Morgan Stanley 2009 Annual Report Download - page 113

OTC Derivative Products
Industry
At December 31,
2009
At December 31,
2008
Financial institutions ............................................... 41% 38%
Sovereign entities ................................................. 19 15
Insurance ........................................................ 9 13
Utilities-related entities ............................................. 7 6
Energy-related entities .............................................. 3 3
Transportation-related entities ........................................ 3 11
Other ........................................................... 18 14
Total ........................................................ 100% 100%
Global Wealth Management Group Activities.
Margin Lending. Customer margin accounts, the primary source of retail credit exposure, are collateralized in
accordance with internal and regulatory guidelines. The Company monitors required margin levels and
established credit limits daily and, pursuant to such guidelines, requires customers to deposit additional
collateral, or reduce positions, when necessary. Factors considered in the review of margin loans are the amount
of the loan, the intended purpose, the degree of leverage being employed in the account, and overall evaluation of
the portfolio to ensure proper diversification or, in the case of concentrated positions, appropriate liquidity of the
underlying collateral or potential hedging strategies to reduce risk. Additionally, transactions relating to
concentrated or restricted positions require a review of any legal impediments to liquidation of the underlying
collateral. Underlying collateral for margin loans is reviewed with respect to the liquidity of the proposed
collateral positions, valuation of securities, historic trading range, volatility analysis and an evaluation of industry
concentrations. At December 31, 2009 and December 31, 2008, there were approximately $5.3 billion and $4.3
billion, respectively, of customer margin loans outstanding.
The Company, through agreements with Citi relating to the formation of MSSB, retains certain credit risk for
margin and non-purpose loans that are held at Citigroup Global Markets Inc. in its capacity as clearing broker for
certain MSSB clients. The related loans are generally subject to the same oversight as similar margin and non-
purpose loans held by the Company and its subsidiaries.
Non-purpose Securities-Based Lending. Non-purpose securities-based lending allows clients to borrow money
against the value of qualifying securities for any suitable purpose other than purchasing, trading, or carrying
marketable securities or refinancing margin debt. The Company establishes approved lines and advance rates
against qualifying securities and monitors limits daily and, pursuant to such guidelines, requires customers to
deposit additional collateral, or reduce debt positions, when necessary. Factors considered in the review of non-
purpose securities-based lending are amount of the loan, the degree of concentrated or restricted positions, and
the overall evaluation of the portfolio to ensure proper diversification or, in the case of concentrated positions,
appropriate liquidity of the underlying collateral or potential hedging strategies. Underlying collateral for non-
purpose securities-based loans is reviewed with respect to the liquidity of the proposed collateral positions,
valuation of securities, historic trading range, volatility analysis and an evaluation of industry concentrations.
Commercial Lending. The Global Wealth Management Group provides structured credit facilities to high net
worth individuals and their small and medium-size domestic businesses, with a suite of products that includes
working capital lines of credit, revolving lines of credit, standby letters of credit, term loans and commercial real
estate mortgages. Clients are required to submit a credit application and financial statements to a centralized
credit processing platform, and underwriting professionals recommend a lending structure following an
analysis of the borrower, the guarantor, the collateral, cash flow, liquidity, leverage and credit history. For
standard transactions, credit requests are approved via signature of independent credit professionals, and where
transactions are of size and higher complexity, approval is secured through a formal loan committee chaired by
independent credit professionals. The facility is risk rated and upon credit approval and loan closing is closely
monitored through active account management and covenant compliance certificates.
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