Morgan Stanley 2010 Annual Report Download - page 89

At December 31, 2010, the aggregate outstanding principal amount of the Company’s senior indebtedness was
approximately $183 billion (including guaranteed obligations of the indebtedness of subsidiaries) compared with
$179 billion at December 31, 2009. The increase in the amount of senior indebtedness was primarily due to new
issuances of notes, net of repayments, and an increase in other short-term borrowings, partially offset by
maturities.
Redemption of CIC Equity Units and Issuance of Common Stock.
In December 2007, the Company sold Equity Units that included contracts to purchase Company common stock
to a wholly owned subsidiary of CIC (the “CIC Entity”) for approximately $5,579 million. On July 1, 2010,
Moody’s Investor Services announced that it was lowering the equity credit assigned to such Equity Units. The
terms of the Equity Units permitted the Company to redeem the junior subordinated debentures underlying the
Equity Units upon the occurrence and continuation of such a change in equity credit (a “Rating Agency
Event”). In response to this Rating Agency Event, the Company redeemed the junior subordinated debentures in
August 2010 and the redemption proceeds were subsequently used by the CIC Entity to settle its obligation under
the purchase contracts. The settlement of the purchase contracts and delivery of 116,062,911 shares of Company
common stock to the CIC Entity occurred in August 2010.
Capital Management Policies.
The Company’s senior management views capital as an important source of financial strength. The Company
actively manages its consolidated capital position based upon, among other things, business opportunities, risks,
capital availability and rates of return together with internal capital policies, regulatory requirements and rating
agency guidelines and, therefore, in the future may expand or contract its capital base to address the changing
needs of its businesses. The Company attempts to maintain total capital, on a consolidated basis, at least equal to
the sum of its operating subsidiaries’ equity.
At December 31, 2010, the Company had approximately $1.6 billion remaining under its current share
repurchase program out of the $6 billion authorized by the Board in December 2006. The share repurchase
program is for capital management purposes and considers, among other things, business segment capital needs
as well as equity-based compensation and benefit plan requirements. Share repurchases by the Company are
subject to regulatory approval. During 2010, the Company did not repurchase common stock as part of its capital
management share repurchase program (see also “Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities” in Part II, Item 5).
The Board determines the declaration and payment of dividends on a quarterly basis. In January 2011, the
Company announced that its Board declared a quarterly dividend per common share of $0.05. The Company also
announced that the Board declared a quarterly dividend of $255.56 per share of Series A Floating Rate
Non-Cumulative Preferred Stock (represented by depositary shares, each representing 1/1,000th interest in a
share of preferred stock and each having a dividend of $0.25556); a quarterly dividend of $25.00 per share of
Series B Non-Cumulative Non-Voting Perpetual Convertible Preferred Stock and a quarterly dividend of $25.00
per share of Series C Non-Cumulative Non-Voting Perpetual Preferred Stock.
Required Capital.
Beginning with the quarter ended June 30, 2010, the Company’s capital estimation is based on the Required
Capital framework, an internal capital adequacy measure. This framework is a risk-based internal use of capital
measure, which is compared with the Company’s regulatory Tier 1 capital to help ensure the Company maintains
an amount of risk-based going concern capital after absorbing potential losses from extreme stress events at a
point in time. The difference between the Company’s Tier 1 capital and aggregate Required Capital is the
Company’s Parent capital. Average Tier 1 capital, Required Capital and Parent capital for 2010 was
approximately $51.6 billion, $30.9 billion and $20.7 billion, respectively. The Company generally holds Parent
capital for prospective regulatory requirements, including Basel III, organic growth, acquisitions and other
capital needs.
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