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MS Morgan Stanley

Filed: 3 May 21, 4:09pm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
Commission File Number 1-11758
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(Exact name of Registrant as specified in its charter)
 
Delaware1585 Broadway36-3145972(212)761-4000
(State or other jurisdiction of
incorporation or organization)
New York,NY10036(I.R.S. Employer Identification No.)(Registrant’s telephone number, including area code)
(Address of principal executive offices, including zip 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)
Morgan Stanley Cushing® MLP High Income Index ETNs due March 21, 2031MLPYNYSE Arca, Inc.
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-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 Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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 Rule 12b-2 of the Exchange Act).    Yes  ☐    No ☒
As of April 30, 2021, there were 1,860,588,915 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.


QUARTERLY REPORT ON FORM 10-Q
For the quarter ended March 31, 2021
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i

Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains 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 website.
Our website is www.morganstanley.com. You can access our Investor Relations webpage at www.morganstanley.com/about-us-ir. We make available free of charge, on or through our Investor Relations webpage, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (“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 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 at www.morganstanley.com/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 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;
Environmental and Social 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 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 website is not incorporated by reference into this report.
ii

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
Morgan Stanley is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms “Morgan Stanley,” “Firm,” “us,” “we” or “our” mean Morgan Stanley (the “Parent Company”) together with its consolidated subsidiaries. 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 a variety of products and 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. Our Equity and Fixed Income businesses include sales, financing, prime brokerage, market-making, Asia wealth management services and certain business-related investments. Lending activities include originating corporate loans and commercial real estate loans, providing secured lending facilities, and extending securities-based and other financing to customers. Other activities include research.
Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small to medium-sized businesses and institutions covering: financial advisor-led brokerage and investment advisory services; self-directed brokerage services, including through the E*TRADE platform; financial and wealth planning services; workplace services including stock plan administration; annuity and insurance products; securities-based lending, residential real estate loans and other lending products; banking; and retirement plan services.
Investment Management provides 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 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 generally served through intermediaries, including affiliated and non-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 by: competition; risk factors; legislative, legal and regulatory developments; and other factors. These factors also may have an adverse impact on our ability to achieve our strategic objectives. Additionally, the discussion of our results of operations herein may contain forward-looking statements. These statements, which reflect management’s beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect our future results, see “Forward-Looking Statements,” “Business—Competition,” “Business—Supervision and Regulation,” and “Risk Factors” in the 2020 Form 10-K, and “Liquidity and Capital Resources—Regulatory Requirements” herein.
March 2021 Form 10-Q1

Management’s Discussion and Analysis
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Executive Summary
Overview of Financial Results
Consolidated Results—Three Months Ended March 31, 2021
Firm Net revenues were up 61% and Net income applicable to Morgan Stanley was up 143%, with strong contributions from each of our three business segments, and resulting in an annualized ROTCE of 21.1%, or 21.4% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein).
Institutional Securities Net revenues of $8.6 billion increased 66% reflecting strength across businesses and geographies on continued strong client engagement and higher volumes in a constructive market environment, notwithstanding losses related to a single client event in the quarter.
Wealth Management delivered pre-tax income of $1.6 billion with a pre-tax profit margin of 26.9%, or 27.9% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein). Results reflect strong levels of client engagement, net new assets of $105 billion and fee-based flows of $37 billion, in addition to growth in bank lending.
Investment Management results reflect strong asset management fees on AUM of $1.4 trillion due to strong investment performance and positive flows across all asset classes, as well as the impact of the Eaton Vance acquisition.
The Firm expense efficiency ratio was 66.6%, or 66.1% excluding the impact of integration-related expenses (see “Selected Non-GAAP Financial Information” herein).
At March 31, 2021, our standardized Common Equity Tier 1 capital ratio was 16.7%.
The Firm repurchased $2.1 billion of its outstanding common stock.
Strategic Transactions
On March 1, 2021, we completed the acquisition of Eaton Vance. For further information, see “Business Segments—Investment Management” herein.
Net Revenues1
($ 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.Adjusted Diluted EPS for the current quarter was $2.22 (see “Selected Non-GAAP Financial Information” herein).

We reported net revenues of $15.7 billion in the quarter ended March 31, 2021 (“current quarter,” or “1Q 2021”), compared with $9.8 billion in the quarter ended March 31, 2020 (“prior year quarter,” or “1Q 2020”). For the current quarter, net income applicable to Morgan Stanley was $4.1 billion, or $2.19 per diluted common share, compared with $1.7 billion or $1.01 per diluted common share, in the prior year quarter.
2March 2021 Form 10-Q

Management’s Discussion and Analysis
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Non-interest Expenses1, 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 $6,798 million in the current quarter increased 59% from the prior year quarter, primarily as a result of increases in discretionary incentive compensation and the formulaic payout to Wealth Management representatives, both driven by higher revenues, higher expenses related to certain deferred compensation plans linked to investment performance and the Firm’s share price, and incremental compensation as a result of the E*TRADE and Eaton Vance acquisitions.
Non-compensation expenses of $3,675 million in the current quarter increased 25% from the prior year quarter, primarily driven by incremental expenses as a result of the E*TRADE and Eaton Vance acquisitions, in addition to higher volume-related expenses and higher investments in technology.
Provision for Credit Losses
The Provision for credit losses on loans and lending commitments was a net release of $98 million in the current quarter primarily driven by improvements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated borrowers. The Provision for credit losses on loans and lending commitments of $407 million in the prior year quarter was primarily driven by deterioration in the current and expected macroeconomic environment at that time. For further information on the Provision for credit losses, see “Credit Risk” herein.
Income Taxes
The increase in the Firm’s effective tax rate in the current quarter is primarily due to the lower impact of net discrete tax benefits. Net discrete tax benefits in the current quarter of $86 million and $130 million in the prior year quarter were primarily related to the conversion of employee share-based awards.
Business Segment Results
Net Revenues by Segment1, 2
($ 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 $8,577 million in the current quarter increased 66% from the prior year quarter, primarily reflecting higher revenues in equity underwriting driven by higher volumes, as well as higher revenues in credit products and equity derivatives. The current quarter included a loss of $644 million related to a credit event for a single client, and $267 million of subsequent trading losses through the end of the quarter related to the same event.
Wealth Management net revenues of $5,959 million in the current quarter increased 47% primarily due to higher transactional revenues reflecting gains from investments associated with certain employee deferred compensation plans, as well as higher asset management revenues on increased asset levels and positive fee-based flows. Net
March 2021 Form 10-Q3

Management’s Discussion and Analysis
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interest also increased primarily reflecting incremental revenues as a result of the E*TRADE acquisition.
Investment Management net revenues of $1,314 million in the current quarter increased 90% from the prior year quarter, due to higher Asset management and related fees driven by higher average AUM and the effect of the Eaton Vance acquisition, and higher Performance-based income and other revenues, driven by higher accrued carried interest.
Net Revenues by Region1, 2, 3
($ 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.
Current quarter revenues in Asia increased 40% and EMEA increased 80%, both driven primarily by the equity and fixed income businesses within the Institutional Securities business segment. Americas revenues increased 62%, primarily driven by the Wealth Management and the Institutional Securities business segments.
Selected Financial Information and Other Statistical Data
 Three Months Ended March 31,
$ in millions20212020
Consolidated results
Net revenues1
$15,719 $9,779 
Earnings applicable to Morgan Stanley common shareholders$3,982 $1,590 
Earnings per diluted common share$2.19 $1.01 
Consolidated financial measures
Expense efficiency ratio1, 2
66.6 %73.9 %
Adjusted expense efficiency ratio1, 2, 4
66.1 %73.9 %
ROE3
16.9 %8.5 %
Adjusted ROE3, 4
17.1 %8.5 %
ROTCE3, 4
21.1 %9.7 %
Adjusted ROTCE3, 4
21.4 %9.7 %
Pre-tax margin1, 5
34.0 %21.9 %
Effective tax rate22.0 %17.1 %
Pre-tax margin by segment5
Institutional Securities1
39.3 %18.3 %
Wealth Management1
26.9 %26.0 %
Wealth Management, adjusted1, 4
27.9 %26.0 %
Investment Management28.2 %20.7 %
Investment Management, adjusted4
29.0 %20.7 %
in millions, except per share and employee dataAt
March 31,
2021
At
December 31,
2020
Liquidity resources6
$353,304 $338,623 
Loans7
$159,123 $150,597 
Total assets$1,158,772 $1,115,862 
Deposits$323,138 $310,782 
Borrowings$215,826 $217,079 
Common shares outstanding1,869 1,810 
Common shareholders' equity$98,509 $92,531 
Tangible common shareholders’ equity4
$72,828 $75,916 
Book value per common share8
$52.71 $51.13 
Tangible book value per common share4, 8
$38.97 $41.95 
Worldwide employees9 (in thousands)
71 68 
Capital Ratios10
Common Equity Tier 1 capital—Standardized16.7 %17.4 %
Common Equity Tier 1 capital—Advanced17.4 %17.7 %
Tier 1 capital—Standardized18.5 %19.4 %
Tier 1 capital—Advanced19.2 %19.8 %
SLR11
6.7 %7.4 %
Tier 1 leverage7.5 %8.4 %
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.
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 (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 10 to the financial statements).
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 common shares outstanding.
9.As of March 31, 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 March 31, 2021 and at December 31, 2020, our SLR reflects the impact of a Federal Reserve interim final rule that was in effect until March 31, 2021. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments and Other Matters” herein.
4March 2021 Form 10-Q

Management’s Discussion and Analysis
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Coronavirus Disease (“COVID-19”) Pandemic
The COVID-19 pandemic and related voluntary and government-imposed social and business restrictions have had, and will likely continue to have, a significant impact on global economic conditions and the environment in which we operate our businesses. The Firm continues to be fully operational, with approximately 90% of employees in the Americas and globally working from home as of March 31, 2021.
Though we are unable to estimate the extent of the impact, the economic or other effects of the ongoing COVID-19 pandemic may have adverse impacts on our future operating results. Refer to “Risk Factors” and “Forward-Looking Statements” in the 2020 Form 10-K for more information.
Selected Non-GAAP Financial Information
We prepare our financial statements using U.S. GAAP. From time to time, we may disclose certain “non-GAAP financial measures” in this document or in the course of our earnings releases, earnings and other conference calls, financial presentations, definitive proxy statement and otherwise. A “non-GAAP financial measure” excludes, or includes, amounts from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. We consider the non-GAAP financial measures we disclose to be useful to us, investors, analysts and other stakeholders by providing further transparency about, or an alternate means of assessing or comparing our financial condition, operating results and capital adequacy.
These measures are not in accordance with, or a substitute for, U.S. GAAP and may be different from or inconsistent with non-GAAP financial measures used by other companies. Whenever we refer to a non-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 the non-GAAP financial measure.
The principal non-GAAP financial measures presented in this document are set forth in the following tables.
Reconciliations from U.S. GAAP to Non-GAAP Consolidated Financial Measures
 Three Months Ended
March 31,
$ in millions, except per share data20212020
Earnings applicable to Morgan Stanley common shareholders$3,982 $1,590 
Impact of adjustments:
Integration-related expenses75 — 
Related tax benefit(17)— 
Adjusted earnings applicable to
Morgan Stanley common shareholders—non-GAAP1
$4,040 $1,590 
Earnings per diluted common share$2.19 $1.01 
Impact of adjustments0.03 — 
Adjusted earnings per diluted common
share—non-GAAP1
$2.22 $1.01 
Expense efficiency ratio2
66.6 %73.9 %
Impact of adjustments(0.5)%— %
Adjusted expense efficiency ratio—non-GAAP1, 2
66.1 %73.9 %
Wealth Management Pre-tax margin2
26.9 %26.0 %
Impact of adjustments1.0 %— %
Adjusted Wealth Management pre-tax margin—non-GAAP1, 2
27.9 %26.0 %
Investment Management Pre-tax margin28.2 %20.7 %
Impact of adjustments0.8 %— %
Adjusted Investment Management pre-tax margin—non-GAAP1
29.0 %20.7 %
$ in millionsAt
March 31,
2021
At
December 31,
2020
Tangible equity
Common shareholders' equity$98,509 $92,531 
Less: Goodwill and net intangible assets(25,681)(16,615)
Tangible common shareholders' equity—non-GAAP$72,828 $75,916 
Average Monthly Balance
 Three Months Ended March 31,
$ in millions20212020
Tangible equity
Common shareholders' equity$94,343 $74,724 
Less: Goodwill and net intangible assets(18,849)(9,200)
Tangible common shareholders' equity—non-GAAP$75,494 $65,524 
 Three Months Ended
March 31,
$ in billions20212020
Average common equity
Unadjusted—GAAP$94.3 $74.7 
Adjusted1—Non-GAAP
94.4 74.7 
ROE3
Unadjusted—GAAP16.9 %8.5 %
Adjusted1—Non-GAAP
17.1 %8.5 %
Average tangible common equity—Non-GAAP
Unadjusted$75.5 $65.5 
Adjusted1
75.5 65.5 
ROTCE3—Non-GAAP
Unadjusted21.1 %9.7 %
Adjusted1
21.4 %9.7 %
March 2021 Form 10-Q5

