Morgan Stanley 1999 Annual Report Download - page 41

page 39 |99 AR
The supplemental table below provides average managed loan balance and rate information which takes into account both owned and
securitized loans:
SUPPLEMENTAL AVERAGE MANAGED LOAN INFORMATION
FISCAL 1999 FISCAL 1998 FISCAL 1997
AVERAGE AVERAGE AVERAGE
(dollars in millions) BALANCE RATE BALANCE RATE BALANCE RATE
Consumer loans $33,534 14.23% $34,619 14.86% $34,619 14.83%
General purpose credit card loans 33,530 14.23 32,684 14.72 32,176 14.72
Total interest earning assets 35,862 13.66 36,580 14.38 36,475 14.37
Total interest bearing liabilities 32,431 5.74 32,141 6.15 32,469 6.17
Consumer loan interest rate spread 8.49 8.71 8.66
Interest rate spread 7.92 8.23 8.20
Net interest margin 8.47 8.98 8.88
Provision for Consumer Loan Losses
The provision for consumer loan losses is the amount necessary to
establish the allowance for loan losses at a level that the Company
believes is adequate to absorb estimated losses in its consumer
loan portfolio at the balance sheet date. The Company’s allowance
for loan losses is regularly evaluated by management for adequacy
and was $769 million at November 30, 1999 and $787 million at
November 30, 1998.
The provision for consumer loan losses, which is affected
by net charge-offs, loan volume and changes in the amount of con-
sumer loans estimated to be uncollectable, decreased 55% in fis-
cal 1999 and 21% in fiscal 1998. The decrease in fiscal 1999 was
primarily due to a lower level of charge-offs related to the Discover
Card portfolio and the positive impact of the sale of the operations
of SPS, the sale of Prime Option and the discontinuance of the
BRAVO Card. This decrease was reflective of the Company’s con-
tinuing efforts to improve the credit quality of its portfolio. The pro-
vision for consumer loan losses also was positively impacted by a
decline in the loan loss allowance in connection with securitization
transactions entered into prior to the third quarter of 1996. This
loan loss allowance was fully amortized by the end of fiscal 1999.
The decrease in fiscal 1998 was due to a decrease in net charge-
offs resulting from lower average levels of owned consumer loans,
primarily attributable to an increased level of securitized loans and
reduced levels of charge-offs associated with the sale of Prime
Option and SPS receivables, partially offset by a small increase in
the net charge-off rate of the Discover Card portfolio. The provision
for consumer loan losses also was positively impacted by a
decline in the loan loss allowance in connection with securitization
transactions entered into prior to the third quarter of 1996 as
discussed above.
The Company’s future charge-off rates and credit quality
are subject to uncertainties that could cause actual results to dif-
fer materially from what has been discussed above. Factors that
influence the provision for consumer loan losses include the level
and direction of consumer loan delinquencies and charge-offs,
changes in consumer spending and payment behaviors, bankruptcy
trends, the seasoning of the Company’s loan portfolio, interest rate
movements and their impact on consumer behavior, and the rate
and magnitude of changes in the Company’s consumer loan portfo-
lio, including the overall mix of accounts, products and loan bal-
ances within the portfolio.
Consumer loans are considered delinquent when interest
or principal payments become 30 days past due. Consumer loans
are charged-off when they become 180 days past due, except in
the case of bankruptcies and fraudulent transactions, where loans
are charged-off earlier. Loan delinquencies and charge-offs are pri-
marily affected by changes in economic conditions and may vary
throughout the year due to seasonal consumer spending and pay-
ment behaviors. The net charge-off rate decreased in fiscal 1999
as compared with fiscal 1998, reflecting the Company’s increased
focus on credit quality and account collections, as well as the sale
of Prime Option, the operations of SPS and the discontinuance of
the BRAVO Card.