Morgan Stanley 2014 Annual Report Download - page 203

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(1) Short-term and long-term borrowings do not include structured notes where the repayment of the initial principal amount fluctuates based
on changes in the reference price or index.
(2) The majority of the difference between principal and fair value amounts for loans and other debt emanates from the Company’s
distressed debt trading business, which purchases distressed debt at amounts well below par.
(3) The aggregate fair value of loans that were in nonaccrual status, which includes all loans 90 or more days past due, was $1,367 million
and $1,205 million at December 31, 2014 and December 31, 2013, respectively. The aggregate fair value of loans that were 90 or more
days past due was $643 million and $655 million at December 31, 2014 and December 31, 2013, respectively.
The tables above exclude non-recourse debt from consolidated VIEs, liabilities related to failed sales of financial
assets, pledged commodities and other liabilities that have specified assets attributable to them.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis.
Certain assets and liabilities were measured at fair value on a non-recurring basis and are not included in the
tables above. These assets and liabilities may include loans, other investments, premises, equipment and software
costs, intangible assets and unfunded lending commitments.
The following tables present, by caption on the Company’s consolidated statements of financial condition, the
fair value hierarchy for those assets measured at fair value on a non-recurring basis for which the Company
recognized a non-recurring fair value adjustment for 2014, 2013 and 2012, respectively.
2014.
Fair Value Measurements Using:
Carrying Value
at December 31,
2014
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Gains
(Losses) for
2014(1)
(dollars in millions)
Loans(2) ....................... $3,336 $— $2,386 $ 950 $(165)
Other investments(3) .............. 46 — — 46 (38)
Premises, equipment and software
costs(4) ...................... — — — — (58)
Intangible assets(3) ............... 46 — — 46 (6)
Other assets(4) ................... — — — — (9)
Total .......................... $3,428 $— $2,386 $1,042 $(276)
(1) Changes in the fair value of Loans and losses related to Other investments are recorded within Other revenues, whereas losses related to
Premises, equipment and software costs, Intangible assets and Other assets are recorded within Other expenses in the Company’s
consolidated statements of income.
(2) Non-recurring changes in the fair value of loans held for investment or held for sale were calculated using recently executed transactions;
market price quotations; valuation models that incorporate market observable inputs where possible, such as comparable loan or debt
prices and credit default swap spread levels adjusted for any basis difference between cash and derivative instruments; or default
recovery analysis where such transactions and quotations are unobservable.
(3) Losses related to Other investments and Intangible assets were determined primarily using discounted cash flow models and
methodologies that incorporate multiples of certain comparable companies.
(4) Losses related to Premises, equipment and software costs and Other assets were determined primarily using a default recovery analysis.
The Company also recognized a non-recurring fair value adjustment for certain unfunded lending commitments
designated as held for sale within Other liabilities and accrued expenses in the Company’s consolidated
statements of financial condition. The fair value of those unfunded lending commitments on non-recurring basis
at December 31, 2014 was $219 million, of which $178 million and $41 million were categorized in Level 2 and
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