Management’s Discussion and Analysis
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Non-GAAP Financial Measures by Business Segment
 Three Months Ended
March 31,
$ in billions20212020
Average common equity4
Institutional Securities$43.5 $42.8 
Wealth Management28.5 18.2 
Investment Management4.4 2.6 
ROE5
Institutional Securities23.0 %6.3 %
Wealth Management16.9 %18.5 %
Investment Management24.8 %11.7 %
Average tangible common equity4
Institutional Securities$42.9 $42.3 
Wealth Management13.4 10.4 
Investment Management1.2 1.7 
ROTCE5
Institutional Securities23.3 %6.4 %
Wealth Management36.0 %32.3 %
Investment Management88.2 %18.1 %
1.Adjusted amounts exclude the effect of costs related to the integration of E*TRADE and Eaton Vance, net of tax as appropriate. The pre-tax adjustments were as follows: Wealth Management – Compensation expenses of $30 million and Non-compensation expenses of $34 million, Investment Management – Compensation expenses of $3 million and Non-compensation expenses of $8 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
In January 2021, we established a 2-year ROTCE Target of 14% to 16%, excluding integration-related expenses.
Our ROTCE Target is a forward-looking statement that was based on a normal market environment and may be materially affected by many factors, including, among other things: mergers and acquisitions; macroeconomic and market conditions; legislative, accounting, tax and regulatory developments; industry trading and investment banking volumes; equity market levels; interest rate environment; outsized legal expenses or penalties; the ability to control expenses; and capital levels.
Given the economic impact of the COVID-19 pandemic, it is uncertain if the ROTCE Target will be met within the originally stated time frame. See “Coronavirus Disease (COVID–19) Pandemic” herein and “Risk Factors” in the 2020 Form 10-K for further information on market and economic conditions and their effects on our financial results.
For further information on non-GAAP measures (ROTCE excluding integration-related expenses), see “Selected Non-GAAP Financial Information” herein.
Business Segments
Substantially all of our operating revenues and operating expenses are directly attributable to our business segments. Certain revenues and expenses have been allocated to each business segment, generally in proportion to its respective net revenues, non-interest expenses or other relevant measures. See Note 20 to the financial statements for information on intersegment transactions.
For an overview of the components of our business segments, net revenues, compensation expense and income taxes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments” in the 2020 Form 10-K.
As part of our effort to continually improve the 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
The Provision for credit losses for loans and lending commitments is now 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.
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 now reported within Other revenues in the income statements. The new 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
Equity—Financing, Equity—Execution services and Fixed income now 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.
Investment 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.
6March 2021 Form 10-Q

Management’s Discussion and Analysis
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Institutional Securities
Income Statement Information
Three Months Ended
March 31,
$ in millions20212020% Change
Revenues
Advisory$480 $362 33 %
Equity1,502 336 N/M
Fixed income631 446 41 %
Total Underwriting2,133 782 173 %
Total Investment Banking2,613 1,144 128 %
Equity1
2,875 2,449 17 %
Fixed Income1
2,966 2,062 44 %
Other1
123 (477)126 %
Net revenues1
$8,577 $5,178 66 %
Provision for credit losses1
(93)388 (124)%
Compensation and benefits3,114 1,814 72 %
Non-compensation expenses1
2,185 2,026 8 %
Total non-interest expenses1
5,299 3,840 38 %
Income before provision for income taxes3,371 950 N/M
Provision for income taxes736 151 N/M
Net income2,635 799 N/M
Net income applicable to noncontrolling interests34 42 (19)%
Net income applicable to Morgan Stanley$2,601 $757 N/M
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 Revenues
Investment Banking Volumes
Three Months Ended
March 31,
$ in billions20212020
Completed mergers and acquisitions1
$225 $119 
Equity and equity-related offerings2, 3
36 14 
Fixed income offerings2, 4
102 94 
Source: Refinitiv data as of April 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 advisors in a transaction.
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
Revenues of $2,613 million in the current quarter increased 128% compared with the prior year quarter, primarily reflecting an increase in equity underwriting revenues.
Advisory revenues increased primarily as a result of higher volumes of completed M&A activity.
Equity underwriting revenues increased on higher volumes, primarily in initial public offerings, secondary block share trades and follow-on offerings.
Fixed income underwriting revenues increased primarily in non-investment grade bond issuances on higher volumes, as well as in non-investment grade loans issuances.
See “Investment Banking Volumes” herein.
Equity, Fixed Income and Other Net Revenues
Equity and Fixed Income Net Revenues
Three Months Ended
March 31, 2021
   
Net Interest2
All Other3
 
$ in millionsTrading
Fees1
Total
Financing$645 $130 $182 $3 $960 
Execution services1,114 800 (62)63 1,915 
Total Equity$1,759 $930 $120 $66 $2,875 
Total Fixed Income$2,313 $81 $439 $133 $2,966 
Three Months Ended
March 31, 20204
   
Net Interest2
All Other3
 
$ in millionsTrading
Fees1
Total
Financing$1,034 $101 $(37)$$1,103 
Execution services579 783 (38)22 1,346 
Total Equity$1,613 $884 $(75)$27 $2,449 
Total Fixed Income$1,773 $102 $328 $(141)$2,062 
1.Includes Commissions and fees and Asset management revenues.
2.Includes funding costs, which are allocated to the businesses based on funding usage.
3.Includes Investments and Other revenues.
4.Certain prior period amounts have been reclassified to conform to the current period presentation. See “Business Segments” herein and Note 1 to the financial statements for additional information.

Equity
Net revenues of $2,875 million in the current quarter increased 17% compared with the prior year quarter, reflecting an increase in execution services, partially offset by a decrease in financing.
Financing revenues decreased, primarily driven by a loss of $644 million, related to a credit event for a single client, partially offset by higher average client balances and higher client activity.
Execution services revenues increased, primarily in derivatives due to the impact of market conditions on inventory held to facilitate client activity and higher client activity. Partially offsetting this increase was $267 million of trading losses related to the same credit event.
March 2021 Form 10-Q7

Management’s Discussion and Analysis
ms-20210331_g1.jpg
Fixed Income
Net revenues of $2,966 million in the current quarter increased 44% compared with the prior year quarter, primarily driven by credit products.
Global macro products revenues decreased in both foreign exchange and rates products primarily due to the effect of tighter bid-offer spreads compared with the prior year quarter, partially offset by the impact of market conditions on inventory held to facilitate client activity.
Credit products revenues increased primarily due to the impact of market conditions on inventory held to facilitate client activity in securitized products, corporate credit products and municipal securities. In addition, higher client activity in securitized products was partially offset by the effect of tighter bid-offer spreads in corporate credit products compared with the prior year quarter.
Commodities products and other fixed income revenues increased primarily driven by higher counterparty credit risk management results.
Other Net Revenues

Net revenues of $123 million in the current quarter increased 126% compared with the prior year quarter primarily due to lower mark-to-market losses on corporate loans held for sale, net of related economic hedges, and gains from investments associated with certain employee deferred compensation plans compared with losses in the prior year quarter.
Net Interest
Net interest revenues of $638 million in the current quarter are included within Equity, Fixed Income, and Other, and increased 38% compared with the prior year quarter primarily driven by lower net costs associated with maintaining liquidity as well as higher revenues in corporate lending and secured lending facilities.
Provision for Credit Losses

The Provision for credit losses on loans and lending commitments was a net release of $93 million in the current quarter primarily driven by improvements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated borrowers. The Provision for credit losses on loans and lending commitments of $388 million in the prior year quarter was primarily driven by deterioration in the current and 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 $5,299 million in the current quarter increased 38% compared with the prior year quarter, primarily reflecting a 72% increase in Compensation and benefits expenses.
Compensation and benefits expenses increased, primarily due to increases in discretionary incentive compensation driven by higher revenues, and higher expenses related to certain deferred compensation plans linked to investment performance.
Non-compensation expenses increased, primarily reflecting an increase in volume-related expenses and higher investments in technology.
Income Tax Items
Net discrete tax benefits of $52 million and $66 million, were recognized in Provision for income taxes in the current quarter and the prior year quarter, respectively.
8March 2021 Form 10-Q

Management’s Discussion and Analysis
ms-20210331_g1.jpg
Wealth Management
Income Statement Information
 Three Months Ended
March 31,
$ in millions20212020% Change
Revenues
Asset management$3,191 $2,680 19 %
Transactional1
1,228 399 N/M
Net interest1,385 896 55 %
Other1,2
155 81 91 %
Net revenues5,959 4,056 47 %
Provision for credit losses2
(5)19 (126)%
Compensation and benefits3,170 2,212 43 %
Non-compensation expenses1,194 770 55 %
Total non-interest expenses4,364 2,982 46 %
Income before provision for
income taxes
$1,600 $1,055 52 %
Provision for income taxes358 191 87 %
Net income applicable to
Morgan Stanley
$1,242 $864 44 %
1.Transactional includes investment banking, trading, and commissions and fees revenues. Other includes investments and other revenues. For further information, see Note 20 to the financial statements.
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 March 31,
2021
At December 31,
2020
Total client assets$4,231$3,999
U.S. Bank Subsidiary loans$104.9$98.1
Margin and other lending1
$26.6$23.1
Deposits2
$322$306
Weighted average cost of deposits3
0.18%0.24%
Three Months Ended
March 31,
20212020
Net new assets4
$104.9$37.1
1.Margin and other lending represents Wealth Management margin lending arrangements, which allow customers to borrow against the value of qualifying securities and Wealth Management 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 March 31, 2021 and December 31, 2020, respectively.
3.Weighted average cost of deposits represents the annualized weighted average cost of deposits as of March 31, 2021 and December 31, 2020.
4.Net new assets represents client inflows (including dividends and interest) less client outflows (excluding activity from business combinations/divestitures and the impact of fees and commissions).
Advisor-led channel
$ in billionsAt March 31,
2021
At December 31,
2020
Advisor-led client assets1
$3,349$3,167
Fee-based client assets2
$1,574$1,472
Fee-based client assets as a
percentage of advisor-led client
assets
47%46%
Three Months Ended
March 31,
20212020
Fee-based asset flows3
$37.2$18.4
1.Advisor-led client assets represents client assets in accounts that have a Wealth Management representative assigned.
2.Fee‐based client assets represents 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 includes net new fee-based assets, net account transfers, dividends, interest and client fees, and excludes institutional cash management related activity. For a description of the Inflows and Outflows included in Fee-based asset flows, see Fee-based client assets in the 2020 Form 10-K.
Self-directed channel
$ in billionsAt March 31,
2021
At December 31,
2020
Self-directed assets1
$882$832
Self-directed households (in millions)2
7.26.7
Three Months Ended
March 31,
20212020
Daily average revenue
trades (“DARTs”) (in thousands)3
1,6195
1.Self-directed assets represents active accounts which are not advisor led. Active accounts are defined as having $25 or more in assets.
2.Self-directed households represents 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.
Workplace channel1
$ in billionsAt March 31,
2021
At December 31,
2020
Workplace unvested assets2
$461$435
Number of participants (in millions)3
5.14.9
1.The workplace channel includes equity compensation solutions for companies, their executives and employees.
2.Workplace unvested assets represents the market value of public company securities at the end of the period.
3.Workplace participants represents total accounts with vested or unvested assets >0 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 $3,191 million in the current quarter increased 19% compared with the prior year quarter, primarily due to higher fee-based asset levels in the current quarter as a result of market appreciation and positive fee-based flows.
See “Fee-Based Client Assets—Rollforwards” herein.
March 2021 Form 10-Q9

Management’s Discussion and Analysis
ms-20210331_g1.jpg
Transactional Revenues
Transactional revenues of $1,228 million in the current quarter increased substantially compared with the prior year quarter, primarily due to gains from investments associated with certain employee deferred compensation plans, and incremental revenues as a result of the E*TRADE acquisition.
Net Interest
Net interest of $1,385 million increased 55% compared with the prior year quarter, primarily due to incremental Net interest as a result of the E*TRADE acquisition, improved prepayment amortization related to mortgage-backed securities, growth in bank lending and increases in investment portfolio balances driven by higher brokerage sweep deposits. These increases were partially offset by the net effect of lower interest rates.
Other
Other revenues of $155 million in the current quarter increased 91% compared with the prior year quarter, primarily due to incremental revenues as a result of the E*TRADE acquisition.
Non-interest Expenses
Non-interest expenses of $4,364 million in the current quarter increased 46% compared with the prior year quarter, primarily as a result of higher Compensation and benefits expenses and Non-compensation expenses.
Compensation and benefits expenses increased primarily due to higher expenses related to certain    deferred compensation plans linked to investment performance, 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.
Non-compensation expenses increased primarily due to incremental operating and other expenses as a result of the E*TRADE acquisition.
Fee-Based Client Assets Rollforwards
$ in billionsAt
December 31, 2020
InflowsOutflows
Market
Impact
At
March 31,
2021
Separately managed1
$359 $13 $(7)$20 $385 
Unified managed379 27 (14)13 405 
Advisor177 12 (9)8 188 
Portfolio manager509 33 (18)25 549 
Subtotal$1,424 $85 $(48)$66 $1,527 
Cash management48 8 (9) 47 
Total fee-based
client assets
$1,472 $93 $(57)$66 $1,574 
$ in billionsAt
December 31, 2019
InflowsOutflows
Market
Impact
At
March 31,
2020
Separately managed1
$322 $12 $(7)$$329 
Unified managed313 16 (13)(53)263 
Advisor155 10 (9)(25)131 
Portfolio manager435 27 (18)(65)379 
Subtotal$1,225 $65 $(47)$(141)$1,102 
Cash management42 (14)— 32 
Total fee-based
client assets
$1,267 $69 $(61)$(141)$1,134 
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
March 31,
Fee rate in bps20212020
Separately managed14 14 
Unified managed97 99 
Advisor81 85 
Portfolio manager93 94 
Subtotal73 72 
Cash management5 
Total fee-based client assets71 71 
For a description of fee-based client assets and rollforward items in the previous tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Wealth Management Fee-Based Client Assets” in the 2020 Form 10-K.

10March 2021 Form 10-Q

Management’s Discussion and Analysis
ms-20210331_g1.jpg
Investment Management
Income Statement Information
 Three Months Ended
March 31,
 
$ in millions20212020% Change
Revenues

Asset management and related fees$1,103 $665 66 %
Performance-based income and other1
211 27 N/M
Net revenues1,314 692 90 %
Compensation and benefits514 257 100 %
Non-compensation expenses430 292 47 %
Total non-interest expenses944 549 72 %
Income before provision for income taxes370 143 159 %
Provision for income taxes81 25 N/M
Net income289 118 145 %
Net income applicable to noncontrolling interests14 40 (65)%
Net income applicable to Morgan Stanley$275 $78 N/M
1.Includes Investments, Trading, Commissions and fees, Net interest, and Other revenues. For further information, see Note 20 to the financial statements.
Acquisition of Eaton Vance
On March 1, 2021, we completed the acquisition of Eaton Vance via the issuance of approximately $5.3 billion of common shares and cash consideration of approximately $3.4 billion. The combination increases the capabilities and scale of our investment management franchise, and positions the Investment Management business segment as a premier asset manager. From the acquisition date onward, the business activities of Eaton Vance have been reported within the Investment Management business segment, the substantial majority of which are within Asset management and related fees. The comparisons of current year results to prior periods are impacted by this acquisition. 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 $1,103 million in the current quarter increased 66% compared with the prior year quarter, primarily as a result of higher average AUM, driven by strong investment performance and positive net flows across all asset classes, as well as incremental revenues as a result of the Eaton Vance acquisition.
See “Assets Under Management or Supervision” herein.

