13,752    28,918    19,124    84,891    (885) 

Non-investment grade

   28,650    7,293    25,129    21,193    82,265    281  

Total index and basket credit default swaps

   51,747    21,045    54,047    40,317    167,156    (604) 

Total credit default swaps sold

  $118,646   $85,300   $82,668   $53,744   $340,358   $(2,004) 

Other credit contracts

   14            —              —      135    149    13  

Total credit derivatives and other credit contracts

  $118,660   $85,300   $82,668   $53,879   $340,507   $(1,991) 

   At December 31, 2016 
   Maximum Potential Payout/Notional   

Fair Value

(Asset)/

Liability

 
   Years to Maturity   
$ in millions  Less than 1   1-3   3-5   Over 5   Total   

Single name credit default swaps

            

Investment grade

  $79,449   $70,796   $34,529   $10,293   $195,067   $(1,060) 

Non-investment grade

   34,571    25,820    10,436    1,024    71,851    307  

Total single name credit default swaps

  $114,020   $96,616   $44,965   $11,317   $266,918   $(753) 

Index and basket credit default swaps

            

Investment grade

  $26,530   $21,388   $35,060   $9,096   $92,074   $(846) 

Non-investment grade

   26,135    22,983    11,759    9,861    70,738    550  

Total index and basket credit default swaps

  $52,665   $44,371   $46,819   $18,957   $162,812   $(296) 

Total credit default swaps sold

  $166,685   $140,987   $91,784   $30,274   $429,730   $(1,049) 

Other credit contracts

   49    6    —    215    270    —  

Total credit derivatives and other credit contracts

  $166,734   $    140,993   $    91,784   $    30,489   $    430,000   $(1,049) 

September 2017 Form 10-Q66
Table of Contents

Notes to Consolidated Financial Statements


(Unaudited)

LOGO

5. Investment Securities

The following tables present information about the Firm’s AFS securities, which are carried at fair value, and HTM securities, which are carried at amortized cost. The net unrealized gains or losses on AFS securities are reported on anafter-tax basis as a component of AOCI.

AFS and HTM Securities

   At September 30, 2017 
$ in millions  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair
Value		 

AFS debt securities

        

U.S. government and agency securities:

        

U.S. Treasury securities

  $24,706   $—   $425   $24,281  

U.S. agency securities1

   24,018    42    164    23,896  

Total U.S. government and agency securities

   48,724    42    589    48,177  

Corporate and other debt:

        

CMBS:

        

Agency

   1,452    2    42    1,412  

Non-agency

   1,215    4    7    1,212  

Corporate bonds

   1,486    13    7    1,492  

CLO

   434    1    —    435  

FFELP student loan ABS2

   2,217    13    8    2,222  

Total corporate and other debt

   6,804    33    64    6,773  

Total AFS debt securities

   55,528    75    653    54,950  

AFS equity securities

   15    —    11    4  

Total AFS securities

   55,543    75    664    54,954  

HTM securities

        

U.S. government and agency securities:

        

U.S. Treasury securities

   11,501    7    249    11,259  

U.S. agency securities1

   12,384    18    151    12,251  

Total U.S. government and agency securities

   23,885    25    400    23,510  

Corporate and other debt:

        

CMBS:

        

Non-agency

   247    1    1    247  

Total corporate and other debt

   247    1    1    247  

Total HTM securities

   24,132    26    401    23,757  

Total investment securities

  $79,675   $101   $1,065   $78,711  
ms-20210630_g1.jpg
   At December 31, 2016 
 $ in millions  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair
Value		 

 AFS debt securities

        

 U.S. government and agency securities:

        

U.S. Treasury securities

  $28,371   $1   $545   $27,827  

U.S. agency securities1

   22,348    14    278    22,084  

 Total U.S. government and agency securities

   50,719    15    823    49,911  

 Corporate and other debt:

        

CMBS:

        

Agency

   1,850    2    44    1,808  

Non-agency

   2,250    11    16    2,245  

Auto loan ABS

   1,509    1    1    1,509  

Corporate bonds

   3,836    7    22    3,821  

CLO

   540    —    1    539  

FFELP student loan ABS2

   3,387    5    61    3,331  

 Total corporate and other debt

   13,372    26    145    13,253  

 Total AFS debt securities

   64,091    41    968    63,164  

 AFS equity securities

   15    —    9    6  

 Total AFS securities

   64,106    41    977    63,170  

 HTM securities

        

 U.S. government and agency securities:

        

U.S. Treasury securities

   5,839    1    283    5,557  

U.S. agency securities1

   11,083    1    188    10,896  

 Total HTM securities

   16,922    2    471    16,453  

 Total investment securities

  $81,028   $43   $1,448   $79,623  

CMBS—Commercial mortgage-backed securities

CLO—Collateralized loan obligations

ABS—Asset-backed securities

1.

U.S. agency securities consist mainly of agency-issued debt, agency mortgage pass-through pool securities and collateralized mortgage obligations.

2.

FFELP—Federal Family Education Loan Program. Amounts are backed by a guarantee from the U.S. Department of Education of at least 95% of the principal balance and interest on such loans.

 At December 31, 2020
$ in millions
Amortized
Cost1
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair 
Value
AFS securities
U.S. Treasury securities$45,345 $1,010 $0 $46,355 
U.S. agency securities2
37,389 762 25 38,126 
Agency CMBS19,982 465 9 20,438 
Corporate bonds1,694 42 0 1,736 
State and municipal securities1,461 103 1 1,563 
FFELP student loan ABS3
1,735 7 26 1,716 
Other ABS449 0 0 449 
Total AFS securities108,055 2,389 61 110,383 
HTM securities
U.S. Treasury securities29,346 1,893 0 31,239 
U.S. agency securities2
38,951 704 8 39,647 
Agency CMBS2,632 4 2 2,634 
Non-agency CMBS842 58 0 900 
Total HTM securities71,771 2,659 10 74,420 
Total investment securities$179,826 $5,048 $71 $184,803 

67September 2017 Form 10-Q
1.Amounts are net of any ACL.

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

2.U.S. agency securities consist mainly of agency mortgage pass-through pool securities, CMOs and agency-issued debt.

3.Underlying loans are backed by a guarantee, ultimately from the U.S. Department of Education, of at least 95% of the principal balance and interest outstanding.
Investment Securities in an Unrealized Loss Position

   At September 30, 2017 
   Less than 12 Months   12 Months or Longer   Total 
 $ in millions  Fair Value   Gross     
Unrealized
Losses     		   Fair Value   Gross     
Unrealized
Losses    		   Fair Value   Gross      
Unrealized 
Losses     		 

 AFS debt securities

            

 U.S. government and agency securities:

            

 U.S. Treasury securities

  $21,910   $364   $2,371   $61   $24,281   $425  

 U.S. agency securities

   10,737    136    1,431    28    12,168    164  

 Total U.S. government and agency securities

   32,647    500    3,802    89    36,449    589  

 Corporate and other debt:

            

 CMBS:

            

 Agency

   991    42    —    —    991    42  

 Non-agency

   192    2    571    5    763    7  

 Corporate bonds

   186    1    332    6    518    7  

 FFELP student loan ABS

   1,058    8    —    —    1,058    8  

 Total corporate and other debt

   2,427    53    903    11    3,330    64  

 Total AFS debt securities

   35,074    553    4,705    100    39,779    653  

 AFS equity securities

   —    —    4    11    4    11  

 Total AFS securities

   35,074    553    4,709    111    39,783    664  

 HTM securities

            

 U.S. government and agency securities:

            

 U.S. Treasury securities

   9,848    249    —    —    9,848    249  

 U.S. agency securities

   10,084    151    —    —    10,084    151  

 Total U.S. government and agency securities

   19,932    400    —    —    19,932    400  

 Corporate and other debt:

            

 CMBS:

            

 Non-agency

   71    1    —    —    71    1  

 Total corporate and other debt

   71    1    —    —    71    1  

 Total HTM securities

   20,003    401    —    —    20,003    401  

 Total investment securities

  $            55,077   $            954   $            4,709   $            111   $            59,786   $            1,065  

September 2017 Form 10-Q68

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

  At December 31, 2016 
  Less than 12 Months  12 Months or Longer  Total 
 $ in millions Fair Value  Gross     
Unrealized
Losses    		  Fair Value  Gross     
Unrealized
Losses    		  Fair Value  Gross      
Unrealized 
Losses     		 

 AFS debt securities

      

 U.S. government and agency securities:

      

 U.S. Treasury securities

 $25,323  $545  $—  $—  $25,323  $545  

 U.S. agency securities

  16,760   278   125   —   16,885   278  

 Total U.S. government and agency securities

  42,083   823   125   —   42,208   823  

 Corporate and other debt:

      

 CMBS:

      

 Agency

  1,245   44   —   —   1,245   44  

 Non-agency

  763   11   594   5   1,357   16  

 Auto loan ABS

  659   1   123   —   782   1  

 Corporate bonds

  2,050   21   142   1   2,192   22  

 CLO

  178   —   239   1   417   1  

 FFELP student loan ABS

  2,612   61   —   —   2,612   61  

 Total corporate and other debt

  7,507   138   1,098   7   8,605   145  

 Total AFS debt securities

  49,590   961   1,223   7   50,813   968  

 AFS equity securities

  6   9   —   —   6   9  

 Total AFS securities

  49,596   970   1,223   7   50,819   977  

 HTM securities

      

 U.S. government and agency securities:

      

 U.S. Treasury securities

  5,057   283   —   —   5,057   283  

 U.S. agency securities

  10,612   188   —   —   10,612   188  

 Total HTM securities

  15,669   471   —   —   15,669   471  

 Total investment securities

 $            65,265  $            1,441  $            1,223  $            7  $            66,488  $            1,448  

 At
June 30,
2021		At
December 31,
2020
$ in millionsFair Value
Gross
Unrealized
Losses
Fair Value
Gross
Unrealized
Losses
U.S. Treasury securities
Less than 12 months$13,017 $38 $151 $0 
Total13,017 38 151 0 
U.S. agency securities
Less than 12 months9,081 135 5,808 22 
12 months or longer793 1 1,168 3 
Total9,874 136 6,976 25 
Agency CMBS
Less than 12 months2,983 47 2,779 9 
12 months or longer28 0 46 0 
Total3,011 47 2,825 9 
Corporate bonds
12 months or longer0 0 31 0 
Total0 0 31 0 
State and municipal securities
Less than 12 months34 5 86 0 
12 months or longer0 0 36 1 
Total34 5 122 1 
FFELP student loan ABS
Less than 12 months87 0 0 0 
12 months or longer802 11 1,077 26 
Total889 11 1,077 26 
Total AFS securities in an unrealized loss position
Less than 12 months25,202 225 8,824 31 
12 months or longer1,623 12 2,358 30 
Total$26,825 $237 $11,182 $61 

As discussed in Note 2 to the consolidated financial statements in the 2016 Form10-K,For AFS and HTM securities, with a current fair value less than their amortized cost are analyzed as part of the Firm’s ongoing assessment of temporarily versus other-than-temporarily impaired at the individual security level.

The Firm believes there are no securities in an unrealized loss position that are other-than-temporarily-impaired at September 30, 2017have credit losses after

performing the analysis described in Note 2 in the 2020 Form 10-K and December 31, 2016 for the reasons discussed herein.

For AFS debt securities,Firm expects to recover the amortized cost basis of these securities. Additionally, the Firm does not intend to sell thethese securities and is not likely to be required to sell thethese securities prior to recovery of the amortized cost basis. For AFSAs of June 30, 2021 and HTM debt securities,December 31, 2020, the securities have not experienced credit losses as the net unrealized losses reported in the previous table are primarily due to higher interest rates since those securities were purchased.

Additionally, for U.S. government and agency securities, the existence of an explicit and implicit guarantee provided by the U.S. government is considered and the Firm does not expect to experience a credit loss (as discussed in Note 2 to the consolidated financial statements in the 2016 Form 10-K). The risk of credit loss on securities in an unrealized loss position is considered minimal becauseare predominantly investment grade.

The HTM securities net carrying amounts at June 30, 2021 and December 31, 2020 reflect an ACL of $28 million and $26 million, respectively, related to Non-agency CMBS. See Note 2 in the Firm’s U.S. government and agency securities, as well as ABS, CMBS and CLO, are highly rated and because corporate bonds are all investment grade.

For AFS equity securities, the Firm has the intent and ability to hold these securities2020 Form 10-K for a perioddescription of time sufficient to allowthe ACL methodology used for any anticipated recovery in market value.

HTM Securities. As of June 30, 2021, and December 31, 2020, Non-Agency CMBS HTM securities were predominantly on accrual status and investment grade.

See Note 1215 for additional information on securities issued by VIEs, including U.S. agency mortgage-backed securities,non-agency CMBS, auto loan ABS, CLO and FFELP student loan ABS and other ABS.

Investment Securities by Contractual Maturity

  At September 30, 2017 
$ in millions Amortized
Cost		  Fair Value  Annualized
Average
Yield		 

AFS debt securities

   

U.S. government and agency securities:

 

U.S. Treasury securities:

   

Due within 1 year

 $5,300  $5,286   0.9% 

After 1 year through 5 years

  14,129   13,954   1.4% 

After 5 years through 10 years

  5,277   5,041   1.5% 

Total

  24,706   24,281     

U.S. agency securities:

   

Due within 1 year

  1,300   1,302   0.2% 

After 1 year through 5 years

  2,570   2,564   0.9% 

After 5 years through 10 years

  1,250   1,246   1.9% 

After 10 years

  18,898   18,784   1.8% 

Total

  24,018   23,896     

Total U.S. government and agency securities

  48,724   48,177   1.5% 
 At June 30, 2021
$ in millions
Amortized
Cost1
Fair
Value		Annualized
Average
Yield
AFS securities
U.S. Treasury securities:
Due within 1 year$10,079 $10,161 1.4 %
After 1 year through 5 years26,632 27,138 1.3 %
After 5 years through 10 years8,883 8,911 1.2 %
Total45,594 46,210 
U.S. agency securities:
Due within 1 year1 1 1.5 %
After 1 year through 5 years147 149 1.3 %
After 5 years through 10 years1,466 1,504 1.8 %
After 10 years27,241 27,487 1.6 %
Total28,855 29,141 
Agency CMBS:
Due within 1 year240 242 1.8 %
After 1 year through 5 years1,503 1,534 1.6 %
After 5 years through 10 years10,665 11,030 1.6 %
After 10 years3,059 3,038 1.5 %
Total15,467 15,844 
State and municipal securities:
Due within 1 year4 4 1.9 %
After 1 year through 5 years22 22 1.8 %
After 5 years through 10 years30 39 2.3 %
After 10 Years174 191 3.9 %
Total230 256 
FFELP student loan ABS:
Due within 1 year32 31 0.8 %
After 1 year through 5 years188 184 0.9 %
After 5 years through 10 years152 148 0.7 %
After 10 years1,397 1,408 1.1 %
Total1,769 1,771 
Total AFS securities91,915 93,222 1.4 %

5369September 2017June 2021 Form 10-Q

Notes to Consolidated Financial Statements


(Unaudited)

  LOGO
ms-20210630_g1.jpg

  At September 30, 2017 
$ in millions  Amortized 
Cost		   Fair Value  Annualized
Average
Yield		 

Corporate and other debt:

   

CMBS:

 

Agency:

   

Due within 1 year

  18   18   1.1% 

After 1 year through 5 years

  283   282   1.4% 

After 5 years through 10 years

  300   301   1.2% 

After 10 years

  851   811   1.6% 

Total

  1,452   1,412     

Non-agency:

   

After 5 years through 10 years

  36   35   2.5% 

After 10 years

  1,179   1,177   1.8% 

Total

  1,215   1,212     

Corporate bonds:

   

Due within 1 year

  46   46   1.2% 

After 1 year through 5 years

  1,218   1,225   2.4% 

After 5 years through 10 years

  222   221   2.3% 

Total

  1,486   1,492     

CLO:

   

After 5 years through 10 years

  236   236   1.5% 

After 10 years

  198   199   2.4% 

Total

  434   435     

FFELP student loan ABS:

 

After 1 year through 5 years

  52   51   0.8% 

After 5 years through 10 years

  393   390   0.8% 

After 10 years

  1,772   1,781   1.1% 

Total

  2,217   2,222     

Total corporate and other debt

  6,804   6,773   1.6% 

Total AFS debt securities

  55,528   54,950   1.5% 

AFS equity securities

  15   4   —% 

Total AFS securities

  55,543   54,954   1.5% 

HTM securities

   

U.S. government securities:

   

U.S. Treasury securities:

   

Due within 1 year

  300   300   0.6% 

After 1 year through 5 years

  5,163   5,151   1.5% 

After 5 years through 10 years

  5,311   5,157   1.9% 

After 10 years

  727   651   2.3% 

Total

  11,501   11,259     

U.S. agency securities:

   

After 10 years

  12,384   12,251   2.4% 

Total

  12,384   12,251     

Total U.S. government and agency securities

  23,885   23,510   2.0% 

Corporate and other debt:

   

CMBS:

   

Non-agency:

   

After 1 year through 5 years

  99   99   3.6% 

After 5 years through 10 years

  148   148   3.7% 

Total

  247   247     

Total corporate and other debt

  247   247   3.7% 

Total HTM securities

  24,132   23,757   2.1% 

Total investment securities

 $79,675  $78,711   1.7% 

 At June 30, 2021
$ in millions
Amortized
Cost1
Fair
Value		Annualized
Average
Yield
HTM securities
U.S. Treasury securities:
Due within 1 year3,673 3,711 1.9 %
After 1 year through 5 years19,256 19,880 1.7 %
After 5 years through 10 years5,418 5,855 2.4 %
After 10 years1,082 1,178 2.5 %
Total29,429 30,624 
U.S. agency securities:
After 5 years through 10 years546 562 2.0 %
After 10 years48,701 48,231 1.6 %
Total49,247 48,793 
Agency CMBS:
Due within 1 year21 21 2.4 %
After 1 year through 5 years1,358 1,349 1.3 %
After 5 years through 10 years971 958 1.4 %
After 10 years163 160 1.5 %
Total2,513 2,488 
Non-agency CMBS:
Due within 1 year151 151 4.5 %
After 1 year through 5 years65 67 2.7 %
After 5 years through 10 years662 698 3.7 %
After 10 years53 56 3.8 %
Total931 972 
Total HTM securities82,120 82,877 1.7 %
Total investment securities$174,035 $176,099 1.6 %
1.Amounts are net of any ACL.
Gross Realized Gains and Losses(Losses) on Sales of AFS Securities

    Three Months Ended  
September 30,		     Nine Months Ended  
September 30,		 
$ in millions 2017   2016   2017  2016 

Gross realized gains

 $11   $45   $38  $130 

Gross realized (losses)

  —    —    (11)   (3) 

Total

 $            11   $            45   $            27  $            127 

Gross realized

 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Gross realized gains$74 $16 $219 $65 
Gross realized (losses)(16)(6)(27)(14)
Total1
$58 $10 $192 $51 
1.Realized gains and losses are recognized in Other revenues in the income statements.

6.

9. Collateralized Transactions

The

Offsetting of Certain Collateralized Transactions
 At June 30, 2021
$ in millionsGross AmountsAmounts OffsetBalance Sheet Net Amounts
Amounts Not Offset1
Net Amounts
Assets
Securities purchased under agreements to resell$198,942 $(103,012)$95,930 $(93,720)$2,210 
Securities borrowed137,720 (11,017)126,703 (121,432)5,271 
Liabilities
Securities sold under agreements to repurchase$160,657 $(103,012)$57,645 $(48,791)$8,854 
Securities loaned20,591 (11,017)9,574 (9,275)299 
Net amounts for which master netting agreements are not in place or may not be legally enforceable
Securities purchased under agreements to resell$1,824 
Securities borrowed1,120 
Securities sold under agreements to repurchase8,099 
Securities loaned164 
 At December 31, 2020
$ in millionsGross AmountsAmounts OffsetBalance Sheet Net Amounts
Amounts Not Offset1
Net Amounts
Assets
Securities purchased under agreements to resell$264,140 $(147,906)$116,234 $(114,108)$2,126 
Securities borrowed124,921 (12,530)112,391 (107,434)4,957 
Liabilities
Securities sold under agreements to repurchase$198,493 $(147,906)$50,587 $(43,960)$6,627 
Securities loaned20,261 (12,530)7,731 (7,430)301 
Net amounts for which master netting agreements are not in place or may not be legally enforceable
Securities purchased under agreements to resell$1,870 
Securities borrowed596 
Securities sold under agreements to repurchase6,282 
Securities loaned128 
1.Amounts relate to master netting agreements that have been determined by the Firm enters into securities purchased under agreements to resell, securities sold under agreements to repurchase, securities borrowed and securities loaned transactions to, amongbe legally enforceable in the event of default but where certain other things, acquire securities to cover short positions and settle other securities obligations, to accommodate customers’ needs and to finance its inventory positions. criteria are not met in accordance with applicable offsetting accounting guidance.
For further discussion of the Firm’s collateralized transactions, see Note 62 and Note 9 to the consolidated financial statements in the 20162020 Form10-K.

Offsetting of Certain Collateralized Transactions

  At September 30, 2017 

$ in millions

 Gross
Amounts		  

Amounts

Offset

  Net
Amounts
Presented		  Amounts
Not
Offset1		  Net
Amounts		 

Assets

     

Securities purchased
under agreements
to resell

 $174,387  $(84,281)  $90,106  $(84,895)  $5,211  

Securities borrowed

  145,923   (13,031)   132,892   (128,616)   4,276  

Liabilities

     

Securities sold
under agreements
to repurchase

 $138,264  $(84,281)  $53,983  $(46,145)  $7,838  

Securities loaned

  28,662   (13,032)   15,630   (15,550)   80  

Not subject to legally enforceable master netting agreements2

 

 

Securities purchased under agreements to resell

 

 $4,599  

Securities borrowed

 

  720  

Securities sold under agreements to repurchase

 

  6,521  

Securities loaned

 

  7  

September 2017 Form 10-Q70

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

  At December 31, 2016 

$ in millions

 Gross
 Amounts 		   Amounts 
Offset		  Net
Amounts
 Presented 		   Amounts 
Not
Offset1		  Net
 Amounts 		 

Assets

     

Securities purchased
under agreements
to resell

 $  182,888  $    (80,933)  $101,955  $(93,365)  $8,590  

Securities borrowed

  129,934   (4,698)   125,236   (118,974)   6,262  

Liabilities

     

Securities sold
under agreements
to repurchase

 $135,561  $(80,933)  $54,628  $(47,933)  $6,695  

Securities loaned

  20,542   (4,698)   15,844   (15,670)   174  

Not subject to legally enforceable master netting agreements2

 

Securities purchased under agreements to resell

 

 $7,765  

Securities borrowed

                  2,591  

Securities sold under agreements to repurchase

 

  6,500  

Securities loaned

                  154  

1.

