Morgan Stanley 2010 Annual Report Download - page 59

Corporate Lending. The Company recorded the following amounts primarily associated with loans and lending
commitments carried at fair value within the Institutional Securities business segment:
2010(1) 2009(1)
Fiscal
2008(1)
One Month
Ended
December 31,
2008(1)
(dollars in billions)
Gains (losses) on loans and lending commitments .................. $0.3 $4.0 $(6.3) $(0.5)
Gains (losses) on hedges ...................................... (0.7) (3.2) 3.0 (0.1)
Total gains (losses) ....................................... $(0.4) $ 0.8 $(3.3) $(0.6)
(1) Amounts include realized and unrealized gains (losses).
U.K. Tax. During 2010, the Company recognized a charge of approximately $272 million in Compensation and
benefits expense representing the final amount paid relating to the U.K. government’s payroll tax on
discretionary above-base compensation.
OIS Fair Value Measurement. In the fourth quarter of 2010, the Company began using the overnight indexed
swap (“OIS”) curve as an input to value substantially all of its collateralized interest rate derivative contracts.
The Company believes using the OIS curve, which reflects the interest rate typically paid on cash collateral,
more accurately reflects the fair value of collateralized interest rate derivative contracts. The Company
recognized a pre-tax gain of approximately $176 million in Principal transactions—Trading upon application of
the OIS curve within the Institutional Securities business segment. Previously, the Company discounted these
collateralized interest rate derivative contracts based on London Interbank Offered Rate (“LIBOR”).
Goodwill and Intangibles. Impairment charges related to goodwill and intangible assets were $201 million, $16
million and $725 million in 2010, 2009 and fiscal 2008, respectively (see Note 9 to the consolidated financial
statements). The impairment charges for 2010 included $193 million related to FrontPoint Partners LLC
(“FrontPoint”), as described below.
FrontPoint. In 2010, the Company reached an agreement with the principals of FrontPoint, whereby FrontPoint
senior management and portfolio managers will own a majority equity stake in FrontPoint, and the Company will
retain a minority stake. FrontPoint will replace the Company’s affiliates as the investment advisor and general
partner of the FrontPoint funds. The Company expects this transaction to close in the first quarter of 2011,
subject to closing conditions. The Company recorded impairment charges of approximately $126 million related
to the transaction in 2010, which were included in Other revenues in the consolidated statement of income.
In addition, the Company recorded approximately $67 million related to the writedown of certain intangible
assets in 2010, included in Other expenses in the consolidated statement of income.
MSCI. In May 2009, the Company divested all of its remaining ownership interest in MSCI Inc. (“MSCI”). The
gain on sale, net of taxes, was approximately $279 million and $895 million, related to the secondary offerings,
for 2009 and fiscal 2008, respectively. The results of MSCI are reported as discontinued operations for all
periods presented through the date of divestiture. The results of MSCI were formerly included in the continuing
operations of the Institutional Securities business segment.
Sale of Bankruptcy Claims. In 2009, the Company recorded a gain of $319 million related to the sale of
undivided participating interests in a portion of the Company’s claims against a derivative counterparty that filed
for bankruptcy protection (see Note 18 to the consolidated financial statements).
Structured Investment Vehicles. The Company recognized gains of $164 million in 2009 and losses of $470
million and $84 million in fiscal 2008 and the one month ended December 31, 2008, respectively, related to
securities issued by structured investment vehicles (“SIV”). The gains were recorded in the Asset Management
business segment.
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