Morgan Stanley 2010 Annual Report Download - page 90

Tier 1 capital and common equity attribution to the business segments is based on capital usage calculated by
Required Capital. In principle, each business segment is capitalized as if it were an independent operating entity
with limited diversification benefit between the business segments. Required Capital is assessed at each business
segment and further attributed to product lines. This process is intended to align capital with the risks in each
business segment in order to allow senior management to evaluate returns on a risk-adjusted basis. The Required
Capital framework will evolve over time in response to changes in the business and regulatory environment,
including Basel III, and to incorporate enhancements in modeling techniques (see “Regulatory Requirements”
herein for further information on Basel III).
For a further discussion of the Company’s Tier 1 capital, see “Regulatory Requirements” herein.
The following table presents the Company’s and business segments’ average Tier 1 capital and average common
equity for 2010.
2010
Average
Tier 1
Capital(1)
Average
Common
Equity(1)
(dollars in billions)
Institutional Securities ....................................................... $26.0 $17.7
Global Wealth Management Group ............................................. 2.9 6.8
Asset Management .......................................................... 1.9 2.1
Parent capital .............................................................. 20.7 15.5
Total from continuing operations ........................................... 51.5 42.1
Discontinued operations ...................................................... 0.1 0.3
Total ................................................................. $51.6 $42.4
(1) The computation of Average common equity and Tier 1 capital is determined using the Company’s Required Capital Framework.
Business segment capital prior to 2010 was computed under a previous framework and has not been restated under the Required Capital
Framework. As a result, the business segment Tier 1 Capital and average common equity prior to 2010 is not directly comparable. The
Required Capital framework will evolve over time in response to changes in the business and regulatory environment and to incorporate
enhancements in modeling techniques.
Capital Covenants.
In October 2006 and April 2007, the Company executed replacement capital covenants in connection with
offerings by Morgan Stanley Capital Trust VII and Morgan Stanley Capital Trust VIII (the “Capital Securities”),
which become effective after the scheduled redemption date in 2046. Under the terms of the replacement capital
covenants, the Company has agreed, for the benefit of certain specified holders of debt, to limitations on its
ability to redeem or repurchase any of the Capital Securities for specified periods of time. For a complete
description of the Capital Securities and the terms of the replacement capital covenants, see the Company’s
Current Reports on Form 8-K dated October 12, 2006 and April 26, 2007.
Liquidity and Funding Management Policies.
The primary goal of the Company’s liquidity management and funding activities is to ensure adequate funding
over a wide range of market conditions. Given the mix of the Company’s business activities, funding
requirements are fulfilled through a diversified range of secured and unsecured financing.
The Company’s liquidity and funding risk management framework, including policies and governance structure,
helps mitigate the potential risk that the Company may not have access to adequate financing. The framework is
designed to help ensure that the Company fulfills its financial obligations and to support the execution of the
84