Amounts relate to master netting agreements that have been determined by the Firm to be legally enforceable in the event of default but where certain other criteria are not met in accordance with applicable offsetting accounting guidance.

2.

Represents amounts within Net Amounts related to transactions that are either not subject to master netting agreements or are subject to such agreements but the Firm has not determined the agreements to be legally enforceable.

For information related to offsetting of derivatives, see Note 4.

Maturities and Collateral Pledged

7.

Gross Secured Financing Balances by Remaining Contractual Maturity

  At September 30, 2017 

$ in millions

 

Overnight

 and Open 

  

 Less than 

30 Days

   30-90 
Days		  

Over

 90 Days 

   Total  

Securities sold under
agreements to
repurchase

 $38,581  $38,455  $18,398  $42,830  $138,264  

Securities loaned

  17,274   541   1,426   9,421   28,662  

Total included in the offsetting disclosure

 $55,855  $38,996  $19,824  $52,251  $166,926  

Trading liabilities—
Obligation to return
securities received
as collateral

  21,208   —   —   —   21,208  

Total

 $77,063  $38,996  $19,824  $52,251  $188,134  
 At December 31, 2016  At June 30, 2021

$ in millions

 

 Overnight 

and Open

 

 Less than 

30 Days

  30-90 
Days		 

Over

 90 Days 

  Total  $ in millionsOvernight and OpenLess than 30 Days30-90 DaysOver 90 DaysTotal

Securities sold
under agreements
to repurchase

 $  41,549  $  36,703  $  24,648  $  32,661  $  135,561  Securities sold under agreements to repurchase$53,852 $52,208 $14,459 $40,138 $160,657 

Securities loaned

 9,487  851  2,863  7,341  20,542  Securities loaned13,432 250 150 6,759 20,591 

Total included in the
offsetting disclosure

 $51,036  $37,554  $27,511  $40,002  $156,103  Total included in the offsetting disclosure$67,284 $52,458 $14,609 $46,897 $181,248 

Trading liabilities—
Obligation to return
securities received
as collateral

 20,262   —   —   —  20,262  Trading liabilities—
Obligation to return securities received as collateral		22,331 0 0 — 22,331 

Total

 $71,298  $37,554  $27,511  $40,002  $176,365  Total$89,615 $52,458 $14,609 $46,897 $203,579 
June 2021 Form 10-Q54
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
 At December 31, 2020
$ in millionsOvernight and OpenLess than 30 Days30-90 DaysOver 90 DaysTotal
Securities sold under agreements to repurchase$84,349 $60,853 $26,221 $27,070 $198,493 
Securities loaned15,267 247 0 4,747 20,261 
Total included in the offsetting disclosure$99,616 $61,100 $26,221 $31,817 $218,754 
Trading liabilities—
Obligation to return securities received as collateral		16,389 0 0 0 16,389 
Total$116,005 $61,100 $26,221 $31,817 $235,143 
Gross Secured Financing Balances by Class of Collateral Pledged

$ in millions  

At            

 September 30, 

2017          

  

At

 December 31, 
2016

 

Securities sold under agreements to repurchase

 

U.S. government and agency securities

  $40,758  $56,372  

State and municipal securities

   828   1,363  

Other sovereign government obligations

   64,529   42,790  

Asset-backed securities

   2,267   1,918  

Corporate and other debt

   8,244   9,086  

Corporate equities

   20,773   23,152  

Other

   865   880  

Total securities sold under agreements to repurchase

  $138,264  $135,561  

Securities loaned

   

Other sovereign government obligations

   13,259   4,762  

Corporate and other debt

   9   73  

Corporate equities

   15,152   15,693  

Other

   242   14  

Total securities loaned

  $28,662  $20,542  

Total included in the offsetting disclosure

  $166,926  $156,103  

Trading liabilities—Obligation to return securities received as collateral

 

Corporate equities

  $21,208  $20,262  

Total

  $188,134  $176,365  

$ in millionsAt
June 30,
2021		At
December 31,
2020
Securities sold under agreements to repurchase
U.S. Treasury and agency securities$39,247 $94,662 
Other sovereign government obligations85,282 71,140 
Corporate equities26,775 24,692 
Other9,353 7,999 
Total$160,657 $198,493 
Securities loaned
Other sovereign government obligations$1,414 $3,430 
Corporate equities19,079 16,536 
Other98 295 
Total$20,591 $20,261 
Total included in the offsetting disclosure$181,248 $218,754 
Trading liabilities—Obligation to return securities received as collateral
Corporate equities$22,312 $16,365 
Other19 24 
Total$22,331 $16,389 
Total$203,579 $235,143 
Carrying Value of Assets Loaned or Pledged

without Counterparty Right to Sell or Repledge

$ in millionsAt
June 30,
2021		At
December 31,
2020
Trading assets$35,894 $30,954 
The Firm pledges certain of its trading assets and loans to collateralize securities sold under agreements to repurchase, securities loaned, other secured financings and derivatives.derivatives and to cover customer short sales. Counterparties may or may not have the right to sell or repledge the collateral.

Pledged financial instruments that can be sold or repledged by the secured party are identified as Trading assets (pledged to various parties) in the balance sheets.

71September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

CarryingFair Value of Assets Loaned or Pledged without

CounterpartyCollateral Received with Right to Sell or Repledge

$ in millions 

At

 September 30, 

2017

  

At

 December 31, 

2016

 

Trading assets

 $37,800  $41,358  

Loans (gross of allowance for loan losses)

  570   —  

Total

 $38,370  $41,358  

Collateral Received

$ in millionsAt
June 30,
2021		At
December 31,
2020
Collateral received with right to sell or repledge$708,327 $724,818 
Collateral that was sold or repledged1
540,654 523,648 
1.Does not include securities used to meet federal regulations for the Firm’s U.S. broker-dealers.
The Firm receives collateral in the form of securities in connection with securities purchased under agreements to resell, securities borrowed, securities-for-securities transactions, derivative transactions, customer margin loans and securities-based lending. In many cases, the Firm is permitted to sell or repledge these securities held asthis collateral and use the securities to secure securities sold under agreements to repurchase, to enter into securities lending and derivative transactions or for delivery to counterparties to cover short positions.

Securities Segregated for Regulatory Purposes
$ in millionsAt
June 30,
2021		At
December 31,
2020
Segregated securities1
$23,912 $34,106 
1.Securities segregated under federal regulations for the Firm’s U.S. broker-dealers are sourced from Securities purchased under agreements to resell and Trading assets in the balance sheets.
Customer Margin and Other Lending
$ in millionsAt
June 30,
2021		At
December 31,
2020
Margin and other lending$72,942 $74,714 
The Firm also receives securities as collateral in connection with certainsecurities-for-securities transactions. In instances where the Firm is the lender and permitted to sell or repledge these securities, it reports the fair value of the collateral received and the related obligation to return the collateral included in Trading assets and Trading liabilities, respectively, in its balance sheets.

Fair Value of Collateral Received with Right to Sell or Repledge

$ in millions 

At

 September 30, 

2017

  

At

 December 31, 

2016

 

Collateral received with right to sell or repledge

 $575,915  $561,239  

Collateral that was sold or repledged

  470,555   430,911  

Customer Margin Lending and Other

$ in millions 

At

 September 30, 

2017

  

At

 December 31, 

2016

 

Net customer receivables representing margin loans

 $28,609  $24,359  

The Firm engages inprovides margin lending to clientsarrangements that allows the clientallow customers to borrow against the value of qualifying securities. Margin loansReceivables from these arrangements are included within Customer and other receivables in the balance sheets. Under these agreements and transactions,arrangements, the Firm receives collateral, includingwhich includes U.S. government and agency securities, other sovereign government obligations, corporate and other debt, and corporate equities. Customer receivables generated from margin lending activitiesMargin loans are collateralized by customer-owned securities held by the Firm. The Firm monitors required margin levels and established credit terms daily and, pursuant to such guidelines,

requires customers to deposit additional collateral, or reduce positions, when necessary.

For a further discussion of the Firm’s margin lending activities, see Note 69 to the consolidated financial statements in the 20162020 Form10-K.

Also included in the amounts in the previous table is non-purpose securities-based lending on non-bank entities in the Wealth Management business segment.
Other Secured Financings
The Firm has additional secured liabilities. For a further discussion of other secured financings, see Note 13.
55June 2021 Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
10.

Cash Loans, Lending Commitments and Securities Deposited with Clearing Organizations or Segregated

$ in millions 

At

 September 30, 

2017

  

At

 December 31, 

2016

 

Segregated securities1

 $17,491  $23,756  

Other assets—Cash deposited with clearing organizations or segregated under federal and other regulations or requirements

  32,731   33,979  

Total

 $50,222  $57,735  

1.

Securities segregated under federal regulations for the Firm’s U.S. broker-dealers are sourced from Securities purchased under agreements to resell and Trading assets in the balance sheets.

7. Loans andRelated Allowance for Credit Losses

Loans

The by Type

 At June 30, 2021
$ in millions
Loans Held
for Investment
Loans Held
for Sale
Total Loans
Corporate$4,724 $7,098 $11,822 
Secured lending facilities28,217 3,951 32,168 
Commercial real estate6,707 583 7,290 
Residential real estate38,917 47 38,964 
Securities-based lending and Other loans76,468 34 76,502 
Total loans155,033 11,713 166,746 
ACL(687)(687)
Total loans, net$154,346 $11,713 $166,059 
Fixed rate loans, net$38,968 
Floating or adjustable rate loans, net127,091 
Loans to non-U.S. borrowers, net21,567 
 At December 31, 2020
$ in millions
Loans Held
for Investment
Loans Held
for Sale
Total Loans
Corporate$6,046 $8,580 $14,626 
Secured lending facilities25,727 3,296 29,023 
Commercial real estate7,346 822 8,168 
Residential real estate35,268 48 35,316 
Securities-based lending and Other loans64,232 67 64,299 
Total loans138,619 12,813 151,432 
ACL(835)(835)
Total loans, net$137,784 $12,813 $150,597 
Fixed rate loans, net$32,796 
Floating or adjustable rate loans, net117,801 
Loans to non-U.S. borrowers, net21,081 
For additional information on the Firm’s loans held for investment are recorded at amortized cost,held-for-investment and its loans held for sale are recorded at the lower of cost or fair value in the balance sheets. For a further description of these loans, refer toheld-for-sale loan portfolios, see Note 710 to the consolidated financial statements in the 20162020 Form10-K. See
Note 35 for further information regarding Loans and lending commitments held at fair value.

Loans by Type

  At September 30, 2017 
$ in millions   Loans Held  
for
Investment		    Loans Held  
for Sale		  Total     
  Loans   		 

Corporate loans

 $29,686  $12,524  $42,210   

Consumer loans

  26,616   —   26,616   

Residential real estate loans

  26,150   60   26,210   

Wholesale real estate loans

  9,000   640   9,640   

Total loans, gross

  91,452   13,224   104,676   

Allowance for loan losses

  (245)   —   (245)  

Total loans, net

 $91,207  $13,224  $104,431   

September 2017 Form 10-Q72

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

  At December 31, 2016 
$ in millions Loans Held
for
  Investment  		    Loans Held  
for Sale		  

Total

    Loans    

 

Corporate loans

 $25,025  $10,710  $35,735  

Consumer loans

  24,866   —   24,866  

Residential real estate loans

  24,385   61   24,446  

Wholesale real estate loans

  7,702   1,773   9,475  

Total loans, gross

  81,978   12,544   94,522  

Allowance for loan losses

  (274)   —   (274) 

Total loans, net

 $81,704  $12,544  $94,248  

Loans by Interest Rate Type

$ in millions 

  At September 30,  

2017

    At December 31,  
2016		 

Fixed

 $13,323  $11,895  

Floating or adjustable

  91,108   82,353  

Total loans, net

 $104,431  $94,248  

Loans See Note 14 for details of current commitments toNon-U.S. Borrowers

$ in millions 

  At September 30,  

2017

    At December 31,  
2016		 

Loans, net of allowance

 $8,883  $9,388  

Credit Quality

For a further discussion about the Firm’s evaluation of credit transactions and monitoring and credit quality indicators, as well as factors considered by the Firm in determining the allowance for loan losses and impairments, see Notes 2 and 7 to the consolidated financial statements lend in the 2016Form 10-K.

future.

Loans Held for Investment before Allowance by Credit Quality

  At September 30, 2017 

$ in millions

 Corporate  Consumer  

Residential

Real Estate

  

Wholesale

Real Estate

  Total 

Pass

 $28,735  $26,613  $26,092  $8,435  $89,875  

Special mention

  435   3   —   250   688  

Substandard

  509   —   58   315   882  

Doubtful

  7   —   —   —   7  

Loss

  —   —   —   —   —  

Total

 $29,686  $26,616  $26,150  $9,000  $91,452  

  At December 31, 2016 
$ in millions Corporate  Consumer  

Residential

Real Estate

  

Wholesale

Real Estate

  Total 

Pass

 $23,409  $24,853  $24,345  $7,294  $79,901  

Special mention

  288   13   —   218   519  

Substandard

  1,259   —   40   190   1,489  

Doubtful

  69   —   —   —   69  

Loss

  —   —   —   —   —  

Total

 $25,025  $24,866  $24,385  $7,702  $81,978  
Origination Year

The following loans and lending commitments have been evaluated for a specific allowance. All remaining loans and lending commitments are assessed under the inherent allowance methodology.

Impaired Loans and Lending Commitments Before Allowance

  At September 30, 2017 
$ in millions   Corporate  

  Residential

  Real Estate

        Total       

Loans

   

With allowance

 $15  $—  $15  

Without allowance1

  146   46   192  

Unpaid principal balance2

  170   47   217  

Lending Commitments

   

With allowance

 $1  $—  $1  

Without allowance1

  221   —   221  

  At December 31, 2016 
$ in millions   Corporate  

  Residential

  Real Estate

        Total       

Loans

   

With allowance

 $104  $—  $104  

Without allowance1

  206   35   241  

Unpaid principal balance2

  316   38   354  

Lending Commitments

   

With allowance

 $—  $—  $—  

Without allowance1

  89   —   89  


At June 30, 2021At December 31, 2020
Corporate
$ in millionsIGNIGTotalIGNIGTotal
Revolving$1,404 $2,353 $3,757 $1,138 $3,231 $4,369 
20210 71 71 
2020183 25 208 585 80 665 
201911 187 198 204 202 406 
2018195 0 195 195 0 195 
20170 62 62 0 64 64 
Prior233 0 233 247 100 347 
Total$2,026 $2,698 $4,724 $2,369 $3,677 $6,046 
At June 30, 2021At December 31, 2020
Secured lending facilities
$ in millionsIGNIGTotalIGNIGTotal
Revolving$6,932 $15,899 $22,831 $4,711 $14,510 $19,221 
2021460 308 768 
202084 214 298 162 253 415 
2019179 1,644 1,823 260 1,904 2,164 
2018328 824 1,152 614 1,432 2,046 
2017144 359 503 245 581 826 
Prior0 842 842 0 1,055 1,055 
Total$8,127 $20,090 $28,217 $5,992 $19,735 $25,727 
At June 30, 2021At December 31, 2020
Commercial real estate
$ in millionsIGNIGTotalIGNIGTotal
2021$82 $363 $445 
2020165 820 985 $95 $943 $1,038 
20191,031 1,585 2,616 1,074 1,848 2,922 
2018433 537 970 746 774 1,520 
2017367 341 708 412 387 799 
Prior100 883 983 100 967 1,067 
Total$2,178 $4,529 $6,707 $2,427 $4,919 $7,346 
At June 30, 2021
Residential real estate
by FICO Scoresby LTV RatioTotal
$ in millions≥ 740680-739≤ 679≤ 80%> 80%
Revolving$69 $30 $5 $104 $0 $104 
20215,506 1,131 101 6,312 426 6,738 
20208,530 1,761 136 9,874 553 10,427 
20195,176 1,168 155 6,096 403 6,499 
20182,108 547 70 2,505 220 2,725 
20172,422 621 78 2,900 221 3,121 
Prior6,745 2,201 357 8,461 842 9,303 
Total$30,556 $7,459 $902 $36,252 $2,665 $38,917 
At December 31, 2020
Residential real estate
by FICO Scoresby LTV RatioTotal
$ in millions≥ 740680-739≤ 679≤ 80%> 80%
Revolving$85 $32 $5 $122 $0 $122 
20208,948 1,824 149 10,338 583 10,921 
20195,592 1,265 168 6,584 441 7,025 
20182,320 604 75 2,756 243 2,999 
20172,721 690 89 3,251 249 3,500 
20163,324 884 118 4,035 291 4,326 
Prior4,465 1,626 284 5,684 691 6,375 
Total$27,455 $6,925 $888 $32,770 $2,498 $35,268 
At June 30, 2021
Securities-based lending1
Other2
$ in millionsInvestment GradeNon-Investment GradeTotal
Revolving$63,243 $5,383 $715 $69,341 
202131 232 49 312 
20200 817 586 1,403 
201918 1,121 637 1,776 
2018232 378 421 1,031 
20170 645 147 792 
Prior16 1,496 301 1,813 
Total$63,540 $10,072 $2,856 $76,468 
1.

At September 30, 2017 and December 31, 2016, no allowance was recorded for these loans and lending commitments as the present value of the expected future cash flows (or, alternatively, the observable market price of the instrument or the fair value of the collateral held) equaled or exceeded the carrying value.

June 2021 Form 10-Q56
2.

The impaired loans unpaid principal balance differs from the aggregate amount

Notes to various factors, including charge-offs and net deferred loan fees or costs.

Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg

Impaired

December 31, 2020
Securities-based lending1
Other2
$ in millionsInvestment GradeNon-Investment GradeTotal
Revolving$51,667 $4,816 $555 $57,038 
20200 1,073 590 1,663 
201918 1,156 623 1,797 
2018232 407 403 1,042 
20170 654 122 776 
20160 566 111 677 
Prior16 1,066 157 1,239 
Total$51,933 $9,738 $2,561 $64,232 
1. Securities-based loans are subject to collateral maintenance provisions, and at June 30, 2021 and December 31, 2020, these loans are predominantly over-collateralized. For more information on the ACL methodology related to securities-based loans, see Note 2 to the financial statements in the 2020 Form 10-K.
2. Other loans primarily include certain loans originated in the tailored lending business within the Wealth Management business segment.
Past Due Loans andHeld for Investment before Allowance by Region

  At September 30, 2017 
$ in millions   Americas    EMEA  Asia-
  Pacific  		  Total   

Impaired loans

 $188  $9  $10  $207  

Allowance for loan losses

  209   33   3   245  

  At December 31, 2016 
$ in millions   Americas    EMEA  Asia-
  Pacific  		  Total   

Impaired loans

 $320  $9  $16  $345  

Allowance for loan losses

  245   28   1   274  

EMEA—Europe, Middle East and Africa

1
$ in millionsAt June 30, 2021At December 31, 2020
Residential real estate194 332 
Securities-based lending and Other loans0 31 
Total$194 $363 

73
September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

1.The majority of the amounts are past due for a period of less than 90 days as of June 30, 2021 and December 31, 2020.

Nonaccrual Loans Held for Investment before Allowance
$ in millionsAt June 30, 2021At December 31, 2020
Corporate$98 $164 
Secured lending facilities298 0 
Commercial real estate71 152 
Residential real estate123 97 
Securities-based lending and Other loans163 178 
Total1
$753 $591 
Nonaccrual loans without an ACL$124 $90 
1.Includes all HFI loans that are 90 days or more past due as of June 30, 2021 and December 31, 2020.
See Note 2 to the financial statements in the 2020 Form 10-K for a description of the ACL calculated under the CECL methodology, including credit quality indicators, used for HFI loans.
Troubled Debt Restructurings

$ in millions 

  At September 30,  

2017

    At December 31,  
2016		 

Loans

 $69  $67  

Lending commitments

  11   14  

Allowance for loan losses

  10   —  

Impaired loans and lending commitments classified as held for investment within corporate loans include troubled

$ in millionsAt June 30, 2021At December 31, 2020
Loans, before ACL$62 $167 
Lending commitments0 27 
ACL on Loans and Lending commitments10 36 
Troubled debt restructurings as shown in the previous table. These restructurings typically include modifications of interest rates, collateral requirements, other loan covenants and payment extensions.

See Note 2 to the financial statements in the 2020 Form 10-K for further information on TDR guidance issued by Congress in the CARES Act as well as by the U.S. banking agencies.

Allowance for LoanCredit Losses Rollforward

$ in millions  Corporate  Consumer   

Residential

Real
Estate

   Wholesale
Real
Estate		       Total     

December 31, 2016

  $195  $4   $20   $55   $274 

Gross charge-offs

   (75)   —    —    —    (75) 

Recoveries

   1   —    —    —    1 

Net recoveries (charge-offs)

   (74)   —    —    —    (74) 

Provision (release)1

   26   —    4    12    42 

Other

   2   —    —    1    3 

September 30, 2017

  $149  $4   $24   $68   $245 

Inherent

  $142  $4   $24   $68   $238 

Specific

   7   —    —    —    7 

$ in millions  Corporate  Consumer  

Residential

Real
Estate

   Wholesale
Real
Estate		       Total     

December 31, 2015

  $166  $5  $17   $37   $225 

Gross charge-offs

   (15)   —   —    —    (15) 

Gross recoveries

   —   —   —    —    — 

Net recoveries (charge-offs)

   (15)   —   —    —    (15) 

Provision (release)1

   120   (2)   3    8    129 

Other2

   (52)   —   —    —    (52) 

September 30, 2016

  $219  $3  $20   $45   $287 

Inherent

  $142  $3  $20   $45   $210 

Specific

   77   —   —    —    77 

Rollforward—Loans
$ in millionsCorporateSecured lending facilitiesCREResidential real estateSBL and OtherTotal
December 31, 2020$309 $198 $211 $59 $58 $835 
Gross charge-offs(14)(67)(21)0 0 (102)
Provision for credit losses1
(95)48 5 (2)2 (42)
Other(1)(2)(1)0 0 (4)
June 30, 2021$199 $177 $194 $57 $60 $687 
$ in millionsCorporateSecured lending facilitiesCREResidential real estateSBL and OtherTotal
December 31, 2019$115 $101 $75 $25 $33 $349 
Effect of CECL adoption(2)(42)34 21 (2)9 
Gross charge-offs(33)0 0 0 0 (33)
Recoveries0 0 0 0 2 2 
Net recoveries (charge-offs)(33)0 0 0 2 (31)
Provision for credit losses1
298 63 155 13 9 538 
Other1 0 (38)0 38 1 
June 30, 2020$379 $122 $226 $59 $80 $866 
Allowance for Credit Losses Rollforward—Lending Commitments
$ in millionsCorporateSecured lending facilitiesCREResidential real estateSBL and OtherTotal
December 31, 2020$323 $38 $11 $1 $23 $396 
Provision for credit losses1
18 1 0 0 (2)17 
Other(1)1 (1)0 0 (1)
June 30, 2021$340 $40 $10 $1 $21 $412 
$ in millionsCorporateSecured lending facilitiesCREResidential real estateSBL and OtherTotal
December 31, 2019$201 $27 $7 $0 $6 $241 
Effect of CECL adoption(41)(11)1 2 (1)(50)
Provision for credit losses1
73 26 7 (1)3 108 
Other(2)0 (4)0 4 (2)
June 30, 2020$231 $42 $11 $1 $12 $297 
CRE—Commercial real estate
SBL—Securities-based lending.
Provision for Credit Losses

Three Months Ended
June 30,
$ in millions20212020
Loans$16 $246 
Lending commitments57 (7)

The aggregate allowance for loans and lending commitments decreased in the current year period, primarily reflecting charge-offs and a release in the allowance for credit losses within the Institutional Securities business segment. The allowance release was primarily a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated borrowers, partially offset by the provision for one Secured lending facility.The base scenario used in our ACL models as
1.

