Morgan Stanley 2014 Annual Report Download - page 77

Equity. Equity sales and trading net revenues increased to $6,529 million in 2013 from $4,811 million in 2012.
The results in equity sales and trading net revenues included negative revenues due to the impact of DVA of
$78 million in 2013 compared with negative revenues of $1,130 million in 2012. Equity sales and trading net
revenues, excluding the impact of DVA, increased 11% to $6,607 million in 2013 from 2012, reflecting strong
performance across most products and regions, from higher client activity with particular strength in prime
brokerage.
In 2013, equity sales and trading net revenues also reflected gains of $37 million related to changes in the fair
value of net derivative contracts attributable to the tightening of counterparties’ CDS spreads and other factors
compared with gains of $68 million in 2012. The Company also recorded losses of $15 million in 2013 related to
changes in the fair value of net derivative contracts attributable to the tightening of the Company’s CDS spreads
and other factors compared with losses of $243 million in 2012. The gains and losses on CDS spreads and other
factors include gains and losses on related hedging instruments.
Fixed Income and Commodities. Fixed income and commodities sales and trading net revenues were
$3,594 million in 2013 compared with net revenues of $2,358 million in 2012. Results in 2013 included negative
revenues of $603 million due to the impact of DVA compared with negative revenues of $3,272 million in 2012.
Fixed income product net revenues, excluding the impact of DVA, in 2013 decreased 26% over 2012, primarily
reflecting lower levels of client activity across most products and significant revenue declines in interest rate
products. Commodity net revenues, excluding the impact of DVA, in 2013 decreased 38% over 2012, primarily
reflecting lower levels of client activity across energy markets.
In 2013, fixed income and commodities sales and trading net revenues reflected gains of $127 million related to
changes in the fair value of net derivative contracts attributable to the tightening of counterparties’ CDS spreads
and other factors compared with losses of $128 million in 2012 due to the widening of such spreads and other
factors. The Company also recorded losses of $114 million in 2013 related to changes in the fair value of net
derivative contracts attributable to the tightening of the Company’s CDS spreads and other factors compared
with losses of $482 million in 2012. The gains and losses on CDS spreads and other factors include gains and
losses on related hedging instruments.
Other. Other sales and trading net losses were $372 million in 2013 compared with net losses of $496 million
in 2012. The results in both periods included net losses related to negative carry and losses on economic hedges
and other costs related to the Company’s long-term borrowings. The results in 2013 and 2012 were partially
offset by revenues of $440 million and $740 million, respectively, associated with corporate loans and lending
commitments.
Investments. Net investment gains of $707 million were recognized in 2013 compared with net investment
gains of $219 million in 2012. The increase primarily reflected a gain on the disposition of an investment in an
insurance broker. The results in 2013 and 2012 included mark-to-market gains on principal investments in real
estate funds and net gains from investments associated with the Company’s deferred compensation and co-
investment plans.
Other. Other revenues of $684 million were recognized in 2013 compared with other revenues of $279 million
in 2012. The results in 2013 primarily included income of $570 million, arising from the Company’s 40% stake
in MUMSS, compared with income of $152 million in 2012 (see “Other Matters—Japanese Securities Joint
Venture” herein and Note 22 to the Company’s consolidated financial statements in Item 8).
Non-interest Expenses. Non-interest expenses increased 15% in 2013 compared with 2012. The increase was
primarily due to higher non-compensation expenses. Compensation and benefits expenses decreased 2% in 2013,
primarily due to a decrease in salaries due to lower headcount. Non-compensation expenses increased 35% in 2013
compared with 2012. The increase primarily reflected additions to legal expenses for litigation and investigations
related to residential mortgage-backed securities and the credit crisis related matters (see “Other Matters—Legal”
herein and “Contingencies—Legal” in Note 13 to the Company’s consolidated financial statements in Item 8).
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