Morgan Stanley 2014 Annual Report Download - page 111

Tangible Equity.
The following table sets forth tangible Morgan Stanley shareholders’ equity and tangible common equity at
December 31, 2014 and December 31, 2013 and average tangible Morgan Stanley shareholders’ equity and
average tangible common equity for 2014 and 2013:
Balance at Average Balance(1)
December 31,
2014
December 31,
2013 2014 2013
(dollars in millions)
Common equity ...................................... $64,880 $62,701 $65,284 $61,895
Preferred equity ...................................... 6,020 3,220 4,774 1,839
Morgan Stanley shareholders’ equity ..................... 70,900 65,921 70,058 63,734
Junior subordinated debentures issued to capital trusts ........ 4,868 4,849 4,866 4,826
Less: Goodwill and net intangible assets(2) ................ (9,742) (9,873) (9,737) (8,900)
Tangible Morgan Stanley shareholders’ equity(3) ........... $66,026 $60,897 $65,187 $59,660
Common equity ...................................... $64,880 $62,701 $65,284 $61,895
Less: Goodwill and net intangible assets(2) ................ (9,742) (9,873) (9,737) (8,900)
Tangible common equity(3) ............................. $55,138 $52,828 $55,547 $52,995
(1) The Company calculates its average balances based upon month-end balances.
(2) The deduction for Goodwill and net intangible assets is partially offset by mortgage servicing rights (“MSR”) (net of disallowable MSR)
of $6 million and $7 million at December 31, 2014 and December 31, 2013, respectively.
(3) Tangible Morgan Stanley shareholders’ equity, and tangible common equity, non-GAAP financial measures, equals Morgan Stanley
shareholders’ equity or common equity, respectively less goodwill and net intangible assets as defined above. The Company views
tangible Morgan Stanley shareholders’ equity and tangible common equity as a useful measure to the Company and investors to assess
capital adequacy.
Capital Covenants.
In October 2006 and April 2007, the Company executed replacement capital covenants in connection with
offerings by Morgan Stanley Capital Trust VII and Morgan Stanley Capital Trust VIII (the “Capital Securities”),
which become effective after the scheduled redemption date in 2046. Under the terms of the replacement capital
covenants, the Company has agreed, for the benefit of certain specified holders of debt, to limitations on its
ability to redeem or repurchase any of the Capital Securities for specified periods of time. For a complete
description of the Capital Securities and the terms of the replacement capital covenants, see the Company’s
Current Reports on Form 8-K dated October 12, 2006 and April 26, 2007.
Regulatory Requirements.
Regulatory Capital Framework.
The Company is a financial holding company under the Bank Holding Company Act of 1956, as amended, and is
subject to the regulation and oversight of the Federal Reserve. The Federal Reserve establishes capital
requirements for the Company, including well-capitalized standards, and evaluates the Company’s compliance
with such capital requirements. The Office of the Comptroller of the Currency (“OCC”) establishes similar
capital requirements and standards for the Company’s U.S. Subsidiary Banks.
Implementation of U.S. Basel III.
The U.S. banking regulators have comprehensively revised their risk-based and leverage capital framework to
implement many aspects of the Basel III capital standards established by the Basel Committee. The U.S. banking
regulators’ revised capital framework is referred to herein as “U.S. Basel III.” The Company and the Company’s
U.S. Subsidiary Banks became subject to U.S. Basel III on January 1, 2014. Aspects of U.S. Basel III, such as the
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