The Firm recorded provisions of $13 million and $1 million for loan losses for the current quarter and prior year quarter, respectively.

57June 2021 Form 10-Q
2.

Amount includes the impact related

Notes to the transfer to loans held for sale and foreign currency translation adjustments.

Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg

Allowance

of June 30, 2021 was generated using a combination of industry consensus economic forecasts, forward rates, and internally developed and validated models. Given the nature of our lending portfolio, the most sensitive model input is U.S. gross domestic product. The base scenario, among other things, assumes continued growth over the forecast period with U.S. GDP reaching a year-over-year growth rate of approximately 6% by the fourth quarter of 2021, supported by fiscal stimulus and accommodative monetary policy. For a further discussion of the Firm’s loans as well as the Firm’s allowance methodology, refer to Notes 2 and 10 to the financial statements in the 2020 Form 10-K.
Employee Loans
$ in millionsAt
June 30,
2021		At
December 31,
2020
Currently employed by the Firm1
$3,329 $3,100 
No longer employed by the Firm2
133 $140 
Employee loans$3,462 $3,240 
ACL(163)(165)
Employee loans, net of ACL$3,299 $3,075 
Remaining repayment term, weighted average in years5.65.3
1.These loans were predominantly current as of June 30, 2021 and December 31, 2020.
2.These loans were predominantly past due for Lending Commitments Rollforward

$ in millions Corporate  Consumer  

Residential

Real
Estate

  Wholesale
Real
Estate		      Total     

December 31, 2016

 $185  $1  $—  $4  $190 

Provision (release)1

  (10)   —   —   —   (10) 

Other

  1   —   —   —   1 

September 30, 2017

 $176  $1  $—  $4  $181 

Inherent

 $173  $1  $—  $4  $178 

Specific

  3   —   —   —   3 

$ in millions Corporate  Consumer  

Residential

Real
Estate

  Wholesale
Real
Estate		      Total     

December 31, 2015

 $180  $1  $—  $4  $185 

Provision (release)1

  9   —   —   —   9 

Other

  (7)   —   —   —   (7) 

September 30, 2016

 $182  $1  $—  $4  $187 

Inherent

 $180  $1  $—  $4  $185 

Specific

  2   —   —   —   2 

1.

The Firm recorded a release of $6 million, and a provision of $6 million for lending commitments for the current quarter and prior year quarter, respectively.

Employee Loans

$ in millions 

At September 30,

2017

    At December 31,
2016		 

Balance

 $4,317  $4,804 

Allowance for loan losses

  (79)   (89) 

Balance, net

 $4,238  $4,715 

Repayment term range, in years

  1 to 20   1 to 12 

a period of 90 days or more as of June 30, 2021 and December 31, 2020.


Employee loans are granted in conjunction with a program established primarily to retain and recruit certain employees,Wealth Management representatives, are full recourse and generally require periodic repayments.repayments, and are due in full upon termination of employment with the Firm. These loans are recorded in Customer and other receivables in the balance sheets. The Firm establishes an allowance for loan amounts it does not consider recoverable,ACL as of June 30, 2021 and December 31, 2020 was calculated under the CECL methodology. The related provision is recorded in Compensation and benefits expense.

September 2017 Form 10-Q74

Notes to Consolidated Financial Statements

(Unaudited)

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8. Equity Method Investments

Overview

The Firm’s investments accounted for underexpense in the equity method of accounting (seeincome statements. See Note 12 to the consolidated financial statements in the 20162020 Form10-K) 10-K for a description of the CECL allowance methodology, including credit quality indicators, for employee loans.

11. Other Assets—Equity Method Investments
Equity Method Investments
$ in millionsAt
June 30,
2021		At
December 31,
2020
Investments$2,266 $2,410 
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Income (loss)$51 $(63)$27 $(34)
Equity method investments, other than investments in certain fund interests, are summarized above and are included in Other assets in the balance sheets. Income (loss) from equity method investments issheets with related income or loss included in Other revenues in the income statements.

Equity Method Investment Balances

$ in millions At
September 30, 2017		  At
December 31, 2016		 

Investments

 $2,766  $2,837  

  Three Months Ended
September 30,		  Nine Months Ended  
September 30,		 
$ in millions 2017  2016  2017  2016 

Income (loss)

 $—  $(40)  $—  $(39)  

See “Net Asset Value Measurements—Fund Interests” in Note 5

for the carrying value of certain of the Firm’s fund interests, which are comprised of general and limited partnership interests, as well as any related carried interest.
Japanese Securities Joint Venture

Included in the equity method investments is the Firm’s 40% voting interest (“40% interest”) in

 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Income (loss) from investment in MUMSS$52 $(1)$84 $31 
For more information on Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (“MUMSS”). and other relationships with Mitsubishi UFJ Financial Group, Inc. (“MUFG”) holds a 60% voting interest. The Firm accounts for its equity method investment in MUMSS within, see Note 12 to the Institutional Securities business segment. The Firm records income from its 40% interest in MUMSS within Other revenuesfinancial statements in the income statements.

  Three Months Ended
September 30,		  Nine Months Ended  
September 30,		 
$ in millions 2017  2016  2017  2016 

Income from investment in MUMSS

 $25  $26  $96  $83  

In addition to MUMSS, the Firm held other equity method investments that were not individually significant.

9.2020 Form 10-K.

12. Deposits

Deposits

$ in millions   At September 30,
2017		    At December 31,
2016		 

Savings and demand deposits

 $140,707  $154,559  

Time deposits1

  13,932   1,304  

Total2

 $154,639  $155,863  

Deposits subject to FDIC insurance

 $121,896  $127,992  

Time deposits that equal or exceed the FDIC insurance limit

 $10  $46  

Interest Bearing Deposits

$ in millionsAt
June 30,
2021		At
December 31,
2020
Savings and demand deposits$299,681 $279,221 
Time deposits20,677 31,561 
Total$320,358 $310,782 
Deposits subject to FDIC insurance$237,803 $234,211 
Time deposits that equal or exceed the FDIC insurance limit$6 $16 
Time Deposit Maturities

$ in millions  

At

       September 30, 2017  

 

2017

  $3,447  

2018

   9,456  

2019

   861  

2020

   —  

2021

   8  

Thereafter

   160  

FDIC—Federal Deposit Insurance Corporation

1.

Certain time deposit accounts are carried at fair value under the fair value option (see Note 3).

2.

Deposits were primarily held in the U.S.

10. Long-Term

$ in millionsAt
June 30,
2021
2021$6,804 
20225,523 
20234,117 
20242,821 
2025776 
Thereafter636 
Total$20,677 
13. Borrowings and Other Secured Financings

Long-Term

Borrowings

$ in millions 

At

  September 30,
2017

  

At

  December 31,
2016

 

Senior

 $181,336  $154,472  

Subordinated

  10,341   10,303  

Total

 $191,677  $164,775  

Weighted average stated maturity, in years

  6.7   5.9  

$ in millionsAt
June 30,
2021		At
December 31,
2020
Original maturities of one year or less$5,538 $3,691 
Original maturities greater than one year
Senior$207,781 $202,305 
Subordinated10,823 11,083 
Total$218,604 $213,388 
Total borrowings$224,142 $217,079 
Weighted average stated maturity, in years1
7.67.3
1.Only includes borrowings with original maturities greater than one year.
June 2021 Form 10-Q58
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
Other Secured Financings

$ in millionsAt
June 30,
2021		At
December 31,
2020
Original maturities:
One year or less$6,767 $10,453 
Greater than one year4,465 5,410 
Total$11,232 $15,863 
Transfers of assets accounted for as secured financings$1,253 $1,529 
Other secured financings include the liabilities related to certain ELNs, transfers of financial assets that are accounted for as financings rather than sales, pledged commodities, consolidated VIEs where the Firm is deemed to be the primary beneficiary pledged commodities, certain equity-linked notes and other secured borrowings. These liabilities are generally payable from the cash flows of the related assets accounted for as Trading assets.Seeassets. See Note 1215 for further information on Otherother secured financings related to VIEs and securitization activities.

Other Secured Financings by Original Maturity

For transfers of assets that fail to meet accounting criteria for a sale, the Firm continues to record the assets and Type

$ in millions  

At

  September 30,
2017

  

At

  December 31,
2016

 

Secured financings

   

Original maturities:

         

Greater than one year

  $11,037  $9,404  

One year or less

   2,349   1,429  

Failed sales1

   858   285  

Total

  $14,244  $11,118  

1.

For more information on failed sales, see Note 12.

recognizes the associated liabilities in the balance sheets.

75September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

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11.14. Commitments, Guarantees and Contingencies

Commitments

The Firm’s commitments are summarized in the following table by years to maturity.

 Years to Maturity at June 30, 2021 
$ in millionsLess than 11-33-5Over 5Total
Lending:
Corporate$16,396 $38,716 $44,932 $7,479 $107,523 
Secured lending facilities6,007 6,669 2,086 643 15,405 
Commercial and Residential real estate428 233 19 248 928 
Securities-based lending and Other11,103 3,724 308 266 15,401 
Forward-starting secured financing receivables69,886 0 0 0 69,886 
Central counterparty300 0 0 6,237 6,537 
Underwriting0 60 0 0 60 
Investment activities1,019 253 56 356 1,684 
Letters of credit and other financial guarantees26 0 0 3 29 
Total$105,165 $49,655 $47,401 $15,232 $217,453 
Lending commitments participated to third parties$9,223 
Forward-starting secured financing receivables settled within three business days$64,159 
Since commitments associated with these instruments may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.

      Years to Maturity at September 30,    
2017		    
$ in millions Less
than 1		  1-3  3-5  Over 5   Total  

Lending:

     

Corporate

 $13,001  $30,194  $44,669  $4,122  $91,986  

Consumer

  6,182   —   2   3   6,187  

Residential real
estate

  17   39   70   273   399  

Wholesale real
estate

  124   281   114   232   751  

Forward-starting
secured financing
receivables1

  68,538   —   —   —   68,538  

Investment
activities

  504   180   55   259   998  

Letters of credit and
other financial
guarantees

  157   1   1   44   203  

Total

 $88,523  $30,695  $44,911  $4,933  $169,062  

Corporate lending commitments participated to third parties

 

 $6,335  

Forward-starting secured financing receivables
settled within three business days1

 

 $60,013  

1.

Represents forward-starting securities purchased under agreements to resell and securities borrowed agreements.

For a further description of these commitments, refer to Note 1215 to the consolidated financial statements in the 20162020 Form10-K.

Guarantees

Obligations under Guarantee Arrangements at September 30, 2017

  Maximum Potential Payout/Notional 
  Years to Maturity    
$ in millions 

Less

than 1

  1-3  3-5  Over 5   Total  

Credit derivatives

 $118,646  $85,300  $82,668  $53,744  $340,358  

Other credit contracts

  14   —   —   135   149  

Non-credit derivatives

  1,592,809   1,029,404   374,956   573,755   3,570,924  

Standby letters of credit and other financial guarantees issued1

  782   909   1,406   4,956   8,053  

Market value
guarantees

  40   62   69   —   171  

Liquidity facilities

  3,237   —   —   —   3,237  

Whole loan sales
guarantees

  —   —   1   23,260   23,261  

Securitization
representations
and warranties

  —   —   —   58,423   58,423  

General partner
guarantees

  34   49   332   25   440  

$ in millions            Carrying
Amount
(Asset)/
Liability		   Collateral/ 
 Recourse 		 

Credit derivatives2

         $(2,004)  $        —  

Other credit contracts

 

      13   —  

Non-credit derivatives2

 

      38,611   —  

Standby letters of credit and other
financial guarantees issued1

 

      (186)   6,593  

Market value guarantees

 

      1   4  

Liquidity facilities

          (5)   5,342  

Whole loan sales guarantees

 

      8   —  

Securitization representations and warranties

 

  91   —  

General partner guarantees

 

      53   —  

1.

These amounts include certain issued standby letters of credit participated to third parties, totaling $0.7 billion of notional and collateral/recourse, due to the nature of the Firm’s obligations under these arrangements.

2.

Carrying amounts of derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting. For further information on derivative contracts, see Note 4.

September 2017 Form 10-Q76

Notes to Consolidated Financial Statements

(Unaudited)

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Guarantees
 At June 30, 2021
Maximum Potential Payout/Notional of Obligations by Years to MaturityCarrying Amount Asset (Liability)
$ in millionsLess than 11-33-5Over 5
Non-credit derivatives1
$1,352,865 $1,029,619 $445,441 $955,300 $(46,932)
Standby letters of credit and other financial guarantees issued2
1,537 1,250 517 3,735 89 
Market value guarantees79 22 0 0 0 
Liquidity facilities4,073 0 0 0 5 
Whole loan sales guarantees0 0 58 23,123 0 
Securitization representations and warranties3
0 0 0 69,210 (42)
General partner guarantees315 12 20 125 (68)
Client clearing guarantees52 0 0 0 0 

1.The carrying amounts of derivative contracts that meet the accounting definition of a guarantee are shown on a gross basis. For further information on derivatives contracts, see Note 7.
2.These amounts include certain issued standby letters of credit participated to third parties, totaling $0.6 billion of notional and collateral/recourse, due to the nature of the Firm’s obligations under these arrangements. As of June 30, 2021, the carrying amount of standby letters of credit and other financial guarantees issued includes an allowance for credit losses of $88 million.
3.Primarily related to residential mortgage securitizations.
The Firm also has obligations under certain guarantee arrangements, including contracts and indemnification agreements, that contingently require the Firm to make payments to the guaranteed party based on changes in an underlying measure (such as an interest or foreign exchange rate, security or commodity price, an index, or the occurrence ornon-occurrence of a specified event) related to an asset, liability or equity security of a guaranteed party. Also included as guarantees are contracts that contingently require the Firm to make payments to the guaranteed party based on another entity’s failure to perform under an agreement, as well as indirect guarantees of the indebtedness of others.

In certain situations, collateral may be held by the Firm for those contracts that meet the definition of a guarantee. Generally, the Firm sets collateral requirements by counterparty so that the collateral covers various transactions and products and is not allocated specifically to individual contracts. Also, the Firm may recover amounts related to the underlying asset delivered to the Firm under the derivative contract.

For more information on the nature of the obligationobligations and related business activityactivities for market valueour guarantees, liquidity facilities, whole loan sales guarantees and general partner guarantees related to certain investment management funds, as well as the other products in the previous table, see Note 1215 to the consolidated financial statements in the 20162020 Form10-K.

Other Guarantees and Indemnities

In the normal course of business, the Firm provides guarantees and indemnifications in a variety of transactions. These provisions generally are standard contractual terms. Certain of these guarantees and indemnifications related to indemnities, exchange/exchange and clearinghouse member guarantees and merger and acquisition guarantees are described in Note 1215 to the consolidated financial statements in the 20162020 Form10-K.

In addition, in the ordinary course of business, the Firm guarantees the debt and/or certain trading obligations (including obligations associated with derivatives, foreign exchange contracts and the settlement of physical commodities) of certain subsidiaries. These guarantees generally are entity or product specific and are required by investors or trading counterparties. The activities of the
59June 2021 Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
Firm’s subsidiaries covered by these guarantees (including any related debt or trading obligations) are included in the financial statements.

Finance Subsidiary

The Parent Company fully and unconditionally guarantees the securities issued by Morgan Stanley Finance LLC, a 100%-ownedwholly owned finance subsidiary.

No other subsidiary of the Parent Company guarantees these securities.

Contingencies

Legal.    
In addition to the matters described in the following paragraphs, in the normal course of business, the Firm has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases are bankrupt or are in financial distress. These actions have included, but are not limited to, residential mortgage and credit-crisis relatedcredit crisis-related matters.

Over the last several years, the level of litigation and investigatory activity (both formal and informal) by governmental and self-regulatory agencies has increased materially in the financial services industry. As a result, the Firm expects that it will continue to be the subject of elevated claims for damages and other relief and, while

While the Firm has identified below any individual proceedings where the Firm believes a material loss to be reasonably possible and reasonably estimable, there can be no assurance that material losses will not be incurred from claims that have not yet been asserted or arethose where potential losses have not yet been determined to be probable or possible, and reasonably estimable losses.

estimable.

The Firm contests liability and/or the amount of damages as appropriate in each pending matter. Where available information indicates that it is probable a liability had been incurred at the date of the consolidated financial statements and the Firm can reasonably estimate the amount of that loss, the Firm accrues the estimated loss by a charge to income.

In many proceedings and investigations, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. In addition, even where a loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is not always possible to reasonably estimate the size of the possible loss or range of loss.

For certain legal proceedings and investigations, the Firm cannot reasonably estimate such losses,loss, particularly for proceedings and investigations where the factual record is being developed or contested or where plaintiffs or governmentalgovernment entities seek substantial or indeterminate damages, restitution, disgorgement or penalties. Numerous issues may need to be resolved including through potentially lengthy discovery and determination of important factual matters, determination of issues related to class certification and the

77September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

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calculation of damages or other relief, and by addressing novel or unsettled legal questions relevant to the proceedings or investigations in question, before a loss or additional loss, or range of loss or additional range of loss, can be reasonably estimated for a proceeding or investigation.

investigation, including through potentially lengthy discovery and

determination of important factual matters, determination of issues related to class certification and the calculation of damages or other relief, and by addressing novel or unsettled legal questions relevant to the proceedings or investigations in question.
For certain other legal proceedings and investigations, the Firm can estimate reasonably possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amounts accrued but does not believe, based on current knowledge and after consultation with counsel, that such losses willcould have a material adverse effect on the Firm’s consolidated financial statements as a whole, other than the matters referred to in the following paragraphs.

On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against the Firm, styledChina Development Industrial Bank v. Morgan Stanley & Co. Incorporated et al., which is pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY”). The complaint relates to a $275 million credit default swap referencing the super senior portion of the STACK2006-1 CDO. The complaint asserts claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that the Firm misrepresented the risks of the STACK2006-1 CDO to CDIB, and that the Firm knew that the assets backing the CDO were of poor quality when it entered into the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that CDIB alleges it has already lost under the credit default swap, rescission of CDIB’s obligation to pay an additional $12 million, punitive damages, equitable relief, fees and costs. On February 28, 2011, the court denied the Firm’s motion to dismiss the complaint. Based on currently available information, the Firm believes it could incur a loss in this action of up to approximately $240 million pluspre- and post-judgment interest, fees and costs.

On August 8, 2012, U.S. Bank, in its capacity as trustee, filed a complaint on behalf of Morgan Stanley Mortgage Loan Trust 2006-14SL, Mortgage Pass-Through Certificates, Series 2006-14SL, Morgan Stanley Mortgage Loan Trust 2007-4SL and Mortgage Pass-Through Certificates, Series 2007-4SL against the Firm styledMorganStanley Mortgage Loan Trust 2006-14SL, et al. v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc., pending in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trusts, which had original principal balances of approximately $354 million and $305 million respectively, breached various representations and warranties. The complaint seeks, among other relief, rescission of the mortgage loan purchase agreements under-

lying the transactions, specific performance and unspecified damages and interest. On August 16, 2013, the court granted in part and denied in part the Firm’s motion to dismiss the complaint. On August 16, 2016, the Firm moved for summary judgment and the plaintiffs moved for partial summary judgment. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $527 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands that it did not repurchase, pluspre- and post-judgment interest, fees and costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.

On May 3, 2013, plaintiffs inDeutsche Zentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al.filed a complaint against the Firm, certain affiliates, and other defendants in the Supreme Court of NY. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Firm to plaintiff was approximately $644 million. The complaint alleges causes of action against the Firm for common law fraud, fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and seeks, among other things, compensatory and punitive damages. On June 10, 2014, the court granted in part and denied in part the Firm’s motion to dismiss the complaint. On June 20, 2017 the Appellate Division, First Department, affirmed the lower court’s June 10, 2014 order. On July 28, 2017, the Firm filed a motion for leave to appeal that decision to the New York Court of Appeals. On October 3, 2017, the Appellate Division, First Department denied the Firm’s motion for leave to appeal. At September 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $232 million, and the certificates had incurred actual losses of approximately $87 million. Based on currently available information, the Firm believes it could incur a loss in this action up to the difference between the $232 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Firm, or upon sale, pluspre- and post-judgment interest, fees and costs. The Firm may be entitled to be indemnified for some of these losses.

On July 8, 2013, U.S. Bank National Association, in its capacity as trustee, filed a complaint against the Firm styled U.S. Bank National Association, solely in its capacity as Trustee of the Morgan Stanley Mortgage Loan Trust 2007-2AX (MSM 2007-2AX) v. Morgan Stanley Mortgage Capital Holdings LLC, asSuccessor-by-Merger to Morgan Stanley

September 2017 Form 10-Q78

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

MortgageCapital Inc. and GreenPoint Mortgage Funding, Inc., pending in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $650 million, breached various representations and warranties. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, unspecified damages and interest. On August 22, 2013, the Firm filed a motion to dismiss the complaint, which was granted in part and denied in part on November 24, 2014. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $240 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands that it did not repurchase, pluspre- and post-judgment interest, fees and costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.