Performance-based income and other
Performance-based income and other revenues of $211 million in the current quarter increased compared with the prior year quarter, primarily due to higher accrued carried interest, particularly in real estate funds.
Non-interest Expenses
Non-interest expenses of $944 million in the current quarter increased 72% compared with the prior year quarter as a result of higher Compensation and benefits expenses and higher Non-compensation expenses.
Compensation and benefits expenses increased in the current quarter primarily due to higher discretionary incentive compensation driven by higher revenues, higher compensation associated with carried interest, and incremental compensation as a result of the Eaton Vance acquisition.
Non-compensation expenses in the current quarter increased compared with the prior year quarter primarily due to higher fee sharing paid to intermediaries driven by higher average AUM, as well as incremental expenses as a result of the Eaton Vance acquisition.
Assets Under Management or Supervision
Rollforwards
$ in billionsEquityFixed incomeAlternatives and SolutionsLong-term AUM SubtotalLiquidity and Overlay ServicesTotal
December 31, 2020$242 $98 $153 $493 $288 $781 
Inflows31 13 15 59 459 518 
Outflows(23)(9)(10)(42)(433)(475)
Market Impact4 (2)10 12  12 
Acquisition1
119 103 251 473 116 589 
Other(2)(2)(1)(5)(1)(6)
March 31, 2021$371 $201 $418 $990 $429 $1,419 
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 
Inflows14 10 32 446 478 
Outflows(12)(9)(4)(25)(395)(420)
Market Impact(18)(4)(7)(29)(28)
Other(1)(1)(1)
March 31, 2020$121 $75 $141 $337 $247 $584 
March 2021 Form 10-Q11

Management’s Discussion and Analysis
ms-20210331_g1.jpg
Average AUM
 Three Months Ended
March 31,
$ in billions20212020
Equity$288 $133 
Fixed income131 79 
Alternatives and Solutions242 139 
Long-term AUM subtotal661 351 
Liquidity and Overlay Services339 206 
Total AUM$1,000 $557 
Average Fee Rates
 Three Months Ended
March 31,
Fee rate in bps20212020
Equity77 77
Fixed income33 31
Alternatives and Solutions45 60
Long-term AUM57 60
Liquidity and Overlay Services8 17
Total AUM40 44
While Asset management and related fees arising from the acquisition will be incremental to the Firm’s results, certain Eaton Vance products have lower average fee rates, and are expected to impact the averages in the previous table in future periods compared with the corresponding prior periods. For a description of the asset classes and rollforward items in the previous tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Investment Management—Assets Under Management or Supervision” in the 2020 Form 10-K, except for the following updates to the definitions below, 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 fund.
12March 2021 Form 10-Q

Management’s Discussion and Analysis
ms-20210331_g1.jpg
Supplemental Financial Information
U.S. Bank Subsidiaries
Our U.S. bank subsidiaries, Morgan Stanley Bank N.A. (“MSBNA”), Morgan Stanley Private Bank, National Association (“MSPBNA”), E*TRADE Bank (“ETB”), and E*TRADE Savings Bank (“ETSB”) (collectively, “U.S. Bank Subsidiaries”) accept deposits, provide loans to a variety of customers, including large corporate and institutional clients as well as high net worth individuals, and invest in securities. Lending activity recorded in the U.S. Bank Subsidiaries from the Institutional Securities business segment primarily includes secured lending facilities, commercial and residential real estate loans, and corporate loans. Lending activity recorded in the U.S. Bank Subsidiaries from the Wealth Management business segment primarily includes securities-based lending, which allows clients to borrow money against the value of qualifying securities, and residential real estate loans.
For a further discussion of our credit risks, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk.” For a further discussion about loans and lending commitments, see Notes 10 and 14 to the financial statements.
U.S. Bank Subsidiaries’ Supplemental Financial Information1
$ in billionsAt
March 31,
2021
At
December 31,
2020
Investment securities portfolio:
Investment securities—AFS84.8 90.3 
Investment securities—HTM64.6 52.6 
Total investment securities$149.4 $142.9 
Wealth Management Loans2
Residential real estate$36.8 $35.2 
Securities-based lending and Other3
68.1 62.9 
Total$104.9 $98.1 
Institutional Securities Loans2
Corporate$9.5 $7.9 
Secured lending facilities27.8 27.4 
Commercial and Residential real estate8.9 10.1 
Securities-based lending and Other6.3 5.4 
Total$52.5 $50.8 
Total Assets$357.2 $346.5 
Deposits4
$321.6 $309.7 
1.Amounts exclude transactions between the bank subsidiaries, as well as deposits from the Parent Company 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.
Accounting Development Updates
The Financial Accounting Standards Board has issued certain accounting updates, which we have either determined are not applicable or are not expected to have a significant impact on our financial statements.
Critical Accounting Policies
Our financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions (see Note 1 to the financial statements). We believe that of our significant accounting policies (see Note 2 to the financial statements in the 2020 Form 10-K and Note 2 to the financial statements), the fair value, goodwill and intangible assets, legal and regulatory contingencies and income taxes policies involve a higher degree of judgment and complexity. For a further discussion about our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the 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 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. Our Treasury department, Firm Risk Committee, Asset/Liability Management Committee, and other committees and control groups assist in evaluating, monitoring and controlling the impact that our business activities have on our balance sheet, liquidity and capital structure. Liquidity and capital matters are reported regularly to the Board and the Risk Committee of the Board.
Balance Sheet
We monitor and evaluate the composition and size of our balance sheet on a regular basis. Our balance sheet management process includes quarterly planning, business-specific thresholds, monitoring of business-specific usage versus key performance metrics and new business impact assessments.
We establish balance sheet thresholds at the consolidated and business segment levels. We monitor balance sheet utilization and review variances resulting from business activity and market fluctuations. On a regular basis, we review current performance versus established thresholds and assess the need to re-allocate our balance sheet based on business unit needs. We also monitor key metrics, including asset and liability size and capital usage.
March 2021 Form 10-Q13

Management’s Discussion and Analysis
ms-20210331_g1.jpg
Total Assets by Business Segment
At March 31, 2021
$ in millionsISWMIMTotal
Assets
Cash and cash equivalents$93,021 $24,396 $701 $118,118 
Trading assets at fair value307,854 310 4,994 313,158 
Investment securities40,888 148,318  189,206 
Securities purchased under agreements to resell87,279 27,442  114,721 
Securities borrowed100,957 1,192  102,149 
Customer and other receivables80,475 33,381 1,187 115,043 
Loans1
54,163 104,933 27 159,123 
Other assets2
13,918 21,702 11,634 47,254 
Total assets$778,555 $361,674 $18,543 $1,158,772 
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 
IS—Institutional Securities
WM—Wealth Management
IM—Investment Management
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 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. In the Institutional Securities business segment, these arise from sales and trading 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 $1,159 billion at March 31, 2021 from $1,116 billion at December 31, 2020.
Liquidity Risk Management Framework
The core components of our Liquidity Risk Management Framework are the Required Liquidity Framework, Liquidity Stress Tests and Liquidity 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 the 2020 Form 10-K.
At March 31, 2021 and December 31, 2020, we maintained sufficient liquidity to meet current and contingent funding obligations as modeled in our Liquidity Stress Tests.
Liquidity Resources
We maintain sufficient liquidity resources, which consist of HQLA and cash deposits with banks (“Liquidity Resources”) to cover daily funding needs and to meet strategic liquidity targets sized by the Required Liquidity Framework 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 risk tolerance and is subject to change depending on market and Firm-specific events. The Liquidity Resources are primarily held within the Parent Company and 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 Resources by Type of Investment
$ in millionsAt
March 31,
2021
At
December 31,
2020
Cash deposits with central banks$59,154 $49,669 
Unencumbered HQLA Securities1:
U.S. government obligations135,008 136,555 
U.S. agency and agency mortgage-backed securities110,659 99,659 
Non-U.S. sovereign obligations2
37,434 39,745 
Other investment grade securities2,015 2,053 
Total HQLA1
$344,270 $327,681 
Cash deposits with banks (non-HQLA)9,034 10,942 
Total Liquidity Resources$353,304 $338,623 
1.HQLA is presented prior to applying weightings and includes all HQLA held in subsidiaries.
2.Primarily composed of unencumbered French, U.K., Japanese, German and Dutch government obligations.
Liquidity Resources by Bank and Non-Bank Legal Entities
At
March 31,
2021
At
December 31,
2020
Average Daily Balance
Three Months Ended
$ in millionsMarch 31, 2021
Bank legal entities
U.S.$184,993 $178,033 $189,008 
Non-U.S.8,889 7,670 7,882 
Total Bank legal entities193,882 185,703 196,890 
Non-Bank legal entities
U.S.:
Parent Company54,854 59,468 57,194 
Non-Parent Company42,299 33,368 40,982 
Total U.S.97,153 92,836 98,176 
Non-U.S.62,269 60,084 58,735 
Total Non-Bank legal entities159,422 152,920 156,911 
Total Liquidity Resources$353,304 $338,623 $353,801 
14March 2021 Form 10-Q

Management’s Discussion and Analysis
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Liquidity Resources may fluctuate from period to period based on the overall size and 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 Firm, MSBNA and MSPBNA are required to comply with, and subject to a transition period, ETB will be required to comply with, LCR requirements, including a requirement to calculate each entity’s LCR on each business day. The requirements are designed to ensure that banking organizations have sufficient Eligible HQLA to cover net cash outflows arising from significant stress over 30 calendar days, thus promoting the short-term resilience of the liquidity risk profile of banking organizations. In determining Eligible HQLA for LCR purposes, weightings (or asset haircuts) are applied to HQLA, and certain HQLA held in subsidiaries is excluded.
As of March 31, 2021, the Firm, MSBNA and MSPBNA are compliant with the minimum required LCR of 100%.
Liquidity Coverage Ratio
Average Daily Balance
Three Months Ended
$ in millionsMarch 31, 2021December 31, 2020
Eligible HQLA1
Cash deposits with central banks$50,815 $43,596 
Securities2
166,060 162,509 
Total Eligible HQLA1
$216,875 $206,105 
LCR125 %129 %
1.Under the LCR rule, Eligible HQLA is calculated using weightings and excluding certain HQLA held in subsidiaries.
2.Primarily includes U.S. Treasuries, U.S. agency mortgage-backed securities, sovereign bonds and investment grade corporate bonds.
Net Stable Funding Ratio
The U.S. banking agencies have finalized a rule to implement the NSFR, which requires large banking organizations to maintain sufficiently stable sources of funding over a one-year time horizon, and will apply to us, MSBNA, MSPBNA and ETB. As of March 31, 2021, we estimate we are compliant with the 100% minimum NSFR and that we will be in compliance with the final rule on July 1, 2021, the effective date of the 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 include our equity capital, borrowings, securities sold under agreements to repurchase, securities lending, deposits, letters of credit and lines of credit. We have active financing programs for both standard and structured products targeting global investors and currencies.
Secured Financing
For a discussion of our secured financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Funding Management—Secured Financing” in the 2020 Form 10-K.
Collateralized Financing Transactions
$ in millionsAt
March 31,
2021
At
December 31,
2020
Securities purchased under agreements to resell and Securities borrowed$216,870 $228,625 
Securities sold under agreements to repurchase and Securities loaned$63,050 $58,318 
Securities received as collateral1
$4,758 $4,277 
 Average Daily Balance
Three Months Ended
$ in millionsMarch 31, 2021December 31, 2020
Securities purchased under agreements to resell and Securities borrowed$214,610 $195,376 
Securities sold under agreements to repurchase and Securities loaned$61,152 $54,528 
1.Included within Trading assets in the balance sheets.
See “Total Assets by Business Segment” herein for more details on the assets shown in the previous table and Note 2 to the financial statements in the 2020 Form 10-K and Note 9 to the financial statements for more details on collateralized financing transactions.
In addition to the collateralized financing transactions shown in the previous table, we engage in financing transactions collateralized by customer-owned securities, which are segregated in accordance with regulatory requirements. Receivables under these financing transactions, primarily margin loans, are included in Customer and other receivables in the balance sheets, and payables under these financing transactions, primarily to prime brokerage customers, are included in Customer and other payables in the balance sheets. Our risk exposure on these transactions is mitigated by collateral maintenance policies and the elements of our Liquidity Risk Management Framework.
Unsecured Financing
For a discussion of our unsecured financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Funding Management—Unsecured Financing” in the 2020 Form 10-K.
March 2021 Form 10-Q15

