Morgan Stanley 2015 Annual Report Download - page 113

U.S. Bank Subsidiaries’ Net Interest Income Sensitivity Analysis.
At
December 31, 2015
At
December 31, 2014
(dollars in millions)
+200 basis points ....................................................... $ (149) $ 256
+100 basis points ....................................................... (84) 204
–100 basis points ....................................................... (512) (393)
The Company does not manage to any single rate scenario but rather manages net interest income in its U.S. Bank
Subsidiaries to optimize across a range of possible outcomes. The sensitivity analysis assumes that the Company takes no
action in response to these rate shocks and does not assume any change in other macroeconomic variables normally
correlated with changes in interest rates.
Investments. The Company makes investments in both public and private companies. These investments are predominantly
equity positions with long investment horizons, the majority of which are for business facilitation purposes. The market risk
related to these investments is measured by estimating the potential reduction in net income associated with a 10% decline in
investment values and related impact on performance fees.
Investments Sensitivity, Including Related Performance Fees.
10% Sensitivity
At
December 31, 2015
At
December 31, 2014
(dollars in millions)
Investments related to Investment Management activities:
Real estate funds ..................................................... $ 139 $ 175
Private equity and infrastructure funds .................................... 131 186
Traditional asset management and hedge fund investments .................... 101 109
Other investments:
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. ......................... 142 142
Other Company investments ............................................ 194 195
Equity Market Sensitivity. In the Wealth Management and Investment Management business segments, certain fee-based
revenue streams are driven by the value of clients’ equity holdings. The overall level of revenues for these streams also
depends on multiple additional factors that include, but are not limited to, the level and duration of the equity market decline,
price volatility, the geographic and industry mix of client assets, the rate and magnitude of client investments and
redemptions, and the impact of such market decline and price volatility on client behavior. Therefore, overall revenues do not
correlate completely with changes in the equity markets.
Credit Risk.
Credit risk refers to the risk of loss arising when a borrower, counterparty or issuer does not meet its financial obligations to
the Company. The Company primarily incurs credit risk exposure to institutions and individuals through its Institutional
Securities and Wealth Management business segments.
The Company may incur credit risk in its Institutional Securities business segment through a variety of activities, including,
but not limited to, the following:
• entering into swap or other derivative contracts under which counterparties have obligations to make payments to
the Company;
• extending credit to clients through various lending commitments;
• providing short- or long-term funding that is secured by physical or financial collateral whose value may at times be
insufficient to fully cover the loan repayment amount;
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