Morgan Stanley 2010 Annual Report Download - page 211

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
were placed into CMBS sponsored by the Company. At December 31, 2010, the Company had not accrued any
amounts in the consolidated financial statements for payments owed as a result of breach of representations and
warranties made in connection with these commercial mortgages. At December 31, 2010, the current UPB for all
U.S. commercial mortgage loans subject to such representations and warranties is $39.3 billion. For the non-U.S.
commercial mortgage loans, the amount included in the above table for the maximum potential payout includes
the current UPB when known of $14.6 billion and the UPB at the time of sale when the current UPB is not
known of $4.8 billion.
General Partner Guarantees. As a general partner in certain private equity and real estate partnerships, the
Company receives certain distributions from the partnerships related to achieving certain return hurdles
according to the provisions of the partnership agreements. The Company may, from time to time, be required to
return all or a portion of such distributions to the limited partners in the event the limited partners do not achieve
a certain return as specified in various partnership agreements, subject to certain limitations.
Other Guarantees and Indemnities.
In the normal course of business, the Company provides guarantees and indemnifications in a variety of
commercial transactions. These provisions generally are standard contractual terms. Certain of these guarantees
and indemnifications are described below.
• Trust Preferred Securities. The Company has established Morgan Stanley Capital Trusts for the limited
purpose of issuing trust preferred securities to third parties and lending the proceeds to the Company in
exchange for junior subordinated debentures. The Company has directly guaranteed the repayment of the
trust preferred securities to the holders thereof to the extent that the Company has made payments to a
Morgan Stanley Capital Trust on the junior subordinated debentures. In the event that the Company does
not make payments to a Morgan Stanley Capital Trust, holders of such series of trust preferred securities
would not be able to rely upon the guarantee for payment of those amounts. The Company has not
recorded any liability in the consolidated financial statements for these guarantees and believes that the
occurrence of any events (i.e., non-performance on the part of the paying agent) that would trigger
payments under these contracts is remote. See Note 15 for details on the Company’s junior subordinated
debentures.
• Indemnities. The Company provides standard indemnities to counterparties for certain contingent
exposures and taxes, including U.S. and foreign withholding taxes, on interest and other payments made
on derivatives, securities and stock lending transactions, certain annuity products and other financial
arrangements. These indemnity payments could be required based on a change in the tax laws or change
in interpretation of applicable tax rulings or a change in factual circumstances. Certain contracts contain
provisions that enable the Company to terminate the agreement upon the occurrence of such events. The
maximum potential amount of future payments that the Company could be required to make under these
indemnifications cannot be estimated.
• Exchange/Clearinghouse Member Guarantees. The Company is a member of various U.S. and non-U.S.
exchanges and clearinghouses that trade and clear securities and/or derivative contracts. Associated with
its membership, the Company may be required to pay a proportionate share of the financial obligations of
another member who may default on its obligations to the exchange or the clearinghouse. While the rules
governing different exchange or clearinghouse memberships vary, in general the Company’s guarantee
obligations would arise only if the exchange or clearinghouse had previously exhausted its resources. The
maximum potential payout under these membership agreements cannot be estimated. The Company has
not recorded any contingent liability in the consolidated financial statements for these agreements and
believes that any potential requirement to make payments under these agreements is remote.
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