Morgan Stanley 2015 Annual Report Download - page 191

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
required margin levels and established credit limits daily and, pursuant to such guidelines, requires customers to deposit
additional collateral, or reduce positions, when necessary.
Margin loans are extended on a demand basis and are not committed facilities. Factors considered in the review of margin
loans are the amount of the loan, the intended purpose, the degree of leverage being employed in the account, and overall
evaluation of the portfolio to ensure proper diversification or, in the case of concentrated positions, appropriate liquidity of
the underlying collateral or potential hedging strategies to reduce risk. Additionally, transactions relating to concentrated or
restricted positions require a review of any legal impediments to liquidation of the underlying collateral.
Underlying collateral for margin loans is reviewed with respect to the liquidity of the proposed collateral positions, valuation
of securities, historic trading range, volatility analysis and an evaluation of industry concentrations. For these transactions,
adherence to the Company’s collateral policies significantly limits its credit exposure in the event of a customer default. The
Company may request additional margin collateral from customers, if appropriate, and, if necessary, may sell securities that
have not been paid for or purchase securities sold but not delivered from customers. At December 31, 2015 and
December 31, 2014, the amounts related to margin lending were approximately $25.3 billion and $29.0 billion, respectively.
Other secured financings include the liabilities related to transfers of financial assets that are accounted for as financings
rather than sales, consolidated VIEs where the Company is deemed to be the primary beneficiary, and certain equity-linked
notes and other secured borrowings. These liabilities are generally payable from the cash flows of the related assets
accounted for as Trading assets (see Notes 11 and 13).
Cash and Securities Deposited with Clearing Organizations or Segregated.
At
December 31, 2015
At
December 31, 2014
(dollars in millions)
Cash deposited with clearing organizations or segregated under federal and other
regulations or requirements(1) .............................................. $ 31,469 $ 40,607
Securities(2) .............................................................. 14,390 14,630
Total .............................................................. $ 45,859 $ 55,237
(1) In 2015, the Company made amendments to certain arrangements by which it acts in the capacity of a clearing member to clear derivatives on behalf of
customers. These amendments resulted in approximately $3.8 billion related to cash initial margin received from customers and remitted to clearing
organizations or third-party custodian banks no longer qualifying for recognition in the consolidated statements of financial condition.
(2) Securities deposited with clearing organizations or segregated under federal and other regulations or requirements are sourced from Securities purchased under
agreements to resell and Trading assets in the consolidated statements of financial condition.
7. Loans and Allowance for Credit Losses.
Loans.
The Company’s loan portfolio consists of the following:
•Corporate. Corporate loans primarily include commercial and industrial lending used for general corporate purposes,
working capital and liquidity, event-driven loans and asset-backed lending products. Event-driven loans support client
merger, acquisition, recapitalization, or project finance activities. Corporate loans are structured as revolving lines of
credit, letter of credit facilities, term loans and bridge loans. Risk factors considered in determining the allowance for
corporate loans include the borrower’s financial strength, seniority of the loan, collateral type, volatility of collateral
value, debt cushion, covenants and counterparty type.
•Consumer. Consumer loans include unsecured loans and securities-based lending that allows clients to borrow money
against the value of qualifying securities for any suitable purpose other than purchasing, trading, or carrying
185