Morgan Stanley 2014 Annual Report Download - page 139

sensitivity analysis includes positions that are mark-to-market, as well as positions that are accounted for on an
accrual basis. For interest rate derivatives that are perfect economic hedges to non-mark-to-market assets or
liabilities, the disclosed sensitivities include only the impact of the coupon accrual mismatch.
The hypothetical model does not assume any growth, change in business focus, asset pricing philosophy or asset/
liability funding mix and does not capture how the Company would respond to significant changes in market
conditions. Furthermore, the model does not reflect the Company’s expectations regarding the movement of
interest rates in the near term nor the actual effect on income from continuing operations before income taxes if
such changes were to occur.
Given the current low interest rate environment, the Company uses the following interest rate scenarios to
quantify the Company’s interest rate risk sensitivity: instantaneous parallel shocks of 100 and 200 basis point
increases and a 100 basis point decrease to all points on all yield curves simultaneously.
+200 Basis
Points
+100 Basis
Points
-100 Basis
Points(1)
(dollars in millions)
Impact on the Company’s consolidated income from continuing operations before
income taxes:
December 31, 2014 .............................................. $1,117 $635 N/M
December 31, 2013 .............................................. 1,102 642 N/M
(1) N/M—Not Meaningful given the current low interest rate environment.
Due to the non-trading nature of the assets and liabilities in the Company’s U.S. Subsidiary Banks, net interest
income sensitivity is computed and analyzed by management for both upward and downward movements in the
yield curve. The Company uses the following interest rate scenarios to quantify the Company’s U.S. Subsidiary
Banks’ interest rate risk sensitivity: instantaneous parallel shocks of 100 and 200 basis point increases and a
100 basis point decrease to all points on all yield curves simultaneously.
+200 Basis
Points
+100 Basis
Points
-100 Basis
Points
(dollars in millions)
Impact on the Company’s U.S. Subsidiary Banks’ income from continuing
operations before income taxes:
December 31, 2014 .............................................. $256 $204 $(393)
December 31, 2013 .............................................. 503 342 (255)
Investments.
The Company makes investments in both public and private companies. These investments are predominantly
equity positions with long investment horizons, the majority of which are for business facilitation purposes. The
market risk related to these investments is measured by estimating the potential reduction in net income
associated with a 10% decline in investment values.
10% Sensitivity
Investments At December 31, 2014 At December 31, 2013
(dollars in millions)
Investments related to Investment Management activities:
Hedge fund investments ................................. $109 $104
Private equity and infrastructure funds ...................... 136 148
Real estate funds ....................................... 150 158
Other investments:
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. ........... 142 161
Other Company investments .............................. 195 198
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