Management’s Discussion and Analysis
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Deposits
$ in millionsAt
March 31,
2021
At
December 31,
2020
Savings and demand deposits:
Brokerage sweep deposits1
$253,411 $232,071 
Savings and other45,576 47,150 
Total Savings and demand deposits298,987 279,221 
Time deposits24,151 31,561 
Total2
$323,138 $310,782 
1.Amounts represent balances swept from client brokerage accounts.
2.Excludes approximately $8 billion and $25 billion of off-balance sheet deposits at unaffiliated financial institutions as of March 31, 2021 and 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. The increase in total deposits in the current quarter was primarily due to the onboarding of approximately $20 billion of E*TRADE Brokerage sweep deposits previously held off-balance sheet at unaffiliated financial institutions.
Borrowings by Remaining Maturity at March 31, 20211
$ in millionsParent CompanySubsidiariesTotal
Original maturities of one year or less$1,501 $6,058 $7,559 
Original maturities greater than one year
2021$12,517 $4,487 $17,004 
202211,930 6,440 18,370 
202317,056 5,880 22,936 
202418,824 7,472 26,296 
202511,859 6,940 18,799 
Thereafter81,975 22,887 104,862 
Total$154,161 $54,106 $208,267 
Total Borrowings$155,662 $60,164 $215,826 
Maturities over next 12 months2
 $18,976 
1.Original maturity in the table is generally based on contractual final maturity. For borrowings with put options, remaining maturity represents the earliest put date.
2.Includes only borrowings with original maturities greater than one year.
Borrowings of $216 billion as of March 31, 2021 were relatively unchanged 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 borrowings with original maturities greater than one year allows us to reduce reliance on short-term credit sensitive instruments. Borrowings with original maturities greater than one year are generally managed to achieve staggered maturities, thereby mitigating refinancing risk, and to maximize investor diversification through sales to global institutional and retail clients across regions, currencies and product types.
The availability and cost of financing to us can vary depending on market conditions, the volume of certain trading and lending activities, our credit ratings and the overall availability of credit. We also engage in, and may continue to
engage in, repurchases of our borrowings in the ordinary course of business.
For further information on Borrowings, see Note 13 to the financial statements.
Credit Ratings
We rely on external sources to finance a significant portion of our daily operations. The cost and availability of financing generally are impacted by our credit ratings, among other things. In addition, our credit ratings can have an impact on certain trading revenues, particularly in those businesses where longer-term counterparty performance is a key consideration, such as certain OTC derivative transactions. When determining credit ratings, rating agencies consider both company-specific and industry-wide factors. These include regulatory or legislative changes, the macroeconomic environment and perceived levels of support, among other things. See also “Risk Factors— Liquidity Risk” in the 2020 Form 10-K.
Parent Company, MSBNA and MSPBNA Issuer Ratings at April 30, 2021
Parent Company
Short-Term
Debt
Long-Term
Debt
Rating
Outlook
DBRS, Inc.R-1 (middle)A (high)Stable
Fitch Ratings, Inc.F1AStable
Moody’s Investors Service, Inc.P-1A1Stable
Rating and Investment Information, Inc.a-1AStable
S&P Global RatingsA-2BBB+Stable
MSBNA
Short-Term
Debt
Long-Term
Debt
Rating
Outlook
Fitch Ratings, Inc.F1A+Stable
Moody’s Investors Service, Inc.P-1Aa3Stable
S&P Global RatingsA-1A+Stable
MSPBNA
Short-Term
Debt
Long-Term
Debt
Rating
Outlook
Moody’s Investors Service, Inc.P-1Aa3Stable
S&P Global RatingsA-1A+Stable
Incremental Collateral or Terminating Payments
In connection with certain OTC derivatives and certain other agreements where we are a liquidity provider to certain financing vehicles associated with the Institutional Securities business segment, we may be required to provide additional collateral, immediately settle any outstanding liability balances with certain counterparties or pledge additional collateral to certain clearing organizations in the event of a future credit rating downgrade irrespective of whether we are in a net asset or net liability position. See Note 7 to the financial statements for additional information on OTC derivatives that contain such contingent features.
While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact it
16March 2021 Form 10-Q

Management’s Discussion and Analysis
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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 other things, the magnitude of the downgrade, the rating relative to peers, the rating assigned by the relevant agency pre-downgrade, individual client behavior and future mitigating actions we might take. The liquidity impact of additional collateral requirements is included in our Liquidity Stress Tests.
Capital Management
We view capital as an important source of financial strength and actively manage our consolidated capital position based upon, among other things, business opportunities, risks, capital availability and rates of return together with internal capital policies, regulatory requirements and rating agency guidelines. In the future, we may expand or contract our capital base to address the changing needs of our businesses.
Common Stock Repurchases
 Three Months Ended
March 31,
in millions, except for per share data20212020
Number of shares28 29 
Average price per share$77.47 $46.01 
Total$2,135 $1,347 
For additional information on our common stock repurchases, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Action Supervisory Restrictions” herein.
For further information on our common stock repurchases, see Note 17 to the financial statements.
For a description of our capital plan, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Capital Buffer” herein.
Common Stock Dividend Announcement
Announcement dateApril 16, 2021
Amount per share$0.35 
Date to be paidMay 14, 2021
Shareholders of record as ofApril 30, 2021
For additional information on our common stock dividends, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Action Supervisory Restrictions” herein.
Preferred Stock Dividend Announcement
Series M and NAll Other Series
Announcement dateFebruary 16, 2021February 16, 2021
Date paidMarch 15, 2021April 15, 2021
Shareholders of record as ofMarch 1, 2021March 31, 2021
For additional information on common and 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 an FHC under the Bank Holding Company Act of 1956, as amended (“BHC Act”), and are subject to the regulation and oversight of the Federal Reserve. The Federal Reserve establishes capital requirements for us, including “well-capitalized” standards, and evaluates our compliance with such capital requirements. Regulatory capital requirements established by the Federal Reserve are largely based on the Basel III capital standards established by the Basel Committee and also implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The OCC establishes similar capital requirements and standards for our U.S. Bank Subsidiaries. For us to remain an FHC, we must remain well-capitalized in accordance with standards established by the Federal Reserve, and our U.S. Bank Subsidiaries must remain well-capitalized in accordance with standards established by the OCC. For additional information on regulatory capital requirements for our U.S. Bank Subsidiaries, see Note 16 to the financial statements.
Regulatory Capital Requirements
We are required to maintain minimum risk-based and leverage-based capital and TLAC ratios. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Capital Requirements” in
March 2021 Form 10-Q17

Management’s Discussion and Analysis
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the 2020 Form 10-K. For additional information on TLAC, see “Total Loss-Absorbing Capacity, Long-Term Debt and 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 capital). Capital standards require certain adjustments to, and deductions from, capital for purposes of determining these ratios.
Risk-Based Regulatory Capital Ratio Requirements
At March 31, 2021 and December 31, 2020
StandardizedAdvanced
Capital buffers
Capital conservation buffer2.5%
SCB1
5.7%N/A
G-SIB capital surcharge2
3.0%3.0%
CCyB3
0%0%
Capital buffer requirement4
8.7%5.5%
At March 31, 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 the Stress Capital Buffer” herein and in the 2020 Form 10-K.
2.For a further discussion of the G-SIB capital surcharge, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—G-SIB Capital Surcharge” in the 2020 Form 10-K.
3.The CCyB can be set up to 2.5%, but is currently set by the U.S. banking agencies at zero.
4.The capital 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, 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 credit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWA using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At March 31, 2021 and December 31, 2020, the difference between the actual and required ratio was lower under the Standardized Approach.
Leverage-Based Regulatory Capital. Minimum leverage-based capital requirements include a Tier 1 leverage ratio and an SLR. We are required to maintain an SLR of 5%, inclusive of an enhanced SLR capital buffer of at least 2%.
As of March 31, 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 effect of the adoption of CECL based on our election to defer this effect over a five-year transition period which began in 2020. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments” in the 2020 Form 10-K.
Regulatory Capital Ratios
 StandardizedAdvanced
$ in millions
Required
Ratio
1
At March 31, 2021
Required
Ratio
1
At March 31, 2021
Risk-based capital
Common Equity Tier 1 capital$76,176 $76,176 
Tier 1 capital 84,059 84,059 
Total capital 92,823 92,605 
Total RWA 455,071 438,839 
Common Equity Tier 1 capital ratio13.2 %16.7 %10.0 %17.4 %
Tier 1 capital ratio14.7 %18.5 %11.5 %19.2 %
Total capital ratio16.7 %20.4 %13.5 %21.1 %
$ in millions
Required
Ratio1
At
March 31,
2021
Leverage-based capital
Adjusted average assets2
$1,121,413 
Tier 1 leverage ratio4.0 %7.5 %
Supplementary leverage exposure3,4
$1,263,959 
SLR4
5.0 %6.7 %
18March 2021 Form 10-Q

Management’s Discussion and Analysis
ms-20210331_g1.jpg
 StandardizedAdvanced
$ in millions
Required
Ratio1
At December 31, 2020
Required
Ratio1
At December 31, 2020
Risk-based capital
Common Equity Tier 1 capital$78,650 $78,650 
Tier 1 capital88,079 88,079 
Total capital97,213 96,994 
Total RWA453,106 445,151 
Common Equity Tier 1 capital ratio13.2 %17.4 %10.0 %17.7 %
Tier 1 capital ratio14.7 %19.4 %11.5 %19.8 %
Total capital ratio16.7 %21.5 %13.5 %21.8 %
$ in millions
Required
Ratio1
At
December 31,
2020
Leverage-based capital
Adjusted average assets2
$1,053,510 
Tier 1 leverage ratio4.0 %8.4 %
Supplementary leverage exposure3,4,
$1,192,506 
SLR4
5.0 %7.4 %
1.Required ratios are inclusive of any buffers applicable as of the date presented. Failure to maintain the buffers would result in restrictions on our ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers.
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.Based on a Federal Reserve interim final rule that was in effect until March 31, 2021, our SLR and Supplementary leverage exposure as of March 31, 2021 and December 31, 2020 reflect the exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks. As of March 31, 2021 and December 31, 2020, the impact of the interim final rule on our SLR was an increase of 73 bps and 80 bps, respectively. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments and Other Matters” herein and “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments" in the 2020 Form 10-K.
Regulatory Capital
$ in millionsAt
March 31,
2021
At
December 31,
2020
Change
Common Equity Tier 1 capital
Common stock and surplus$19,229 $15,799 $3,430 
Retained earnings82,287 78,978 3,309 
AOCI(2,754)(1,962)(792)
Regulatory adjustments and deductions:
Net goodwill(16,701)(11,527)(5,174)
Net intangible assets(7,171)(4,165)(3,006)
Other adjustments and deductions1
1,286 1,527 (241)
Total Common Equity Tier 1
capital
$76,176 $78,650 $(2,474)
Additional Tier 1 capital
Preferred stock$7,750 $9,250 $(1,500)
Noncontrolling interests589 619 (30)
Additional Tier 1 capital$8,339 $9,869 $(1,530)
Deduction for investments in covered funds(456)(440)(16)
Total Tier 1 capital$84,059 $88,079 $(4,020)
Standardized Tier 2 capital
Subordinated debt$7,476 $7,737 $(261)
Eligible ACL1,173 1,265 (92)
Other adjustments and deductions115 132 (17)
Total Standardized Tier 2
capital
$8,764 $9,134 $(370)
Total Standardized capital$92,823 $97,213 $(4,390)
Advanced Tier 2 capital
Subordinated debt$7,476 $7,737 $(261)
Eligible credit reserves955 1,046 (91)
Other adjustments and
deductions
115 132 (17)
Total Advanced Tier 2 capital$8,546 $8,915 $(369)
Total Advanced capital$92,605 $96,994 $(4,389)
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.
March 2021 Form 10-Q19

Management’s Discussion and Analysis
ms-20210331_g1.jpg
RWA Rollforward
 Three Months Ended
March 31, 2021
$ in millionsStandardizedAdvanced
Credit risk RWA
Balance at December 31, 2020$387,066 $284,930 
Change related to the following items:
Derivatives(156)(12,520)
Securities financing transactions(1,641)(1,634)
Investment securities486 594 
Commitments, guarantees and loans(4,409)233 
Equity investments1,091 1,104 
Other credit risk1
1,889 1,662 
Total change in credit risk RWA$(2,740)$(10,561)
Balance at March 31, 2021$384,326 $274,369 
Market risk RWA
Balance at December 31, 2020$66,040 $66,040 
Change related to the following items:
Regulatory VaR3,095 3,095 
Regulatory stressed VaR2,732 2,732 
Incremental risk charge1,481 1,481 
Comprehensive risk measure(225)(261)
Specific risk(2,378)(2,378)
Total change in market risk RWA$4,705 $4,669 
Balance at March 31, 2021$70,745 $70,709 
Operational risk RWA
Balance at December 31, 2020N/A$94,181 
Change in operational risk RWAN/A(420)
Balance at March 31, 2021N/A$93,761 
Total RWA$455,071 $438,839 
Regulatory VaR—VaR for regulatory capital requirements
1.Amounts reflect assets not in a defined category, non-material portfolios of exposures and unsettled transactions, as applicable.
Credit risk RWA decreased in the current quarter under both the Standardized and Advanced Approaches. Under the Standardized Approach, the decrease was driven primarily by loans, partially due to syndications, and Securities financing transactions. Under the Advanced Approach, the decrease was driven by Derivatives as a result of reduced exposure and a reduction in CVA due to lower credit spread volatility and decreased counterparty exposure.
Market risk RWA increased in the current quarter under both the Standardized and Advanced Approaches primarily due to an increase in Regulatory VaR and Stressed VaR mainly as a result of higher equity and interest rate risk.
Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements

The Federal Reserve has established external TLAC, long-term debt (“LTD”) and clean holding company 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 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
March 31,
2021
At
December 31,
2020
External TLAC2
$216,426 $216,129 
External TLAC as a % of RWA18.0 %21.5 %47.6 %47.7 %
External TLAC as a % of leverage exposure7.5 %9.5 %17.1 %18.1 %
Eligible LTD3
$122,234 $120,561 
Eligible LTD as a % of RWA9.0 %9.0 %26.9 %26.6 %
Eligible LTD as a % of leverage exposure4.5 %4.5 %9.7 %10.1 %
1.Required ratios are inclusive of applicable buffers. The final rule imposes 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 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.External TLAC consists of Common Equity Tier 1 capital and Additional Tier 1 capital (each excluding any noncontrolling minority interests), as well as eligible LTD.
3.Consists of TLAC-eligible LTD reduced by 50% for amounts of unpaid principal due to be paid in more than one year but less than two years from each respective balance sheet date.
We are in compliance with all TLAC requirements as of March 31, 2021 and December 31, 2020. For a further discussion of TLAC and related requirements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Capital Requirements—Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements” in the 2020 Form 10-K.
Capital Plans, Stress Tests and the Stress Capital Buffer
Pursuant to the Dodd-Frank Act, the Federal Reserve has adopted capital planning and stress test requirements for large BHCs, which form part of the Federal Reserve’s annual CCAR 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 the 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 capital plan and company-run stress test results to the Federal Reserve on April 5, 2021. The Federal Reserve is expected to publish summary results of the CCAR and Dodd-Frank Act supervisory stress tests of each large BHC, including us, by June 30, 2021. We are required to disclose a summary of the results of our company-run stress tests within
20March 2021 Form 10-Q

