Morgan Stanley 2015 Annual Report Download - page 112

The histogram below shows the distribution for 2015 of daily net trading revenues, including profits and losses from Interest
rate and credit spread, Equity price, Foreign exchange rate, Commodity price and Credit Portfolio positions and intraday
trading activities, for the Company’s Trading businesses. Daily net trading revenues also include intraday trading activities
but exclude certain items not captured in the VaR model, such as fees, commissions and net interest income. Daily net
trading revenues differ from the definition of revenues required for Regulatory VaR backtesting, which further excludes
intraday trading. During 2015, the Company experienced net trading losses on 32 days, of which no day was in excess of the
95%/one-day Total Management VaR.
Year Ended December 31, 2015
Daily Net Trading Revenues
(dollars in millions)
77
84
2
0
30 36
24
520
<-50
-50 to -25
-25 to 0
0 to 25
25 to 50 50 to 75
75 to 100
100 to 125 125 to 150
Gain(Loss)
Number of Days
>150
Non-trading Risks.
The Company believes that sensitivity analysis is an appropriate representation of the Company’s non-trading risks. Reflected
below is this analysis covering substantially all of the non-trading risk in the Company’s portfolio.
Counterparty Exposure Related to the Company’s Own Credit Spread. The credit spread risk sensitivity of the counterparty
exposure related to the Company’s own credit spread corresponded to an increase in value of approximately $6 million for
each 1 basis point widening in the Company’s credit spread level at both December 31, 2015 and December 31, 2014.
Funding Liabilities. The credit spread risk sensitivity of the Company’s mark-to-market funding liabilities corresponded to
an increase in value of approximately $11 million and $10 million for each 1 basis point widening in the Company’s credit
spread level at December 31, 2015 and December 31, 2014, respectively.
Interest Rate Risk Sensitivity. The table below presents an analysis of selected instantaneous upward and downward parallel
interest rate shocks on net interest income over the next 12 months for the Company’s U.S. Bank Subsidiaries. These shocks
are applied to the Company’s 12-month forecast for its U.S. Bank Subsidiaries, which incorporates market expectations of
interest rates and the Company’s forecasted business activity, including its deposit deployment strategy and asset-liability
management hedges. Thus, the impacts are incremental to that forecast and, additionally, do not reflect the impact of the
repricing of assets and liabilities beyond 12 months. As a result, impacts from an instantaneous shock can vary significantly
from period to period and can vary compared with impacts from a similar move in rates over time. For example, depending
on interest rate levels and the relative sensitivity of assets and liabilities, an instantaneous increase (as opposed to an increase
over time) may have a negative or positive impact on net interest income over the subsequent 12 months. At December 31,
2015, large instantaneous interest rates shocks had a negative impact to the Company’s U.S. Bank Subsidiaries’ projected net
interest income over the following 12 months due to composition of the banks’ assets as well as expected deposit pricing
behavior at higher levels of interest rates.
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