Morgan Stanley 2010 Annual Report Download - page 60

Subsidiary Banks. The Company recorded losses of approximately $70 million, gains of approximately $140
million and losses of approximately $900 million in 2010, 2009 and fiscal 2008, respectively, related to securities
portfolios in the Company’s domestic subsidiary banks, Morgan Stanley Bank, N.A. and Morgan Stanley Private
Bank, National Association (formerly, Morgan Stanley Trust FSB) (the “Subsidiary Banks”).
ARS. Under the terms of various agreements entered into with government agencies and the terms of the
Company’s announced offer to repurchase, the Company agreed to repurchase at par certain Auction Rate
Securities (“ARS”) held by retail clients that were purchased through the Company. In addition, the Company
agreed to reimburse retail clients who have sold certain ARS purchased through the Company at a loss. Fiscal
2008 reflected charges of $532 million for the ARS repurchase program and writedowns of $108 million
associated with ARS held in inventory.
Sales of Subsidiaries and Other Items. Results for fiscal 2008 included a pre-tax gain of $687 million related to
the sale of MSWM S.V. (see Note 19 to the consolidated financial statements).
Business Segments.
Substantially all of the Company’s operating revenues and operating expenses can be directly attributed to its
business segments. Certain revenues and expenses have been allocated to each business segment, generally in
proportion to its respective revenues or other relevant measures.
As a result of treating certain intersegment transactions as transactions with external parties, the Company
includes an Intersegment Eliminations category to reconcile the business segment results to the Company’s
consolidated results. Income before taxes in Intersegment Eliminations primarily represents the effect of timing
differences associated with the revenue and expense recognition of commissions paid by the Asset Management
business segment to the Global Wealth Management Group business segment associated with sales of certain
products and the related compensation costs paid to the Global Wealth Management Group business segment’s
global representatives. Intersegment Eliminations also reflect the effect of fees paid by the Institutional Securities
business segment to the Global Wealth Management Group business segment related to the bank deposit
program. Losses from continuing operations before income taxes recorded in Intersegment Eliminations were
$15 million, $11 million, $17 million and $1 million in 2010, 2009, fiscal 2008 and the one month ended
December 31, 2008, respectively.
From June 2009 until April 1, 2010, in the Global Wealth Management Group business segment, revenues in the
bank deposit program were primarily included in Asset management, distribution and administration fees. Prior
to June 2009, these revenues were previously reported in Interest income. The change was the result of
agreements that were entered into in connection with the MSSB transaction. Beginning on April 1, 2010,
revenues in the bank deposit program held at the Company’s depository institutions are recorded as Interest
income, due to renegotiations of the revenue sharing agreement as part of the Global Wealth Management Group
business segment’s retail banking strategy. The Global Wealth Management Group business segment will
continue to earn referral fees for deposits placed with Citi depository institutions, and these fees will continue to
be recorded in Asset management, distribution and administration fees until the legacy Smith Barney deposits are
migrated to the Company’s depository institutions.
Effective January 1, 2010, certain transfer pricing arrangements between the Global Wealth Management Group
business segment and the Institutional Securities business segment relating to Global Wealth Management Group
business segment’s fixed income trading activities were modified to conform to agreements with Citi in
connection with MSSB.
In addition, with an effective date of January 1, 2010, the Global Wealth Management Group business segment
sold approximately $3 billion of ARS to the Institutional Securities business segment at book value.
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