Morgan Stanley 1999 Annual Report Download - page 83

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page 81 |99 AR
Each issue of outstanding preferred stock ranks in parity with all
other outstanding preferred stock of the Company.
In fiscal 1998, MSDW Capital Trust I, a Delaware statuto-
ry business trust (the “Capital Trust”), all of the common securities
of which are owned by the Company, issued $400 million of 7.10%
Capital Securities (the “Capital Securities”) that are guaranteed by
the Company. The Capital Trust issued the Capital Securities and
invested the proceeds in 7.10% Junior Subordinated Deferrable
Interest Debentures issued by the Company, which are due
February 28, 2038.
The Company has Capital Units outstanding which were
issued by the Company and Morgan Stanley Finance plc (“MS
plc”), a U.K. subsidiary. A Capital Unit consists of (a) a
Subordinated Debenture of MS plc guaranteed by the Company and
having maturities from 2015 to 2017 and (b) a related Purchase
Contract issued by the Company, which may be accelerated by the
Company beginning approximately one year after the issuance of
each Capital Unit, requiring the holder to purchase one Depositary
Share representing shares (or fractional shares) of the Company’s
Cumulative Preferred Stock. The aggregate amount of Capital Units
outstanding was $583 million and $999 million at November 30,
1999 and 1998, respectively.
Effective March 1, 1999, the Company redeemed all of
the outstanding 7.82% Capital Units and 7.80% Capital Units. The
aggregate principal amount of the Capital Units redeemed was
$352 million. During fiscal 1999, the Company repurchased in a
series of transactions in the open market $64 million of the $134
million outstanding 8.03% Capital Units. During fiscal 1999, the
Company retired these repurchased Capital Units.
The estimated fair value of the Capital Units approximated
carrying value at November 30, 1999 and November 30, 1998.
In January 2000, the Company and MS plc called for
redemption all of the outstanding 9.00% Capital Units on Febru-
ary 28, 2000. The aggregate principal amount of the Capital Units
to be redeemed is $144 million.
In January 2000, all shares of the ESOP Convertible
Preferred Stock were converted into common shares of the
Company (see Note 12).
11 SHAREHOLDERS’ EQUITY
MS&Co. and DWR are registered broker-dealers and registered
futures commission merchants and, accordingly, are subject to the
minimum net capital requirements of the Securities and Exchange
Commission, the New York Stock Exchange and the Commodity
Futures Trading Commission. MS&Co. and DWR have consistently
operated in excess of these requirements. MS&Co.’s net capital
totaled $3,515 million at November 30, 1999, which exceeded
the amount required by $2,906 million. DWR’s net capital totaled
$765 million at November 30, 1999, which exceeded the amount
required by $631 million. MSIL, a London-based broker-dealer
subsidiary, is subject to the capital requirements of the Securities
and Futures Authority, and MSDWJL, a Tokyo-based broker-dealer,
is subject to the capital requirements of the Japanese Ministry of
Finance. MSIL and MSDWJL have consistently operated in excess
of their respective regulatory capital requirements.
Under regulatory capital requirements adopted by the
Federal Deposit Insurance Corporation (“FDIC”) and other bank
regulatory agencies, FDIC-insured financial institutions must main-
tain (a) 3% to 5% of Tier 1 capital, as defined, to average assets
(“leverage ratio”) (b) 4% of Tier 1 capital, as defined, to risk-
weighted assets (“Tier 1 risk-weighted capital ratio”) and (c) 8% of
total capital, as defined, to risk-weighted assets (“total risk-weight-
ed capital ratio”). At November 30, 1999, the leverage ratio, Tier 1
risk-weighted capital ratio and total risk-weighted capital ratio of
each of the Company’s FDIC-insured financial institutions exceed-
ed these regulatory minimums.
Certain other U.S. and non-U.S. subsidiaries are subject to
various securities, commodities and banking regulations, and cap-
ital adequacy requirements promulgated by the regulatory and
exchange authorities of the countries in which they operate. These
subsidiaries have consistently operated in excess of their local cap-
ital adequacy requirements. Morgan Stanley Derivative Products
Inc., the Company’s triple-A rated derivative products subsidiary,
also has established certain operating restrictions which have been
reviewed by various rating agencies.
The regulatory capital requirements referred to above, and
certain covenants contained in various agreements governing