Management’s Discussion and Analysis
ms-20210331_g1.jpg
15 days of the date the Federal Reserve discloses the results of the supervisory stress tests.
For additional information on our capital planning and stress tests, including the SCB, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Plans, Stress Tests and the Stress Capital Buffer” in the 2020 Form 10-K.
Capital Action Supervisory Restrictions
Under the modified capital action restrictions announced on December 18, 2020 by the Federal Reserve, large BHCs were permitted, in the first quarter of 2021, to take certain capital actions. In particular, a firm was able to, provided that it did not increase the amount of its common stock dividends to be larger than the level paid in the second quarter of 2020, pay common stock dividends and make share repurchases that, in the aggregate, did not exceed an amount equal to the average of the firm’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.
Consistent with these modifications, on December 18, 2020, our Board of Directors authorized the repurchase of up to $10 billion of outstanding common stock in 2021.
On March 25, 2021, the Federal Reserve announced that its temporary capital action supervisory restrictions will 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.
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 Form 10-K.
Attribution of Average Common Equity According to the Required Capital Framework
Our required capital (“Required Capital”) estimation is based on the Required Capital framework, an internal capital adequacy measure. Common equity attribution to the business segments is based on capital usage calculated under the Required Capital framework, as well as each business segment’s relative contribution to our total Required Capital.
The Required Capital framework is a risk-based and leverage-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 common equity. We generally hold Parent common equity for prospective regulatory requirements, organic growth, potential future acquisitions and other capital needs.
Average Common Equity Attribution under the Required Capital Framework1
Three Months Ended
March 31,
$ in billions20212020
Institutional Securities$43.5 $42.8 
Wealth Management2
28.5 18.2 
Investment Management3
4.4 2.6 
Parent17.9 11.1 
Total$94.3 $74.7 
1.The attribution of average common equity to the business segments is a non-GAAP financial measure. See “Selected Non-GAAP Financial Information” herein.
2.The total average common equity and the allocation to the Wealth Management business segment in 2021 reflect the E*TRADE acquisition on October 2, 2020.
3. The total average common equity and the allocation to the Investment Management business segment in 2021 reflect the Eaton Vance acquisition on March 1, 2021.
The Firm has made updates to its Required Capital framework for 2021 and continues to evaluate the impact of evolving regulatory requirements, as appropriate. As noted above, common equity attribution to the business segments is based upon usage.
Resolution and Recovery Planning
Pursuant to the Dodd-Frank Act, we are required to periodically submit to the Federal Reserve and the FDIC a resolution plan that describes our strategy for a rapid and orderly resolution under the U.S. Bankruptcy Code in the event of our material financial distress or failure. Our next resolution plan submission will be a targeted resolution plan in July 2021.
As described in our most recent resolution plan, which was submitted on June 28, 2019, our preferred resolution 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 support agreement with its material entities (including the Funding IHC) and certain other subsidiaries. In the event of a resolution scenario, the Parent Company would be obligated to contribute all of its Contributable Assets to our material entities and/or the Funding IHC. The Funding IHC would be obligated to provide capital and liquidity, as applicable, to our material entities. The combined 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 before any losses are imposed on creditors of our material entities or before putting U.S. taxpayers at risk.
March 2021 Form 10-Q21

Management’s Discussion and Analysis
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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,” “Risk Factors—Legal, Regulatory and Compliance Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Resolution and Recovery Planning” in the 2020 Form 10-K.
Regulatory Developments and Other Matters
Expiration of the Supplementary Leverage Ratio Interim Final Rule
On March 19, 2021, the 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, resulting in the elimination of this exclusion 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 the Federal Reserve, have commissioned committees and 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 announcement constituted an “Index Cessation Event” as defined in the IBOR Fallbacks Supplement, which amended ISDA's interest rate definitions to include robust fallbacks for derivatives linked to LIBOR and certain other 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 FCA'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 confirmed that the ICE Benchmark Administration and FCA announcements also constituted a “Benchmark Transition Event” with respect to all USD LIBOR settings pursuant to
the ARRC’s fallback recommendations for new issuances or originations of certain cash products.
Separately, the U.S. banking agencies and the 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 would, among other things, replace LIBOR references in certain contracts governed by New York law with a benchmark 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 on our Firm-wide IBOR transition plan to promote the transition to alternative reference rates in accordance with industry transition timelines, which is overseen by a global steering committee, with senior management oversight. See also “Risk Factors—Risk Management” in the 2020 Form 10-K for a further discussion of risks related to the planned replacement of the IBORs and/or reform of interest rate benchmarks.
For a further discussion of regulatory developments and other matters, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Other Matters,” respectively, in the 2020 Form 10-K.
22March 2021 Form 10-Q

Quantitative and Qualitative Disclosures about Risk
Management believes effective risk management is vital to the success of our business activities. For a discussion of our Enterprise Risk Management framework and risk management functions, see “Quantitative and Qualitative Disclosures about Risk—Risk Management” in the 2020 Form 10-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 our 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 incurs non-trading market risk (including interest rate risk) from lending and deposit-taking activities. The Investment Management business segment primarily incurs non-trading market risk from capital investments in alternative and other funds. For a further discussion of market risk, see “Quantitative and Qualitative Disclosures about Risk—Market Risk” in the 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 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.
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—Trading Risks” in the 2020 Form 10-K.
95%/One-Day Management VaR for the Trading Portfolio
 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 
 Three Months Ended
December 31, 2020
$ in millions
Period
End
Average
High2
Low2
Interest rate and credit spread$35 $32 $42 $28 
Equity price23 24 29 18 
Foreign exchange rate14 12 19 
Commodity price15 16 20 13 
Less: Diversification benefit1
(32)(36)N/AN/A
Primary Risk Categories$55 $48 $56 $39 
Credit Portfolio31 23 31 19 
Less: Diversification benefit1
(10)(16)N/AN/A
Total Management VaR$76 $55 $76 $43 
1.Diversification benefit equals the difference between the total Management VaR and the sum of the component VaRs. This benefit arises because the simulated one-day losses for each of the components occur on different days; similar diversification benefits also are taken into account within each component.
2.The high and low VaR values for the total Management VaR and each of the component VaRs might have occurred on different days during the quarter, and therefore, the diversification benefit is not an applicable measure.
Average total Management VaR and average Management VaR for the Primary Risk Categories increased in the current quarter from the three months ended December 31, 2020 primarily as a result of increased exposure across trading businesses in support of client activity. During the current quarter, Management VaR peaked at $175 million for one day driven by increased equity exposure resulting from the aforementioned credit event for a single client.
Distribution of VaR Statistics and Net Revenues
We evaluate the reasonableness of our VaR model by comparing the potential declines in portfolio values generated by the model with corresponding actual trading results for the Firm, as well as individual business units. For days where losses exceed the VaR statistic, we examine the drivers of trading losses to evaluate the VaR model’s accuracy relative to realized trading results. There were four loss days in the current quarter, none of which were in excess of the Firm’s VaR.
March 2021 Form 10-Q23

Risk Disclosures
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Daily 95%/One-Day Total Management VaR for the Current Quarter
($ in millions)
ms-20210331_g9.jpg
Daily Net Trading Revenues for the Current Quarter
($ in millions)
ms-20210331_g10.jpg
The previous histogram shows the distribution of daily net trading revenues for 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 trading businesses. Certain items such as fees, commissions, net interest income, and counterparty default risk are excluded from daily net trading revenues and the VaR model. Revenues required for Regulatory VaR backtesting further exclude intraday trading.
Non-Trading Risks
We believe that sensitivity analysis is an appropriate representation of our non-trading risks. The following sensitivity analyses cover substantially all of the non-trading risk in our portfolio.
Credit Spread Risk Sensitivity1
$ in millionsAt
March 31,
2021
At
December 31,
2020
Derivatives$7 $
Funding liabilities2
47 50 
1.Amounts represent the potential gain for each 1 bps widening of our credit spread.
2.Relates to Borrowings carried at fair value.
U.S. Bank Subsidiaries’ Net Interest Income Sensitivity Analysis
$ in millionsAt
March 31,
2021
At
December 31,
2020
Basis point change
+100$1,671 $1,540 
 -100(560)(654)
The previous 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 are applied to our 12-month forecast for our U.S. Bank Subsidiaries, which incorporates market expectations of interest rates and our forecasted business 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, 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 market re-pricing behavior and other factors. The lower sensitivity to interest rates in the negative 100 basis point scenario between March 31, 2021 and December 31, 2020 was primarily driven by changes in market rates.
Investments Sensitivity, Including Related Carried Interest
 Loss from 10% Decline
$ in millionsAt
March 31,
2021
At
December 31,
2020
Investments related to Investment Management activities$472 $386 
Other investments:
MUMSS174 184 
Other Firm investments223 210 
MUMSS—Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
We have exposure to public and private companies through direct investments, as well as through funds that invest in these assets. These investments are predominantly equity positions with long investment horizons, a portion of which is for business facilitation purposes. The market risk related to these investments is measured by estimating the potential reduction in net income associated with a 10% decline in investment values and related impact on performance-based
24March 2021 Form 10-Q

Risk Disclosures
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fees, as applicable. The change in investments sensitivity related to Investment Management activities between March 31, 2021 and December 31, 2020 was primarily driven by incremental investments acquired in the Eaton Vance transaction and across private equity funds due to increased sensitivity to carried interest.
Asset Management Revenue Sensitivity
Certain asset management revenues in the Wealth Management and Investment Management business segments are derived 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 equity, fixed income and alternative investments, and are sensitive to changes in related markets. The overall level of these revenues depends on multiple factors that include, but are not limited to, the level and duration of a 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. Therefore, overall revenues do not correlate completely with changes in the related 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 exposed to credit risk from 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 Risk—Credit Risk” in the 2020 Form 10-K.
Loans and Lending Commitments
 At March 31, 2021
$ in millionsHFIHFSFVOTotal
Institutional Securities:
Corporate$5,185 $11,824 $14 $17,023 
Secured lending facilities25,886 3,025 914 29,825 
Commercial and Residential real estate7,277 541 2,898 10,716 
Securities-based lending and Other1,034 62 7,758 8,854 
Total Institutional Securities39,382 15,452 11,584 66,418 
Wealth Management:
Residential real estate36,843 14  36,857 
Securities-based lending and Other68,167   68,167 
Total Wealth Management105,010 14  105,024 
Total Investment Management1
5 22 1,105 1,132 
Total loans2
144,397 15,488 12,689 172,574 
ACL(762)(762)
Total loans, net of ACL$143,635 $15,488 $12,689 $171,812 
Lending commitments3
$132,717 
Total exposure



$304,529 
 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
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 March 31, 2021 and December 31, 2020, loans held at fair value are predominantly the result of the consolidation of CLO vehicles, managed by Investment Management, composed primarily of senior secured loans to corporations.
2.FVO also includes the fair value of certain unfunded lending commitments.
3.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.
We provide loans and lending commitments to a variety of customers, including large corporate and institutional clients, as well as high to ultra-high net worth individuals. In addition, we purchase loans in the secondary market. Loans 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 financial statements in the 2020 Form 10-K.
Total loans and lending commitments increased by approximately $15 billion since December 31, 2020, primarily due to growth in event-driven loans and lending commitments within the Institutional Securities business segment, and an increase in Securities-based loans and Residential real estate loans within the Wealth Management business segment.
See Notes 5, 6, 10 and 14 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 received requests from certain clients for modifications of their credit agreements with us, which in some cases include deferral of their loan payments. Initial borrower requests for loan payment deferrals related to Residential real estate loans are granted, while those related to Commercial real estate loans require careful consideration prior to approval. As of March 31, 2021, the outstanding principal balance of loans with approved deferrals of principal
March 2021 Form 10-Q25

Risk Disclosures
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and interest payments currently in place which are not classified as troubled debt restructurings amounted to approximately $300 million for our Institutional Securities business segment and approximately $200 million for our Wealth Management business segment. Incremental to this population, throughout 2020 and the current quarter, we have provided deferrals of principal and interest on approximately $3.2 billion of loans which have now exited such modification arrangements. The substantial majority of these loans are current as of March 31, 2021.
In addition to these principal and interest deferrals, we are working with clients regarding modifications of certain other terms under their original loan agreements that do not impact contractual loan payments. We have granted such relief to certain borrowers, primarily within Secured lending facilities and Corporate loans. Such modifications include agreements to modify margin calls for Secured lending facilities, typically in return for additional payments that improve LTV ratios. In some cases, we have agreed to temporarily not enforce certain covenants, for example debt or interest coverage ratios, typically in return for other structural enhancements.
Granting loan deferral or modification requests does not necessarily mean that we will incur credit losses, and we do not believe modifications have had a material impact on the risk profile of our loan portfolio. Modifications are considered in our evaluation of overall credit risk. Generally, loans with payment deferrals remain on accrual status, and loans with other modifications remain on current status.
Requests for deferrals and other modifications could continue in future periods given the ongoing uncertain global economic and market conditions. 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
$ in millions
December 31, 20201
$1,231 
Gross charge-offs(10)
Provision for credit losses2
(98)
Other(7)
March 31, 2021$1,116 
ACL—Loans$762 
ACL—Lending commitments354 
1.At December 31, 2020, the ACL for Loans and Lending commitments was $835 million and $396 million, respectively.
2.In the current quarter, the Provision for credit losses on loans was a release of $58 million and the Provision for credit losses on lending commitments was a release of $40 million.
Credit exposure arising from our loans and lending commitments is measured in accordance with our internal risk management standards. Risk factors considered in determining the aggregate allowance for loan and commitment losses include the borrower’s financial strength, industry, facility structure, LTV ratio, debt service ratio, collateral and covenants. Qualitative and environmental factors such as economic and business conditions, nature and volume of the portfolio and lending terms, and volume and severity of past due loans may also be considered.
The aggregate allowance for loans and lending commitments decreased in the current quarter, primarily reflecting 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. The base scenario used in our ACL models as of March 31, 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 a continued recovery over the forecast period with U.S. GDP reaching pre-COVID-19 levels by the third quarter of 2021, supported by fiscal stimulus and accommodative monetary policy. See Notes 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 March 31, 2021At December 31, 2020
ISWMISWM
Accrual99.4 %99.7 %99.2 %99.7 %
Nonaccrual1
0.6 %0.3 %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.
26March 2021 Form 10-Q

