Morgan Stanley 1999 Annual Report Download - page 40

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99 AR |page 38
Net interest income decreased 21% in fiscal 1999 and 11% in fiscal
1998. The decrease in fiscal 1999 was primarily due to lower average
levels of owned consumer loans and a lower yield on these loans. The
decrease in average owned consumer loans was due to the sale of the
operations of SPS, the sale of Prime Option and the discontinuance of
the BRAVO Card in fiscal 1998, as well as a higher level of securitized
Discover Card loans. The lower yield in fiscal 1999 was due to a lower
yield on Discover Card loans, coupled with the exclusion of SPS loans
from the Company’s portfolio. The lower yield on Discover Card loans
was primarily due to the more competitive interest rates offered to both
existing and new cardmembers. The lower yield reflected an increase
in consumer loans from balance transfers, which often are offered at
below-market interest rates for an introductory period. In fiscal 1998,
excluding the effect of the reclassification of charged-off cardmember
fees discussed previously, net interest income would have decreased
15%. The decrease in fiscal 1998 was due to lower average levels of
owned consumer loans and a lower yield on general purpose credit
card loans. The decrease in average owned consumer loans was pri-
marily due to an increase in securitized loans and the sale of the Prime
Option and SPS portfolios. The lower yield on general purpose credit
card loans in fiscal 1998 was due to a larger number of cardmembers
taking advantage of promotional rates. In both years, the Company
believes that the effect of changes in market interest rates on net inter-
est income was mitigated as a result of its liquidity and interest rate
risk management policies.
RATE/VOLUME ANALYSIS
INCREASE/(DECREASE) DUE TO CHANGES IN: FISCAL 1999 VS. FISCAL 1998 FISCAL 1998 VS. FISCAL 1997
(dollars in millions) VOLUME RATE TOTAL VOLUME RATE TOTAL
INTEREST REVENUE
General purpose credit card loans $(140) $(125) $(265) $(327) $(28) $(355)
Other consumer loans (229) — (229) (63) 13 (50)
Investment securities 11 (7) 4 17 4 21
Other 11 (4) 7 (12) 2 (10)
Total interest revenue (268) (215) (483) (355) (39) (394)
INTEREST EXPENSE
Interest bearing deposits:
Savings 20 (4) 16 5510
Brokered (3) (15) (18) 71 (2) 69
Other time (16) (11) (27) (1) 1 —
Total interest bearing deposits 7 (36) (29) 72 7 79
Other borrowings (67) (17) (84) (256) (2) (258)
Total interest expense (62) (51) (113) (187) 8 (179)
Net interest income $(206) $(164) $(370) $(168) $(47) $(215)