Morgan Stanley 2009 Annual Report Download - page 183

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Credit Derivatives and Other Credit Contracts.
The Company enters into credit derivatives, principally through credit default swaps, under which it provides
counterparties protection against the risk of default on a set of debt obligations issued by a specified reference
entity or entities. A majority of the Company’s counterparties are banks, broker-dealers, insurance and other
financial institutions, and monoline insurers. The table below summarizes certain information regarding
protection sold through credit default swaps and credit-linked notes as of December 31, 2009:
Protection Sold
Maximum Potential Payout/Notional
Fair Value
(Asset)/
Liability(1)(2)
Years to Maturity
Credit Ratings of the Reference Obligation Less than 1 1-3 3-5 Over 5 Total
(dollars in millions)
Single name credit default swaps:
AAA ........................... $ 926 $ 2,733 $ 10,969 $ 30,542 $ 45,170 $ 846
AA............................. 13,355 31,475 38,360 39,424 122,614 1,355
A .............................. 35,164 101,909 100,489 50,432 287,994 (3,115)
BBB............................ 57,979 161,309 151,143 80,216 450,647 (6,753)
Non-investment grade .............. 58,408 180,311 123,972 63,871 426,562 25,870
Total ............................... 165,832 477,737 424,933 264,485 1,332,987 18,203
Index and basket credit default swaps:
AAA ........................... 41,517 59,925 51,750 53,917 207,109 (1,563)
AA............................. — 1,113 4,082 17,120 22,315 1,794
A .............................. 198 3,604 25,425 5,666 34,893 (377)
BBB............................ 12,866 65,484 183,799 93,906 356,055 (2,101)
Non-investment grade .............. 40,941 160,331 160,127 132,267 493,666 27,665
Total ............................... 95,522 290,457 425,183 302,876 1,114,038 25,418
Total credit default swaps sold ........... $261,354 $768,194 $850,116 $567,361 $2,447,025 $43,621
Other credit contracts(3)(4) ............. $ — $ 51 $ 24 $ 1,089 $ 1,164 $ 1,118
Credit-linked notes(4) .................. 160 74 337 668 1,239 (335)
Total credit derivatives and other credit
contracts .......................... $261,514 $768,319 $850,477 $569,118 $2,449,428 $44,404
(1) Fair value amounts are shown on a gross basis prior to cash collateral or counterparty netting.
(2) Fair value amounts of certain credit default swaps where the Company sold protection have an asset carrying value because credit
spreads of the underlying reference entity or entities tightened during 2009.
(3) Other credit contracts are credit default swaps that are considered hybrid instruments.
(4) Fair value amount shown represents the fair value of the hybrid instruments.
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