Morgan Stanley 2010 Annual Report Download - page 79

Accounting Developments.
Goodwill Impairment Test.
In December 2010, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance that
modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For
those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely
than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill
impairment exists, an entity shall consider whether there are any adverse qualitative factors indicating that an
impairment may exist. The qualitative factors are consistent with the existing guidance. This guidance became
effective for the Company on January 1, 2011. The Company does not believe the adoption of this accounting
guidance will have a material impact on the Company’s consolidated financial statements.
Other Matters.
Real Estate.
The Company acts as the general partner for various real estate funds and also invests in certain of these funds as
a limited partner. The Company’s real estate investments at December 31, 2010 and December 31, 2009 are
described below. Such amounts exclude investments associated with certain employee deferred compensation
and co-investment plans.
At December 31, 2010 and December 31, 2009, the consolidated statements of financial condition include
amounts representing real estate investment assets of consolidated subsidiaries of approximately $1.9 billion and
$2.1 billion, respectively, net of noncontrolling interests of approximately $1.5 billion and $0.6 billion,
respectively. This net presentation is a non-GAAP financial measure that the Company considers to be a useful
measure that the Company and investors use to assess the Company’s net exposure. The decrease, net of
noncontrolling interests, from December 31, 2009 to December 31, 2010 was primarily due to the $1.2 billion
write-off in connection with the planned disposition of Revel. In addition, the Company has contractual capital
commitments, guarantees, lending facilities and counterparty arrangements with respect to real estate investments
of $1.0 billion at December 31, 2010 (see Note 13 to the consolidated financial statements).
In addition to the Company’s real estate investments, the Company engages in various real estate-related
activities, including origination of loans secured by commercial and residential properties. The Company also
securitizes and trades in a wide range of commercial and residential real estate and real estate-related whole
loans, mortgages and other real estate. In connection with these activities, the Company provides representations
and warranties that certain assets sold as whole loans or transferred to securitization transactions conform to
certain guidelines. The Company continues to monitor its real estate-related activities in order to manage its
exposures and potential liability from these markets and businesses. See “Legal Proceedings—Residential
Mortgage and Credit Crisis Related Matters” in Part I, Item 3.
A subsidiary of the Company manages an open-ended real estate fund in Germany that suspended redemptions
during the global financial crisis in October 2008. In October 2010, the subsidiary announced that it will
liquidate the open-ended real estate fund over a period of three years ending September 30, 2013 and distribute
proceeds from the sale of real estate assets to its investors. The subsidiary will waive the transaction fees related
to the sale of assets but will continue to charge management fees. The Company does not intend to provide any
support to the fund.
See “Overview of 2010 Financial Results—Real Estate Investments” herein for further information.
Securities Available for Sale.
During the first quarter of 2010, the Company established a portfolio of debt securities in order to manage interest
rate risk. The securities have been classified as AFS in accordance with accounting guidance for investments in debt
and equity securities and are included within the Global Wealth Management Group business segment.
73