Morgan Stanley 2014 Annual Report Download - page 93

Investment Securities—Available for Sale and Held to Maturity.
During 2014, 2013 and 2012, the Company reported net unrealized gains (losses) of $209 million, $(433) million
and $28 million, net of tax, respectively, on its AFS securities portfolio. Unrealized gains (losses) in the AFS
securities portfolio are included in Accumulated other comprehensive income (loss) for all periods presented.
The unrealized gains and losses for 2014, 2013 and 2012 were primarily due to changes in interest rates. The
securities in the Company’s AFS securities portfolio with an unrealized loss were not other-than-temporarily
impaired at December 31, 2014, December 31, 2013 and December 31, 2012. In 2014, the Company purchased
$100 million in HTM securities and expects to grow its HTM Investment securities portfolio. For more
information, see Notes 2 and 5 to the Company’s consolidated financial statements in Item 8.
Real Estate.
The Company acts as the general partner for various real estate funds and also invests in certain of these funds as
a limited partner. The Company’s real estate investments at December 31, 2014 and December 31, 2013 are
described below. Such amounts exclude investments associated with certain employee deferred compensation
and co-investment plans.
At December 31, 2014 and December 31, 2013, the Company’s consolidated statements of financial condition
included amounts representing real estate investment assets of consolidated subsidiaries of approximately
$0.3 billion and $2.2 billion, respectively, including noncontrolling interests of approximately $0.2 billion and
$1.8 billion, respectively, for a net amount of approximately $23 million and $451 million, respectively. The
decrease was driven by the deconsolidation of certain legal entities associated with a real estate fund sponsored
by the Company. The deconsolidation was due to the Volcker Rule regulations becoming effective on April 1,
2014, combined with an earlier expiration of a credit facility that was not renewed by the Company. This net
presentation is a non-GAAP financial measure that the Company considers to be a useful measure for the
Company and investors to use in assessing the Company’s net exposure. In addition, the Company has
contractual capital commitments, guarantees, lending facilities and counterparty arrangements with respect to
real estate investments of $0.3 billion at December 31, 2014.
In addition to the Company’s real estate investments, the Company engages in various real estate-related
activities, including origination of loans secured by commercial and residential properties. The Company also
securitizes and trades in a wide range of commercial and residential real estate and real estate-related whole
loans, mortgages and other real estate. In connection with these activities, the Company has provided, or
otherwise agreed to be responsible for, representations and warranties. Under certain circumstances, the
Company may be required to repurchase such assets or make other payments related to such assets if such
representations and warranties are breached. The Company continues to monitor its real estate-related activities
in order to manage its exposures and potential liability from these markets and businesses. See “Legal
Proceedings—Residential Mortgage and Credit Crisis Related Matters” in Part I, Item 3, and Note 13 to the
Company’s consolidated financial statements in Part II, Item 8, for further information.
Japanese Securities Joint Venture.
The Company holds a 40% voting interest and MUFG holds a 60% voting interest in MUMSS. The Company
accounts for its interest in MUMSS as an equity method investment within the Company’s Institutional
Securities business segment. During 2014, 2013 and 2012, the Company recorded income of $224 million,
$570 million and $152 million, respectively, within Other revenues in the Company’s consolidated statements of
income, arising from the Company’s 40% stake in MUMSS.
To the extent that losses incurred by MUMSS result in a requirement to restore its capital, MUFG is solely
responsible for providing this additional capital to a minimum level, whereas the Company is not obligated to
contribute additional capital to MUMSS. To the extent that MUMSS is required to increase its capital level due
to factors other than losses, such as changes in regulatory requirements, both MUFG and the Company are
required to contribute the necessary capital based upon their economic interest as set forth above.
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