Morgan Stanley 1999 Annual Report Download - page 69

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ic guidance as to when certain costs incurred in connection with an
internal-use software project should be capitalized and when they
should be expensed. The Company has adopted SOP 98-1 effective
December 1, 1999. The adoption of SOP 98-1 is not expected to
have a material impact on the Company’s consolidated financial
statements.
3CONSUMER LOANS
Consumer loans were as follows:
(dollars in millions) NOV. 30, 1999 NOV. 30, 1998
Credit card and consumer installment $20,998 $15,996
Less:
Allowance for loan losses 769 787
Consumer loans, net $20,229 $15,209
Activity in the allowance for consumer loan losses was as follows:
FISCAL FISCAL FISCAL
(dollars in millions) 1999 1998 1997
Balance beginning of period $ 787 $ 884 $ 781
Additions:
Provision for loan losses 529 1,173 1,493
Purchase of loan portfolios — 1—
Total additions 529 1,174 1,493
Deductions:
Charge-offs 893 1,423 1,639
Recoveries (120) (170) (196)
Net charge-offs 773 1,253 1,443
Other(1) 226 (18) 53
Balance end of period $ 769 $ 787 $ 884
(1) These amounts primarily reflect transfers related to asset securitizations and the fiscal
1998 sale of consumer loans associated with SPS, Prime Option and BRAVO
(see Note 16).
Interest accrued on loans subsequently charged off, recorded as a
reduction of interest revenue, was $116 million, $199 million and
$301 million in fiscal 1999, 1998 and 1997, respectively. The
amounts charged off in fiscal 1999 and 1998 include only interest,
whereas fiscal 1997 also includes cardmember fees.
At November 30, 1999 and 1998, $5,248 million and
$3,999 million of the Company’s consumer loans had minimum
contractual maturities of less than one year. Because of the uncer-
tainty regarding consumer loan repayment patterns, which histori-
cally have been higher than contractually required minimum
payments, this amount may not necessarily be indicative of the
Company’s actual consumer loan repayments.
At November 30, 1999, the Company had commitments
to extend credit in the amount of $204 billion. Commitments to
extend credit arise from agreements to extend to customers unused
lines of credit on certain credit cards, provided there is no violation
of conditions established in the related agreement. These commit-
ments, substantially all of which the Company can terminate at any
time and which do not necessarily represent future cash require-
ments, are periodically reviewed based on account usage and cus-
tomer creditworthiness.
The Company received net proceeds from asset securitiza-
tions of $2,997 million, $4,466 million and $2,783 million in fis-
cal 1999, 1998 and 1997, respectively. The uncollected balances
of consumer loans sold through asset securitizations were $16,977
million and $16,506 million at November 30, 1999 and 1998,
respectively.
The Company uses interest rate exchange agreements to
hedge the risk from changes in interest rates on servicing fee rev-
enues (which are derived from loans sold through asset securitiza-
tions). Gains and losses from these agreements are recognized as
adjustments to servicing fees.
The estimated fair value of the Company’s consumer loans
approximated carrying value at November 30, 1999 and 1998. The
Company’s consumer loan portfolio, including securitized loans, is
geographically diverse, with a distribution approximating that of the
population of the U.S.