Risk Disclosures
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Institutional Securities Loans and Lending Commitments1
 At March 31, 2021
 Contractual Years to Maturity 
$ in millionsLess than 11-33-5Over 5Total
Loans
AA$43 $9 $85 $35 $172 
A680 787 340 241 2,048 
BBB5,673 5,119 2,279 314 13,385 
BB11,381 7,783 4,325 673 24,162 
Other NIG5,557 6,323 3,472 6,931 22,283 
Unrated2
223 122 370 2,982 3,697 
Total loans, net of ACL23,557 20,143 10,871 11,176 65,747 
Lending commitments
AAA 50   50 
AA3,852 1,169 1,979  7,000 
A5,597 6,877 9,909 432 22,815 
BBB8,493 19,580 16,675 594 45,342 
BB3,282 11,102 7,252 2,543 24,179 
Other NIG1,965 7,250 6,849 3,291 19,355 
Unrated2
 2 10 1 13 
Total lending commitments23,189 46,030 42,674 6,861 118,754 
Total exposure$46,746 $66,173 $53,545 $18,037 $184,501 
 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
— — — 
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 internally determined by the Credit Risk Management Department (“CRM”).
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 “Market Risk” herein.
Institutional Securities Loans and Lending Commitments by Industry
$ in millionsAt
March 31,
2021
At
December 31,
2020
Industry
Financials$52,174 $44,358 
Real estate25,515 25,484 
Industrials17,310 15,861 
Healthcare13,656 12,650 
Communications services13,411 12,600 
Information technology11,502 11,358 
Utilities10,111 9,504 
Consumer discretionary9,982 11,177 
Energy9,380 10,064 
Consumer staples7,963 9,088 
Materials5,759 6,084 
Insurance4,410 3,889 
Other3,328 4,515 
Total exposure$184,501 $176,632 
Sectors Currently in Focus due to COVID-19
The continuing effect on economic activity of COVID-19 and related governmental actions have impacted borrowers in many sectors and industries. While we are carefully monitoring all of our Institutional Securities business segment exposures, certain sectors are more sensitive to the current economic environment and are continuing to receive heightened focus. The sectors currently in focus are: air travel, retail, upstream energy, lodging and leisure, and healthcare services and systems. As of March 31, 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 less than 10% of total Institutional Securities business segment lending exposure. Further, as of March 31, 2021, approximately 90% of these exposures are either investment grade and/or secured by collateral. The future developments of COVID-19 and related government actions and their effect on the economic environment remain uncertain; therefore, the sectors impacted and the extent of the impacts may change over time. Refer to “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. Over 90% of our total lending exposure, which consists of loans and lending commitments, is investment grade and/or secured by collateral. For a description of Institutional Securities’ lending activities, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk” in the 2020 Form 10-K.
March 2021 Form 10-Q27

Risk Disclosures
ms-20210331_g1.jpg
Institutional Securities Event-Driven Loans and Lending Commitments
At March 31, 2021
Contractual Years to Maturity
$ in millionsLess than 11-33-5Over 5Total
Loans, net of ACL$1,985 $602 $428 $5,991 $9,006 
Lending commitments4,238 5,502 2,380 4,596 16,716 
Total exposure$6,223 $6,104 $2,808 $10,587 $25,722 
 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 or project finance activities. Balances may fluctuate as such lending is related to transactions that vary in timing and size from period to period.
Institutional Securities Loans and Lending Commitments Held for Investment

At March 31, 2021
$ in millionsLoansLending CommitmentsTotal
Corporate$5,185 $71,893 $77,078 
Secured lending facilities25,886 9,085 34,971 
Commercial real estate7,277 276 7,553 
Other1,034 866 1,900 
Total, before ACL$39,382 $82,120 $121,502 
ACL$(671)$(350)$(1,021)
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 Commitments
$ in millionsCorporateSecured lending facilitiesCommercial real estateOtherTotal
At December 31, 2020
ACL—Loans$309 $198 $211 $21 $739 
ACL—Lending commitments323 38 11 19 391 
Total$632 $236 $222 $40 $1,130 
Gross charge-offs(1) (9) (10)
Provision for credit losses1
(89)(7)3  (93)
Other(3)(1)(2) (6)
Total at March 31, 2021$539 $228 $214 $40 $1,021 
ACL—Loans$250 $193 $206 $22 $671 
ACL—Lending commitments289 35 8 18 350 
1.In the current quarter, the provision for credit losses on loans was a release of $53 million and the Provision for credit losses on lending commitments was a release of $40 million.
Institutional Securities HFI Loans—Ratios of Allowance for Credit Losses to Balance Before Allowance
At
March 31,
2021
At
December 31,
2020
Corporate4.8 %5.1 %
Secured lending facilities0.7 %0.8 %
Commercial real estate2.8 %2.9 %
Other2.1 %1.7 %
Total Institutional Securities loans1.7 %1.8 %
Wealth Management Loans and Lending Commitments
 At March 31, 2021
 Contractual Years to Maturity 
$ in millionsLess than 11-33-5Over 5Total
Securities-based lending and Other$59,264 $5,371 $1,876 $1,620 $68,131 
Residential real estate7 1 3 36,791 36,802 
Total loans, net of ACL$59,271 $5,372 $1,879 $38,411 $104,933 
Lending commitments11,294 2,281 131 257 13,963 
Total exposure$70,565 $7,653 $2,010 $38,668 $118,896 
 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 estate35,210 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-based lending and residential real estate loans.
Securities-based lending allows clients to 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-based lending and residential real estate loans, see
28March 2021 Form 10-Q

Risk Disclosures
ms-20210331_g1.jpg
“Quantitative and Qualitative Disclosures about Risk—Credit Risk” in the 2020 Form 10-K.
Wealth Management Allowance for Credit Losses—Loans and Lending Commitments
$ in millions
December 31, 20201
$101 
Gross charge-offs 
Provision for credit losses2
(5)
Other(1)
March 31, 2021$95 
ACL—Loans$91 
ACL—Lending commitments4 
1.At December 31, 2020, the ACL for Loans and Lending commitments was $96 million and $5 million, respectively.
2.In the current quarter, the Provision for credit losses on loans was a release of $5 million.
At March 31, 2021, more than 75% of Wealth Management residential 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 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 and Other lending
$ in millionsAt
March 31,
2021
At
December 31,
2020
Institutional Securities$55,935 $51,570 
Wealth Management26,609 23,144 
Total$82,544 $74,714 
The Institutional Securities and Wealth Management business segments provide margin lending arrangements that allow customers to borrow against the value of qualifying 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 lower 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
For information on employee loans and related ACL, see Note 10 to the financial statements.
Derivatives
Fair Value of OTC Derivative Assets
 
Counterparty Credit Rating1
 
$ in millionsAAAAAABBBNIGTotal
At March 31, 2021
Less than 1 year$1,346 $15,620 $45,783 $23,734 $12,533 $99,016 
1-3 years591 4,755 15,600 12,197 7,535 40,678 
3-5 years703 4,907 10,115 8,153 3,695 27,573 
Over 5 years4,151 26,657 68,658 49,759 11,487 160,712 
Total, gross$6,791 $51,939 $140,156 $93,843 $35,250 $327,979 
Counterparty netting(3,245)(40,745)(109,294)(71,170)(19,149)(243,603)
Cash and securities collateral(2,879)(8,735)(24,958)(16,801)(7,961)(61,334)
Total, net$667 $2,459 $5,904 $5,872 $8,140 $23,042 
 
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
March 31,
2021
At
December 31,
2020
Industry
Financials$8,404 $6,195 
Utilities4,082 3,954 
Consumer discretionary2,350 1,866 
Energy1,007 965 
Healthcare961 1,494 
Industrials906 1,291 
Information technology894 1,104 
Regional governments845 806 
Sovereign governments708 650 
Insurance554 518 
Not-for-profit organizations538 701 
Real estate474 378 
Communications services473 529 
Materials363 430 
Consumer staples332 339 
Other151 81 
Total$23,042 $21,301 
1.Counterparty credit ratings are determined internally by CRM.
We are 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. For more information on derivatives, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk—Derivatives” in the 2020 Form 10-K and Note 7 to the financial statements.
March 2021 Form 10-Q29

Risk Disclosures
ms-20210331_g1.jpg
Country Risk
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. For a further discussion of our country risk exposure see, “Quantitative and Qualitative Disclosures about Risk—Country and Other Risks” in the 2020 Form 10-K.
Our sovereign exposures consist of financial contracts and obligations entered into with sovereign and local governments. Our non-sovereign exposures consist of financial contracts and obligations entered into primarily with corporations and financial institutions.
Index credit derivatives are included in the following country risk exposure table. Each reference entity within an index is allocated to that reference entity’s country of risk. Index exposures are allocated to the underlying reference entities in proportion to the notional weighting of each reference entity in the index, adjusted for any fair value receivable or payable for that reference entity. Where credit risk crosses multiple jurisdictions, for example, a CDS purchased from an issuer in a specific country that references bonds issued by an entity in a different country, the fair value of the CDS is reflected in the Net Counterparty Exposure row based on the country of the CDS issuer. Further, the notional amount of the CDS adjusted for the fair value of the receivable or payable is reflected in the Net Inventory row based on the country of the underlying reference entity.
Top 10 Non-U.S. Country Exposures at March 31, 2021
$ in millionsUnited KingdomJapanFranceGermanySpain
Sovereign
Net inventory1
$51 $6,101 $1,531 $(3,354)$(563)
Net counterparty exposure2
16 66 24 73 15 
Exposure before hedges67 6,167 1,555 (3,281)(548)
Hedges3
(310)(91)(6)(287) 
Net exposure$(243)$6,076 $1,549 $(3,568)$(548)
Non-sovereign
Net inventory1
$894 $508 $(526)$(215)$(117)
Net counterparty exposure2
11,563 5,277 3,066 2,942 273 
Loans3,620 382 681 1,890 3,577 
Lending commitments5,452 181 4,368 4,355 922 
Exposure before hedges21,529 6,348 7,589 8,972 4,655 
Hedges3
(1,653)(173)(752)(1,055)(151)
Net exposure$19,876 $6,175 $6,837 $7,917 $4,504 
Total net exposure$19,633 $12,251 $8,386 $4,349 $3,956 
$ in millionsBrazilCanadaChinaAustraliaIndia
Sovereign
Net inventory1
$2,962 $(348)$87 $445 $1,734 
Net counterparty exposure2
 88 145 32  
Exposure before hedges2,962 (260)232 477 1,734 
Hedges3
(12) (82)  
Net exposure$2,950 $(260)$150 $477 $1,734 
Non-sovereign
Net inventory1
$75 $493 $1,412 $302 $638 
Net counterparty exposure2
429 2,079 740 720 754 
Loans208 164 636 405 214 
Lending commitments166 1,366 821 1,617  
Exposure before hedges878 4,102 3,609 3,044 1,606 
Hedges3
(24)(74)(187)(174) 
Net exposure$854 $4,028 $3,422 $2,870 $1,606 
Total net exposure$3,804 $3,768 $3,572 $3,347 $3,340 
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 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 benefit of collateral received and also is net by counterparty when legally enforceable master netting agreements are in place. 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 CDS notional amount assuming zero recovery adjusted for any fair value receivable or payable. For further description of the 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 millionsAt
March 31,
2021
Country of Risk
Collateral2
GermanySpain and Italy$11,670 
United KingdomU.K., U.S. and Italy8,559 
OtherJapan, U.S. and France17,757 
1.The benefit of collateral received is reflected in the Top 10 Non-U.S. Country Exposures at March 31, 2021.
2.Primarily consists of cash, as well as government obligations of the countries listed.
Country Risk Exposures Related to the U.K.
At March 31, 2021, our country risk exposures in the U.K. included net exposures of $19,633 million (as shown in the Top 10 Non-U.S. Country Exposures table) and overnight deposits of $6,599 million. The $19,876 million of exposures to non-sovereigns were diversified across both names and sectors and include $7,144 million to U.K.-focused counterparties that generate more than one-third of their revenues in the U.K., $4,321 million to geographically diversified counterparties, and $7,573 million to exchanges and clearinghouses.
30March 2021 Form 10-Q

Risk Disclosures
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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 Risk—Operational Risk” in the 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 2020 Form 10-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 our reputation. The risk inherent in a model is a function of the materiality, complexity and uncertainty around inputs and assumptions. Model risk is generated from the use of models impacting financial statements, regulatory filings, capital adequacy assessments and the formulation of strategy. For a further discussion about our model risk, see “Quantitative and Qualitative Disclosures about Risk—Model Risk” in the 2020 Form 10-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 Risk—Liquidity Risk” in the 2020 Form 10-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 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 AML, terrorist financing, and anti-corruption rules and regulations. For a further discussion about our legal and compliance risk, see “Quantitative and Qualitative Disclosures about Risk—Legal and Compliance Risk” in the 2020 Form 10-K.
March 2021 Form 10-Q31

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors 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 March 31, 2021, and the related condensed consolidated income statements, comprehensive income statements, cash flow statements and statements of changes in total equity for the three-month periods ended March 31, 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 information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Firm as of December 31, 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 PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.






