Morgan Stanley 2014 Annual Report Download - page 202

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company hedges the economics of market risk for short-term and long-term borrowings (i.e., risks other
than that related to the credit quality of the Company) as part of its overall trading strategy and manages the
market risks embedded within the issuance by the related business unit as part of the business unit’s
portfolio. The gains and losses on related economic hedges are recorded in Trading revenues and largely offset
the gains and losses on short-term and long-term borrowings attributable to market risk.
At December 31, 2014 and December 31, 2013, a breakdown of the short-term and long-term borrowings
measured at fair value on a recurring basis by business unit responsible for risk-managing each borrowing is
shown in the table below:
Short-Term and Long-Term
Borrowings
Business Unit
At December 31,
2014
At December 31,
2013
(dollars in millions)
Equity ........................................................... $17,253 $17,945
Interest rates ...................................................... 13,545 15,933
Credit and foreign exchange ......................................... 2,105 2,561
Commodities ..................................................... 636 545
Total ........................................................ $33,539 $36,984
The following tables present information on the Company’s short-term and long-term borrowings (primarily
structured notes), loans and unfunded lending commitments for which the fair value option was elected:
Gains (Losses) due to Changes in Instrument-Specific Credit Risk.
2014 2013 2012
(dollars in millions)
Short-term and long-term borrowings(1) ..................................... $651 $(681) $(4,402)
Loans and other debt(2) ................................................... 179 137 340
Unfunded lending commitments(3) .......................................... 30 255 1,026
(1) The change in the fair value of short-term and long-term borrowings (primarily structured notes) includes an adjustment to reflect the
change in credit quality of the Company based upon observations of the Company’s secondary bond market spreads and changes in other
credit factors.
(2) Loans and other debt instrument-specific credit gains (losses) were determined by excluding the non-credit components of gains and
losses, such as those due to changes in interest rates.
(3) Gains (losses) on unfunded lending commitments were generally determined based on the differential between estimated expected client
yields and contractual yields at each respective period-end.
Net Difference between Contractual Principal Amount and Fair Value.
Contractual Principal Amount
Exceeds Fair Value
At December 31,
2014
At December 31,
2013
(dollars in millions)
Short-term and long-term borrowings(1) ............................... $ (670) $ (2,409)
Loans and other debt(2) ............................................. 14,990 17,248
Loans 90 or more days past due and/or on nonaccrual status(2)(3) ........... 12,916 15,113
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