Morgan Stanley 2010 Annual Report Download - page 189

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company utilizes the following credit quality indictors in its credit monitoring process.
• Pass. A credit exposure rated pass has a continued expectation of timely repayment, all obligations of the
borrower are current, and the obligor complies with material terms and conditions of the lending
agreement.
• Special Mention. Extensions of credit that have potential weakness that deserve management’s close
attention and if left uncorrected may, at some future date, result in the deterioration of the repayment
prospects for the credit. These potential weaknesses may be due to circumstances such as the borrower
experiencing negative operating trends, having an ill-proportioned balance sheet, experiencing problems
with management or labor relations, experiencing pending litigation, or there are concerns about the
condition or control over collateral.
• Substandard. Obligor has a well-defined weakness that jeopardizes the repayment of the debt and has a
high probability of payment default with the distinct possibility that the Company will sustain some loss
if noted deficiencies are not corrected. Indicators of a substandard loan include that the obligor is
experiencing current or anticipated unprofitable operations, inadequate fixed charge coverage, and
inadequate liquidity to support operations or meet obligations when they come due or marginal
capitalization.
Consumer loans are considered substandard when they are past due 90 cumulative days from the
contractual due date. Residential real estate and home equity loans are considered substandard when they
are past due more than 90 days and have a loan-to-value ratio greater than 60%, except for home equity
loans where the Company does not hold a senior mortgage, which are considered substandard when past
due 90 days or more regardless of loan-to-value ratio.
• Doubtful. Inherent weakness in the exposure makes the collection or repayment in full, based on existing
facts, conditions and circumstances, highly improbable, but the amount of loss is uncertain. The obligor
may demonstrate inadequate liquidity, sufficient capital or necessary resources to continue as a going
concern or may be in default.
•Loss. Extensions of credit classified as loss are considered uncollectible and are charged off.
At December 31, 2010, the Company collectively evaluated for impairment gross commercial and industrial
loans, consumer loans, residential real estate loans and wholesale real estate loans of $3,791 million, $3,890
million, $1,915 million and $90 million, respectively. The Company individually evaluated for impairment gross
commercial and industrial loans, consumer and wholesale real estate loans of $307 million, $85 million and $415
million, respectively. Commercial and industrial loans of approximately $170 million and wholesale real estate
loans of approximately $108 million were impaired at December 31, 2010. Approximately 99% of the
Company’s loan portfolio was current at December 31, 2010.
The Company assigned an internal grade of “doubtful” to certain commercial asset-backed and wholesale real
estate loans totaling $500 million. Doubtful loans can be classified as current if the borrower is making payments
in accordance with the loan agreement. The Company assigned an internal grade of “pass” to the majority of the
remaining loans.
Employee Loans.
Employee loans are granted primarily in conjunction with a program established in the Global Wealth
Management Group business segment to retain and recruit certain employees. These loans are recorded in
Receivables—Fees, interest and other in the consolidated statements of financial condition. These loans are full
recourse, require periodic payments and have repayment terms ranging from four to 12 years. The Company
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