/s/ Deloitte & Touche LLP
 
New York, New York
May 3, 2021


32March 2021 Form 10-Q

Consolidated Income Statements
(Unaudited)
ms-20210331_g1.jpg
 Three Months Ended
March 31,
in millions, except per share data20212020
Revenues
Investment banking$2,840 $1,271 
Trading4,225 2,801 
Investments318 38 
Commissions and fees1,626 1,360 
Asset management4,398 3,417 
Other284 (464)
Total non-interest revenues13,691 8,423 
Interest income2,437 3,503 
Interest expense409 2,147 
Net interest2,028 1,356 
Net revenues15,719 9,779 
Provision for credit losses(98)407 
Non-interest expenses
Compensation and benefits6,798 4,283 
Brokerage, clearing and exchange fees910 740 
Information processing and communications733 563 
Professional services624 449 
Occupancy and equipment405 365 
Marketing and business development146 132 
Other857 694 
Total non-interest expenses10,473 7,226 
Income before provision for income taxes5,344 2,146 
Provision for income taxes1,176 366 
Net income$4,168 $1,780 
Net income applicable to noncontrolling interests48 82 
Net income applicable to Morgan Stanley$4,120 $1,698 
Preferred stock dividends138 108 
Earnings applicable to Morgan Stanley common shareholders$3,982 $1,590 
Earnings per common share
Basic$2.22 $1.02 
Diluted$2.19 $1.01 
Average common shares outstanding
Basic1,795 1,555 
Diluted1,818 1,573 

Consolidated Comprehensive Income Statements
(Unaudited)
 Three Months Ended
March 31,
$ in millions20212020
Net income$4,168 $1,780 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(219)(132)
Change in net unrealized gains (losses) on available-for-sale securities(776)1,325 
Pension and other5 25 
Change in net debt valuation adjustment137 3,803 
Total other comprehensive income (loss)$(853)$5,021 
Comprehensive income$3,315 $6,801 
Net income applicable to noncontrolling interests48 82 
Other comprehensive income (loss) applicable to noncontrolling interests(61)138 
Comprehensive income applicable to Morgan Stanley$3,328 $6,581 
See Notes to Consolidated Financial Statements33March 2021 Form 10-Q

Consolidated Balance Sheets
ms-20210331_g1.jpg
$ in millions, except share data
(Unaudited)
At
March 31,
2021
At
December 31,
2020
Assets
Cash and cash equivalents$118,118 $105,654 
Trading assets at fair value ($111,342 and $132,578 were pledged to various parties)
313,158 312,738 
Investment securities (includes $105,288 and $110,383 at fair value)
189,206 182,154 
Securities purchased under agreements to resell (includes $9 and $15 at fair value)
114,721 116,234 
Securities borrowed102,149 112,391 
Customer and other receivables115,043 97,737 
Loans:
Held for investment (net of allowance of $762 and $835)
143,635 137,784 
Held for sale15,488 12,813 
Goodwill16,836 11,635 
Intangible assets (net of accumulated amortization of $3,358 and $3,265)
8,846 4,980 
Other assets21,572 21,742 
Total assets$1,158,772 $1,115,862 
Liabilities
Deposits (includes $3,069 and $3,521 at fair value)
$323,138 $310,782 
Trading liabilities at fair value185,667 157,631 
Securities sold under agreements to repurchase (includes $1,089 and $1,115 at fair value)
54,624 50,587 
Securities loaned8,426 7,731 
Other secured financings (includes $5,001 and $11,701 at fair value)
9,413 15,863 
Customer and other payables230,121 227,437 
Other liabilities and accrued expenses23,969 25,603 
Borrowings (includes $74,022 and $73,701 at fair value)
215,826 217,079 
Total liabilities1,051,184 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: 1,868,925,320 and 1,809,624,144
20 20 
Additional paid-in capital27,406 25,546 
Retained earnings82,034 78,694 
Employee stock trusts3,861 3,043 
Accumulated other comprehensive income (loss)(2,754)(1,962)
Common stock held in treasury at cost, $0.01 par value (169,968,659 and 229,269,835 shares)
(8,197)(9,767)
Common stock issued to employee stock trusts(3,861)(3,043)
Total Morgan Stanley shareholders’ equity106,259 101,781 
Noncontrolling interests1,329 1,368 
Total equity107,588 103,149 
Total liabilities and equity$1,158,772 $1,115,862 
March 2021 Form 10-Q34See Notes to Consolidated Financial Statements

Consolidated Statements of Changes in Total Equity
(Unaudited)
ms-20210331_g1.jpg
Three Months Ended
March 31,
$ in millions20212020
Preferred Stock
Beginning balance$9,250 $8,520 
Redemption of Series J preferred stock(1,500)
Ending balance7,750 8,520 
Common Stock
Beginning and ending balance20 20 
Additional Paid-in Capital
Beginning balance25,546 23,935 
Share-based award activity(332)(507)
Issuance of common stock for the acquisition of Eaton Vance2,185 
Other net increases (decreases)7 
Ending balance27,406 23,428 
Retained Earnings
Beginning balance78,694 70,589 
Cumulative adjustment related to the adoption of financial instruments-credit losses accounting update1
 (100)
Net income applicable to Morgan Stanley4,120 1,698 
Preferred stock dividends2
(138)(108)
Common stock dividends2
(635)(561)
Other net increases (decreases)(7)
Ending balance82,034 71,518 
Employee Stock Trusts
Beginning balance3,043 2,918 
Share-based award activity818 170 
Ending balance3,861 3,088 
Accumulated Other Comprehensive Income (Loss)
Beginning balance(1,962)(2,788)
Net change in Accumulated other comprehensive income (loss)(792)4,883 
Ending balance(2,754)2,095 
Common Stock Held in Treasury at Cost
Beginning balance(9,767)(18,727)
Share-based award activity1,020 788 
Repurchases of common stock and employee tax withholdings(2,582)(1,782)
Issuance of common stock for the acquisition of Eaton Vance3,132 
Ending balance(8,197)(19,721)
Common Stock Issued to Employee Stock Trusts
Beginning balance(3,043)(2,918)
Share-based award activity(818)(170)
Ending balance(3,861)(3,088)
Noncontrolling Interests
Beginning balance1,368 1,148 
Net income applicable to noncontrolling interests48 82 
Net change in Accumulated other comprehensive income (loss) applicable to noncontrolling interests(61)138 
Other net increases (decreases)(26)
Ending balance1,329 1,368 
Total Equity$107,588 $87,228 
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.
See Notes to Consolidated Financial Statements35March 2021 Form 10-Q

Consolidated Cash Flow Statements
(Unaudited)
ms-20210331_g1.jpg
 Three Months Ended
March 31,
$ in millions20212020
Cash flows from operating activities
Net income$4,168 $1,780 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Stock-based compensation expense518 154 
Depreciation and amortization887 824 
Provision for credit losses(98)407 
Other operating adjustments(95)1,044 
Changes in assets and liabilities:
Trading assets, net of Trading liabilities20,463 35,079 
Securities borrowed10,242 34,249 
Securities loaned695 3,125 
Customer and other receivables and other assets(18,721)(23,619)
Customer and other payables and other liabilities3,270 (4,247)
Securities purchased under agreements to resell1,513 (16,576)
Securities sold under agreements to repurchase4,037 (8,384)
Net cash provided by (used for) operating activities26,879 23,836 
Cash flows from investing activities
Proceeds from (payments for):
Other assets—Premises, equipment and software, net(525)(354)
Changes in loans, net(6,474)(13,243)
Investment securities:
Purchases(32,333)(12,924)
Proceeds from sales6,825 3,128 
Proceeds from paydowns and maturities12,638 2,378 
Cash paid as part of the Eaton Vance acquisition, net of cash acquired(2,648)
Other investing activities(44)(93)
Net cash provided by (used for) investing activities(22,561)(21,108)
Cash flows from financing activities
Net proceeds from (payments for):
Other secured financings(3,798)259 
Deposits12,391 44,694 
Proceeds from issuance of Borrowings24,112 20,601 
Payments for:
Borrowings(19,774)(14,967)
Repurchases of common stock and employee tax withholdings(2,582)(1,782)
Cash dividends(755)(688)
Other financing activities(30)(163)
Net cash provided by (used for) financing activities9,564 47,954 
Effect of exchange rate changes on cash and cash equivalents(1,418)(1,344)
Net increase (decrease) in cash and cash equivalents12,464 49,338 
Cash and cash equivalents, at beginning of period105,654 82,171 
Cash and cash equivalents, at end of period$118,118 $131,509 
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest$586 $2,123 
Income taxes, net of refunds339 342 
March 2021 Form 10-Q36See Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements
(Unaudited)
ms-20210331_g1.jpg
1. Introduction and Basis of Presentation
The Firm
Morgan Stanley is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms “Morgan Stanley” 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 a variety of products and 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. Our Equity and Fixed Income businesses include sales, financing, prime brokerage, market-making, Asia wealth management services and certain business-related investments. Lending activities include originating corporate loans and commercial real estate loans, providing secured lending facilities, and extending securities-based and other financing to customers. Other activities include research.
Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small to medium-sized businesses and institutions covering: financial advisor-led brokerage and investment advisory services; self-directed brokerage services, including through the E*TRADE platform; financial and wealth planning services; workplace services including stock plan administration; annuity and insurance products; securities-based lending, residential real estate loans and other lending products; banking; and retirement plan services.
Investment Management provides 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 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 generally served through intermediaries, including affiliated and non-affiliated distributors.
Basis of Financial Information
The financial statements are prepared in accordance with U.S. GAAP, which requires the Firm to make estimates and assumptions regarding the valuations of certain financial instruments, the valuations of goodwill and intangible assets, the outcome of legal and tax matters, deferred 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.
The financial statements reflect the effects of the following reclassifications to prior period amounts. The Provision for credit losses for loans and lending commitments is now 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 now 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 or disclosure in these financial statements through the date of this report and has not identified any recordable or disclosable events not otherwise reported in these financial statements or the notes thereto.
The accompanying financial statements should be read in conjunction with the Firm’s financial statements and notes thereto included in the 2020 Form 10-K. Certain footnote disclosures included in the 2020 Form 10-K have been condensed or omitted from these financial statements as they are not required for interim reporting under U.S. GAAP. The financial statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The results of operations for interim periods are not necessarily indicative of results for the entire year.
Consolidation
The financial statements include the accounts of the Firm, its wholly owned subsidiaries and other entities in which the Firm has a controlling financial interest, including certain VIEs (see Note 15). Intercompany balances and transactions have been eliminated. For consolidated subsidiaries that are not wholly owned, the third-party holdings of equity interests are referred to as Noncontrolling interests. The net income attributable to Noncontrolling interests for such subsidiaries is
37March 2021 Form 10-Q

Notes to Consolidated Financial Statements
(Unaudited)
ms-20210331_g1.jpg
presented as Net income applicable to noncontrolling interests in the income statements. The portion of shareholders’ equity that is attributable to noncontrolling interests for such subsidiaries is presented as noncontrolling interests, a component of Total equity, in the balance sheets.
For a discussion of the Firm’s significant regulated U.S. and international subsidiaries and its involvement with VIEs, see Note 1 to the financial statements in the 2020 Form 10-K.
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 financial statements in the 2020 Form 10-K.
During the three months ended March 31, 2021 (“current quarter”), there were no significant updates to the Firm’s significant accounting 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 intangibles 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 has the option 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 if it is the quantitative test would be performed.
3. Acquisitions
Acquisition of Eaton Vance
On March 1, 2021, the Firm completed the acquisition of 100% of Eaton Vance in a stock and cash transaction, which increases the scale and breadth of the Investment Management business segment. Total consideration for the transaction was approximately $8.7 billion, which consists of the $5.3 billion fair value of 69 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 their 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 valuing certain acquired assets and liabilities are based, in part, on inputs that are unobservable. For intangible assets, these include, but are not limited to forecasted future cash flows, revenue growth rates, attrition rates and discount rates.
Preliminary Eaton Vance Purchase Price Allocation1
$ in millionsAt
March 1,
2021
Assets
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 
1.Due to the limited time since the date of the acquisition, the purchase price allocation remains preliminary.
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 Net revenues of approximately $174 million and Net income of approximately $31 million are included in the Firm’s consolidated results for the period from March 1, 2021 to March 31, 2021.
Morgan Stanley and Eaton Vance Proforma Combined Financial Information
Three Months Ended
March 31,
$ in millions20212020
Net revenues$16,015 $10,165 
Net income4,268 1,409 
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 have been had the companies actually been combined as of this date.
March 2021 Form 10-Q38

Notes to Consolidated Financial Statements
(Unaudited)
ms-20210331_g1.jpg
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
March 31,
2021
At
December 31,
2020
Cash and due from banks$11,163 $9,792 
Interest bearing deposits with banks106,955 95,862 
Total Cash and cash equivalents$118,118 $105,654 
Restricted cash$42,920 $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 Measurements    
Assets and Liabilities Measured at Fair Value on a Recurring Basis
At March 31, 2021
$ in millionsLevel 1Level 2Level 3
Netting1
Total
Assets at fair value
Trading assets:
U.S. Treasury and agency securities$53,200 $22,956 $12 $ $76,168 
Other sovereign government obligations32,927 5,929 17  38,873 
State and municipal securities0 1,366 0  1,366 
MABS0 1,164 374  1,538 
Loans and lending commitments2
0 7,644 5,045  12,689 
Corporate and other debt0 25,672 3,319  28,991 
Corporate equities3
104,223 327 114  104,664 
Derivative and other contracts:
Interest rate7,453 182,012 1,242  190,707 
Credit0 8,853 601  9,454 
Foreign exchange7 82,822 191  83,020 
Equity999 65,637 1,279  67,915 
Commodity and other2,130 11,438 3,035  16,603 
Netting1
(7,947)(265,732)(1,136)(52,034)(326,849)
Total derivative and other contracts2,642 85,030 5,212 (52,034)40,850 
Investments4
729 416 924  2,069 
Physical commodities0 2,133 0  2,133 
Total trading assets4
193,721 152,637 15,017 (52,034)309,341 
Investment securities—AFS50,392 54,769 127  105,288 
Securities purchased under agreements to resell0 9 0  9 
Total assets at fair value$244,113 $207,415 $15,144 $(52,034)$414,638 
At March 31, 2021
$ in millionsLevel 1Level 2Level 3
Netting1
Total
Liabilities at fair value
Deposits$0 $2,892 $177 $ $3,069 
Trading liabilities:
U.S. Treasury and agency securities13,357 5 0  13,362 
Other sovereign government obligations27,322 1,758 0  29,080 
Corporate and other debt0 11,377 13  11,390 
Corporate equities3
91,623 377 49  92,049 
Derivative and other contracts:
Interest rate7,527 168,151 551  176,229 
Credit0 9,441 683  10,124 
Foreign exchange13 78,749 301  79,063 
Equity1,038 80,269 3,396  84,703 
Commodity and other1,989 11,118 1,091  14,198 
Netting1
(7,947)(265,732)(1,136)(49,716)(324,531)
Total derivative and other contracts2,620 81,996 4,886 (49,716)39,786 
Total trading liabilities134,922 95,513 4,948 (49,716)185,667 
Securities sold under agreements to repurchase0 648 441  1,089 
Other secured financings0 4,446 555  5,001 
Borrowings13 69,747 4,262  74,022 
Total liabilities at fair value$134,935 $173,246 $10,383 $(49,716)$268,848 
 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 $$— $74,617 
Other sovereign government obligations26,174 5,048 268 — 31,490 
State and municipal securities1,135 — 1,135 
MABS1,070 322 — 1,392 
Loans and lending commitments2
5,389 5,759 — 11,148 
Corporate and other debt30,093 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 
Credit6,840 701 — 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 commodities3,260 — 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 resell12 — 15 
Total assets at fair value$229,760 $234,077 $18,426 $(62,956)$419,307 
39March 2021 Form 10-Q

