Morgan Stanley 2010 Annual Report Download - page 172

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The tables above exclude non-recourse debt from consolidated VIEs, liabilities related to failed sales and other
liabilities that have specified assets attributable to them.
Amount by Which Contractual Principal Amount Exceeds Fair Value
At
December 31,
2010
At
December 31,
2009
(dollars in billions)
Short-term and long-term borrowings(1) .................................... $ 0.6 $ 1.9
Loans(2) ............................................................. 24.3 24.4
Loans 90 or more days past due in non-accrual status or both(2)(3) ............... 21.2 21.0
(1) These amounts do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in the
reference price or index.
(2) The majority of this difference between principal and fair value amounts emanates from the Company’s distressed debt trading business,
which purchases distressed debt at amounts well below par.
(3) The aggregate fair value of loans that were in non-accrual status, which includes all loans 90 or more days past due, was $2.2 billion and
$3.9 billion at December 31, 2010 and December 31, 2009, respectively. The aggregate fair value of loans that were 90 or more days past
due was $2.0 billion and $0.7 billion at December 31, 2010 and December 31, 2009, respectively.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Certain assets were measured at fair value on a non-recurring basis and are not included in the tables above.
These assets may include loans, equity method investments, premises and equipment, intangible assets and real
estate investments.
The following tables present, by caption on the consolidated statements of financial condition, the fair value
hierarchy for those assets measured at fair value on a non-recurring basis for which the Company recognized a
non-recurring fair value adjustment for 2010, 2009 and fiscal 2008.
2010.
Fair Value Measurements Using:
Carrying Value
at December 31,
2010
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Losses for
2010(1)
(dollars in millions)
Loans(2) ..................... $680 $— $151 $529 $ (12)
Other investments(3) ........... 88 — — 88 (19)
Goodwill(4) .................. — — — — (27)
Intangible assets(5) ............ 3 — — 3 (174)
Total ........................ $771 $— $151 $620 $(232)
(1) Losses related to Loans, impairments related to Other investments and losses related to Goodwill and certain Intangibles associated with
the planned disposition of FrontPoint Partners LLC (“FrontPoint”) are included in Other revenues in the consolidated statements of
income (see Notes 19 and 28 for further information on FrontPoint). Remaining losses were included in Other expenses in the
consolidated statements of income.
(2) Non-recurring change in fair value for loans held for investment was calculated based upon the fair value of the underlying collateral.
The fair value of the collateral was determined using internal expected recovery models. The non-recurring change in fair value for
mortgage loans held for sale is based upon a valuation model incorporating market observable inputs.
(3) Losses recorded were determined primarily using discounted cash flow models.
(4) Loss relates to FrontPoint, determined primarily using discounted cash flow models (see Note 28 for further information on FrontPoint).
(5) Losses primarily related to investment management contracts, including contracts associated with FrontPoint, and were determined
primarily using discounted cash flow models.
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