Morgan Stanley 1998 Annual Report Download - page 61

December 15, 1997, establish standards for the reporting and pres-
entation of comprehensive income and the disclosure requirements
related to segments.
In February 1998, the FASB issued SFAS No. 132,
“Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” which revises and standardizes pension and other postre-
tirement benefit plan disclosures that are to be included in the
employers’ financial statements. SFAS No. 132 does not change the
measurement or recognition rules for pensions and other postre-
tirement benefit plans and is effective for fiscal years beginning after
December 15, 1997.
In June 1998, the FASB issued SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,”
which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The statement is effec-
tive for fiscal years beginning after June 15, 1999. The Company
is in the process of evaluating the impact of adopting SFAS No. 133.
In July 1998, the Emerging Issues Task Force (“EITF”)
reached a consensus on EITF Issue 97-14, “Accounting for Deferred
Compensation Arrangements Where Amounts Earned Are Held in a
Rabbi Trust and Invested” (“EITF 97-14”). Under EITF 97-14,
assets of the rabbi trust are to be consolidated with those of the
employer, and the value of the employer’s stock held in the rabbi trust
should be classified in shareholders’ equity and generally accounted
for in a manner similar to treasury stock. The Company therefore has
included its obligations under certain deferred compensation plans
in employee stock trust. Shares that the Company has issued to the
rabbi trusts are recorded in common stock issued to employee trust.
Both employee stock trust and common stock issued to employee trust
are components of shareholders’ equity. The adoption of EITF 97-14
did not result in any change to the Company’s consolidated statement
of income, total assets, total liabilities or total shareholders’ equity.
CONSUMER LOANS
Consumer loans were as follows:
NOV. 30, NOV. 30,
(dollars in millions) 1998 1997
Credit card $15,993 $20,914
Other consumer installment 3 3
15,996 20,917
Less:
Allowance for loan losses 787 884
Consumer loans, net $15,209 $20,033
Activity in the allowance for consumer loan losses was as follows:
FISCAL fiscal fiscal
(dollars in millions) 1998 1997 1996
Balance beginning of period $ 884 $ 781)(2) $ 709
Additions:
Provision for loan losses 1,173 1,493 1,214
Purchase of loan portfolios 1 — 4
Total additions 1,174 1,493 1,218
Deductions:
Charge-offs 1,423 1,639 1,182
Recoveries (170) (196) (155)
Net charge-offs 1,253 1,443 1,027
Other(1) (18) 53 (98)
Balance end of period $ 787 $ 884 $ 802
(1) These amounts primarily reflect net transfers related to asset securitizations and the sale of
consumer loans associated with SPS, Prime Option and BRAVO (see Note 17).
(2) Beginning balance differs from the fiscal 1996 end-of-period balance due to the
Company’s change in fiscal year-end.
Interest accrued on loans subsequently charged off, recorded as a
reduction of interest revenue, was $199 million, $301 million and
$181 million in fiscal 1998, 1997 and 1996, respectively. The
amounts charged off in fiscal 1998 include only interest, whereas
amounts in fiscal 1997 and 1996 also include cardmember fees.
At November 30, 1998 and 1997, $3,999 million and
$5,385 million of the Company’s consumer loans had minimum con-
tractual maturities of less than one year. Because of the uncertainty
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MORGAN STANLEY DEAN WITTER *1998 ANNUAL REPORT