Morgan Stanley 2009 Annual Report Download - page 91

The following table reconciles the Company’s total shareholders’ equity to Tier 1 and Total Capital as defined by
the regulations issued by the Fed and presents the Company’s consolidated capital ratios at December 31, 2009
(dollars in millions):
At December 31, 2009
(dollars in millions)
Allowable capital
Tier 1 capital:
Common shareholders’ equity ................................................. $ 37,091
Qualifying preferred stock .................................................... 9,597
Qualifying mandatorily convertible trust preferred securities ......................... 5,730
Qualifying restricted core capital elements ........................................ 10,867
Less: Goodwill ............................................................. (7,162)
Less: Non-servicing intangible assets ............................................ (4,931)
Less: Net deferred tax assets ................................................... (3,242)
Less: Debt valuation adjustment ................................................ (554)
Other deductions ............................................................ (726)
Total Tier 1 capital ...................................................... 46,670
Tier 2 capital:
Other components of allowable capital:
Qualifying subordinated debt .................................................. 3,127
Other qualifying amounts ..................................................... 158
Total Tier 2 capital ...................................................... 3,285
Total allowable capital ............................................... $ 49,955
Total risk-weighted assets .................................................... $305,000
Capital ratios
Total capital ratio ........................................................... 16.4%
Tier 1 capital ratio ........................................................... 15.3%
Total allowable capital is composed of Tier 1 and Tier 2 capital. Tier 1 capital consists predominately of
common shareholders’ equity as well as qualifying preferred stock, trust preferred securities mandatorily
convertible to common equity and qualifying restricted core capital elements (including other junior subordinated
debt issued to trusts and non-controlling interests) less goodwill, non-servicing intangible assets (excluding
allowable mortgage servicing rights), net deferred tax assets (recoverable in excess of one year) and DVA. DVA
represents the cumulative change in fair value of certain of the Company’s borrowings (for which the fair value
option was elected) that was attributable to changes in the Company’s own instrument-specific credit spreads and
is included in retained earnings. For a further discussion of fair value, see Note 4 to the consolidated financial
statements. Tier 2 capital consists principally of qualifying subordinated debt.
As of December 31, 2009, the Company calculated its RWAs in accordance with the regulatory capital
requirements of the Fed, which is consistent with guidelines described under Basel I. RWAs reflect both on and
off-balance sheet risk of the Company. The risk capital calculations will evolve over time as the Company
enhances its risk management methodology and incorporates improvements in modeling techniques while
maintaining compliance with the regulatory requirements and interpretations.
Market RWAs reflect capital charges attributable to the risk of loss resulting from adverse changes in market
prices and other factors. For a further discussion of the Company’s market risks and Value-at-Risk (“VaR”)
model, see “Quantitative and Qualitative Disclosures about Market Risk—Risk Management” in Part II, Item 7A
herein. Market RWAs incorporate three components: systematic risk, specific risk, and incremental default risk
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