Notes to Consolidated Financial Statements
(Unaudited)
ms-20210331_g1.jpg
At December 31, 2020
$ in millionsLevel 1Level 2Level 3
Netting1
Total
Liabilities at fair value
Deposits$$3,395 $126 $— $3,521 
Trading liabilities:
U.S. Treasury and agency securities10,204 — 10,205 
Other sovereign government obligations24,209 1,738 16 — 25,963 
Corporate and other debt8,468 — 8,468 
Corporate equities3
67,822 172 63 — 68,057 
Derivative and other contracts:
Interest rate4,789 213,321 528 — 218,638 
Credit7,500 652 — 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 repurchase671 444 — 1,115 
Other secured financings11,185 516 — 11,701 
Borrowings69,327 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
March 31,
2021
At
December 31,
2020
Corporate$14$13
Secured lending facilities914648
Commercial Real Estate347916
Residential Real Estate2,5512,145
Securities-based lending and Other loans8,8637,426
Total$12,689$11,148
Unsettled Fair Value of Futures Contracts1
$ in millionsAt
March 31,
2021
At
December 31,
2020
Customer and other receivables, net$689 $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 5 to the financial statements in the 2020 Form 10-K. During the current quarter, there were no significant revisions made to the Firm’s valuation techniques.
Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
Three Months Ended
March 31,
$ in millions20212020
U.S. Treasury and agency securities
Beginning balance$$22 
Realized and unrealized gains (losses)0 
Purchases12 85 
Sales(9)(21)
Net transfers0 
Ending balance$12 $99 
Unrealized gains (losses)$0 $
Other sovereign government obligations
Beginning balance$268 $
Realized and unrealized gains (losses)0 
Purchases15 10 
Sales(256)
Net transfers(10)
Ending balance$17 $17 
Unrealized gains (losses)$0 $
State and municipal securities
Beginning balance$0 $
Ending balance$0 $
Unrealized gains (losses)$0 $
MABS
Beginning balance$322 $438 
Realized and unrealized gains (losses)51 (89)
Purchases144 158 
Sales(103)(140)
Net transfers(40)116 
Ending balance$374 $483 
Unrealized gains (losses)$(2)$(92)
Loans and lending commitments
Beginning balance$5,759 $5,073 
Realized and unrealized gains (losses)(26)(102)
Purchases and originations1,833 1,952 
Sales(2,060)(529)
Settlements(388)(1,387)
Net transfers1
(73)973 
Ending balance$5,045 $5,980 
Unrealized gains (losses)$(32)$(101)
March 2021 Form 10-Q40

Notes to Consolidated Financial Statements
(Unaudited)
ms-20210331_g1.jpg
Three Months Ended
March 31,
$ in millions20212020
Corporate and other debt
Beginning balance$3,435 $1,396 
Realized and unrealized gains (losses)(51)(92)
Purchases and originations867 585 
Sales(749)(177)
Settlements(255)
Net transfers72 (4)
Ending balance$3,319 $1,708 
Unrealized gains (losses)$2 $(90)
Corporate equities
Beginning balance$86 $97 
Realized and unrealized gains (losses)16 (60)
Purchases25 22 
Sales(46)(40)
Net transfers33 127 
Ending balance$114 $146 
Unrealized gains (losses)$18 $(54)
Investments
Beginning balance$828 $858 
Realized and unrealized gains (losses)6 (63)
Purchases64 15 
Sales(15)(8)
Net transfers41 (77)
Ending balance$924 $725 
Unrealized gains (losses)$(6)$(64)
Investment securities —AFS
Beginning balance$2,804 $
Realized and unrealized gains (losses)(4)0 
Sales(192)0 
Net transfers2
(2,481)
Ending balance$127 $
Unrealized gains (losses)$(5)$
Securities purchased under agreements to resell
Beginning balance$$
Net transfers(3)0 
Ending balance$0 $0 
Unrealized gains (losses)$0 $0 
Net derivatives: Interest rate
Beginning balance$682 $777 
Realized and unrealized gains (losses)(413)156 
Purchases31 61 
Issuances(17)(7)
Settlements83 (42)
Net transfers325 (72)
Ending balance$691 $873 
Unrealized gains (losses)$(403)$111 
Net derivatives: Credit
Beginning balance$49 $124 
Realized and unrealized gains (losses)(4)131 
Purchases19 26 
Issuances(8)(21)
Settlements(72)(24)
Net transfers(66)(38)
Ending balance$(82)$198 
Unrealized gains (losses)$(13)$123 
Three Months Ended
March 31,
$ in millions20212020
Net derivatives: Foreign exchange
Beginning balance$61 $(31)
Realized and unrealized gains (losses)(236)(62)
Purchases2 
Issuances(4)(8)
Settlements26 (8)
Net transfers41 (44)
Ending balance$(110)$(150)
Unrealized gains (losses)$(206)$(164)
Net derivatives: Equity
Beginning balance$(2,231)$(1,684)
Realized and unrealized gains (losses)63 635 
Purchases77 97 
Issuances(297)(144)
Settlements65 (167)
Net transfers206 (113)
Ending balance$(2,117)$(1,376)
Unrealized gains (losses)$12 $566 
Net derivatives: Commodity and other
Beginning balance$1,709 $1,612 
Realized and unrealized gains (losses)331 75 
Purchases7 
Issuances(1)(3)
Settlements(131)157 
Net transfers29 
Ending balance$1,944 $1,849 
Unrealized gains (losses)$215 $22 
Deposits
Beginning balance$126 $179 
Realized and unrealized losses (gains)(4)(6)
Issuances11 12 
Settlements(2)(5)
Net transfers46 (63)
Ending balance$177 $117 
Unrealized losses (gains)$(4)$(6)
Nonderivative trading liabilities
Beginning balance$79 $37 
Realized and unrealized losses (gains)(9)(43)
Purchases(20)(82)
Sales13 52 
Net transfers(1)100 
Ending balance$62 $64 
Unrealized losses (gains)$(9)$(43)
Securities sold under agreements to repurchase
Beginning balance$444 $
Realized and unrealized losses (gains)(2)
Net transfers(1)
Ending balance$441 $
Unrealized losses (gains)$(2)$
Other secured financings
Beginning balance$516 $109 
Realized and unrealized losses (gains)(5)(12)
Issuances370 
Settlements(322)(115)
Net transfers(4)405 
Ending balance$555 $389 
Unrealized losses (gains)$(5)$(12)
41March 2021 Form 10-Q

Notes to Consolidated Financial Statements
(Unaudited)
ms-20210331_g1.jpg
Three Months Ended
March 31,
$ in millions20212020
Borrowings
Beginning balance$4,374 $4,088 
Realized and unrealized losses (gains)(118)(897)
Issuances231 701 
Settlements(316)(234)
Net transfers91 340 
Ending balance$4,262 $3,998 
Unrealized losses (gains)$(116)$(895)
Portion of Unrealized losses (gains) recorded in OCI—Change in net DVA(29)(398)
1.Net transfers in the prior year quarter included the transfer of $857 million of equity margin loans from Level 2 to Level 3 as the significance of the margin loan rate input increased as a result of reduced liquidity.
2.Net transfers in the current quarter reflect the transfer of certain AFS securities from Level 3 to Level 2 due to increased trading activity and observability of pricing inputs.
Level 3 instruments may be hedged with instruments classified in Level 1 and Level 2. The realized and unrealized gains or losses for assets and liabilities within the Level 3 category presented in the previous tables do not reflect the related realized and unrealized gains or losses on hedging instruments that have been classified by the Firm within the Level 1 and/or Level 2 categories.
The unrealized gains (losses) during the period for assets and liabilities within the Level 3 category 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.
Additionally, in the previous tables, consolidations of VIEs are included in Purchases, and deconsolidations of VIEs are included in Settlements.
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 March 31, 2021At December 31, 2020
Assets at Fair Value on a Recurring Basis
Other sovereign government obligations$17 $268 
Comparable pricing:
Bond priceN/M106 points
MABS$374 $322 
Comparable pricing:
Bond price0 to 80 points (51 points)0 to 80 points (50 points)
Loans and lending
commitments
$5,045 $5,759 
Margin loan model:
Margin loan rate1% to 5% (3%)1% to 5% (3%)
Comparable pricing:
Loan price75 to 102 points (98 points)75 to 102 points (93 points)
Balance / Range (Average1)
$ in millions, except inputsAt March 31, 2021At December 31, 2020
Corporate and
other debt
$3,319 $3,435 
Comparable pricing:
Bond price13 to 133 points (100 points)10 to 133 points (101 points)
Discounted cash flow:
Recovery rate40% to 62% (46% / 40%)40% to 62% (46% / 40%)
Option model:
Equity volatility18% to 21% (18%)18% to 21% (19%)
Corporate equities$114 $86 
Comparable pricing:
Equity price100%100%
Investments$924 $828 
Discounted cash flow:
WACC8% to 17% (15%)8% to 18% (15%)
Exit multiple8 to 17 times (12 times)7 to 17 times (12 times)
Market approach:
EBITDA multiple8 to 38 times (11 times)8 to 32 times (11 times)
Comparable pricing:
Equity price45% to 100% (99%)45% to 100% (99%)
Investment securities —AFS$127 $2,804 
Comparable pricing:
Bond price
102 to 107 points
(104 points)
97 to 107 points
(101 points)
Net derivative and other contracts:
Interest rate$691 $682 
Option model:
IR volatility skew23% to 111% (61% / 60%)0% to 349% (62% / 59%)
IR curve correlation74% to 98% (84% / 85%)54% to 99% (87% / 89%)
Bond volatility3% to 24% (12% / 8%)6% to 24% (13% / 13%)
Inflation volatility25% to 66% (45% / 43%)25% to 66% (45% / 43%)
IR curve1%1%
Credit$(82)$49 
Credit default swap model:
Cash-synthetic basis7 points7 points
Bond price0 to 85 points (45 points)0 to 85 points (47 points)
Credit spread14 to 439 bps (68 bps)20 to 435 bps (74 bps)
Funding spread21 to 134 bps (61 bps)65 to 118 bps (86 bps)
Correlation model:
Credit correlation29% to 47% (35%)27% to 44% (32%)
Foreign exchange2
$(110)$61 
Option model:
IR - FX correlation54% to 58% (55% 55%)55% to 59% (56% / 56%)
IR volatility skew23% to 111% (61% / 60%)0% to 349% (62% / 59%)
IR curve5% to 7% (6% / 7%)6% to 8% (7% / 8%)
Foreign exchange volatility skew -7% to -3% (-5% / -5%) -22% to 28% (3% / 1%)
Contingency probability90% to 95% (94% / 95%)50% to 95% (83% / 93%)
Equity2
$(2,117)$(2,231)
Option model:
Equity volatility15% to 93% (39%)16% to 97% (43%)
Equity volatility skew -3% to 0% (-1%) -3% to 0% (-1%)
Equity correlation35% to 92% (65%)24% to 96% (74%)
FX correlation -79% to 60% (-22%) -79% to 60% (-16%)
IR correlation 18% to 40% (20%) -13% to 47% (21% / 20%)
March 2021 Form 10-Q42

Notes to Consolidated Financial Statements
(Unaudited)
ms-20210331_g1.jpg
Balance / Range (Average1)
$ in millions, except inputsAt March 31, 2021At December 31, 2020
Commodity and other$1,944 $1,709 
Option model:
Forward power price$-2 to $226 ($29) per MWh$-1 to $157 ($28) per MWh
Commodity volatility8% to 76% (18%)8% to 183% (19%)
Cross-commodity correlation43% to 99% (93%)43% to 99% (92%)
Liabilities Measured at Fair Value on a Recurring Basis
Deposits$177 $126 
Option model:
Equity volatility7% to 23% (8%)7% to 22% (8%)
Credit spreads496 to 521 bps (508)N/A
 Nonderivative trading liabilities
—Corporate equities
$49 $63 
Comparable pricing:
Equity price100%100%
Securities sold under agreements to repurchase$441 $444 
Discounted cash flow:
Funding spread114 to 133 bps (129 bps)107 to 127 bps (115 bps)
Other secured financings$555 $516 
Discounted cash flow:
Funding spread98 bps (98 bps)111 bps (111 bps)
Comparable pricing:
Loan price30 to 101 points (83 points)30 to 101 points (56 points)
Borrowings$4,262 $4,374 
Option model:
Equity volatility 7% to 53% (22%)6% to 66% (23%)
Equity volatility skew -5% to 0% (0%) -2% to 0% (0%)
Equity correlation40% to 98% (80%)37% to 95% (78%)
Equity - FX correlation -72% to 5% (-36%) -72% to 13% (-24%)
IR FX Correlation -28% to 7% (-5% / -5%) -28% to 6% (-6% / -6%)
Nonrecurring Fair Value Measurement
Loans$1,149 $3,134 
Corporate loan model:
Credit spread114 to 433 bps (257 bps)36 to 636 bps (336 bps)
Comparable pricing:
Loan price47 to 88 bps (66 bps)N/M
Warehouse model:
Credit spread163 to 336 bps (288 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 previous tables provide information on the valuation techniques, significant unobservable inputs, and the 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 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. Generally, there are no predictable relationships between multiple significant unobservable inputs attributable to a given valuation technique.
For a description of the Firm’s significant unobservable inputs and qualitative information about the effect of hypothetical changes in the values of those inputs, see Note 5 to the financial statements in the 2020 Form 10-K. During the current quarter, there were no significant revisions made to the descriptions of the Firm’s significant unobservable inputs.
Net Asset Value Measurements
Fund Interests
 At March 31, 2021At December 31, 2020
$ in millions
Carrying
Value
Commitment
Carrying
Value
Commitment
Private equity$2,286