Morgan Stanley 2010 Annual Report Download - page 68

with loans and lending commitments. Results for fiscal 2008 included net losses of $3,335 million (negative
mark-to-market valuations and losses of $6,311 million, net of gains on related hedges of $2,976 million)
associated with loans and lending commitments largely related to certain “event-driven” lending to
non-investment grade companies. Results in 2009 also included losses of $362 million, reflecting the
improvement in the Company’s debt-related credit spreads on certain debt related to CIC’s investment in the
Company compared with gains of $387 million in fiscal 2008.
In fiscal 2008, other sales and trading revenues also included writedowns of securities of approximately
$1.2 billion in the Company’s Subsidiary Banks and mark-to-market gains of approximately $1.4 billion on
certain swaps previously designated as hedges of a portion of the Company’s long-term debt. These swaps were
no longer considered hedges once the related debt was repurchased by the Company.
Principal transactions net investment losses of $864 million were recognized in 2009 as compared with net
investment losses of $2,461 million in fiscal 2008. The losses were primarily related to net realized and
unrealized losses from the Company’s limited partnership investments in real estate funds and investments
associated with certain employee deferred compensation and co-investment plans.
Other revenues decreased 80% in 2009 compared with fiscal 2008. During 2009, the Company recorded gains of
approximately $465 million from the Company’s repurchase of debt in the open market compared with
approximately $2.1 billion in fiscal 2008 (see “Significant Items—Morgan Stanley Debt” herein for further
discussion).
Non-interest expenses decreased 11% in 2009, primarily due to lower non-compensation expense. Compensation
and benefits expense increased 2% from fiscal 2008. Non-compensation expenses decreased 26% in 2009, partly
due to the Company’s initiatives to reduce costs. Occupancy and equipment expense decreased 12% in 2009,
primarily due to lower leasing costs associated with office facilities. Brokerage, clearing and exchange fees
decreased 20% in 2009, primarily due to decreased trading activity. Marketing and business development
expense decreased 43% in 2009, primarily due to lower levels of business activity. Professional services expense
decreased 18% in 2009, primarily due to lower consulting and legal fees. Other expenses decreased 50% in 2009.
In fiscal 2008, other expenses included $694 million related to the impairment of goodwill and intangible assets
related to certain fixed income businesses. Excluding the fiscal 2008 impairment charges, other expenses
decreased in 2009, primarily due to lower levels of business activity and lower litigation expense.
One Month Ended December 31, 2008 Compared with the One Month Ended December 31, 2007.
Institutional Securities recorded losses before income taxes of $1,997 million in the one month ended
December 31, 2008 compared with income before income taxes of $938 million in the one month ended
December 31, 2007. Net revenues were $(1,322) million in the one month ended December 31, 2008 compared
with $2,314 million in the one month ended December 31, 2007. Net revenues in the one month ended
December 31, 2008 reflected sales and trading losses as compared with sales and trading revenues in the prior-
year period. Non-interest expenses decreased 51% to $675 million, primarily due to lower compensation and
benefits expense, reflecting lower net revenues. Non-compensation expenses increased 4%.
Investment banking revenues decreased 45% to $177 million in the one month ended December 31, 2008 from
the prior-year period due to lower revenues from advisory fees and underwriting transactions, reflecting lower
levels of market activity. Advisory fees from merger, acquisition and restructuring transactions were $68 million,
a decrease of 58% from the prior-year period. Underwriting revenues decreased 33% from the prior-year period
to $109 million.
Equity sales and trading losses were $11 million in the one month ended December 31, 2008 compared with
revenues of $935 million in the one month ended December 31, 2007. Results in the one month ended
December 31, 2008 reflected lower revenues from equity cash and derivative products and prime brokerage.
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