Morgan Stanley 1999 Annual Report Download - page 45

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adopts strategies to reduce the impact of these fluctuations on the
Company’s financial performance. These strategies include engag-
ing in various hedging activities to manage income and cash flows
denominated in foreign currencies and using foreign currency bor-
rowings, when appropriate, to finance investments outside the U.S.
Principal Sources of Funding
The Company funds its balance sheet on a global basis. The
Company’s funding for its Securities and Asset Management busi-
nesses is raised through diverse sources. These sources include the
Company’s capital, including equity and long-term debt; repur-
chase agreements; U.S., Canadian, Euro and Japanese commercial
paper; letters of credit; unsecured bond borrows; securities lending;
buy/sell agreements; municipal reinvestments; master notes; and
committed and uncommitted lines of credit. Repurchase agree-
ment transactions, securities lending and a portion of the
Company’s bank borrowings are made on a collateralized basis and,
therefore, provide a more stable source of funding than short-term
unsecured borrowings.
The funding sources utilized for the Company’s Credit
Services business include the Company’s capital, including equity
and long-term debt; asset securitizations; commercial paper;
deposits; asset-backed commercial paper; Federal Funds; and
short-term bank notes. The Company sells consumer loans through
asset securitizations using several transaction structures.
Riverwoods Funding Corporation (‘’RFC’’), an entity included in the
Company’s consolidated financial statements, issues asset-backed
commercial paper.
The Company’s bank subsidiaries solicit deposits from con-
sumers, purchase Federal Funds and issue short-term bank notes.
Interest bearing deposits are classified by type as savings, brokered
and other time deposits. Savings deposits consist primarily of money
market deposits and certificates of deposit accounts sold directly to
cardmembers and savings deposits from individual securities
clients. Brokered deposits consist primarily of certificates of
deposits issued by the Company’s bank subsidiaries. Other time
deposits include institutional certificates of deposits. The Company,
through Greenwood Trust Company, an indirect subsidiary of the
Company, sells notes under a short-term bank note program.
The Company maintains borrowing relationships with a
broad range of banks, financial institutions, counterparties and oth-
ers from which it draws funds in a variety of currencies. The volume
of the Company’s borrowings generally fluctuates in response to
changes in the amount of repurchase transactions outstanding, the
level of the Company’s securities inventories and consumer loans
receivable, and overall market conditions. Availability and cost of
financing to the Company can vary depending upon market condi-
tions, the volume of certain trading activities, the Company’s credit
ratings and the overall availability of credit.
The Company maintains a senior revolving credit agree-
ment with a group of banks to support general liquidity needs,
including the issuance of commercial paper (the “MSDW Facility”).
Under the terms of the MSDW Facility, the banks are committed to
provide up to $5.5 billion. The MSDW Facility contains restrictive
covenants which require, among other things, that the Company
maintain shareholders’ equity of at least $9.1 billion at all times.
The Company believes that the covenant restrictions will not impair
the Company’s ability to pay its current level of dividends. At
November 30, 1999, no borrowings were outstanding under the
MSDW Facility.
The Company maintains a master collateral facility that
enables Morgan Stanley & Co. Incorporated (“MS&Co.”), one of the
Company’s U.S. broker-dealer subsidiaries, to pledge certain col-
lateral to secure loan arrangements, letters of credit and other
financial accommodations (the “MS&Co. Facility”). As part of the
MS&Co. Facility, MS&Co. also maintains a secured committed
credit agreement with a group of banks that are parties to the mas-
ter collateral facility under which such banks are committed to pro-
vide up to $1.875 billion. The credit agreement contains restrictive
covenants which require, among other things, that MS&Co. main-
tain specified levels of consolidated shareholder’s equity and Net
Capital, as defined. At November 30, 1999, no borrowings were
outstanding under the MS&Co. Facility.
The Company also maintains a revolving committed
financing facility that enables Morgan Stanley & Co. International
Limited (“MSIL”), the Company’s London-based broker-dealer sub-
sidiary, to secure committed funding from a syndicate of banks by
providing a broad range of collateral under repurchase agreements
(the “MSIL Facility”). Such banks are committed to provide up to
an aggregate of $1.91 billion, available in six major currencies. The
facility agreement contains restrictive covenants which require,
among other things, that MSIL maintain specified levels of
Shareholder’s Equity and Financial Resources, each as defined. At