Morgan Stanley 2009 Annual Report Download - page 181

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Derivatives Designated as Net Investment Hedges.
Losses
Recognized in
OCI (effective portion)(1)
Product Type 2009
One Month Ended
December 31, 2008
(dollars in millions)
Foreign exchange contracts(2) ................................... $(278) $(102)
Debt instruments ............................................. (192) (18)
Total ................................................... $(470) $(120)
(1) No gains (losses) related to net investment hedges were reclassified from Other comprehensive income (“OCI”) into income during 2009
and the one month ended December 31, 2008, respectively.
(2) A loss of $6 million and a loss of $17 million were recognized in income related to amounts excluded from hedge effectiveness testing
during 2009 and the one month ended December 31, 2008, respectively. In addition, the amount excluded from the assessment of hedge
effectiveness for fiscal 2008 was not material.
The table below summarizes gains (losses) on derivative instruments not designated as accounting hedges for
2009 and the one month ended December 31, 2008, respectively:
Gains (Losses)
Recognized in Income(1)(2)
Product Type 2009
One Month Ended
December 31, 2008
(dollars in millions)
Interest rate contracts ........................................ $3,515 $ 1,814
Credit contracts ............................................. (2,579) (1,017)
Foreign exchange contracts .................................... 469 (2,176)
Equity contracts ............................................. (9,125) 91
Commodity contracts ........................................ 1,748 880
Other contracts ............................................. 680 (177)
Total derivative instruments ............................... $(5,292) $ (585)
(1) Gains (losses) on derivative contracts not designated as hedges are primarily included in Principal transactions—trading.
(2) Gains (losses) associated with derivative contracts that have physically settled are excluded from the table above. Gains (losses) on these
contracts are reflected with the associated cash instruments, which are also included in Principal transactions—trading.
The Company also has certain embedded derivatives that have been bifurcated from the related structured
borrowings. Such derivatives are classified in Long-term borrowings and had a net fair value of $110 million and
$269 million, as of December 31, 2009 and December 31, 2008, respectively, and a notional of $3,442 million
and $4,601 million, as of December 31, 2009 and December 31, 2008, respectively. The Company recognized
losses of $76 million and $97 million related to changes in the fair value of its bifurcated embedded derivatives
for 2009 and the one month ended December 31, 2008, respectively.
As of December 31, 2009 and December 31, 2008, the amount of payables associated with cash collateral
received that was netted against derivative assets was $62.7 billion and $88.1 billion, respectively. The amount of
receivables in respect of cash collateral paid that was netted against derivative liabilities was $31.7 billion and
$50.9 billion, respectively. Cash collateral receivables and payables of $62 million and $227 million,
respectively, as of December 31, 2009, and $1.3 billion and $92 million, respectively, as of December 31, 2008,
were not offset against certain contracts that did not meet the definition of a derivative.
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