On December 30, 2013, Wilmington Trust Company, in its capacity as trustee for Morgan Stanley Mortgage LoanTrust 2007-12, filed a complaint against the Firm styledWilmington Trust Company v. MorganStanley Mortgage Capital Holdings LLC et al., pending in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $516 million, breached various representations and warranties. The complaint seeks, among other relief, unspecified damages, attorneys’ fees, interest and costs. On February 28, 2014, the defendants filed a motion to dismiss the complaint, which was granted in part and denied in part on June 14, 2016. The plaintiff filed a notice of appeal of that order on August 17, 2016, and the appeal was fully briefed on May 5, 2017. On July 11, 2017, the Appellate Division, First Department affirmed in part and reversed in part the trial court’s order that granted in part the Firm’s motion to dismiss. On August 10, 2017, plaintiff filed a motion for leave to appeal the Appellate Division, First Department’s July 11, 2017 decision and order. On September 26, 2017, the Appellate Division, First Department denied plaintiff’s motion for leave to appeal. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $152 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands that it did not repurchase, plus attorney’s fees, costs and interest, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.

On April 28, 2014, Deutsche Bank National Trust Company, in its capacity as trustee for Morgan Stanley Structured Trust I2007-1, filed a complaint against the Firm styledDeutsche Bank National Trust Company v. Morgan Stanley Mortgage

Capital Holdings LLC, pending in the United States District Court for the Southern District of New York. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $735 million, breached various representations and warranties. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, unspecified compensatory and/or rescissory damages, interest and costs. On April 3, 2015, the court granted in part and denied in part the Firm’s motion to dismiss the complaint. On May 8, 2017, the Firm moved for summary judgment. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $292 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands that it did not repurchase, pluspre- and post-judgment interest, fees and costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.

On September 19,23, 2014, Financial Guaranty Insurance Company (“FGIC”) filed a complaint against the Firm in the Supreme Court of NY,the State of New York County (“Supreme Court of NY”) styledFinancial Guaranty Insurance Company v. Morgan Stanley ABS Capital I Inc. et al. relating to a securitization issued by Basket of Aggregated Residential NIMS2007-1 Ltd. The complaint asserts claims for breach of contract and alleges, among other things, that the net interest margin securities (“NIMS”) in the trust breached various representations and warranties. FGIC issued a financial guaranty policy with respect to certain notes that had an original balance of approximately $475 million. The complaint seeks, among other relief, specific performance of the NIMS breach remedy procedures in the transaction documents, unspecified damages, reimbursement of certain payments made pursuant to the transaction documents, attorneys’ fees and interest. On November 24, 2014, the Firm filed a motion to dismiss the complaint, which the court denied on January 19, 2017. On February 24, 2017, the Firm filed a notice of appeal of the court’s order. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $126 million, the unpaid balance of these notes, pluspre- and post-judgment interest, fees and costs, as well as claim payments that FGIC has made and will make in the future.

On September 23, 2014, FGIC filed a complaint against the Firm in the Supreme Court of NY styledFinancial Guaranty Insurance Company v. Morgan Stanley ABS Capital I Inc. et al.al. relating to the Morgan Stanley ABS Capital I Inc. Trust 2007-NC4. The complaint asserts claims for breach of contract and fraudulent inducement and alleges, among other things, that the loans in the trust breached various representations and warranties and defendants made untrue statements

79September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

and material omissions to induce FGIC to issue a financial guaranty policy on certain classes of certificates that had an original balance of approximately $876 million. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, compensatory, consequential and punitive damages, attorneys’ fees, interest and interest.costs. On January 23, 2017, the court denied the Firm’s motion to dismiss the complaint. On February 24, 2017,September 13, 2018, the Firm filed a noticeAppellate Division, First Department (“First Department”) affirmed in part and reversed in part the lower court’s order denying the Firm’s motion to dismiss the complaint. On December 20, 2018, the First Department denied plaintiff’s motion for leave to appeal to the New York Court of appealAppeals (“Court of Appeals”) or, in the court’s order.alternative, for re-argument. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $277 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands from a certificate holder and FGIC that the Firm did not repurchase, pluspre- and post-judgmentpost- judgment interest, fees and costs, as well as claim payments that FGIC has made and will make in the future. In addition, plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.

On January 23, 2015, Deutsche Bank National Trust Company, in its capacity as trustee, filed a complaint against the Firm styledDeutsche Bank National Trust Company solely in its capacity as Trustee of the Morgan Stanley ABS Capital I Inc. Trust 2007-NC4 v. Morgan Stanley Mortgage Capital HoldingsLLC asSuccessor-by-Merger to Morgan Stanley Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc., pending in the Supreme Court of NY. The
June 2021 Form 10-Q60
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $1.05 billion, breached various representations and warranties. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, compensatory, consequential, rescissory, equitable and punitive damages, attorneys’ fees, costs and other related expenses, and interest. On December 11, 2015, the court granted in part and denied in part the Firm’s motion to dismiss the complaint. On February 11, 2016, plaintiffOctober 19, 2018, the court granted the Firm’s motion for leave to amend its answer and to stay the case pending resolution of Deutsche Bank National Trust Company’s appeal to the Court of Appeals in another case, styled Deutsche Bank National Trust Company v. Barclays Bank PLC, regarding the applicable statute of limitations. On January 17, 2019, the First Department reversed the trial court’s order to the extent that it had granted in part the Firm’s motion to dismiss the complaint. On June 4, 2019, the First Department granted the Firm’s motion for leave to appeal its January 17, 2019 decision to the Court of Appeals. On March 19, 2020, the Firm filed a notice of appeal of that order, and the appeal was fully briefed on August 19, 2016.motion for partial summary judgment. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $277 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands from a certificate holder and a monoline insurer that the Firm did not repurchase, pluspre- and post-judgment interest, fees and costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.

Tax

In matters styledCase number 15/3637 andCase number 15/4353, the Dutch Tax Authority (“Dutch Authority”) is challenging in the District Court in Amsterdam,Dutch courts, the priorset-off by the Firm of approximately €124 million (plus(approximately $147 million) plus accrued interest)interest of withholding tax credits against the Firm’s corporation tax liabilities for the tax years 2007 to 2013. The Dutch Authority alleges that the Firm was not entitled to receive the withholding tax credits on the basis, inter alia, that a Firm subsidiary did not hold legal title to certain securities subject to withholding tax on the relevant dates. The Dutch Authority has also alleged that the Firm failed to provide certain information to the Dutch Authority and keep adequate books and records. The Firm does not agreeOn April 26, 2018, the District Court in Amsterdam issued a decision dismissing the Dutch Authority’s claims with these allegations. A hearing took place on September 19, 2017. Based on currently available information,respect to certain of the tax years in dispute. On May 12, 2020, the Court of Appeal in Amsterdam granted the Dutch Authority’s appeal in matters re-styled Case number 18/00318 and Case number 18/00319. On June 22, 2020, the Firm believes that it could incur a lossfiled an appeal against the decision of the Court of Appeal in Amsterdam before the Dutch High Court. On January 29, 2021, the Advocate General of the Dutch High Court in matters re-styled Case number 15/3637 and Case number 15/4353 issued an advisory opinion on the Firm’s appeal, which rejected the
Firm’s principal grounds of appeal. On February 11, 2021, the Firm and the Dutch Tax Authority each responded to this actionopinion. On June 22, 2021, Dutch criminal authorities sought various documents in connection with an investigation of upthe Firm related to approximately €124 million (plus accrued interest).

12.the civil claims asserted by the Dutch Tax Authority in matters re-styled Case number 18/00318 and Case number 18/00319, concerning the accuracy of the Dutch subsidiary’s tax returns and the maintenance of its books and records for 2007 to 2012.

15. Variable Interest Entities and Securitization Activities

Overview

For a discussion of the Firm’s VIEs, the determination and structure of VIEs and securitization activities, see Note 13 to the consolidated financial statements in the 2016 Form10-K.

Consolidated VIEs

VIE Assets and Liabilities by Type of Activity

  At September 30, 2017  At December 31, 2016 

$ in millions

 

VIE

Assets

  VIE
Liabilities		  

VIE

Assets

  VIE
Liabilities		 

Credit-linked notes

 $100  $—  $501  $—  

Other structured financings

  398   3   602   10  

MABS1

  90   69   397   283  

Other2

  1,156   260   910   25  

Total

 $1,744  $332  $2,410  $318  

1.

Amounts include transactions backed by residential mortgage loans, commercial mortgage loans and other types of assets, including consumer or commercial assets. The value of assets is determined based on the fair value of the liabilities and the interests owned by the Firm in such VIEs because the fair values for the liabilities and interests owned are more observable.

2.

Other primarily includes certain operating entities, investment funds and structured transactions.

1
 At June 30, 2021At December 31, 2020
$ in millionsVIE AssetsVIE LiabilitiesVIE AssetsVIE Liabilities
CLO$800 $705 $418 $350 
MABS2
388 47 590 17 
Other3
1,497 378 1,110 47 
Total$2,685 $1,130 $2,118 $414 

September 2017 Form 10-Q80
1.Certain prior period amounts have been reclassified to conform to the current presentation.

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

2.Amounts include transactions backed by residential mortgage loans, commercial mortgage loans and other types of assets, including consumer or commercial assets and may be in loan or security form. The value of assets is determined based on the fair value of the liabilities and the interests owned by the Firm in such VIEs as the fair values for the liabilities and interests owned are more observable.

3.Other primarily includes operating entities and investment funds.

Consolidated VIE Assets and Liabilities by Balance Sheet Caption

$ in millions At September 30,
2017		  At December 31,
2016		 

Assets

  

Cash and due from banks

 $82  $74  

Trading assets at fair value

  741   1,295  

Customer and other receivables

  15   13  

Goodwill

  18   18  

Intangible assets

  160   177  

Other assets

  728   833  

Total

 $1,744  $2,410  

Liabilities

  

Other secured financings at fair value

 $297  $289  

Other liabilities and accrued expenses

  35   29  

Total

 $332  $318  

$ in millionsAt
June 30,
2021		At
December 31,
2020
Assets
Cash and cash equivalents$318 $269 
Trading assets at fair value1,781 1,445 
Securities purchased under agreements to resell200 0 
Customer and other receivables25 23 
Intangible assets92 98 
Other assets269 283 
Total$2,685 $2,118 
Liabilities
Other secured financings$949 $366 
Other liabilities and accrued expenses181 48 
Total$1,130 $414 
Noncontrolling interests$143 $196 
Consolidated VIE assets and liabilities are presented in the previous tables after intercompany eliminations. MostGenerally, most assets owned by consolidated VIEs cannot be removed unilaterally by the Firm and are not generally available to the Firm. MostFirm while the related liabilities issued by consolidated VIEs arenon-recourse to the Firm. InHowever, in certain other consolidated VIEs, the Firm either has the unilateral right to remove assets or provides additional recourse through derivatives such as total return swaps, guarantees or other forms of involvement.

In general, the Firm’s exposure to loss in consolidated VIEs is limited to losses that would be absorbed on the VIE’sVIE net assets
61June 2021 Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
recognized in its financial statements, net of amounts absorbed by third-party variable interest holders.

Select Information Related to Consolidated

Non-consolidated VIEs

$ in millions  At September 30,
2017		   At December 31,
2016		 

Noncontrolling interests

  $197   $228  

Maximum exposure to losses1

   —    78  

1.

Primarily related to certain derivatives, commitments, guarantees and other forms of involvement not recognized in the financial statements.

Non-consolidated VIEs

The following tables include all VIEs in which the Firm has determined that its maximum exposure to loss is greater than specific thresholds or meets certain other criteria and exclude exposure to loss from liabilities due to immateriality. Most of the VIEs included in the following tables are sponsored by unrelated parties; the Firm’s involvement generally is the result of its secondary market-making activities, securities held in its Investment securities portfolio (see Note 5) and certain investments in funds.

Non-consolidated VIEs

   At September 30, 2017 
$ in millions  MABS   CDO   MTOB   OSF   Other 

VIE assets (unpaid principal balance)

  $78,134   $7,153   $5,149   $3,709   $33,041  

Maximum exposure to loss

 

  

Debt and equity interests

  $8,908   $1,162   $44   $1,551   $5,684  

Derivative and other contracts

   —    —    3,237    —    50  

Commitments, guarantees and other

   850    1,007    —    169    451  

Total

  $9,758   $2,169   $3,281   $1,720   $6,185  

 

Carrying value of exposure to loss—Assets

 

  

Debt and equity interests

  $8,908   $1,162   $44   $1,145   $5,684  

Derivative and other contracts

   —    —    6    —    5  

Total

  $8,908   $1,162   $50   $1,145   $5,689  

 At December 31, 2016  At June 30, 2021

$ in millions

 MABS CDO MTOB OSF Other $ in millions
MABS1
CDOMTOBOSF
Other2

VIE assets (unpaid principal balance)

 $101,916  $11,341  $4,857  $4,293  $39,077  

Maximum exposure to loss

 

 
VIE assets (UPB)VIE assets (UPB)$155,510 $1,918 $6,424 $2,001 $50,129 
Maximum exposure to loss3
Maximum exposure to loss3

Debt and equity interests

 $11,243  $1,245  $50  $1,570  $4,877  Debt and equity interests$20,473 $166 $4 $1,245 $10,741 

Derivative and other contracts

  —   —  2,812   —  45  Derivative and other contracts0 0 4,073 0 5,997 

Commitments, guarantees and other

 684  99   —  187  228  Commitments, guarantees and other1,390 0 0 0 1,443 

Total

 $11,927  $1,344  $2,862  $1,757  $5,150  Total$21,863 $166 $4,077 $1,245 $18,181 

Carrying value of exposure to loss—Assets

 

 
Carrying value of variable interests—AssetsCarrying value of variable interests—Assets

Debt and equity interests

 $11,243  $1,245  $49  $1,183  $4,877  Debt and equity interests$20,473 $166 $4 $1,245 $10,741 

Derivative and other contracts

  —   —  5   —  18  Derivative and other contracts0 0 5 0 2,208 

Total

 $11,243  $1,245  $54  $1,183  $4,895  Total$20,473 $166 $9 $1,245 $12,949 
Additional VIE assets owned4
Additional VIE assets owned4
$17,235 
Carrying value of variable interests—LiabilitiesCarrying value of variable interests—Liabilities
Derivative and other contractsDerivative and other contracts$0 $0 $0 $0 $217 
 At December 31, 2020
$ in millions
MABS1
CDOMTOBOSF
Other2
VIE assets (UPB)$184,153 $3,527 $6,524 $2,161 $48,241 
Maximum exposure to loss3
Debt and equity interests$26,247 $257 $0 $1,187 $11,008 
Derivative and other contracts0 0 4,425 0 5,639 
Commitments, guarantees and other929 0 0 0 749 
Total$27,176 $257 $4,425 $1,187 $17,396 
Carrying value of variable interests–Assets
Debt and equity interests$26,247 $257 $0 $1,187 $11,008 
Derivative and other contracts0 0 5 0 851 
Total$26,247 $257 $5 $1,187 $11,859 
Additional VIE assets owned4
$20,019 
Carrying value of variable interests—Liabilities
Derivative and other contracts$0 $0 $0 $0 $222 
MTOB—Municipal tender option bonds

OSF—

1.Amounts include transactions backed by residential mortgage loans, commercial mortgage loans and other types of assets, including consumer or commercial assets, and may be in loan or security form.
2.Other structured financings

Non-consolidated VIE Mortgage-primarily includes exposures to commercial real estate property and Asset-Backed Securitization Assets

  

At

September 30, 2017

  

At

December 31, 2016 

 
$ in millions Unpaid
Principal
Balance		  Debt and
Equity
Interests		  Unpaid
Principal
Balance		  Debt and
Equity
Interests		 

Residential mortgages

 $13,043  $910  $4,775  $458  

Commercial mortgages

  43,920   1,964   54,021   2,656  

U.S. agency collateralized mortgage obligations

  12,015   2,723   14,796   2,758  

Other consumer or commercial loans

  9,156   3,311   28,324   5,371  

Total

 $78,134  $8,908  $101,916  $11,243  

The Firm’s maximum exposure to loss presented above often differs from the carrying value of the variable interests held by the Firm. The maximum exposure to loss presented above is dependent on the nature of the Firm’s variable interest in the VIEs and is limited to the notional amounts of certain liquidity facilities, other credit support, total return swaps,

investment funds.

81September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

written put options, and the fair value of certain other derivatives and investments the Firm has made in the VIEs. Liabilities issued by VIEs generally arenon-recourse to the Firm. 3.Where notional amounts are utilized in quantifying the maximum exposure related to derivatives, such amounts do not reflect changes in fair value write-downs already recorded by the Firm.

4.Additional VIE assets owned represents the carrying value of total exposure to non-consolidated VIEs for which the maximum exposure to loss is less than specific thresholds, primarily interests issued by securitization SPEs. The Firm’s maximum exposure to loss presented abovegenerally equals the fair value of the assets owned. These assets are primarily included in Trading assets and Investment securities and are measured at fair value (see Note 5). The Firm does not provide additional support in these transactions through contractual facilities, guarantees or similar derivatives.
The majority of the VIEs included in the previous tables are sponsored by unrelated parties; examples of the Firm’s involvement with these VIEs include its secondary market-making activities and the securities held in its Investment securities portfolio (see Note 8).
The Firm’s maximum exposure to loss is dependent on the nature of the Firm’s variable interest in the VIE and is limited to the notional amounts of certain liquidity facilities and other credit support, total return swaps and written put options, as
well as the fair value of certain other derivatives and investments the Firm has made in the VIE.
The Firm’s maximum exposure to loss in the previous tables does not include the offsetting benefit of hedges or any financial instruments that the Firm may utilize to hedge these risksreductions associated with its variable interests. In addition, the Firm’s maximum exposure to loss presented above is not reduced by the amount of collateral held as part of a transaction with the VIE or any party to the VIE directly against a specific exposure to loss.

Securitization transactions generally involve VIEs. Primarily as a result of its secondary market-making activities, the Firm owned additional VIE assets mainly

Liabilities issued by securitization SPEs for which the maximum exposure to loss is less than specific thresholds. These additional assets totaled $11.9 billion and $11.7 billion at September 30, 2017 and December 31, 2016, respectively.

These assets were either retained in connection with transfers of assets by the Firm, acquired in connection with secondary market-making activities, held as AFS securities in its Investment securities portfolio (see Note 5), or held as investments in funds. At September 30, 2017 and December 31, 2016, these assets consisted of securities backed by residential mortgage loans, commercial mortgage loans or other consumer loans, such as credit card receivables, automobile loans and student loans, CDOs or CLOs, and investment funds.

The Firm’s primary risk exposure isVIEs generally are non-recourse to the securities issuedFirm.

Detail of Mortgage- and Asset-Backed Securitization Assets
 At June 30, 2021At December 31, 2020
$ in millionsUPB
Debt and
Equity
Interests
UPB
Debt and
Equity
Interests
Residential mortgages$17,146 $2,637 $17,775 $3,175 
Commercial mortgages62,404 3,705 62,093 4,131 
U.S. agency collateralized mortgage obligations70,091 11,989 99,182 17,224 
Other consumer or commercial loans5,869 2,142 5,103 1,717 
Total$155,510 $20,473 $184,153 $26,247 
Transferred Assets with Continuing Involvement
 At June 30, 2021
$ in millionsRMLCML
U.S. Agency
CMO
CLN and
Other1
SPE assets (UPB)2
$7,217 $90,355 $31,722 $15,181 
Retained interests
Investment grade$98 $936 $605 $0 
Non-investment grade21 214 0 80 
Total$119 $1,150 $605 $80 
Interests purchased in the secondary market
Investment grade$0 $78 $20 $0 
Non-investment grade46 68 0 1 
Total$46 $146 $20 $1 
Derivative assets$0 $0 $0 $608 
Derivative liabilities0 0 0 197 
 At December 31, 2020
$ in millionsRMLCML
U.S. Agency
CMO
CLN and
Other1
SPE assets (UPB)2
$7,515 $84,674 $21,061 $12,978 
Retained interests
Investment grade$49 $822 $615 $0 
Non-investment grade16 195 0 114 
Total$65 $1,017 $615 $114 
Interests purchased in the secondary market
Investment grade$0 $96 $116 $0 
Non-investment grade43 80 0 21 
Total$43 $176 $116 $21 
Derivative assets$0 $0 $0 $400 
Derivative liabilities0 0 0 436 
June 2021 Form 10-Q62
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
 Fair Value At June 30, 2021
$ in millionsLevel 2Level 3Total
Retained interests
Investment grade$702 $0 $702 
Non-investment grade12 50 62 
Total$714 $50 $764 
Interests purchased in the secondary market
Investment grade$97 $1 $98 
Non-investment grade76 39 115 
Total$173 $40 $213 
Derivative assets$607 $1 $608 
Derivative liabilities163 34 197 
 Fair Value at December 31, 2020
$ in millionsLevel 2Level 3Total
Retained interests
Investment grade$663 $0 $663 
Non-investment grade6 63 69 
Total$669 $63 $732 
Interests purchased in the secondary market
Investment grade$196 $16 $212 
Non-investment grade62 82 144 
Total$258 $98 $356 
Derivative assets$388 $12 $400 
Derivative liabilities435 1 436 
RML—Residential mortgage loans
CML—Commercial mortgage loans
1.Amounts include CLO transactions managed by the SPE ownedunrelated third parties.
2.Amounts include assets transferred by the Firm, with the highest risk on the most subordinate class of beneficial interests. These assets generally are included in Trading assets—Corporate and other debt, Trading assets—Investments or AFS securities within its Investment securities portfolio and are measured at fair value (see Note 3). unrelated transferors.
The Firm does not provide additional support in theseprevious tables include transactions through contractual facilities, such as liquidity facilities, guarantees or similar derivatives. The Firm’s maximum exposure to loss generally equals the fair value of the assets owned.

Transactions with SPEs in which the Firm, acting as principal, transferred financial assets with continuing involvement and received sales treatment are shown in the following tables.

