Morgan Stanley 2010 Annual Report Download - page 31

conditions, the level of individual investor participation in the global markets, as well as the level of client assets,
may also decrease, which would negatively impact the results of our Global Wealth Management Group business
segment. In addition, fluctuations in global market activity could impact the flow of investment capital into or
from assets under management or supervision and the way customers allocate capital among money market,
equity, fixed income or other investment alternatives, which could negatively impact our Asset Management
business segment.
We may experience further writedowns of our financial instruments and other losses related to volatile and
illiquid market conditions.
Market volatility, illiquid market conditions and disruptions in the credit markets have made it extremely
difficult to value certain of our securities particularly during periods of market displacement. Subsequent
valuations, in light of factors then prevailing, may result in significant changes in the values of these securities in
future periods. In addition, at the time of any sales and settlements of these securities, the price we ultimately
realize will depend on the demand and liquidity in the market at that time and may be materially lower than their
current fair value. Any of these factors could require us to take further writedowns in the value of our securities
portfolio, which may have an adverse effect on our results of operations in future periods.
In addition, financial markets are susceptible to severe events evidenced by rapid depreciation in asset values
accompanied by a reduction in asset liquidity. Under these extreme conditions, hedging and other risk
management strategies may not be as effective at mitigating trading losses as they would be under more normal
market conditions. Moreover, under these conditions market participants are particularly exposed to trading
strategies employed by many market participants simultaneously and on a large scale, such as crowded trades.
Morgan Stanley’s risk management and monitoring processes seek to quantify and mitigate risk to more extreme
market moves. Severe market events have historically been difficult to predict, however, and Morgan Stanley
could realize significant losses if unprecedented extreme market events were to occur, such as conditions in the
global financial markets and global economy that prevailed from 2008 into 2009.
Holding large and concentrated positions may expose us to losses.
Concentration of risk may reduce revenues or result in losses in our market-making, investing, block trading,
underwriting and lending businesses in the event of unfavorable market movements. We commit substantial
amounts of capital to these businesses, which often results in our taking large positions in the securities of, or
making large loans to, a particular issuer or issuers in a particular industry, country or region.
We have incurred, and may continue to incur, significant losses in the real estate sector.
We finance and acquire principal positions in a number of real estate and real estate-related products for our own
account, for investment vehicles managed by affiliates in which we also may have a significant investment, for
separate accounts managed by affiliates and for major participants in the commercial and residential real estate
markets. We also originate loans secured by commercial and residential properties. Further, we securitize and
trade in a wide range of commercial and residential real estate and real estate-related whole loans, mortgages and
other real estate and commercial assets and products, including residential and commercial mortgage-backed
securities. These businesses have been, and may continue to be, adversely affected by the downturn in the real
estate sector.
Credit Risk.
Credit risk refers to the risk of loss arising from borrower or counterparty default when a borrower, counterparty
or obligor does not meet its obligations. For more information on how we monitor and manage credit risk, see
“Qualitative and Quantitative Disclosure about Market Risk—Risk Management—Credit Risk” in Part II,
Item 7A herein.
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