Morgan Stanley 2014 Annual Report Download - page 32

Factors that we cannot control, such as disruption of the financial markets or negative views about the financial
services industry generally, including concerns regarding the remaining sovereign debt issues in Europe or fiscal
matters in the U.S., could impair our ability to raise funding. In addition, our ability to raise funding could be
impaired if investors or lenders develop a negative perception of our long-term or short-term financial prospects
due to factors such as an incurrence of large trading losses, a downgrade by the rating agencies, a decline in the
level of our business activity, or if regulatory authorities take significant action against us, or we discover
significant employee misconduct or illegal activity. If we are unable to raise funding using the methods described
above, we would likely need to finance or liquidate unencumbered assets, such as our investment and trading
portfolios, to meet maturing liabilities. We may be unable to sell some of our assets, or we may have to sell
assets at a discount to market value, either of which could adversely affect our results of operations, cash flows
and financial condition.
Our borrowing costs and access to the debt capital markets depend significantly on our credit ratings.
The cost and availability of unsecured financing generally are impacted by our short-term and long-term credit
ratings. The rating agencies are continuing to monitor certain issuer specific factors that are important to the
determination of our credit ratings, including governance, the level and quality of earnings, capital adequacy,
funding and liquidity, risk appetite and management, asset quality, strategic direction, and business mix.
Additionally, the rating agencies will look at other industry-wide factors such as regulatory or legislative
changes, macro-economic environment, and perceived levels of government support, and it is possible that they
could downgrade our ratings and those of similar institutions. See also “Management’s Discussion and Analysis
of Financial Condition and Results of Operation—Liquidity and Capital Resources—Credit Ratings” in Part II,
Item 7.
Our credit ratings also can have a significant impact on certain trading revenues, particularly in those businesses
where longer term counterparty performance is a key consideration, such as OTC derivative transactions,
including credit derivatives and interest rate Swaps. In connection with certain OTC trading agreements and
certain other agreements associated with our Institutional Securities business segment, we may be required to
provide additional collateral to, or immediately settle any outstanding liability balance with, certain
counterparties in the event of a credit ratings downgrade. Termination of our trading and other agreements could
cause us to sustain losses and impair our liquidity by requiring us to find other sources of financing or to make
significant cash payments or securities movements. The additional collateral or termination payments which may
occur in the event of a future credit rating downgrade vary by contract and can be based on ratings by either or
both of Moody’s Investor Services and Standard & Poor’s Rating Services. At December 31, 2014, the future
potential collateral amounts and termination payments that could be called or required by counterparties,
exchanges and clearing organizations in the event of one-notch or two-notch downgrade scenarios based on the
relevant contractual downgrade triggers were $1,856 million and an incremental $2,984 million, respectively.
We are a holding company and depend on payments from our subsidiaries.
The parent holding company depends on dividends, distributions and other payments from its subsidiaries to fund
dividend payments and to fund all payments on its obligations, including debt obligations. Regulatory, tax
restrictions or elections and other legal restrictions may limit our ability to transfer funds freely, either to or from
our subsidiaries. In particular, many of our subsidiaries, including our broker-dealer subsidiaries, are subject to
laws, regulations and self-regulatory organization rules that authorize regulatory bodies to block or reduce the
flow of funds to the parent holding company, or that prohibit such transfers altogether in certain circumstances,
including steps to “ring fence” entities by regulators outside of the U.S. to protect clients and creditors of such
entities in the event of financial difficulties involving such entities. These laws, regulations and rules may hinder
our ability to access funds that we may need to make payments on our obligations. Furthermore, as a bank
holding company, we may become subject to a prohibition or to limitations on our ability to pay dividends or
repurchase our common stock. The OCC, the Federal Reserve and the FDIC have the authority, and under certain
circumstances the duty, to prohibit or to limit the payment of dividends by the banking organizations they
supervise, including us and our U.S. Subsidiary Banks.
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