Transfers of Assets with Continuing Involvement

  At September 30, 2017 
$ in millions 

Residential
Mortgage
Loans

  Commercial
Mortgage
Loans		  U.S. Agency
Collateralized
Mortgage
Obligations		  

Credit-
Linked
Notes and

Other1

 

SPE assets (unpaid principal balance)2

 $16,173   $55,682   $11,363   $11,602  

Retained interests

    

Investment grade3

 $—   $233   $682   $5  

Non-investment grade
(fair value)

  2    139    —    638  

Total

 $2   $372   $682   $643  

Interests purchased in the secondary market (fair value)

 

 

Investment grade

 $—   $68   $26   $—  

Non-investment grade

  38    81    —    —  

Total

 $38   $149   $26   $—  

Derivative assets (fair value)

 $—   $—   $—   $239  

Derivative liabilities (fair value)

  —    —    —    72  
  

 

At December 31, 2016

 
$ in millions 

Residential
Mortgage
Loans

  Commercial
Mortgage
Loans		  U.S. Agency
Collateralized
Mortgage
Obligations		  

Credit-
Linked
Notes and

Other1

 

SPE assets (unpaid principal balance)2

 $19,381   $43,104   $11,092   $11,613  

Retained interests (fair value)

    

Investment grade

 $—   $22   $375   $—  

Non-investment grade

  4    79    —    826  

Total

 $4   $101   $375   $826  

Interests purchased in the secondary market (fair value) 

 

 

Investment grade

 $—   $30   $26   $—  

Non-investment grade

  23    75    —    —  

Total

 $23   $105   $26   $—  

Derivative assets (fair value)

 $—   $261   $—   $89  

Derivative liabilities (fair value)

  —    —    —    459  

1.

Amounts include CLO transactions managed by unrelated third parties.

2.

Amounts include assetstreatment. The transferred by unrelated transferors.

3.

Amounts include $692 million of investment grade retained interests at fair value.

   Fair Value at September 30, 2017 
$ in millions      Level 2           Level 3           Total     

Retained interests

      

 

Investment grade

  

 

$

 

687 

 

 

  

 

$

 

5 

 

 

  

 

$

 

692 

 

 

Non-investment grade

   48     731     779  

Total

  $735    $736    $1,471  

Interests purchased in the secondary market

 

Investment grade

  $93    $1    $94  

Non-investment grade

   106     13     119  

Total

  $199    $14    $213  

Derivative assets

  $77    $162    $239  

Derivative liabilities

   67     5     72  

September 2017 Form 10-Q82

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

  Fair Value at December 31, 2016 
$ in millions       Level 2              Level 3              Total       

Retained interests

   

Investment grade

 $385  $12  $397  

Non-investment grade

  14   895   909  

Total

 $399  $907  $1,306  

Interests purchased in the secondary market

 

Investment grade

 $56  $—  $56  

Non-investment grade

  84   14   98  

Total

 $140  $14  $154  

Derivative assets

 $348  $2  $350  

Derivative liabilities

  98   361   459  

Transferred assets are carried at fair value prior to securitization, and any changes in fair value are recognized in the income statements. The Firm may act as underwriter of the beneficial interests issued by these securitization vehicles.vehicles, for which Investment banking underwriting net revenues are recognized in connection with these transactions.recognized. The Firm may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are generally carried at fair value in the balance sheets with changes in fair value recognized in the income statements.

Fair value for these interests is measured using techniques that are consistent with the valuation techniques applied to the Firm’s major categories of assets and liabilities as described in Note 2 in the 2020 Form 10-K and Note 5 herein. Further, as permitted by applicable guidance, certain transfers of assets where the Firm’s only continuing involvement is a derivative are only reported in the following Assets Sold with Retained Exposure table.

Proceeds from New Securitization Transactions and Sales of Loans

  

Three Months Ended

 

September 30,

  

Nine Months Ended

 

September 30,

 
$ in millions     2017          2016          2017          2016     

New transactions1

 $6,875  $6,819  $17,622  $13,695  

Retained interests

  648   768   1,607   1,901  

Sales of corporate loans to
CLO SPEs1,2

  56   199   148   230  

1.

Net gains on new transactions and sales of corporate loans to CLO entities at the time of the sale were not material for all periods presented.

2.

Sponsored bynon-affiliates.

 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
New transactions1
$16,410 $9,189 $31,200 $17,660 
Retained interests2,985 1,136 5,564 5,224 
Sales of corporate loans to CLO SPEs1, 2
73 73 73 139 
1.Net gains on new transactions and sales of corporate loans to CLO entities at the time of the sale were not material for all periods presented.
2.Sponsored by non-affiliates.
The Firm has provided, or otherwise agreed to be responsible for, representations and warranties regarding certain assets transferred in securitization transactions sponsored by the Firm (see Note 11)14).

Assets Sold with Retained Exposure
$ in millionsAt
June 30,
2021		At
December 31,
2020
Gross cash proceeds from sale of assets1
$61,885 $45,051 
Fair value
Assets sold$63,544 $46,609 
Derivative assets recognized
in the balance sheets		1,972 1,592 
Derivative liabilities recognized
in the balance sheets		314 64 
1.The carrying value of assets derecognized at the time of sale approximates gross cash proceeds.
The Firm also enters into transactions in which it sells equity securities, primarily equities, and contemporaneously enters into bilateral OTC equity derivatives with the purchasers of the securities, through which it retains the exposure to the securities as shownsold securities.
For a discussion of the Firm’s VIEs, the determination and structure of VIEs and securitization activities, see Note 16 to the financial statements in the following table.

2020 Form 10-K.

Assets Sold with Retained Exposure

$ in millions 

 At September 30, 

2017

   At December 31, 
2016		 

Carrying value of assets derecognized at
the time of sale and gross cash
proceeds

 $14,458  $11,209  

Fair value

  

Assets sold

  14,618   11,301  

Derivative assets recognized in the
balance sheets

  177   128  

Derivative liabilities recognized in the
balance sheets

  17   36  

Failed Sales

For transfers that fail to meet the accounting criteria for a sale, the Firm continues to recognize the assets in Trading assets at fair value, and the Firm recognizes the associated liabilities in Other secured financings at fair value in the balance sheets (see Note 10).

The assets transferred to certain unconsolidated VIEs in transactions accounted for as failed sales cannot be removed unilaterally by the Firm and are not generally available to the Firm. The related liabilities are alsonon-recourse to the Firm. In certain other failed sale transactions, the Firm has the right to remove assets or provides additional recourse through derivatives such as total return swaps, guarantees or other forms of involvement.

Carrying Value of Assets and Liabilities Related to Failed Sales

  

At September 30,

2017

  

At December 31,

2016

 
$ in millions   Assets      Liabilities      Assets      Liabilities   

Failed sales

 $858  $858  $285  $285  

13.

16. Regulatory Requirements

Regulatory Capital Framework and Requirements

For a discussion of the Firm’s regulatory capital framework, see Note 1417 to the consolidated financial statements in the 20162020 Form10-K.

The Firm is required to maintain minimum risk-based and leverageleverage-based capital ratios under the regulatory capital requirements. A summary of the calculations of regulatory capital risk-weighted assets (“RWAs”) and transition provisionsRWA follows.

The Firm’s risk-based capital ratios for purposes of determining regulatory compliance are the lower of the capital ratios computed under (i) the standardized approaches for calculating credit risk and market risk RWAs (the “Standardized Approach”) and (ii) the applicable advanced approaches for calculating credit risk, market risk and operational risk RWAs (the “Advanced Approach”).

83September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

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Minimum risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital. Certaincapital (which includes Tier 2 capital). Capital standards require certain adjustments to, and deductions from, capital are required for purposes of determining these ratios. At June 30, 2021 and December 31, 2020, the differences between the actual and required ratios suchwere lower under the Standardized Approach.

63June 2021 Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
In 2020, the U.S. banking agencies adopted a final rule, consistent with an interim final rule that was effective March 31, 2020, altering, for purposes of the regulatory capital rules, the required adoption time period for CECL. As of June 30, 2021 and December 31, 2020, the risk-based and leverage-based capital amounts and ratios, as goodwill, intangiblewell as RWA, adjusted average assets certain deferred tax assets, other amountsand supplementary leverage exposure are calculated excluding the effect of the adoption of CECL based on the Firm’s election to defer this effect over a five-year transition period which began on January 1, 2020 in AOCI and investments inaccordance with the final rule.
Risk-Based Regulatory Capital Ratio Requirements
At June 30, 2021 and December 31, 2020
StandardizedAdvanced
Capital buffers
Capital conservation buffer—2.5%
SCB5.7%N/A
G-SIB capital surcharge3.0%3.0%
CCyB1
0%0%
Capital buffer requirement2
8.7%5.5%
At June 30, 2021 and December 31, 2020
Regulatory MinimumStandardizedAdvanced
Required ratios3
Common Equity Tier 1 capital ratio4.5 %13.2%10.0%
Tier 1 capital ratio6.0 %14.7%11.5%
Total capital ratio8.0 %16.7%13.5%
1.The CCyB can be set up to 2.5%, but is currently set by the U.S. banking agencies at 0.
2.The capital instrumentsbuffer requirement represents the amount of unconsolidated financial institutions. Certain of these adjustments and deductions are also subject to transitional provisions.

In addition to the minimum risk-based capital ratio requirements, on a fullyphased-in basis by 2019, the Firm will be subject to:

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

the Firm must maintain above the minimum risk-based capital requirements in order to avoid restrictions on the Firm's ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers. The Common Equity Tier 1 global systemically important bankFirm's Standardized Approach capital buffer requirement is equal to the sum of the SCB, G-SIB capital surcharge currently at 3%; and

Up to a 2.5% Common Equity Tier 1 countercyclical CCyB, and the Advanced Approach capital buffer currently set by U.S. banking regulators at zero (collectively,requirement is equal to the “buffers”).

2.5% capital conservation buffer, G-SIB capital surcharge and CCyB.

In 2017,

3.Required ratios represent thephase-in amount for each regulatory minimum plus the capital buffer requirement.
The Firm’s Regulatory Capital and Capital Ratios
$ in millions
Required
Ratio1
At June 30, 2021At December 31, 2020
Risk-based capital
Common Equity Tier 1 capital$76,815 $78,650 
Tier 1 capital 84,612 88,079 
Total capital 92,782 97,213 
Total RWA 462,808 453,106 
Common Equity Tier 1 capital ratio13.2 %16.6 %17.4 %
Tier 1 capital ratio14.7 %18.3 %19.4 %
Total capital ratio16.7 %20.0 %21.5 %
$ in millions
Required
Ratio1
At June 30, 2021At December 31, 2020
Leverage-based capital
Adjusted average assets2
$1,135,262 $1,053,510 
Tier 1 leverage ratio4.0 %7.5 %8.4 %
Supplementary leverage exposure3,4
$1,439,971 $1,192,506 
SLR4
5.0 %5.9 %7.4 %
1.Required ratios are inclusive of any buffers applicable as of the buffers is 50% of the fullyphased-in buffer requirement.date presented. Failure to maintain the buffers willwould result in restrictions on the Firm’s ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers.

The methods for calculating each

2.Adjusted average assets represents the denominator of the Firm’s risk-based capital ratios will change through JanuaryTier 1 2022 as aspectsleverage ratio and is composed of the capital rules are phased in. These changes may resultaverage daily balance of consolidated on-balance sheet assets for the quarters ending on the respective balance sheet dates, reduced by disallowed goodwill, intangible assets, investments in differencescovered funds, defined benefit pension plan assets, after-tax gain on sale from assets sold into securitizations, investments in the Firm’s reportedown capital ratios from one reporting period toinstruments, certain defined tax assets and other capital deductions.
3.Supplementary leverage exposure is the next that are independentsum of changes to its capital base, asset composition,off-balance sheet exposures or risk profile.

For a further discussion of the Firm’s calculation of risk-based capital ratios, see Note 14 to the consolidated financial statementsAdjusted average assets used in the 2016 Form10-K.

Tier 1 leverage ratio and other adjustments, primarily: (i) for derivatives, potential future exposure and the effective notional principal amount of sold credit protection offset by qualifying purchased credit protection; (ii) the counterparty credit risk for repo-style transactions; and (iii) the credit equivalent amount for off-balance sheet exposures.

4.The Firm’s Regulatory CapitalSLR and Capital Ratios

At September 30, 2017,Supplementary leverage exposure as of December 31, 2020 reflect the Firm’s ratios areexclusion of U.S. Treasury securities and deposits at Federal Reserve Banks based on the Standardized Approach transitional rules. At Decembera Federal Reserve interim final rule that was in effect until March 31, 2016, the Firm’s ratios were based on the Advanced Approach transitional rules.

2021.

Regulatory Capital

   At September 30, 2017 

$ in millions

      Amount         Ratio     Minimum
Capital
Ratio1		 

Common Equity Tier 1 capital

  $62,214      16.9%      7.3%  

Tier 1 capital

   71,006      19.3%      8.8%  

Total capital

   81,861      22.2%      10.8%  

Tier 1 leverage

   —      8.4%      4.0%  

Total RWAs

  $368,629      N/A      N/A 

Adjusted average assets2

   841,360      N/A      N/A 
   

 

At December 31, 2016

 

$ in millions

      Amount         Ratio     Minimum
Capital
Ratio1		 

Common Equity Tier 1 capital

  $60,398      16.9%      5.9%  

Tier 1 capital

   68,097      19.0%      7.4%  

Total capital

   78,642      22.0%      9.4%  

Tier 1 leverage

   —      8.4%      4.0%  

Total RWAs

  $358,141      N/A      N/A 

Adjusted average assets2

   811,402      N/A      N/A 

N/A—Not Applicable

1.

Percentages represent minimum regulatory capital ratios under the transitional rules.

2.

Adjusted average assets represent the denominator of the Tier 1 leverage ratio and are composed of the average daily balance of consolidatedon-balance sheet assets under U.S. GAAP during the current quarter and the quarter ended December 31, 2016, respectively, adjusted for disallowed goodwill, transitional intangible assets, certain deferred tax assets, certain investments in the capital instruments of unconsolidated financial institutions and other adjustments.

Certain U.S. Bank Subsidiaries’ Regulatory Capital and Capital Ratios

The OCC establishes capital requirements for the Firm’s U.S. bank subsidiaries, which as of June 30, 2021 and December 31, 2020 include, among others, Morgan Stanley Bank, N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA”) (collectively, “U.S. Bank Subsidiaries”), and evaluates their compliance with such capital requirements. Regulatory capital requirements for MSBNA and MSPBNA are subjectcalculated in a similar manner to similarthe Firm’s regulatory capital requirements, asalthough G-SIB capital surcharge and SCB requirements do not apply to the Firm. FailureU.S. bank subsidiaries.
The OCC’s regulatory capital framework includes Prompt Corrective Action (“PCA”) standards, including “well-capitalized” PCA standards that are based on specified regulatory capital ratio minimums. For the Firm to remain an FHC, its U.S. bank subsidiaries must remain well-capitalized in accordance with the OCC’s PCA standards. In addition, failure by the U.S. bank subsidiaries to meet minimum capital requirements can initiatemay result in certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on the U.S. Bank Subsidiaries’bank subsidiaries’ and the Firm’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each of the U.S. Bank Subsidiaries must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certainoff-balance sheet items as calculated under regulatory accounting practices.

Each U.S. depository institution subsidiary of the Firm must be well-capitalized in order for the Firm to continue to qualify as a financial holding company and to continue to engage in the broadest range of financial activities permitted for financial holding companies. Under regulatory capital requirements adopted by the U.S. federal banking agencies, U.S. depository institutions must maintain certain minimum capital ratios in order to be considered well-capitalized. At September 30, 2017 and December 31, 2016, the Firm’s U.S. Bank Subsidi-

September 2017June 2021 Form 10-Q8464

Notes to Consolidated Financial Statements


(Unaudited)

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ms-20210630_g1.jpg

aries maintained capital at levels sufficiently in excess of the universally mandated well-capitalized requirements to address any additional capital needs and requirements identified by the U.S. federal banking regulators.

At SeptemberJune 30, 20172021 and December 31, 2016, the U.S. Bank Subsidiaries’2020, MSBNA and MSPBNA risk-based capital ratios are based on the Standardized Approach transitional rules.

At June 30, 2021 and December 31, 2020, the risk-based and leverage-based capital amounts and ratios are calculated excluding the effect of the adoption of CECL based on MSBNA’s and MSPBNA’s election to defer this effect over a five-year transition period, which began on January 1, 2020.

MSBNA’s Regulatory Capital

  At September 30, 2017 

 $ in millions

 Amount   Ratio  Minimum
Capital
Ratio1		 

 Common Equity Tier 1 capital

 $14,839    19.3%   6.5% 

 Tier 1 capital

  14,839    19.3%   8.0% 

 Total capital

  15,110    19.7%   10.0% 

 Tier 1 leverage

  14,839    11.8%   5.0% 
  

 

At December 31, 2016

 

 $ in millions

 Amount   Ratio  Minimum
Capital
Ratio1		 

 Common Equity Tier 1 capital

 $13,398    16.9%   6.5% 

 Tier 1 capital

  13,398    16.9%   8.0% 

 Total capital

  14,858    18.7%   10.0% 

 Tier 1 leverage

  13,398    10.5%   5.0% 

1.

Capital ratios that are required in order to be considered well-capitalized for U.S. regulatory purposes.

   At June 30, 2021At December 31, 2020
$ in millions
Well-Capitalized
Requirement
Required
Ratio1
AmountRatioAmountRatio
Risk-based capital
Common Equity Tier 1 capital6.5 %7.0 %$18,069 19.8 %$17,238 18.7 %
Tier 1 capital8.0 %8.5 %18,069 19.8 %17,238 18.7 %
Total capital10.0 %10.5 %18,644 20.5 %17,882 19.4 %
Leverage-based capital
Tier 1 leverage5.0 %4.0 %$18,069 10.4 %$17,238 10.1 %
SLR6.0 %3.0 %18,069 8.1 %17,238 8.0 %
MSPBNA’s Regulatory Capital

  At September 30, 2017 

 $ in millions

 Amount   Ratio  Minimum
Capital
Ratio1		 

 Common Equity Tier 1 capital

 $6,082    24.6%   6.5% 

 Tier 1 capital

  6,082    24.6%   8.0% 

 Total capital

  6,124    24.8%   10.0% 

 Tier 1 leverage

  6,082    9.8%   5.0% 
  

 

At December 31, 2016

 

 $ in millions

 Amount   Ratio  Minimum
Capital
Ratio1		 

 Common Equity Tier 1 capital

 $5,589    26.1%   6.5% 

 Tier 1 capital

  5,589    26.1%   8.0% 

 Total capital

  5,626    26.3%   10.0% 

 Tier 1 leverage

  5,589    10.6%   5.0% 

1.

Capital ratios that are required in order to be considered well-capitalized for U.S. regulatory purposes.

 At June 30, 2021At December 31, 2020
$ in millions
Well-Capitalized
Requirement
Required
Ratio1
AmountRatioAmountRatio
Risk-based capital
Common Equity Tier 1 capital6.5 %7.0 %$9,629 25.1 %$8,213 21.3 %
Tier 1 capital8.0 %8.5 %9,629 25.1 %8,213 21.3 %
Total capital10.0 %10.5 %9,702 25.2 %8,287 21.5 %
Leverage-based capital
Tier 1 leverage5.0 %4.0 %$9,629 7.4 %$8,213 7.2 %
SLR6.0 %3.0 %9,629 7.1 %8,213 6.9 %

1.Required ratios are inclusive of any buffers applicable as of the date presented. Failure to maintain the buffers would result in restrictions on the ability to make capital distributions, including the payment of dividends.
U.S. Broker-Dealer Regulatory Capital Requirements

MS&Co. Regulatory Capital

$ in millions At September 30, 2017  At December 31, 2016 

Net capital

 $10,613  $10,311  

Excess net capital

  8,558   8,034  

Morgan Stanley & Co. LLC (“

$ in millionsAt June 30,
2021		At December 31,
2020
Net capital$16,739 $12,869 
Excess net capital12,837 9,034 
MS&Co.”) is a registered U.S. broker-dealer and registered futures commission merchant and, accordingly, is subject to the minimum net capital requirements of the U.S. Securities and Exchange Commission (“SEC”)SEC and the U.S. Commodity Futures Trading Commission (“CFTC”).CFTC. MS&Co. has consistently operated with capital in excess of its regulatory capital requirements.

As an Alternative Net Capital broker-dealer, and in accordance with the market and credit risk standardsSecurities Exchange Act of 1934 (“Exchange Act”) Rule 15c3-1, Appendix E, of SEC Rule 15c3-1, MS&Co. is subject to minimum net capital and tentative net capital requirements. In addition, MS&Co. must notify the SEC if its tentative net capital falls below certain levels. At SeptemberJune 30, 20172021 and December 31, 2016,2020, MS&Co. has exceeded its net capital
requirement and hashad tentative net capital in excess of the minimum and notification requirements.

Other Regulated Subsidiaries
MSSB, LLC Regulatory Capital

$ in millions At September 30, 2017  At December 31, 2016 

Net capital

 $2,573  $3,946 

Excess net capital

  2,415   3,797 

Morgan Stanley Smith Barney LLC (“MSSB LLC”) is a registered U.S. broker-dealer and introducing broker for the futures business, and, accordingly, is subject to the minimum net capital requirements of the SEC. MSSB LLC has consistently operated with capital in excess of its regulatory capital requirements.

Other Regulated Subsidiaries

Morgan Stanley & Co. International plc (“MSIP”),MSIP, a London-based broker-dealer subsidiary, is subject to the capital requirements of the Prudential Regulation Authority,PRA, and the Morgan Stanley MUFG Securities Co., Ltd.Europe Holdings SE Group (“MSMS”MSEHSE Group”), a Tokyo-based broker-dealer subsidiary, is subject to the capital requirements of the Financial Services Agency.European Central Bank, BaFin and the German Central Bank. MSSB, MSIP and MSMSthe MSEHSE Group, including MSESE, a Germany-based broker-dealer, have consistently operated with capital in excess of their respective regulatory capital requirements.

Additionally, E*TRADE Bank and E*TRADE Savings Bank are subject to the capital requirements of the OCC, and E*TRADE Securities LLC is subject to the minimum net capital requirements of the SEC; each of these entities has consistently operated with capital in excess of their respective regulatory capital requirements.

Certain other U.S. andnon-U.S. subsidiaries of the Firm are subject to various securities, commodities and banking regulations, and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. These subsidiaries have also consistently operated with capital in excess of their local capital adequacy requirements.

