Morgan Stanley 2015 Annual Report Download - page 207

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the cumulative losses associated with U.S. RMBS were approximately $14.7 billion. The Company did not make, or
otherwise agree to be responsible for, the representations and warranties made by third-party sellers on approximately $79.9
billion of residential loans that it securitized during that time period.
The Company also made representations and warranties in connection with its role as an originator of certain commercial
mortgage loans that it securitized in CMBS. Between 2004 and 2015, the Company originated approximately $67.6 billion
and $7.2 billion of U.S. and non-U.S. commercial mortgage loans, respectively, that were placed into CMBS sponsored by
the Company that were outstanding at December 31, 2015. At December 31, 2015, the Company had not accrued any
amounts in the consolidated financial statements for payments owed as a result of breach of representations and warranties
made in connection with these commercial mortgages. At December 31, 2015, the current UPB for all U.S. commercial
mortgage loans subject to such representations and warranties was $35.0 billion. For the non-U.S. commercial mortgage
loans, the amount included in the above table for the maximum potential payout includes the current UPB when known of
$1.3 billion and the UPB at the time of sale when the current UPB is not known of $0.4 billion.
General Partner Guarantees. As a general partner in certain private equity and real estate partnerships, the Company
receives certain distributions from the partnerships related to achieving certain return hurdles according to the provisions of
the partnership agreements. The Company, from time to time, may be required to return all or a portion of such distributions
to the limited partners in the event the limited partners do not achieve a certain return as specified in the various partnership
agreements, subject to certain limitations.
Merger and Acquisition Guarantees. The Company may, from time to time, in its role as investment banking advisor be
required to provide guarantees in connection with certain European merger and acquisition transactions. If required by the
regulating authorities, the Company provides a guarantee that the acquirer in the merger and acquisition transaction has or
will have sufficient funds to complete the transaction and would then be required to make the acquisition payments in the
event the acquirer’s funds are insufficient at the completion date of the transaction. These arrangements generally cover the
time frame from the transaction offer date to its closing date and, therefore, are generally short term in nature. The Company
believes the likelihood of any payment by the Company under these arrangements is remote given the level of its due
diligence associated with its role as investment banking advisor.
Other Guarantees and Indemnities. In the normal course of business, the Company provides guarantees and
indemnifications in a variety of transactions. These provisions generally are standard contractual terms. Certain of these
guarantees and indemnifications related to trust preferred securities, indemnities, and exchange/clearinghouse member
guarantees are described below:
•Trust Preferred Securities. The Company has established Morgan Stanley Capital Trusts for the limited purpose of
issuing trust preferred securities to third parties and lending such proceeds to the Company in exchange for junior
subordinated debentures. The Morgan Stanley Capital Trusts are SPEs, and only the Parent provides a guarantee for
the trust preferred securities. The Company has directly guaranteed the repayment of the trust preferred securities to
the holders in accordance with the terms thereof. See Note 11 for details on the Company’s junior subordinated
debentures.
•Indemnities. The Company provides standard indemnities to counterparties for certain contingent exposures and
taxes, including U.S. and foreign withholding taxes, on interest and other payments made on derivatives, securities
and stock lending transactions, certain annuity products and other financial arrangements. These indemnity
payments could be required based on a change in the tax laws, a change in interpretation of applicable tax rulings or
a change in factual circumstances. Certain contracts contain provisions that enable the Company to terminate the
agreement upon the occurrence of such events. The maximum potential amount of future payments that the
Company could be required to make under these indemnifications cannot be estimated.
•Exchange/Clearinghouse Member Guarantees. The Company is a member of various U.S. and non-U.S.
exchanges and clearinghouses that trade and clear securities and/or derivative contracts. Associated with its
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