Morgan Stanley 2010 Annual Report Download - page 64

Asset Management, Distribution and Administration Fees. Asset management, distribution and administration
fees include fees associated with administrative services primarily provided to the Company’s prime brokerage
clients.
Net Interest. Interest income and Interest expense are a function of the level and mix of total assets and liabilities,
including financial instruments owned and financial instruments sold, not yet purchased, reverse repurchase and
repurchase agreements, trading strategies, customer activity in the Company’s prime brokerage business, and the
prevailing level, term structure and volatility of interest rates. Certain Securities purchased under agreements to
resell (“reverse repurchase agreements”) and Securities sold under agreements to repurchase (“repurchase
agreements”) and Securities borrowed and Securities loaned transactions may be entered into with different
customers using the same underlying securities, thereby generating a spread between the interest revenue on the
reverse repurchase agreements or securities borrowed transactions and the interest expense on the repurchase
agreements or securities loaned transactions.
Sales and trading revenues by business were as follows:
2010 2009(1)
Fiscal
2008(1)
One Month
Ended
December 31,
2008(1)
(dollars in millions)
Equity .................................................. $ 4,840 $3,690 $ 9,881 $ (11)
Fixed income ............................................ 5,867 4,854 4,115 (858)
Other(2) ................................................ (441) 173 (3,119) (563)
Total sales and trading revenues ......................... $10,266 $8,717 $10,877 $(1,432)
(1) All prior-period amounts have been reclassified to conform to the current period’s presentation.
(2) Other sales and trading net revenues primarily included net gains (losses) from loans and lending commitments and related hedges
associated with the Company’s lending and other corporate activities. Other sales and trading net revenues also included net losses
associated with costs related to the amount of liquidity (“negative carry”) in the Subsidiary Banks.
2010 Compared with 2009.
Investment Banking.Investment banking revenues decreased 4% in 2010 from 2009, reflecting lower revenues
from equity underwriting and lower advisory fees from merger, acquisition and restructuring transactions,
partially offset by higher revenues from fixed income underwriting. Investment banking revenues in 2010 were
also impacted by the deconsolidation of the majority of the Company’s Japanese investment banking business as
a result of the MUFG Transaction (see “Other Matters—Japan Securities Joint Venture” herein). Overall,
underwriting revenues of $2,825 million decreased 5% from 2009. Equity underwriting revenues decreased 14%
to $1,454 million, primarily due to lower market volume. Fixed income underwriting revenues increased 8% to
$1,371 million, primarily due to increased high-yield issuance volumes and higher loan syndication fees.
Advisory fees from merger, acquisition and restructuring transactions were $1,470 million, a decrease of
1% from 2009.
Sales and Trading Revenues.Total sales and trading revenues increased 18% in 2010 from 2009, reflecting
higher equity and fixed income sales and trading revenues, partially offset by losses in other sales and trading.
Equity. Equity sales and trading revenues increased 31% to $4,840 million in 2010 from $3,690 million in
2009. Equity sales and trading revenues reflected negative revenues of approximately $121 million in 2010 due
to the tightening of the Company’s credit spreads resulting from the increase in the fair value of certain of the
Company’s long-term and short-term borrowings, primarily structured notes, for which the fair value option was
elected compared with negative revenues of approximately $1,738 million in 2009. Despite solid customer flows,
a challenging trading environment resulted in lower revenues in the cash and derivatives businesses in 2010.
Results in 2010 reflected higher revenues in prime brokerage due to higher client balances compared with 2009.
58