Morgan Stanley 2009 Annual Report Download - page 54

repurchase and repurchase agreements and securities borrowed and securities loaned transactions may be entered
into with different customers using the same underlying securities, thereby generating a spread between the
interest revenue on the reverse repurchase agreements or securities borrowed transactions and the interest
expense on the repurchase agreements or securities loaned transactions.
Sales and trading revenues by business were as follows:
2009
Fiscal
2008(1)
Fiscal
2007(1)
One Month
Ended
December 31,
2008(1)
(dollars in millions)
Equity .................................................. $3,353 $ 9,968 $ 9,040 $ (20)
Fixed income ............................................ 5,017 3,862 268 (889)
Other(2) ................................................ 183 (3,109) (1,246) (562)
Total sales and trading revenues ......................... $8,553 $10,721 $ 8,062 $(1,471)
(1) All prior-period amounts have been reclassified to conform to the current period’s presentation.
(2) Other sales and trading net revenues primarily include net gains (losses) from loans and lending commitments and related hedges
associated with the Company’s lending and other corporate activities.
2009 Compared with Fiscal 2008
Investment Banking.Investment banking revenues increased 23% in 2009 from fiscal 2008, as higher revenues
from equity and fixed income underwriting transactions were partially offset by lower advisory revenues. In
2009, advisory fees from merger, acquisition and restructuring transactions were $1,488 million, a decrease of
14% from fiscal 2008, reflecting lower levels of market activity. Underwriting revenues of $2,966 million
increased 57% from fiscal 2008, reflecting higher levels of market activity, as equity underwriting revenues
increased 62% to $1,694 million and fixed income underwriting revenues increased 51% to $1,272 million.
Underwriting fees in 2009 reflected a significant increase in market activity from 2008 levels, which were
affected by unprecedented market turmoil and challenging market conditions.
Sales and Trading Revenues.Total sales and trading revenues decreased 20% in 2009 from fiscal 2008,
reflecting lower equity sales and trading revenues, partially offset by higher other sales and trading revenues and
by higher fixed income sales and trading revenues.
Equity. Equity sales and trading revenues decreased 66% to $3,353 million in 2009 from fiscal 2008. The
decrease in 2009 was primarily due to a significant reduction in net revenues from derivative products and equity
cash products, reflecting lower levels of market volume and market volatility, reduced levels of client activity
and lower average prime brokerage client balances. Equity sales and trading revenues reflected losses of $1,738
million due to the tightening of the Company’s credit spreads during 2009 resulting from the increase in the fair
value of certain of the Company’s long-term and short-term borrowings, primarily structured notes, for which the
fair value option was elected, compared with a benefit of approximately $1,604 million in fiscal 2008 related to
the widening of the Company’s credit spreads.
In 2009, equity sales and trading revenues also reflected unrealized gains of approximately $198 million related
to changes in the fair value of net derivative contracts attributable to the tightening of the counterparties’ credit
default spreads compared with losses of $300 million in fiscal 2008 related to the widening of the counterparties’
credit default spreads. The Company also recorded unrealized losses of approximately $154 million in 2009
related to changes in the fair value of net derivative contracts attributable to the tightening of the Company’s
credit default swap spreads compared with gains of $125 million in fiscal 2008 related to the widening of the
Company’s credit default swap spreads. The unrealized losses and gains do not reflect any gains or losses on
related non-derivative hedging instruments.
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