85September 2017 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

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14.17. Total Equity

Dividends and Share Repurchases

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in millions     2017          2016                  2017                  2016         

Repurchases of common stock

 $1,250  $1,250  $2,500  $2,500 

On June 28, 2017, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) announced that they did not object to the Firm’s 2017 capital plan (“Capital Plan”). The Capital Plan includes the share repurchase of up to $5.0 billion of outstanding common

Preferred Stock
 
Shares
Outstanding
 Carrying Value
$ in millions, except per share dataAt
June 30,
2021
Liquidation
Preference
per Share
At
June 30,
2021		At
December 31,
2020
Series
A44,000 $25,000 $1,100 $1,100 
C1
519,882 1,000 408 408 
E34,500 25,000 862 862 
F34,000 25,000 850 850 
H52,000 25,000 1,300 1,300 
I40,000 25,000 1,000 1,000 
J0 0 0 1,500 
K40,000 25,000 1,000 1,000 
L20,000 25,000 500 500 
M400,000 1,000 430 430 
N3,000 100,000 300 300 
Total$7,750 $9,250 
Shares authorized30,000,000 
1.Series C preferred stock for the period beginning July 1, 2017 through June 30, 2018, an increase from $3.5 billion in the 2016 Capital Plan. Additionally, the Capital Plan includes an increase in the quarterly common stock dividend to $0.25 per share from $0.20 per share, beginning with the common stock dividend declared on July 19, 2017.

On October 17, 2017, the Firm announced that the Board of Directors (the “Board”) declared a quarterly dividend per common share of $0.25. The dividend is payable on November 15, 2017 to common shareholders of record on October 31, 2017.

Preferred Stock

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in millions     2017          2016          2017          2016     

Dividends declared

 $93  $78  $353  $312 

held by MUFG.

For a description of Series A through Series KN preferred stock issuances, see Note 1518 to the consolidated financial statements in the 20162020 Form10-K. On September 15, 2017, the Firm announced that the Board declared quarterly dividends for preferred stock shareholders of record on September 29, 2017 that were paid on October 16, 2017. The Firm is authorized to issue 30 million shares of preferred stock. TheFirm’s preferred stock has a preference over theits common stock upon liquidation. The Firm’s preferred stock qualifies as and is included in Tier 1 capital in accordance with regulatory capital requirements (see Note 13).

Series K Preferred Stock.The Series K Preferred Stock offering (net of related issuance costs) in January 2017 resulted in proceeds of approximately $994 million.

Preferred Stock Outstanding

  Shares
Outstanding		  

Liquidation
Preference
per Share

 

  Carrying Value 
$ in millions,
except per
share data		 At
September 30,
2017		   At
September 30,
2017		  At
December 31,
2016		 

Series

                

A

  44,000   $          25,000  $                    1,100  $                1,100  

C1

  519,882   1,000   408   408  

E

  34,500   25,000   862   862  

F

  34,000   25,000   850   850  

G

  20,000   25,000   500   500  

H

  52,000   25,000   1,300   1,300  

I

  40,000   25,000   1,000   1,000  

J

  60,000   25,000   1,500   1,500  

K

  40,000   25,000   1,000   —  

Total

 

 $8,520  $7,520  

1.

Series C is composed of the issuance of 1,160,791 shares of Series C Preferred Stock to MUFG for an aggregate purchase price of $911 million, less the redemption of 640,909 shares of Series C Preferred Stock of $503 million, which were converted to common shares of approximately $705 million.

Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss)1

$ in millions Foreign
Currency
Translation
Adjustments		  AFS
Securities		  Pensions,
Postretirement
and Other		  DVA  Total 

June 30, 2017

 $(856)  $(396)  $(470)  $    (766)  $    (2,488) 

OCI during the period

  61   26   —   (143)   (56) 

September 30, 2017

 $(795)  $(370)  $(470)  $(909)  $(2,544) 

 

June 30, 2016

 $(779)  $219  $(378)  $33  $(905) 

OCI during the period

  25   (99)   (1)   (90)   (165) 

September 30, 2016

 $(754)  $120  $(379)  $(57)  $(1,070) 

 

December 31, 2016

 $(986)  $(588)  $(474)  $(595)  $(2,643) 

OCI during the period

  191   218   4   (314)   99  

September 30, 2017

 $(795)  $(370)  $(470)  $(909)  $(2,544) 

 

December 31, 2015

 $(963)  $(319)  $(374)  $—  $(1,656) 

Cumulative adjustment for
accounting change
related to DVA2

  —   —   —   (312)   (312) 

OCI during the period

  209   439   (5)   255   898  

September 30, 2016

 $(754)  $120  $(379)  $(57)  $(1,070) 

1.

Amounts net of tax and noncontrolling interests.

2.

In accordance with the early adoption of a provision of the accounting updateRecognition and Measurement of Financial Assets and Financial Liabilities, a cumulativecatch-up adjustment was recorded as of January 1, 2016 to move the cumulative unrealized DVA amount, net of noncontrolling interests and tax, related to outstanding liabilities under the fair value option election from Retained earnings into AOCI. See Note 2 to the consolidated financial statements in the 2016 Form10-K for further information.

September 2017 Form 10-Q86

Notes to Consolidated Financial Statements

(Unaudited)

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Period Changes in OCI Components

  Three Months Ended 
  

 

September 30, 2017

 
 $ in millions Pre-tax
gain (loss)		  Income tax
benefit
(provision)		  After-tax
gain (loss)		  

Non-

controlling
interests

    Net   

 Foreign currency translation adjustments

 

 

 OCI activity

 $             19  $             42  $             61  $              —  $              61   

 Reclassified to
earnings

  —   —   —   —   —   

 Net OCI

 $19  $42  $61  $—  $61   

 

 Change in net unrealized gains (losses) on AFS securities

 

 

 OCI activity

 $52  $(19)  $33  $—  $33   

 Reclassified to
earnings1

  (11)   4   (7)   —   (7)  

 Net OCI

 $41  $(15)  $26  $—  $26   

 

 Pension, postretirement and other

 

 

 OCI activity

 $—  $—  $—  $—  $—   

 Reclassified to
earnings1

  1   (1)   —   —   —   

 Net OCI

 $1  $(1)  $—  $—  $—   

 

 Change in net DVA

 

 

 OCI activity

 $(220)  $77  $(143)  $(6)  $(137)  

 Reclassified to
earnings1

  (9)   3   (6)   —   (6)  

 Net OCI

 $(229)  $80  $(149)  $(6)  $(143)  

  Three Months Ended 
  

 

September 30, 2016

 
 $ in millions Pre-tax
gain (loss)		  Income tax
benefit
(provision)		  After-tax
gain (loss)		  

Non-

controlling
interests

    Net   

 Foreign currency translation adjustments

 

 

 OCI activity

 $              13  $              30  $              43  $              18  $              25   

 Reclassified to
earnings

  —   —   —   —   —   

 Net OCI

 $13  $30  $43  $18  $25   

 

 Change in net unrealized gains (losses) on AFS securities

 

 

 OCI activity

 $(112)  $41  $(71)  $—  $(71)  

 Reclassified to
earnings1

  (45)   17   (28)   —   (28)  

 Net OCI

 $(157)  $58  $(99)  $—  $(99)  

 

 Pension, postretirement and other

 

 

 OCI activity

 $—  $—  $—  $—  $—   

 Reclassified to
earnings1

  (1)   —   (1)   —   (1)  

 Net OCI

 $(1)  $—  $(1)  $—  $(1)  

 

 Change in net DVA

 

 

 OCI activity

 $(149)  $52  $(97)  $(3)  $(94)  

 Reclassified to
earnings1

  6   (2)   4   —   4   

 Net OCI

 $(143)  $50  $(93)  $(3)  $(90)  

  Nine Months Ended 
  

 

September 30, 2017

 
 $ in millions Pre-tax
gain (loss)		  Income tax
benefit
(provision)		  After-tax
gain (loss)		  

Non-

controlling
interests

    Net   

 Foreign currency translation adjustments

 

 

 OCI activity

 $63  $160  $223  $32  $191   

 Reclassified to
earnings

                —                 —                 —                 —                 —   

 Net OCI

 $63  $160  $223  $32  $191   

 

 Change in net unrealized gains (losses) on AFS securities

 

 

 OCI activity

 $374  $(139)  $235  $—  $235   

 Reclassified to
earnings1

  (27)   10   (17)   —   (17)  

 Net OCI

 $347  $(129)  $218  $—  $218   

 

 Pension, postretirement and other

 

 

 OCI activity

 $3  $—  $3  $—  $3   

 Reclassified to
earnings1

  2   (1)   1   —   1   

 Net OCI

 $5  $(1)  $4  $—  $4   

 

 Change in net DVA

 

 

 OCI activity

 $(498)  $175  $(323)  $(9)  $(314)  

 Reclassified to earnings1

  (1)   1   —   —   —   

 Net OCI

 $(499)  $176  $(323)  $(9)  $(314)  

  Nine Months Ended 
  

 

September 30, 20162

 
 $ in millions Pre-tax
gain (loss)		  Income tax
benefit
(provision)		  After-tax
gain (loss)		  

Non-

controlling
interests

    Net   

 Foreign currency translation adjustments

 

 

 OCI activity

 $            156  $            204  $            360  $            151  $            209   

 Reclassified to
earnings

  —   —   —   —   —   

 Net OCI

 $156  $204  $360  $151  $209   

 

 Change in net unrealized gains (losses) on AFS securities

 

 

 OCI activity

 $822  $(303)  $519  $—  $519   

 Reclassified to
earnings1

  (127)   47   (80)   —   (80)  

 Net OCI

 $695  $(256)  $439  $—  $439   

 

 Pension, postretirement and other

 

 

 OCI activity

 $(6)  $3  $(3)  $—  $(3)  

 Reclassified to
earnings1

  (3)   1   (2)   —   (2)  

 Net OCI

 $(9)  $4  $(5)  $—  $(5)  

 

 Change in net DVA

 

 

 OCI activity

 $440  $(163)  $277  $—  $277   

 Reclassified to
earnings1

  (35)   13   (22)   —   (22)  

 Net OCI

 $405  $(150)  $255  $—  $255   

1.

Amounts reclassified to earnings related to: realized gains and losses from sales of AFS securities are classified within Other revenues in the income statements; Pension, postretirement and other are classified within Compensation and benefits expenses in the income statements; and realization of DVA are classified within Trading revenues in the income statements.

2.

Exclusive of 2016 cumulative adjustment for accounting change related to DVA.

6587September 2017June 2021 Form 10-Q

Notes to Consolidated Financial Statements

(Unaudited)

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Noncontrolling Interests

$ in millions  At September 30, 2017    At December 31, 2016  

Noncontrolling interests

  $                               1,136   $                             1,127  

15. Earnings per Common Share

Calculation of Basic and Diluted Earnings per Common Share (“EPS”)

  Three Months Ended  Nine Months Ended 
  

 

September 30,

  

 

September 30,

 
in millions, except for per share data 2017  2016  2017   2016  

Basic EPS

    

Income from continuing operations

 $    1,785  $    1,632  $    5,574  $    4,442  

Income (loss) from discontinued
operations

  6   8   (21)   1  

Net income

  1,791   1,640   5,553   4,443  

Net income applicable to
noncontrolling interests

  10   43   85   130  

Net income applicable to Morgan
Stanley

  1,781   1,597   5,468   4,313  

Less: Preferred stock dividends and other

  (93)   (79)   (353)   (314) 

Earnings applicable to Morgan
Stanley common shareholders

 $1,688  $1,518  $5,115  $3,999  

Weighted average common
shares outstanding

  1,776   1,838   1,789   1,863  

Earnings per basic common share

 

  

Income from continuing operations

 $0.95  $0.82  $2.87  $2.15  

Income (loss) from discontinued
operations

  —   0.01   (0.01)   —  

Earnings per basic common share

 $0.95  $0.83  $2.86  $2.15  

Diluted EPS

    

Earnings applicable to Morgan
Stanley common shareholders

 $1,688  $1,518  $5,115  $3,999  

Weighted average common shares
outstanding

  1,776   1,838   1,789   1,863  

Effect of dilutive securities:

    

Stock options and RSUs1

  42   41   41   35  

Weighted average common shares outstanding and common stock equivalents

  1,818   1,879   1,830   1,898  

Earnings per diluted common share

 

  

Income from continuing operations

 $0.93  $0.80  $2.81  $2.11  

Income (loss) from discontinued operations

  —   0.01   (0.02)   —  

Earnings per diluted common share

 $0.93  $0.81  $2.79  $2.11  

Weighted average antidilutive RSUs and stock options (excluded from the computation of diluted EPS)1

  —   14   —   15  

1.

Restricted stock units (“RSUs”) that are considered participating securities are treated as a separate class of securities in the computation of basic EPS, and, therefore, such RSUs are not included as incremental shares in the diluted EPS computations.

16. Interest Income and Interest Expense

  Three Months Ended     Nine Months Ended 
  

 

September 30,

     

 

September 30,

 
$ in millions 2017  2016      2017   2016  

Interest income1

     

Investment securities

 $      �� 313  $        289      $        943  $        762  

Loans

  853   698       2,399   2,026  

Interest bearing deposits with banks

  84   30       206   134  

Securities purchased under
agreements to resell
and Securities borrowed2

  76   (118)       86   (315) 

Trading assets, net
of Trading liabilities

  506   526       1,461   1,651  

Customer receivables and Other3

  508   309       1,316   890  

Total interest income

 $2,340  $1,734      $6,411  $5,148  

 

Interest expense1

     

Deposits

 $63  $12      $88  $48  

Short-term and Long-term
borrowings

  1,109   814       3,197   2,633  

Securities sold under
agreements to repurchase
and Securities loaned4

  325   228       912   761  

Customer payables and Other5

  60   (323)       (91)   (1,109) 

Total interest expense

 $1,557  $731      $4,106  $2,333  

Net interest

 $783  $1,003      $2,305  $2,815  

1.

Interest income and Interest expense are classified in the income statements based on the nature of the instrument and related market conventions. When included as a component of the instrument’s fair value, interest is included within Trading revenues or Investments revenues. Otherwise, it is included within Interest income or Interest expense.

2.

Includes fees paid on Securities borrowed.

3.

Includes interest from customer receivables and cash deposited with clearing organizations or segregated under federal and other regulations or requirements.

4.

Includes fees received on Securities loaned.

5.

Includes fees received from prime brokerage customers for stock loan transactions incurred to cover customers’ short positions.

September 2017 Form 10-Q88
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg

accordance with regulatory capital requirements (see Note 16).
On March 15, 2021, the Firm announced the redemption in whole of its outstanding Series J preferred stock. On notice of redemption, the amount due to holders of Series J Preferred Stock was reclassified to Borrowings, and on April 15, 2021 the redemption settled at the carrying value of $1.5 billion.
Share Repurchases
 Three Months Ended June 30,Six Months Ended June 30,
$ in millions2021202020212020
Repurchases of common stock under the Firm’s Share Repurchase Program$2,939 $0 $5,074 $1,347 
Beginning late in the first quarter of 2020, the Firm suspended its share repurchase program, however the Federal Reserve permitted the resumption of share repurchases for the current year period. On June 28, 2021, the Firm announced its Board of Directors authorized the repurchase of up to $12 billion of outstanding common stock from July 1, 2021 through June 30, 2022, from time to time as conditions warrant, which supersedes the previous common stock repurchase authorization. For more information on share repurchases, see Note 18 to the financial statements in the 2020 Form 10-K.
Common Shares Outstanding for Basic and Diluted EPS
 Three Months Ended
June 30,		Six Months Ended
June 30,
in millions2021202020212020
Weighted average common shares outstanding, basic1,814 1,541 1,804 1,548 
Effect of dilutive Stock options, RSUs and PSUs27 16 25 17 
Weighted average common shares outstanding and common stock equivalents, diluted1,841 1,557 1,829 1,565 
Weighted average antidilutive common stock equivalents (excluded from the computation of diluted EPS)0 8 0 10 
Dividends
$ in millions, except per
share data
Three Months Ended
June 30, 2021		Three Months Ended
June 30, 2020
Per Share1
Total
Per Share1
Total
Preferred stock series
A$253 $11 $253 $11 
C25 13 25 13 
E445 15 445 15 
F430 15 430 15 
H240 12 305 16 
I398 16 398 16 
J2
0 0 694 42 
K366 15 366 15 
L305 6 305 6 
Total Preferred stock$103 $149 
Common stock0.35 $651 $0.35 $550 
$ in millions, except per
share data
Six Months Ended
June 30, 2021		Six Months Ended
June 30, 2020
Per Share1
Total
Per Share1
Total
Preferred stock series
A$503 $22 $506 $22 
C50 26 50 26 
E891 30 891 30 
F859 29 859 29 
H480 25 649 34 
I797 32 797 32 
J2
253 15 694 42 
K731 30 731 30 
L609 12 609 12 
M3
29 12 0 0 
N4
2,650 8 0 0 
Total Preferred stock$241 $257 
Common stock$0.70 $1,286 $0.70 $1,111 
1.Common and Preferred Stock dividends are payable quarterly, unless otherwise noted.
2.Series J was payable semiannually until July 15, 2020, after which it was payable quarterly until its redemption.
3.Series M is payable semiannually until September 15, 2026, and thereafter will be payable quarterly.
4.Series N is payable semiannually until March 15, 2023, and thereafter will be payable quarterly.
Accumulated Other Comprehensive Income (Loss)1
$ in millionsCTA
AFS
Securities
Pension and OtherDVATotal
March 31, 2021$(936)$1,011 $(493)$(2,336)$(2,754)
OCI during the period41 (7)12 185 231 
June 30, 2021$(895)$1,004 $(481)$(2,151)$(2,523)
March 31, 2020$(1,038)$1,532 $(619)$2,220 $2,095 
OCI during the period21 295 (1)(2,409)(2,094)
June 30, 2020$(1,017)$1,827 $(620)$(189)$1 
December 31, 2020$(795)$1,787 $(498)$(2,456)$(1,962)
OCI during the period(100)(783)17 305 (561)
June 30, 2021$(895)$1,004 $(481)$(2,151)$(2,523)
December 31, 2019$(897)$207 $(644)$(1,454)$(2,788)
OCI during the period(120)1,620 24 1,265 2,789 
June 30, 2020$(1,017)$1,827 $(620)$(189)$1 
CTA—Cumulative foreign currency translation adjustments
1.Amounts are net of tax and noncontrolling interests.
Components of Period Changes in OCI
Three Months Ended June 30, 2021
$ in millionsPre-tax
Gain
(Loss)		Income
Tax Benefit
(Provision)		After-tax
Gain
(Loss)		Non-
controlling
Interests		Net
CTA
OCI activity$12 $29 $41 $0 $41 
Reclassified to earnings0 0 0 0 0 
Net OCI$12 $29 $41 $0 $41 
Change in net unrealized gains (losses) on AFS securities
OCI activity$47 $(10)$37 $0 $37 
Reclassified to earnings(58)14 (44)0 (44)
Net OCI$(11)$4 $(7)$0 $(7)
Pension and other
OCI activity$8 $0 $8 $0 $8 
Reclassified to earnings7 (3)4 0 4 
Net OCI$15 $(3)$12 $0 $12 
Change in net DVA
OCI activity$237 $(59)$178 $1 $177 
Reclassified to earnings10 (2)8 0 8 
Net OCI$247 $(61)$186 $1 $185 

June 2021 Form 10-Q

66
Notes to Consolidated Financial Statements


(Unaudited)

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ms-20210630_g1.jpg

17. Employee Benefit Plans

The Firm sponsors various retirement plans

Three Months Ended June 30, 2020
$ in millionsPre-tax
Gain
(Loss)		Income
Tax Benefit
(Provision)		After-tax
Gain
(Loss)		Non-
controlling
Interests		Net
CTA
OCI activity$5 $19 $24 $0 $24 
Reclassified to earnings(3)0 (3)0 (3)
Net OCI$2 $19 $21 $0 $21 
Change in net unrealized gains (losses) on AFS securities
OCI activity$395 $(93)$302 $0 $302 
Reclassified to earnings(10)3 (7)0 (7)
Net OCI$385 $(90)$295 $0 $295 
Pension and other
OCI activity$(4)$(1)$(5)$0 $(5)
Reclassified to earnings5 (1)4 0 4 
Net OCI$1 $(2)$(1)$0 $(1)
Change in net DVA
OCI activity$(3,301)$805 $(2,496)$(87)$(2,409)
Reclassified to earnings1 (1)0 0 0 
Net OCI$(3,300)$804 $(2,496)$(87)$(2,409)
Six Months Ended June 30, 2021
$ in millionsPre-tax
Gain
(Loss)		Income
Tax Benefit
(Provision)		After-tax
Gain
(Loss)		Non-
controlling
Interests		Net
CTA
OCI activity$(92)$(86)$(178)$(78)$(100)
Reclassified to earnings0 0 0 0 0 
Net OCI$(92)$(86)$(178)$(78)$(100)
Change in net unrealized gains (losses) on AFS securities
OCI activity$(829)$193 $(636)$0 $(636)
Reclassified to earnings(192)45 (147)0 (147)
Net OCI$(1,021)$238 $(783)$0 $(783)
Pension and other
OCI activity$8 $0 $8 $0 $8 
Reclassified to earnings14 (5)9 0 9 
Net OCI$22 $(5)$17 $0 $17 
Change in net DVA
OCI activity$404 $(102)$302 $18 $284 
Reclassified to earnings27 (6)21 0 21 
Net OCI$431 $(108)$323 $18 $305 
Six Months Ended June 30, 2020
$ in millionsPre-tax
Gain
(Loss)		Income
Tax Benefit
(Provision)		After-tax
Gain
(Loss)		Non-
controlling
Interests		Net
CTA
OCI activity$(15)$(93)$(108)$9 $(117)
Reclassified to earnings(3)0 (3)0 (3)
Net OCI$(18)$(93)$(111)$9 $(120)
Change in net unrealized gains (losses) on AFS securities
OCI activity$2,168 $(509)$1,659 $0 $1,659 
Reclassified to earnings(51)12 (39)0 (39)
Net OCI$2,117 $(497)$1,620 $0 $1,620 
Pension and other
OCI activity$21 $(5)$16 $0 $16 
Reclassified to earnings10 (2)8 0 8 
Net OCI$31 $(7)$24 $0 $24 
Change in net DVA
OCI activity$1,714 $(411)$1,303 $42 $1,261 
Reclassified to earnings6 (2)4 0 4 
Net OCI$1,720 $(413)$1,307 $42 $1,265 

18. Interest Income and Interest Expense
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Interest income
Investment securities$608 $629 $1,457 $1,074 
Loans1,040 1,050 2,028 2,204 
Securities purchased under agreements to resell and Securities borrowed1
(321)(141)(617)257 
Trading assets, net of Trading liabilities486 616 996 1,365 
Customer receivables and Other2
399 204 785 961 
Total interest income$2,212 $2,358 $4,649 $5,861 
Interest expense
Deposits$108 $220 $228 $626 
Borrowings719 823 1,433 1,820 
Securities sold under agreements to repurchase and Securities loaned3
116 209 230 718 
Customer payables and Other4
(596)(494)(1,135)(259)
Total interest expense$347 $758 $756 $2,905 
Net interest$1,865 $1,600 $3,893 $2,956 
1.Includes fees paid on Securities borrowed.
2.Includes interest from Cash and cash equivalents.
3.Includes fees received on Securities loaned.
4.Includes fees received from Equity Financing customers for stock loan transactions entered into to cover customers’ short positions.
Interest income and Interest expense are classified in the majority of its U.S. andnon-U.S. employees. The Firm provides certain other postretirement benefits, primarily health care and life insurance, to eligible U.S. employees.

