Morgan Stanley 2009 Annual Report Download - page 184

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The table below summarizes certain information regarding protection sold through credit default swaps and
credit-linked notes as of December 31, 2008:
Protection Sold
Maximum Potential Payout/Notional
Fair Value
(Asset)/
Liability(1)
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............................ $ 1,946 $ 3,593 $ 12,766 $ 37,166 $ 55,471 $ 4,438
AA ............................. 13,450 24,897 54,308 42,355 135,010 5,757
A .............................. 45,097 81,279 156,888 72,690 355,954 20,044
BBB ............................ 54,823 142,528 250,621 117,869 565,841 51,920
Non-investment grade .............. 47,605 144,923 231,745 83,845 508,118 116,512
Total ........................ 162,921 397,220 706,328 353,925 1,620,394 198,671
Index and basket credit default swaps:
AAA............................ 2,989 24,821 68,390 146,105 242,305 10,936
AA ............................. 1,435 5,684 4,683 8,073 19,875 1,128
A .............................. 12,986 11,289 28,885 30,757 83,917 4,069
BBB ............................ 10,914 127,933 443,709 273,851 856,407 46,282
Non-investment grade .............. 34,497 211,319 341,223 176,496 763,535 166,252
Total ........................ 62,821 381,046 886,890 635,282 1,966,039 228,667
Total credit default swaps sold ........... $225,742 $778,266 $1,593,218 $989,207 $3,586,433 $427,338
Other credit contracts(2)(3) .............. $ 53 $ 43 $ 188 $ 3,014 $ 3,298 $ 3,379
Credit-linked notes(3) .................. 207 486 326 640 1,659 (242)
Total credit derivatives and other credit
contracts ........................... $226,002 $778,795 $1,593,732 $992,861 $3,591,390 $430,475
(1) Fair value amounts are shown on a gross basis prior to cash collateral or counterparty netting.
(2) Other credit contracts are credit default swaps that are considered hybrid instruments.
(3) Fair value amount shown represents the fair value of the hybrid instruments.
Single Name Credit Default Swaps. A credit default swap protects the buyer against the loss of principal on a
bond or loan in case of a default by the issuer. The protection buyer pays a periodic premium (generally
quarterly) over the life of the contract and is protected for the period. The Company in turn will have to perform
under a credit default swap if a credit event as defined under the contract occurs. Typical credit events include
bankruptcy, dissolution or insolvency of the referenced entity, failure to pay and restructuring of the obligations
of the referenced entity. In order to provide an indication of the current payment status or performance risk of the
credit default swaps, the external credit ratings, primarily Moody’s credit ratings, of the underlying reference
entity of the credit default swaps are disclosed.
Index and Basket Credit Default Swaps. Index and basket credit default swaps are credit default swaps that
reference multiple names through underlying baskets or portfolios of single name credit default swaps.
Generally, in the event of a default on one of the underlying names, the Company will have to pay a pro rata
portion of the total notional amount of the credit default index or basket contract. In order to provide an
indication of the current payment status or performance risk of these credit default swaps, the weighted average
external credit ratings, primarily Moody’s credit ratings, of the underlying reference entities comprising the
basket or index were calculated and disclosed.
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