Morgan Stanley 2010 Annual Report Download - page 67

were affected by unprecedented market turmoil and challenging market conditions. In 2009, advisory fees from
merger, acquisition and restructuring transactions were $1,488 million, a decrease of 14% from fiscal 2008,
reflecting lower levels of market activity.
Total sales and trading revenues decreased 20% in 2009 from fiscal 2008, reflecting lower equity sales and
trading revenues, partially offset by higher other sales and trading revenues and by higher fixed income sales and
trading revenues.
Equity sales and trading revenues decreased 63% to $3,690 million in 2009 from fiscal 2008. The decrease in
2009 was primarily due to a significant reduction in net revenues from derivative products and equity cash
products, reflecting lower levels of market volume and market volatility, reduced levels of client activity and
lower average prime brokerage client balances. Equity sales and trading revenues reflected losses of $1,738
million due to the tightening of the Company’s credit spreads during 2009 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 a benefit of approximately $1,604 million in fiscal 2008 related to
the widening of the Company’s credit spreads.
In 2009, equity sales and trading revenues also reflected unrealized gains of approximately $198 million related
to changes in the fair value of net derivative contracts attributable to the tightening of counterparties’ credit
default swap spreads compared with losses of $300 million in fiscal 2008 related to the widening of
counterparties’ credit default swap spreads. The Company also recorded unrealized losses of approximately $154
million in 2009 related to changes in the fair value of net derivative contracts attributable to the tightening of the
Company’s credit default swap spreads compared with gains of $125 million in fiscal 2008 related to the
widening of the Company’s credit default swap spreads. The unrealized losses and gains do not reflect any gains
or losses on related hedging instruments.
Fixed income sales and trading revenues increased 18% to $4,854 million in 2009 from fiscal 2008. Interest rate,
currency and credit products net revenues increased 127% in 2009, primarily due to strong investment grade and
distressed debt trading results, partly offset by lower levels of client activity. Results in 2009 also included 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. Commodity net revenues decreased 31% in
2009, primarily reflecting reduced levels of client activity and unfavorable market conditions.
In 2009, fixed income sales and trading revenues reflected net unrealized gains of approximately $3,462 million
related to changes in the fair value of net derivative contracts attributable to the tightening of counterparties’
credit default swap spreads compared with unrealized losses of approximately $6,560 million in fiscal 2008
related to the widening of counterparties’ credit default swap spreads. The Company also recorded unrealized
losses of approximately $1,938 million in 2009, related to changes in the fair value of net derivative contracts
attributable to the tightening of the Company’s credit default swap spreads compared with unrealized gains of
approximately $1,968 million in fiscal 2008 related to the widening of the Company’s credit default swap
spreads. The unrealized losses and gains on credit default swap spreads do not reflect any gains or losses on
related hedging instruments.
In addition, fixed income sales and trading revenues in 2009 were negatively impacted by losses of
approximately $3,321 million from 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. Fiscal 2008 reflected a benefit of approximately $3,524 million due to
the widening of the Company’s credit spreads on such borrowings.
In 2009, other sales and trading net revenues reflected net gains of $173 million compared with net losses of
$3,119 million in fiscal 2008. Results for 2009 included net gains of $804 million (mark-to-market valuations
and realized gains of $4,042 million, partially offset by losses on related hedges of $3,238 million) associated
61