Componentsincome statements based on the nature of the Net Periodic Benefit Expense (Income) for Pensioninstrument and Other Postretirement Plans

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
$ in millions 2017  2016  2017  2016 

Service cost, benefits earned during the period

 $4  $6  $12  $14  

Interest cost on projected benefit
obligation

  37   38   112   115  

Expected return on plan assets

  (29)   (31)   (87)   (91) 

Net amortization of prior service
credit

  (4)   (4)   (12)   (13) 

Net amortization of actuarial loss

  4   3   12   9  

Net periodic benefit expense
(income)

 $12  $12  $37  $34  

18.related market conventions. When included as a component of the instrument’s fair value, interest is included within Trading revenues or Investments revenues. Otherwise, it is included within Interest income or Interest expense.

Accrued Interest
$ in millionsAt
June 30,
2021
 At
December 31, 2020
Customer and other receivables$2,160 $1,652 
Customer and other payables2,517 2,119 
19. Income Taxes

The Firm is under continuous examination by the Internal Revenue Service (the “IRS”)IRS and other tax authorities in certain countries, such as Japan and the United Kingdom (“U.K.”), and in states and localities in which it has significant business operations, such as New York. The Firm has established a liability for unrecognized tax benefits, and associated interest, if applicable (“tax liabilities”), that it believes is adequate in relation to the potential for additional assessments. Once established, the Firm adjusts such tax liabilities only when new information is available or when an event occurs necessitating a change.

The Firm is currently at various levels of field examination with respect to audits by the IRS, as well as New York State and New York City, for tax years 2009-2012 and 2007-2014, respectively. In April 2016, the Firm received a notification from the IRS that the Congressional Joint Committee on Taxation approved the final report of an Appeals Office review of matters from tax years 1999-2005. In June 2016, the Firm received an amended Revenue Agent’s Report for tax years 2006-2008. Over the next 12 months the Firm expects to receive new information related to multi-year IRS field audit examinations that may prompt an overall net decrease in the Firm’s recorded tax liabilities.

The Firm believes that the resolution of the abovethese tax mattersexaminations will not have a material effect on the annual financial statements, although a resolution could have a material impact onin the income statementsstatement and on the effective tax rate for any period in which such resolution occurs.

In March 2017, the Firm filed claims with the IRS to contest certain items associated with tax years 1999-2005, the resolution of whichresolutions occur.

It is not expected to have a material impact on the annual financial statements or effective tax rate. Additionally, during 2017, the Firm expects to reach a conclusion with the U.K. tax authorities on substantially all issues through tax year 2010, the resolution of which is not expected to have a material impact on the annual financial statements or effective tax rate.

See Note 11 regarding the Dutch Tax Authority’s challenge,reasonably possible that significant changes in the District Court in Amsterdam (matters styledCase number15/3637andCase number 15/4353), of the Firm’s entitlement to certain withholding tax credits which may impact the balance of unrecognized tax benefits.

19.benefits may occur within the next 12 months. At this time, however, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits and the impact on the Firm’s effective tax rate over the next 12 months.

67June 2021 Form 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg
20. Segment, Geographic and GeographicRevenue Information

Selected Financial Information by Business Segment Information

 Three Months Ended June 30, 2021
$ in millionsISWMIMI/ETotal
Investment banking$2,376 $203 $0 $(19)$2,560 
Trading3,078 255 (22)19 3,330 
Investments61 14 306 0 381 
Commissions and fees1
682 714 1 (89)1,308 
Asset management1,2
148 3,447 1,418 (40)4,973 
Other137 207 1 (3)342 
Total non-interest revenues6,482 4,840 1,704 (132)12,894 
Interest income873 1,366 10 (37)2,212 
Interest expense263 111 12 (39)347 
Net interest610 1,255 (2)2 1,865 
Net revenues$7,092 $6,095 $1,702 $(130)$14,759 
Provision for credit losses$70 $3 $0 $0 $73 
Compensation and benefits2,433 3,275 715 0 6,423 
Non-compensation expenses2,091 1,181 557 (132)3,697 
Total non-interest expenses$4,524 $4,456 $1,272 $(132)$10,120 
Income before provision for income taxes$2,498 $1,636 $430 $2 $4,566 
Provision for income taxes574 372 108 0 1,054 
Net income1,924 1,264 322 2 3,512 
Net income applicable to noncontrolling interests20 0 (19)0 1 
Net income applicable to Morgan Stanley$1,904 $1,264 $341 $2 $3,511 
 Three Months Ended June 30, 2020
$ in millionsISWMIMI/ETotal
Investment banking$2,051 $110 $0 $(19)$2,142 
Trading3
4,272 492 22 17 4,803 
Investments36 8 231 0 275 
Commissions and fees1
717 473 0 (88)1,102 
Asset management1,2
115 2,507 684 (41)3,265 
Other3
439 84 (47)(3)473 
Total non-interest revenues7,630 3,674 890 (134)12,060 
Interest income1,300 1,210 7 (159)2,358 
Interest expense731 180 11 (164)758 
Net interest569 1,030 (4)5 1,600 
Net revenues3
$8,199 $4,704 $886 $(129)$13,660 
Provision for credit losses3
$217 $22 $0 $0 $239 
Compensation and benefits2,952 2,729 354 0 6,035 
Non-compensation expenses3
2,037 811 316 (133)3,031 
Total non-interest expenses3
$4,989 $3,540 $670 $(133)$9,066 
Income before provision for income taxes$2,993 $1,142 $216 $4 $4,355 
Provision for income taxes790 289 39 1 1,119 
Net income2,203 853 177 3 3,236 
Net income applicable to noncontrolling interests17 0 23 0 40 
Net income applicable to Morgan Stanley$2,186 $853 $154 $3 $3,196 
 Six Months Ended June 30, 2021
$ in millionsISWMIMI/ETotal
Investment banking$4,989 $454 $0 $(43)$5,400 
Trading7,151 381 (19)42 7,555 
Investments147 16 536 0 699 
Commissions and fees1
1,552 1,565 1 (184)2,934 
Asset management1,2
287 6,638 2,521 (75)9,371 
Other295 360 (23)(6)626 
Total non-interest revenues14,421 9,414 3,016 (266)26,585 
Interest income1,843 2,852 18 (64)4,649 
Interest expense595 212 18 (69)756 
Net interest1,248 2,640 0 5 3,893 
Net revenues$15,669 $12,054 $3,016 $(261)$30,478 
Provision for credit losses$(23)$(2)$0 $0 $(25)
Compensation and benefits5,547 6,445 1,229 0 13,221 
Non-compensation expenses4,276 2,375 987 (266)7,372 
Total non-interest expenses$9,823 $8,820 $2,216 $(266)$20,593 
Income before provision for income taxes$5,869 $3,236 $800 $5 $9,910 
Provision for income taxes1,310 730 189 1 2,230 
Net income4,559 2,506 611 4 7,680 
Net income applicable to noncontrolling interests54 0 (5)0 49 
Net income applicable to Morgan Stanley$4,505 $2,506 $616 $4 $7,631 
 Six Months Ended June 30, 2020
$ in millionsISWMIMI/ETotal
Investment banking$3,195 $268 $0 $(50)$3,413 
Trading3
7,433 145 (15)41 7,604 
Investments11 8 294 0 313 
Commissions and fees1
1,591 1,061 0 (190)2,462 
Asset management1,2
228 5,187 1,349 (82)6,682 
Other3
(112)165 (40)(4)9 
Total non-interest revenues12,346 6,834 1,588 (285)20,483 
Interest income3,723 2,403 15 (280)5,861 
Interest expense2,692 477 25 (289)2,905 
Net interest1,031 1,926 (10)9 2,956 
Net revenues3
$13,377 $8,760 $1,578 $(276)$23,439 
Provision for credit losses3
$605 $41 $0 $0 $646 
Compensation and benefits4,766 4,941 611 0 10,318 
Non-compensation expenses3
4,063 1,581 608 (278)5,974 
Total non-interest expenses3
$8,829 $6,522 $1,219 $(278)$16,292 
Income before provision for income taxes$3,943 $2,197 $359 $2 $6,501 
Provision for income taxes941 480 64 0 1,485 
Net income3,002 1,717 295 2 5,016 
Net income applicable to noncontrolling interests59 0 63 0 122 
Net income applicable to Morgan Stanley$2,943 $1,717 $232 $2 $4,894 
I/E–Intersegment Eliminations
1.Substantially all revenues are from contracts with customers.
2.Includes certain fees which may relate to services performed in prior periods.
3.Certain prior period amounts have been reclassified to conform to the current presentation. See Note 1 for additional information.
For a discussion about the Firm’s business segments, see Note 2123 to the consolidated financial statements in the 20162020 Form10-K.

Selected Financial Information by Business Segment

  Three Months Ended September 30, 2017 
$ in millions   IS       WM       IM1, 2       I/E       Total    

Totalnon-interest revenues

 $    4,618  $3,195  $676  $(75)  $8,414  

Interest income

  1,421   1,155   1   (237)   2,340  

Interest expense

  1,663   130   2   (238)   1,557  

Net interest

  (242)   1,025   (1)   1   783  

Net revenues

 $4,376  $4,220  $675  $(74)  $9,197  

Income from continuing operations before income taxes

 $1,236  $1,119  $131  $(4)  $2,482  

Provision for income taxes

  260   421   16   —   697  

Income from continuing operations

  976   698   115   (4)   1,785  

Income (loss) from discontinued operations, net of income taxes

  6   —   —   —   6  

Net income

  982   698   115   (4)   1,791  

Net income applicable to noncontrolling interests

  9   —   1   —   10  

Net income applicable
to Morgan Stanley

 $973  $698  $114  $(4)  $1,781  

89September 2017June 2021 Form 10-Q68

Notes to Consolidated Financial Statements


(Unaudited)

LOGO
ms-20210630_g1.jpg

  Three Months Ended September 30, 2016 
$ in millions IS  WM  IM1, 2  I/E  Total 

Totalnon-interest
revenues

 $   4,436  $   2,996  $     551  $(77)  $   7,906   

Interest income

  980   979   1     (226)   1,734   

Interest expense

  863   94   —   (226)   731   

Net interest

  117   885   1   —   1,003   

Net revenues

 $4,553  $3,881  $552  $(77)  $8,909   

Income from continuing
operations before
income taxes

 $1,383  $901  $97  $—  $2,381   

Provision for income taxes

  381   337   31   —   749   

Income from continuing
operations

  1,002   564   66   —   1,632   

Income (loss) from
discontinued operations,
net of income taxes

  8   —   —   —   8   

Net income

  1,010   564   66   —   1,640   

Net income (loss) applicable
to noncontrolling interests

  44   —   (1)   —   43   

Net income applicable
to Morgan Stanley

 $966  $564  $67  $—  $1,597   
  

 

Nine Months Ended September 30, 2017

 
$ in millions IS3  WM  IM1, 2  I/E  Total 

Totalnon-interest
revenues

 $15,017  $9,401  $1,949  $(227)  $26,140  

Interest income

  3,788   3,348   3   (728)   6,411  

Interest expense

  4,515   320   3   (732)   4,106  

Net interest

  (727)   3,028   —   4   2,305  

Net revenues

 $14,290  $12,429  $1,949  $(223)  $28,445  

Income from continuing
operations before
income taxes

 $4,409  $3,149  $376  $(2)  $7,932  

Provision for income taxes

  1,132   1,139   87   —   2,358  

Income from continuing
operations

  3,277   2,010   289   (2)   5,574  

Income (loss) from
discontinued operations,
net of income taxes

  (21)   —   —   —   (21) 

Net income

  3,256   2,010   289   (2)   5,553  

Net income applicable
to noncontrolling interests

  77   —   8   —   85  

Net income applicable
to Morgan Stanley

 $3,179  $2,010  $281  $(2)  $5,468  
  Nine Months Ended September 30, 2016 
$ in millions IS4  WM4  IM1, 2  I/E  Total 

Totalnon-interest
revenues

 $12,577  $8,815  $1,610  $(207)  $22,795  

Interest income

  2,999   2,813   5   (669)   5,148  

Interest expense

  2,731   268   3   (669)   2,333  

Net interest

  268   2,545   2   —   2,815  

Net revenues

 $  12,845  $  11,360  $    1,612  $  (207)  $25,610  

Income from continuing
operations before
income taxes

 $3,797  $2,546  $259  $—  $6,602  

Provision for income taxes

  1,109   973   78   —   2,160  

Income from continuing
operations

  2,688   1,573   181   —   4,442  

Income (loss) from
discontinued operations,
net of income taxes

  1   —   —   —   1  

Net income

  2,689   1,573   181   —   4,443  

Net income (loss) applicable
to noncontrolling interests

  144   —   (14)   —   130  

Net income applicable
to Morgan Stanley

 $2,545  $1,573  $195  $—  $4,313  

IS—Institutional Securities

WM—Wealth Management

IM—

Detail of Investment Banking Revenues
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Institutional Securities Advisory$664 $462 $1,144 $824 
Institutional Securities Underwriting1,712 1,589 3,845 2,371 
Firm Investment banking revenues from contracts with customers90 %92 %91 %91 %
Trading Revenues by Product Type1
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Interest rate$17 $1,008 $876 $2,082 
Foreign exchange314 127 588 465 
Equity security and index2
2,033 1,943 3,728 3,016 
Commodity and other680 723 1,541 733 
Credit286 1,002 822 1,308 
Total$3,330 $4,803 $7,555 $7,604 
1.Certain prior period amounts have been reclassified to conform to the current presentation. See Note 1 for additional information.
2.Dividend income is included within equity security and index contracts.
The previous table summarizes realized and unrealized gains and losses, from derivative and non-derivative financial instruments, included in Trading revenues in the income statements. The Firm generally utilizes financial instruments across a variety of product types in connection with its market-making and related risk management strategies. The trading revenues presented in the table are not representative of the manner in which the Firm manages its business activities and are prepared in a manner similar to the presentation of trading revenues for regulatory reporting purposes.
Investment Management

I/E—Intersegment eliminations

1.

For further information on fee waiver amounts see the table below.

2.

For further information on net unrealized performance-based fee amounts see the table below.

3.

During the current year period, the Firm recorded a provision of $86 million for potential additional value-added tax, interest and penalties in relation to certain intercompany service activities provided to our U.K. group.

4.

Effective July 1, 2016, the Institutional Securities and Wealth Management business segments entered into an agreement, whereby Institutional Securities assumed management of Wealth Management’s fixed income client-driven trading activities and employees. Institutional Securities now pays fees to Wealth Management based on distribution activity (collectively, the “Fixed Income Integration”). Prior periods have not been recast for this new intersegment agreement due to immateriality.

Investments Revenues—Net Cumulative Unrealized Carried Interest

$ in millionsAt
June 30,
2021		At
December 31,
2020
Net cumulative unrealized performance-based income at risk of reversing$778 $735 
The Firm’s portion of net cumulative performance-based income in the form of unrealized carried interest, for which the Firm is not obligated to pay compensation, is at risk of reversing when the return in certain funds fall below specified performance targets. See Note 14 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received.
Investment Management Asset Management Revenues—Reduction of Fees Due to Fee Waivers
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Fee waivers$131 $22 $225 $33 
The Firm waives a portion of its fees in the Investment Management business segment from certain registered money market funds that comply with the requirements of Rule 2a-7 of the Investment Company Act of 1940.

Reduction of Fees due to

Certain Other Fee Waivers

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in millions       2017              2016              2017              2016       

Fee waivers

 $20  $26  $66  $61  

In

Separately, the Firm’s employees, including its senior officers, may participate on the same terms and conditions as other investors in certain management fee arrangements,funds that the Firm is entitled to receive performance-based fees (also referred to as incentivesponsors primarily for client investment, and the Firm may waive or lower applicable fees and includes carried interest) whencharges for its employees.
Other Expenses—Transaction Taxes
Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Transaction taxes$217 $146 $455 $330 
Transaction taxes are composed of securities transaction taxes and stamp duties, which are levied on the returnsale or purchase of securities listed on assets under management exceedsrecognized stock exchanges in certain benchmark returns or other performance targets. In such arrangements, performance fee revenuesmarkets. These taxes are accrued (or reversed) quarterly basedimposed mainly on measuring account/fund performancetrades of equity securities in Asia and EMEA. Similar transaction taxes are levied on trades of listed derivative instruments in certain countries.
Net Revenues by Region1
 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Americas$10,885 $9,950 $22,076 $16,838 
EMEA2,093 2,109 4,252 3,306 
Asia1,781 1,601 4,150 3,295 
Total$14,759 $13,660 $30,478 $23,439 
1.Certain prior period amounts have been reclassified to date versusconform to the performance benchmark stated in the investment management

September 2017 Form 10-Q90

Notes to Consolidated Financial Statements

(Unaudited)

LOGO

agreement. The Firm’s portion of net unrealized cumulative performance-based fees (for which the Firm is not obligated to pay compensation) are at risk of reversing if the fund performance falls below the stated investment management agreement benchmarks.current presentation. See Note 111 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received.

Net Unrealized Performance-based Fees

$ in millions 

  At September 30,  

2017

  

  At December 31,  

2016

 

Net unrealized cumulative
performance-based fees at risk of reversing

 $450  $397  

Total Assets by Business Segment

$ in millions 

  At September 30,  

2017

  

   At December 31,   

2016

 

Institutional Securities

 $668,281  $629,149  

Wealth Management

  180,628   181,135  

Investment Management

  4,784   4,665  

Total1

 $853,693  $814,949  

1.

Corporate assets have been fully allocated to the business segments.

Geographic Information

additional information.

For a discussion about the Firm’s geographic net revenues, see Note 2123 to the consolidated financial statements in the 20162020 Form10-K.

Net

Revenues by Region

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
$ in millions       2017              2016              2017              2016       

Americas

 $6,833  $6,624  $20,667  $18,914  

EMEA

  1,325   1,236   4,420   3,677  

Asia-Pacific

  1,039   1,049   3,358   3,019  

Net revenues

 $9,197  $8,909  $28,445  $25,610  

20. Subsequent Events

Recognized from Prior Services

 Three Months Ended
June 30,		Six Months Ended
June 30,
$ in millions2021202020212020
Non-interest revenues$677 $680 $1,066 $1,242 
The Firm has evaluated subsequent events for adjustment toprevious table includes revenues from contracts with customers recognized where some or disclosureall services were performed in prior periods. For the financial statements through the date of this reportthree and has not identified any recordable or disclosable events not otherwise reported in these financial statements or the notes thereto.

six months

6991September 2017June 2021 Form 10-Q

Financial Data Supplement (Unaudited)

Average Balances and Interest Rates and Net Interest Income

LOGO

   Three Months Ended September 30, 
   2017  2016 
$ in millions  

Average

Daily Balance

     Interest    

Annualized

  Average Rate  

  

Average

Daily Balance

   Interest   

Annualized    

Average Rate    

 

Interest earning assets1

          

Investment securities2

  $73,599   $313   1.7%  $79,948   $289    1.4 % 

Loans2

   99,655    853   3.4   91,010    698    3.0     

Interest bearing deposits with banks2

   25,196    84   1.3   23,993    30    0.5     

Securities purchased under agreements
to resell and Securities borrowed3:

          

U.S.

   128,127    190   0.6   138,420    (58)    (0.2)    

Non-U.S.

   99,019    (114)   (0.5)   84,881    (60)    (0.3)    

Trading assets, net of Trading liabilities4:

          

U.S.

   58,000    463   3.2   52,490    452    3.4     

Non-U.S.

   5,826    43   3.0   12,001    74    2.4     

Customer receivables and Other5:

          

U.S.

   47,916    364   3.0   48,637    298    2.4     

Non-U.S.

   25,429    144   2.2   22,162    11    0.2     

Total

  $562,767   $2,340   1.7%  $553,542   $1,734    1.2 % 

Interest bearing liabilities1

 

        

Deposits2

  $150,116   $63   0.2%  $153,036   $12    — % 

Short-term and Long-term borrowings2, 6

   192,575    1,109   2.3   166,271    814    1.9     

Securities sold under agreements
to repurchase and Securities loaned7:

                            

U.S.

   30,027    234   3.1   33,361    133    1.6     

Non-U.S.

   38,536    91   0.9   33,487    95    1.1     

Customer payables and Other8:

                            

U.S.

   129,365    (13)   —   125,931    (217)    (0.7)    

Non-U.S.

   66,697    73   0.4   64,241    (106)    (0.7)    

Total

  $607,316   $1,557   1.0%  $576,327   $731    0.5 % 

Net interest income
and net interest rate spread

       $783   0.7%       $1,003    0.7 % 

September 2017 Form 10-Q92
Notes to Consolidated Financial Statements
(Unaudited)
ms-20210630_g1.jpg

ended June 30, 2021 these revenues primarily include investment banking advisory fees, and for the three and six months ended June 30, 2020, these revenues primarily include investment banking advisory fees and distribution fees.
Receivables from Contracts with Customers
$ in millionsAt
June 30,
2021		At
December 31,
2020
Customer and other receivables$3,425 $3,200 
Receivables from contracts with customers, which are included within Customer and other receivables in the balance sheets, arise when the Firm has both recorded revenues and the right per the contract to bill the customer.
Assets by Business Segment
$ in millionsAt
June 30,
2021		At
December 31,
2020
Institutional Securities$782,257 $753,322 
Wealth Management361,136 355,595 
Investment Management18,412 6,945 
Total1
$1,161,805 $1,115,862 
1. Parent assets have been fully allocated to the business segments.

June 2021 Form 10-Q

70
Financial Data Supplement
(Unaudited)

Average Balances and Interest Rates and Net Interest Income

LOGO
ms-20210630_g1.jpg

   Nine Months Ended September 30, 
   2017  2016 
$ in millions  

Average

Daily Balance

     Interest    

Annualized

  Average Rate  

  

Average

Daily Balance

   Interest   Annualized  
Average Rate  		 

Interest earning assets1

          

Investment securities2

  $76,356   $943   1.7%      $77,989   $762    1.3 % 

Loans2

   97,099    2,399   3.3   88,995    2,026    3.0     

Interest bearing deposits with banks2

   21,685    206   1.3   28,329    134    0.6     

Securities purchased under agreements
to resell and Securities borrowed3:

          

U.S.

