Morgan Stanley 2015 Annual Report Download - page 192

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
securities or refinancing margin debt. The majority of consumer loans are structured as revolving lines of credit and letter
of credit facilities and are primarily offered through the Company’s Portfolio Loan Account (“PLA”) and Liquidity
Access Line (“LAL”) programs. The allowance methodology for unsecured loans considers the specific attributes of the
loan as well as the borrower’s source of repayment. The allowance methodology for securities-based lending considers the
collateral type underlying the loan (e.g., diversified securities, concentrated securities or restricted stock).
•Residential Real Estate. Residential real estate loans mainly include non-conforming loans and home equity lines of
credit. The allowance methodology for non-conforming residential mortgage loans considers several factors, including,
but not limited to, loan-to-value ratio, FICO score, home price index and delinquency status. The methodology for home
equity lines of credit considers credit limits and utilization rates in addition to the factors considered for non-conforming
residential mortgages.
•Wholesale Real Estate. Wholesale real estate loans include owner-occupied loans and income-producing loans. The
principal risk factors for determining the allowance for wholesale real estate loans are the underlying collateral type, loan-
to-value ratio and debt service ratio.
Loans Held for Investment and Held for Sale.
At December 31, 2015 At December 31, 2014
Loans by Product Type
Loans Held for
Investment
Loans Held
for Sale
Total
Loans(1)(2)
Loans Held for
Investment
Loans Held
for Sale
Total
Loans(1)(2)
(dollars in millions)
Corporate loans ............................$ 23,554 $ 11,924 $ 35,478 $ 19,659 $ 8,200 $ 27,859
Consumer loans ............................ 21,528 — 21,528 16,576 — 16,576
Residential real estate loans ................... 20,863 104 20,967 15,735 114 15,849
Wholesale real estate loans ................... 6,839 1,172 8,011 5,298 1,144 6,442
Total loans, gross of allowance for loan losses . . 72,784 13,200 85,984 57,268 9,458 66,726
Allowance for loan losses .................... (225) — (225) (149) — (149)
Total loans, net of allowance for loan losses ......$ 72,559 $ 13,200 $ 85,759 $ 57,119 $ 9,458 $ 66,577
(1) Amounts include loans that are made to non-U.S. borrowers of $9,789 million and $7,017 million at December 31, 2015 and December 31, 2014, respectively.
(2) Loans at fixed interest rates and floating or adjustable interest rates were $8,471 million and $77,288 million, respectively, at December 31, 2015 and $6,663
million and $59,914 million, respectively, at December 31, 2014.
See Note 3 for further information regarding Loans and lending commitments held at fair value.
Credit Quality.
The Credit Risk Management Department evaluates new obligors before credit transactions are initially approved and at least
annually thereafter for corporate and wholesale real estate loans. For corporate loans, credit evaluations typically involve the
evaluation of financial statements; assessment of leverage, liquidity, capital strength, asset composition and quality; market
capitalization and access to capital markets; cash flow projections and debt service requirements; and the adequacy of
collateral, if applicable. The Credit Risk Management Department also evaluates strategy, market position, industry
dynamics, obligor’s management and other factors that could affect an obligor’s risk profile. For wholesale real estate loans,
the credit evaluation is focused on property and transaction metrics, including property type, loan-to-value ratio, occupancy
levels, debt service ratio, prevailing capitalization rates, and market dynamics. For residential real estate and consumer loans,
the initial credit evaluation typically includes, but is not limited to, review of the obligor’s income, net worth, liquidity,
collateral, loan-to-value ratio and credit bureau information. Subsequent credit monitoring for residential real estate loans is
performed at the portfolio level. Consumer loan collateral values are monitored on an ongoing basis.
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