Morgan Stanley 2010 Annual Report Download - page 96

condition at fair value. Any changes in the fair value of such retained interests are recognized in the consolidated
statements of income. Retained interests in securitized financial assets were approximately $5.4 billion and $2.0
billion at December 31, 2010 and December 31, 2009, respectively, substantially all of which were related to
U.S. agency collateralized mortgage obligations, commercial mortgage loan and residential mortgage loan
securitization transactions. For further information about the Company’s securitization activities, see Notes 2 and
7 to the consolidated financial statements.
The Company has entered into liquidity facilities with SPEs and other counterparties, whereby the Company is
required to make certain payments if losses or defaults occur. The Company often may have recourse to the
underlying assets held by the SPEs in the event payments are required under such liquidity facilities (see Note 13
to the consolidated financial statements).
Asset Management Activities. As a general partner in certain private equity and real estate partnerships, the
Company receives distributions from the partnerships according to the provisions of the partnership agreements.
The Company may, from time to time, be required to return all or a portion of such distributions to the limited
partners in the event the limited partners do not achieve a certain return as specified in various partnership
agreements, subject to certain limitations.
Guarantees. Accounting guidance for guarantees requires the Company to disclose information about its
obligations under certain guarantee arrangements. The FASB defines guarantees as contracts and indemnification
agreements that contingently require a guarantor to make payments to the guaranteed party based on changes in
an underlying measure (such as an interest or foreign exchange rate, a security or commodity price, an index, or
the occurrence or non-occurrence of a specified event) related to an asset, liability or equity security of a
guaranteed party. The FASB also defines guarantees as contracts that contingently require the guarantor to make
payments to the guaranteed party based on another entity’s failure to perform under an agreement as well as
indirect guarantees of the indebtedness of others.
The table below summarizes certain information regarding the Company’s obligations under guarantee
arrangements at December 31, 2010:
Maximum Potential Payout/Notional Carrying
Amount
(Asset)/
Liability
Collateral/
Recourse
Years to Maturity
Type of Guarantee Less than 1 1-3 3-5 Over 5 Total
(dollars in millions)
Credit derivative contracts(1) ......... $306,459 $848,018 $671,941 $467,833 $2,294,251 $25,232 $ —
Other credit contracts ............... 61 1,416 822 3,856 6,155 (1,198) —
Non-credit derivative contracts(1)(2) . . . 681,836 461,082 205,306 258,534 1,606,758 72,001 —
Standby letters of credit and other
financial guarantees issued(3)(4) .... 1,085 2,132 354 5,633 9,204 27 5,616
Market value guarantees ............. — — 180 644 824 44 116
Liquidity facilities .................. 4,884 338 187 71 5,480 — 6,857
Whole loan sales guarantees .......... — — — 24,777 24,777 55 —
Securitization representations and
warranties ...................... — — — 94,314 94,314 25 —
General partner guarantees ........... 189 28 56 249 522 69 —
(1) Carrying amount of derivative contracts are shown on a gross basis prior to cash collateral or counterparty netting. For further
information on derivative contracts, see Note 12 to the consolidated financial statements.
(2) Amounts include a guarantee to investors in undivided participating interests in claims the Company made against a derivative
counterparty that filed for bankruptcy protection. To the extent, in the future, any portion of the claims is disallowed or reduced by the
bankruptcy court in excess of a certain amount, then the Company must refund a portion of the purchase price plus interest. For further
information, see Note 18 to the consolidated financial statements.
(3) Approximately $2.2 billion of standby letters of credit are also reflected in the “Commitments” table in primary and secondary lending
commitments. Standby letters of credit are recorded at fair value within Financial instruments owned or Financial instruments sold, not
yet purchased in the consolidated statements of financial condition.
90