   126,738    406   0.4   148,918    (184)    (0.2)    

Non-U.S.

   96,419    (320)   (0.4)   84,802    (131)    (0.2)    

Trading assets, net of Trading liabilities4:

          

U.S.

   58,260    1,385   3.2   48,274    1,426    3.9     

Non-U.S.

   3,701    76   2.7   14,706    225    2.0     

Customer receivables and Other5:

          

U.S.

   49,155    950   2.6   47,723    838    2.3     

Non-U.S.

   24,514    366   2.0   22,209    52    0.3     

Total

  $553,927   $6,411   1.5%      $561,945   $5,148    1.2 % 

Interest bearing liabilities1

 

        

Deposits2

  $150,244   $88   0.1%      $155,598   $48    — % 

Short-term and Long-term borrowings2, 6

   181,544    3,197   2.4   163,474    2,633    2.2     

Securities sold under agreements
to repurchase and Securities loaned7:

          

U.S.

   31,958    651   2.7   32,183    424    1.8     

Non-U.S.

   39,449    261   0.9   29,970    337    1.5     

Customer payables and Other8:

          

U.S.

   128,420    (196)   (0.2)   126,468    (826)    (0.9)    

Non-U.S.

   64,257    105   0.2   64,221    (283)    (0.6)    

Total

  $595,872   $4,106   0.9%      $571,914   $2,333    0.5 % 

Net interest income
and net interest rate spread

       $2,305   0.6%       $      2,815    0.7 % 



Average Balances and Interest Rates and Net Interest Income
 Three Months Ended June 30,
 20212020
$ in millions
Average
Daily
Balance
Interest
Annualized
Average
Rate
Average
Daily
Balance
Interest
Annualized
Average
Rate
Interest earning assets
Investment securities1
$181,482 $608 1.3 %$123,713 $629 2.0 %
Loans1
161,767 1,040 2.6 %147,326 1,050 2.9 %
Securities purchased under agreements to resell and Securities borrowed2:
U.S.152,770 (200)(0.5)%141,722 (85)(0.2)%
Non-U.S.73,218 (121)(0.7)%61,283 (56)(0.4)%
Trading assets, net of Trading liabilities3:
U.S.77,814 409 2.1 %70,641 489 2.8 %
Non-U.S.17,897 77 1.7 %24,757 127 2.1 %
Customer receivables and Other4:
U.S.130,618 340 1.0 %87,620 166 0.8 %
Non-U.S.76,329 59 0.3 %62,126 38 0.2 %
Total$871,895 $2,212 1.0 %$719,188 $2,358 1.3 %
Interest bearing liabilities
Deposits1
$321,138 $108 0.1 %$235,370 $220 0.4 %
Borrowings1, 5
221,911 719 1.3 %202,280 823 1.6 %
Securities sold under agreements to repurchase and Securities loaned6:
U.S.37,849 33 0.3 %28,840 92 1.3 %
Non-U.S.29,719 83 1.1 %30,446 117 1.5 %
Customer payables and Other7:
U.S.129,695 (481)(1.5)%121,977 (403)(1.3)%
Non-U.S.75,829 (115)(0.6)%63,778 (91)(0.6)%
Total$816,141 $347 0.2 %$682,691 $758 0.4 %
Net interest income and net interest rate spread$1,865 0.8 % $1,600 0.9 %

 Six Months Ended June 30,
 20212020
$ in millionsAverage Daily BalanceInterestAnnualized Average RateAverage Daily BalanceInterestAnnualized Average Rate
Interest earning assets
Investment securities1
$184,377 $1,457 1.6 %$116,995 $1,074 1.8 %
Loans1
156,729 2,028 2.6 %140,884 2,204 3.1 %
Securities purchased under agreements to resell and Securities borrowed2:
U.S.149,440 (369)(0.5)%131,357 293 0.4 %
Non-U.S.70,897 (248)(0.7)%59,131 (36)(0.1)%
Trading assets, net of Trading liabilities3:
U.S.75,563 819 2.2 %74,663 1,115 3.0 %
Non-U.S.17,518 177 2.0 %23,905 250 2.1 %
Customer receivables and Other4:
U.S.134,298 677 1.0 %77,694 721 1.9 %
Non-U.S.75,249 108 0.3 %61,078 240 0.8 %
Total$864,071 $4,649 1.1 %$685,707 $5,861 1.7 %
Interest bearing liabilities
Deposits1
$320,688 $228 0.1 %$217,472 $626 0.6 %
Borrowings1, 5
218,816 1,433 1.3 %197,171 1,820 1.9 %
Securities sold under agreements to repurchase and Securities loaned6:
U.S.35,891 77 0.4 %29,954 420 2.8 %
Non-U.S.28,486 153 1.1 %30,261 298 2.0 %
Customer payables and Other7:
U.S.130,065 (918)(1.4)%125,797 (294)(0.5)%
Non-U.S.71,608 (217)(0.6)%63,375 35 0.1 %
Total$805,554 $756 0.2 %$664,030 $2,905 0.9 %
Net interest income and net interest rate spread$3,893 0.9 % $2,956 0.8 %
1.Amounts include primarily U.S. balances.
2.Includes fees paid on Securities borrowed.
3.Excludes non-interest earning assets and non-interest bearing liabilities, such as equity securities.
4.Includes Cash and cash equivalents.
5.Includes borrowings carried at fair value, whose interest expense is considered part of fair value and therefore is recorded within Trading revenues.
6.Includes fees received on Securities loaned. The annualized average rate was calculated using (a) interest expense incurred on all securities sold under agreements to repurchase and securities loaned transactions, whether or not such transactions were reported in the balance sheets and (b) net average on-balance sheet balances, which exclude certain securities-for-securities transactions.
7.Includes fees received from Equity Financing customers for securities lending transactions entered into to cover customers’ short positions.
1.

Certain revisions have been made to prior periods to conform to the current presentation.

2.

Amounts include primarily U.S. balances.

3.

Includes fees paid on Securities borrowed.

4.

Trading assets, net of Trading liabilities excludenon-interest earning assets andnon-interest bearing liabilities, such as equity securities.

5.

Includes interest from customer receivables and cash deposited with clearing organizations or segregated under federal and other regulations or requirements.

6.

The Firm also issues structured notes that have coupon or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities, which are recorded within Trading revenues (see Note 3 to the financial statements).

7.

Includes fees received on Securities loaned.

8.

Includes fees received from prime brokerage customers for stock loan transactions incurred to cover customers’ short positions.

7193September 2017June 2021 Form 10-Q

Financial Data Supplement (Unaudited)

Rate/Volume Analysis

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Effect of Volume and Rate Changes on Net Interest Income

   

Three Months Ended September 30, 2017

versus

Three Months Ended September 30, 2016

   

Nine Months Ended September 30, 2017

versus

Nine Months Ended September 30, 2016

 
   

Increase (decrease)

due to change in:

      

Increase (decrease)

due to change in:

    
$ in millions      Volume      Rate  Net Change       Volume      Rate  Net Change 

Interest earning assets

 

  

Investment securities

  $(23)  $47  $24   $(16)  $197  $181  

Loans

   66   89   155    184   189   373  

Interest bearing deposits with banks

   2   52   54    (31)   103   72  

Securities purchased under agreements
to resell and Securities borrowed:

 

  

U.S.

   4   244   248    27   563   590  

Non-U.S.

   (10)   (44)   (54)    (18)   (171)   (189) 

Trading assets, net of Trading liabilities:

        

U.S.

   47   (36)   11    295   (336)   (41) 

Non-U.S.

   (38)   7   (31)    (168)   19   (149) 

Customer receivables and Other:

 

  

U.S.

   (4)   70   66    25   87   112  

Non-U.S.

   2   131   133    5   309   314  

Change in interest income

  $46  $560  $606   $303  $960  $1,263  

Interest bearing liabilities

 

  

Deposits

  $—  $51  $51   $(2)  $42  $40  

Short-term and Long-term borrowings

   129   166   295    291   273   564  

Securities sold under agreements
to repurchase and Securities loaned:

        

U.S.

   (13)   114   101    (3)   230   227  

Non-U.S.

   14   (18)   (4)    107   (183)   (76) 

Customer payables and Other:

 

  

U.S.

   (6)   210   204    (13)   643   630  

Non-U.S.

   (4)   183   179    —   388   388  

Change in interest expense

  $120  $            706  $826   $380  $        1,393  $1,773  

Change in net interest income

  $(74)  $(146)  $(220)   $(77)  $(433)  $(510) 

September 2017 Form 10-Q94
Glossary of Common Terms and Acronyms
ms-20210630_g1.jpg

2020 Form 10-KAnnual report on Form 10-K for year ended December 31, 2020 filed with the SEC
ABSAsset-backed securities
ACLAllowance for credit losses
AFSAvailable-for-sale
AMLAnti-money laundering
AOCIAccumulated other comprehensive income (loss)
AUMAssets under management or supervision
Balance sheetsConsolidated balance sheets
BHCBank holding company
bpsBasis points; one basis point equals 1/100th of 1%
Cash flow statementsConsolidated cash flow statements
CCARComprehensive Capital Analysis and Review
CCyBCountercyclical capital buffer
CDOCollateralized debt obligation(s), including Collateralized loan obligation(s)
CDSCredit default swaps
CECLCurrent Expected Credit Losses, as calculated under the Financial Instruments—Credit Losses accounting update
CFTCU.S. Commodity Futures Trading Commission
CLNCredit-linked note(s)
CLOCollateralized loan obligation(s)
CMBSCommercial mortgage-backed securities
CMOCollateralized mortgage obligation(s)
CRMCredit Risk Management Department
CVACredit valuation adjustment
DVADebt valuation adjustment
EBITDAEarnings before interest, taxes, depreciation and amortization
ELNEquity-linked note(s)
EMEAEurope, Middle East and Africa
EPSEarnings per common share
FDICLOGOFederal Deposit Insurance Corporation
FFELPFederal Family Education Loan Program
FHCFinancial Holding Company
FICOFair Isaac Corporation
Financial statementsConsolidated financial statements
G-SIBGlobal systemically important banks
HQLAHigh-quality liquid assets
HTMHeld-to-maturity
I/EIntersegment eliminations
IHCIntermediate holding company
IMInvestment Management
Income statementsConsolidated income statements

IRSInternal Revenue Service
ISInstitutional Securities
LCRLiquidity coverage ratio, as adopted by the U.S. banking agencies
LIBORLondon Interbank Offered Rate
LTVLoan-to-value
MSBNAMorgan Stanley Bank, N.A.
MS&Co.Morgan Stanley & Co. LLC
MSIPMorgan Stanley & Co. International plc
MSPBNAMorgan Stanley Private Bank, National Association
MSSBMorgan Stanley Smith Barney LLC
MUFGMitsubishi UFJ Financial Group, Inc.
MUMSSMitsubishi UFJ Morgan Stanley Securities Co., Ltd.
MWhMegawatt hour
N/ANot Applicable
N/MNot Meaningful
NAVNet asset value
Non-GAAPNon-generally accepted accounting principles
NSFRNet stable funding ratio, as adopted by the U.S. banking agencies
OCCOffice of the Comptroller of the Currency
OCIOther comprehensive income (loss)
OTCOver-the-counter
PRAPrudential Regulation Authority
PSUPerformance-based stock unit
ROEReturn on average common equity
ROTCEReturn on average tangible common equity
ROURight-of-use
RSURestricted stock unit
RWARisk-weighted assets
SCBStress capital buffer
SECU.S. Securities and Exchange Commission
SLRSupplementary leverage ratio
S&PStandard & Poor’s
SPESpecial purpose entity
SPOESingle point of entry
TDRTroubled debt restructuring
TLACTotal loss-absorbing capacity
U.K.United Kingdom
UPBUnpaid principal balance
U.S.United States of America
U.S. GAAPAccounting principles generally accepted in the United States of America
VaRValue-at-Risk
VIEVariable interest entity
WACCImplied weighted average cost of capital
WMWealth Management
June 2021 Form 10-Q72
ms-20210630_g1.jpg
Other Information

On July 27, 2021, Elizabeth Corley notified Morgan Stanley of her intention to resign from the Board of Directors effective on or about April 27, 2022 when it is expected that she will become board chair of a U.K.-based firm.
Legal Proceedings

The following new matters and developments have occurred since previously reporting certain matters in the Firm’s Annual Report on2020 Form10-K for the year ended December 31, 2016 (the “Form10-K”), and the Firm’s Quarterly Report on Form10-Q for the quarterly period ended March 31, 20172021 (the “First Quarter Form10-Q”) and the Firm’s Quarterly Report on Form10-Q for the period ending June 30, 2017 (the “Second Quarter Form10-Q”). See also the disclosures set forth under “Legal Proceedings” in the 2020 Form 10-K.

European Matter
On June 22, 2021, Dutch criminal authorities sought various documents in connection with an investigation of the Firm related to the civil claims asserted by the Dutch Tax Authority in matters re-styled Case number 18/00318 and Case number 18/00319, concerning the accuracy of the Dutch subsidiary’s tax returns and the maintenance of its books and records for 2007 to 2012.
Risk Factors
For a discussion of the risk factors affecting the Firm, see “Risk Factors” in Part I, Item 31A of the 2020 Form10-K and Part II, Item 1 of the First Quarter Form10-Q and the Second Quarter Form10-Q.

Residential Mortgage and Credit Crisis Related Matters

On August 10, 2017, the plaintiff inWilmington Trust Company v. Morgan Stanley Mortgage Capital Holdings LLC et al.filed a motion for leave to appeal the Appellate Division, First Department’s July 11, 2017 decision and order granting in part and denying in part the Firm’s motion to dismiss. On September 26, 2017, the Appellate Division, First Department denied plaintiff’s motion for leave to appeal.

On August 25, 2017, the parties inMorgan Stanley Mortgage Loan Trust 2006-4SL, et al. v. Morgan Stanley Mortgage Capital Inc. andMorgan Stanley Mortgage Loan Trust 2006-10SL, et al. v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc. entered into agreements to settle the litigations, which are subject to court approval.

On September 11, 2017, the Firm moved to dismiss the second amended complaint inPhoenix Light SF Limited, et al. v. Morgan Stanley, et al.

On October 3, 2017, the Appellate Division, First Department denied the Firm’s motion for leave to appeal inDeutscheZentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al.

10-K.

Other Matters

On September 8, 2017, the court inIn Re Foreign Exchange Benchmark Rates Antitrust Litigation granted an order preliminarily approving the Firm’s settlement.

On October 5, 2017, various institutional investors filed a claim against the Firm and another bank in a matter styledCase number BS99-6998/2017,filed in the City Court of Copenhagen, Denmark concerning their roles as underwriters of the initial public offering (“IPO”) in March 2014 of the Danish company OW Bunker A/S. The claim is based on alleged prospectus liability and seeks damages of DKK 534,270,456 (approximately US$85 million) plus interest in respect of alleged losses arising from investing in shares in OW Bunker, which entered into bankruptcy in November 2014. Separately, on September 12, 2017, representatives of another group of institutional investors gave formal notice of their intention to commence legal proceedings against the Firm and the other bank. The investors are expected to join the Firm and the other bank to pending proceedings in Copenhagen, Denmark against various other parties involved in the IPO in a matter styledCase numberB-2073-16. The investors are expected to claim damages of DKK 766,066,012 (approximately US$121 million) plus interest, also on the basis of alleged prospectus liability.

On October 12, 2017, the Firm reached a settlement in principle with the Environmental Protection Agency in the amount of approximately $1 million on the Firm’s self-disclosure regarding certain reformulated blendstock the Firm blended and sold during 2013 and 2014.

On November 3, 2017, the Firm intends to file its opposition to plaintiffs’ motion for class certification inAlaska Electrical Pension Fund et al. v. Bank of America et al. (formerly styledGenesee County Employees’ Retirement System v. Bank of America Corporation et al.).

95September 2017 Form 10-Q

LOGO

Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth the information with respect to purchases made by or on behalf of the Firm of its common stock during the quarterly period ended September 30, 2017.

Issuer Purchases of Equity Securities

$ in millions, except per share data  Total Number of
Shares
Purchased		  

Average Price

Paid Per Share

  Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs1		  Approximate
Dollar Value of
Shares that May
Yet be Purchased
Under the Plans or
Programs		 

Month #1 (July 1, 2017—July 31, 2017)

     

Share Repurchase Program2

   2,729,000  $47.07   2,729,000  $4,872  

Employee transactions3

   769,637  $46.21   —   —   

Month #2 (August 1, 2017—August 31, 2017)

     

Share Repurchase Program2

   13,740,000  $46.56   13,740,000  $4,232  

Employee transactions3

   96,764  $46.66   —   —  

 

Month #3 (September 1, 2017—September 30, 2017)

     

Share Repurchase Program2

   10,448,247  $46.12   10,448,247  $3,750  

Employee transactions3

   192,674  $46.11   —   —  

Quarter ended at September 30, 2017

     

Share Repurchase Program2

   26,917,247  $46.44   26,917,247  $3,750  

Employee transactions3

   1,059,075  $46.23   —   —  

Three Months Ended June 30, 2021
$ in millions, except per share data
Total Number of Shares Purchased1
Average Price Paid per Share
Total Shares Purchased as Part of Share Repurchase Program2,3
Dollar Value of Remaining Authorized Repurchase
April9,005,938 $79.84 8,095,000 $7,219 
May14,426,207 $85.91 14,386,200 $5,983 
June11,627,627 $91.07 11,606,923 $4,926 
Total35,059,772 $86.06 34,088,123 
1.Includes 971,649 shares acquired by the Firm in satisfaction of the tax withholding obligations on stock-based awards granted under the Firm’s stock-based compensation plans during the three months ended June 30, 2021.
2.Share purchases under publicly announced programs are made pursuant to open-market purchases, Rule 10b5-1 plans or privately negotiated transactions (including with employee benefit plans) as market conditions warrant and at prices the Firm deems appropriate and may be suspended at any time.
3.The Firm’s Board of Directors has authorized the repurchase of the Firm’s outstanding common stock under a share repurchase program (the “Share Repurchase Program”) from time to time as conditions warrant and subject to limitations on distributions from the Federal Reserve. The Share Repurchase Program is a program for capital management purposes that considers, among other things, business segment capital needs, as well as equity-based compensation and benefit plan requirements. The Share Repurchase Program has no set expiration or termination date.
On June 28, 2021, the Firm announced its Board of Directors authorized the repurchase of up to $12 billion of outstanding common stock from July 1, 2021 through June 30, 2022, from
time to time as conditions warrant, which supersedes the previous common stock repurchase authorization. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Capital Buffer.”
Controls and Procedures
Under the supervision and with the participation of the Firm’s management, including the Chief Executive Officer and Chief Financial Officer, the Firm conducted an evaluation of the effectiveness of the Firm’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Firm’s disclosure controls and procedures were effective as of the end of the period covered by this report.
No change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
Exhibits
1.

Share purchases under publicly announced programs are made pursuant to open-market purchases, Rule 10b5-1 plans or privately negotiated transactions (including with employee benefit plans) as market conditions warrant and at prices the Firm deems appropriate and may be suspended at any time.

2.

The Firm’s Board of Directors has authorized the repurchase of the Firm’s outstanding stock under a share repurchase program (the “Share Repurchase Program”). The Share Repurchase Program is a program for capital management purposes that considers, among other things, business segment capital needs, as well as equity-based compensation and benefit plan requirements. The Share Repurchase Program has no set expiration or termination date. Share repurchases by the Firm are subject to regulatory approval. On June 28, 2017, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) announced that they did not object to our 2017 capital plan, which included a share repurchase of up to $5.0 billion of the Firm’s outstanding common stock during the period beginning July 1, 2017 through June 30, 2018. During the quarter ended September 30, 2017, the Firm repurchased approximately $1.25 billion of the Firm’s outstanding common stock as part of its Share Repurchase Program. For further information, see “Liquidity and Capital Resources—Capital Management” in Part I, Item 2.

3.

Includes shares acquired by the Firm in satisfaction of the tax withholding obligations on stock-based awards and the exercise of stock options granted under the Firm’s stock-based compensation plans.

Exhibits

An exhibit index has been filed as part of this Report on pageE-1.

September 2017 Form 10-Q96

Exhibit Index

Morgan Stanley

Quarter Ended September 30, 2017

Exhibit No.

Description

12

10.1

Statement Re: Computation of Ratio of EarningsSixth Amendment to Fixed ChargesInvestor Agreement, dated April 13, 2021, between Morgan Stanley and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends (unaudited).Mitsubishi UFJ Financial Group, Inc.

15

15

Letter of awareness from Deloitte& Touche LLP, dated November 3, 2017,August 2, 2021, concerning unaudited interim financial information.

31.1

31.1

Rule 13a-14(a) Certification of Chief Executive Officer.
31.2

31.2

Rule 13a-14(a) Certification of Chief Financial Officer.
32.1

32.1

Section 1350 Certification of Chief Executive Officer.
32.2

32.2

Section 1350 Certification of Chief Financial Officer.
101

101

Interactive data filesData Files pursuant to Rule 405 of RegulationS-T (unaudited): (i) the Consolidated Income Statements—Three Months formatted in Inline eXtensible Business Reporting Language (“Inline XBRL”).

104Cover Page Interactive Data File (formatted in Inline XBRL and Nine Months Ended September 30, 2017 and 2016, (ii) the Consolidated Comprehensive Income Statements—Three Months and Nine Months Ended September 30, 2017 and 2016, (iii) the Consolidated Balance Sheets—at September 30, 2017 and December 31, 2016, (iv) the Consolidated Statements of Changescontained in Total Equity—Nine Months Ended September 30, 2017 and 2016, (v) the Consolidated Cash Flow Statements—Nine Months Ended September 30, 2017 and 2016, and (vi) Notes to Consolidated Financial Statements.

Exhibit 101).

73E-1September 2017June 2021 Form 10-Q

LOGO
ms-20210630_g1.jpg

SIGNATURES

Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MORGAN STANLEY

(Registrant)

By:
/s/ SHARON YESHAYA

 By:

/s/ JONATHAN PRUZAN

Jonathan Pruzan

Sharon Yeshaya
Executive Vice President and


Chief Financial Officer

By:
/s/ RAJA J. AKRAM

 By:

/s/ PAUL C. WIRTH

Paul C. Wirth

Raja J. Akram
Deputy Chief Financial Officer,

Chief Accounting Officer and Controller

Date: November 3, 2017

August 2, 2021
S-1September 2017June 2021 Form 10-Q74