Morgan Stanley 2009 Annual Report Download - page 98

Investments made by the Company that are not publicly traded are not reflected in the VaR results presented
below. Aggregate VaR also excludes the credit spread risk generated by the Company’s funding liabilities and
the interest rate risk associated with approximately $7.7 billion of certain funding liabilities primarily related to
fixed and other non-trading assets as of December 31, 2009 and December 31, 2008. The credit spread risk
sensitivity of the Company’s mark-to-market funding liabilities corresponded to an increase in value of
approximately $11 million for each +1 basis point (or 1/100th of a percentage point) widening in the Company’s
credit spread level as of both December 31, 2009 and December 31, 2008.
Since the VaR statistics reported below are estimates based on historical position and market data, VaR should
not be viewed as predictive of the Company’s future revenues or financial performance or of its ability to
monitor and manage risk. There can be no assurance that the Company’s actual losses on a particular day will not
exceed the VaR amounts indicated below or that such losses will not occur more than five times in 100 trading
days. VaR does not predict the magnitude of losses which, should they occur, may be significantly greater than
the VaR amount.
The table below presents the Company’s 95%/one-day VaR:
Table 1: 95% Total VaR 95%/One-Day VaR for 2009 95%/One-Day VaR for Fiscal 2008
95%/One-Day VaR for the
One Month Ended
December 31, 2008
Primary Market Risk Category
Dec. 31,
2009 Average High Low
Nov. 30,
2008 Average High Low
Dec. 31,
2008 Average High Low
(dollars in millions)
Interest rate and credit spread ........... $109 $105 $122 $ 89 $ 98 $ 69 $101 $42 $109 $107 $121 $ 95
Equity price ......................... 23 21 36 14 23 35 53 17 15 18 27 14
Foreign exchange rate ................. 25 20 47 7 14 25 40 12 11 13 16 11
Commodity price ..................... 24 24 38 18 23 35 44 22 36 31 37 24
Less Diversification benefit(1) .......... (46) (51) (94) (31) (54) (66) (124) (15) (54) (56) (80) (42)
Total Trading VaR ................... $135 $119 $149 $ 97 $104 $ 98 $114 $78 $117 $113 $121 $102
Total Non-trading VaR ................ $100 $102 $129 $ 58 $ 67 $ 53 $ 96 $29 $ 68 $ 73 $ 81 $ 67
Total Trading and Non-trading VaR ...... $187 $165 $206 $119 $135 $115 $143 $82 $144 $143 $152 $131
(1) Diversification benefit equals the difference between Total VaR and the sum of the VaRs for the four risk categories. This benefit arises
because the simulated one-day losses for each of the four primary market risk categories occur on different days; similar diversification
benefits also are taken into account within each category.
The Company’s Trading VaR at December 31, 2009 was $135 million compared with $117 million and $104
million at December 31, 2008 and November 30, 2008, respectively. Non-trading VaR at December 31, 2009
increased to $100 million from $68 million and $67 million at December 31, 2008 and November 30, 2008,
respectively. Aggregate VaR at December 31, 2009 was $187 million compared with $144 million and $135
million at December 31, 2008 and November 30, 2008, respectively.
Average Trading VaR for 2009 increased to $119 million from $113 million for the one month ended December
31, 2008 and $98 million for fiscal 2008. Average Non-trading VaR for 2009 increased to $102 million from $73
million for the one month ended December 31, 2008 and $53 million for fiscal 2008. Average Total VaR for
2009 increased to $165 million from $143 million for the one month ended December 31, 2008 and $115 million
for fiscal 2008.
The VaR increases for 2009 were primarily driven by increased exposure to interest rate and credit sensitive
products across the trading and non-trading portfolios. The trading portfolio also experienced increases due to
increased equity and foreign currency exposure. Additionally, the Company’s VaR for 2009 was affected by
higher market volatilities over the period, as explained below.
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