Morgan Stanley 2009 Annual Report Download - page 87

an underlying measure (such as an interest or foreign exchange rate, a security or commodity price, an index, or
the occurrence or non-occurrence of a specified event) related to an asset, liability or equity security of a
guaranteed party. The FASB also defines guarantees as contracts that contingently require the guarantor to make
payments to the guaranteed party based on another entity’s failure to perform under an agreement as well as
indirect guarantees of the indebtedness of others.
The table below summarizes certain information regarding the Company’s obligations under guarantee
arrangements as of December 31, 2009:
Type of Guarantee
Maximum Potential Payout/Notional Carrying
Amount
(Asset)/
Liability
Collateral/
Recourse
Years to Maturity
Less than 1 1-3 3-5 Over 5 Total
(dollars in millions)
Credit derivative contracts(1) ......... $261,354 $768,194 $850,116 $567,361 $2,447,025 $43,621 $ —
Other credit contracts ............... — 51 24 1,089 1,164 1,118 —
Credit-linked notes ................. 160 74 337 668 1,239 (335) —
Non-credit derivative contracts(1)(2) . . . 637,688 340,280 142,700 232,210 1,352,878 70,314 —
Standby letters of credit and other
financial guarantees issued(3)(4) .... 982 3,134 1,126 4,886 10,128 976 5,324
Market value guarantees ............. — — — 775 775 45 126
Liquidity facilities .................. 4,402 — 307 143 4,852 24 6,264
Whole loan sales guarantees .......... — — — 42,380 42,380 81 —
General partner guarantees ........... 195 55 101 131 482 95 —
(1) Carrying amounts of derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting. For further
information on derivative contracts, see Note 10 to the consolidated financial statements.
(2) Amounts include a guarantee to investors in undivided participating interests in claims the Company made against a derivative
counterparty that filed for bankruptcy protection. To the extent, in the future, any portion of the claims is disallowed or reduced by the
bankruptcy court in excess of a certain amount, then the Company must refund a portion of the purchase price plus interest. For further
information, see Note 16 to the consolidated financial statements.
(3) Approximately $2.0 billion of standby letters of credit are also reflected in the “Commitments” table in primary and secondary lending
commitments. Standby letters of credit are recorded at fair value within Financial instruments owned or Financial instruments sold, not
yet purchased in the consolidated statements of financial condition.
(4) Amounts include guarantees issued by consolidated real estate funds sponsored by the Company of approximately $2.0 billion. These
guarantees relate to obligations of the fund’s investee entities, including guarantees related to capital expenditures and principal and
interest debt payments. Accrued losses under these guarantees of approximately $1.1 billion are reflected as a reduction of the carrying
value of the related fund investments, which are reflected in Financial instruments owned—investments on the consolidated statement of
financial condition.
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