Morgan Stanley 2009 Annual Report Download - page 182

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Credit-Risk-Related Contingencies.
In connection with certain OTC trading agreements, the Company may be required to provide additional collateral
or immediately settle any outstanding liability balances with certain counterparties in the event of a credit ratings
downgrade. As of December 31, 2009 and December 31, 2008, the aggregate fair value of derivative contracts that
contain credit-risk-related contingent features that are in a net liability position totaled $23,052 million and $39,871
million, respectively, for which the Company has posted collateral of $20,607 million and $31,779 million,
respectively, in the normal course of business. As of December 31, 2009 and December 31, 2008, the amount of
additional collateral or termination payments that could be called by counterparties under the terms of such
agreements in the event of a one-notch downgrade of the Company’s long-term credit rating was approximately
$717 million and $928 million, respectively. Additional collateral or termination payments of approximately $975
million and $1,898 million could be called by counterparties in the event of a two-notch downgrade, as of
December 31, 2009 and December 31, 2008, respectively. Of these amounts, $1,203 million and $1,738 million, as
of December 31, 2009 and December 31, 2008, respectively, related to bilateral arrangements between the
Company and other parties where upon the downgrade of one party, the downgraded party must deliver incremental
collateral to the other party. These bilateral downgrade arrangements are a risk management tool used extensively
by the Company as credit exposures are reduced if counterparties are downgraded.
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