Morgan Stanley 2009 Annual Report Download - page 78

Liquidity and Capital Resources.
The Company’s senior management establishes the liquidity and capital policies of the Company. Through
various risk and control committees, the Company’s senior management reviews business performance relative
to these policies, monitors the availability of alternative sources of financing, and oversees the liquidity and
interest rate and currency sensitivity of the Company’s asset and liability position. The Company’s Treasury
Department, Firm Risk Committee (“FRC”), Asset and Liability Management Committee (“ALCO”) and other
control groups assist in evaluating, monitoring and controlling the impact that the Company’s business activities
have on its consolidated statements of financial condition, liquidity and capital structure.
The Balance Sheet.
The Company actively monitors and evaluates the composition and size of its balance sheet. A substantial
portion of the Company’s total assets consists of liquid marketable securities and short-term receivables arising
principally from Institutional Securities sales and trading activities. The liquid nature of these assets provides the
Company with flexibility in managing the size of its balance sheet. The Company’s total assets increased to
$771,462 million at December 31, 2009 from $676,764 million at December 31, 2008.
Cash used for operating activities primarily related to financial instruments owned—U.S. government and
agency securities, securities borrowed, Federal funds sold and securities purchased under agreements to resell.
Cash provided by operating activities primarily related to securities loaned, securities sold under agreements to
repurchase and financial instruments owned—derivative and other contracts.
Within the sales and trading related assets and liabilities are transactions attributable to securities financing
activities. As of December 31, 2009, securities financing assets and liabilities were $376 billion and $316 billion,
respectively. As of December 31, 2008, securities financing assets and liabilities were $269 billion and $236
billion, respectively. Securities financing transactions include repurchase and resale agreements, securities
borrowed and loaned transactions, securities received as collateral and obligation to return securities received,
customer receivables/payables and related segregated customer cash.
Securities financing assets and liabilities also include matched book transactions with minimal market, credit
and/or liquidity risk. Matched book transactions accommodate customers, as well as obtain securities for the
settlement and financing of inventory positions. The customer receivable portion of the securities financing
transactions includes customer margin loans, collateralized by customer owned securities, and customer cash,
which is segregated according to regulatory requirements. The customer payable portion of the securities
financing transactions primarily includes customer payables to the Company’s prime brokerage clients. The
Company’s risk exposure on these transactions is mitigated by collateral maintenance policies that limit the
Company’s credit exposure to customers. Included within securities financing assets was $14 billion and $5
billion as of December 31, 2009 and December 31, 2008, respectively, recorded in accordance with accounting
guidance for the transfer of financial assets that represented equal and offsetting assets and liabilities for fully
collateralized non-cash loan transactions.
The Company uses the Tier 1 leverage ratio, risk based capital ratios (see “Regulatory Requirements” herein),
Tier 1 common ratio and the balance sheet leverage ratio as indicators of capital adequacy when viewed in the
context of the Company’s overall liquidity and capital policies.
74