Morgan Stanley 2015 Annual Report Download - page 212

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company determines whether it is the primary beneficiary of a VIE upon its initial involvement with the VIE and
reassesses whether it is the primary beneficiary on an ongoing basis as long as it has any continuing involvement with the
VIE. This determination is based upon an analysis of the design of the VIE, including the VIE’s structure and activities, the
power to make significant economic decisions held by the Company and by other parties, and the variable interests owned by
the Company and other parties.
The power to make the most significant economic decisions may take a number of different forms in different types of VIEs.
The Company considers servicing or collateral management decisions as representing the power to make the most significant
economic decisions in transactions such as securitizations or CDOs. As a result, the Company does not consolidate
securitizations or CDOs for which it does not act as the servicer or collateral manager unless it holds certain other rights to
replace the servicer or collateral manager or to require the liquidation of the entity. If the Company serves as servicer or
collateral manager, or has certain other rights described in the previous sentence, the Company analyzes the interests in the
VIE that it holds and consolidates only those VIEs for which it holds a potentially significant interest of the VIE.
The structure of securitization vehicles and CDOs is driven by several parties, including loan seller(s) in securitization
transactions, the collateral manager in a CDO, one or more rating agencies, a financial guarantor in some transactions and the
underwriter(s) of the transactions, who serve to reflect specific investor demand. In addition, subordinate investors, such as
the “B-piece” buyer (i.e., investors in most subordinated bond classes) in commercial mortgage-backed securitizations or
equity investors in CDOs, can influence whether specific loans are excluded from a CMBS transaction or investment criteria
in a CDO.
For many transactions, such as re-securitization transactions, CLNs and other asset-repackaged notes, there are no significant
economic decisions made on an ongoing basis. In these cases, the Company focuses its analysis on decisions made prior to
the initial closing of the transaction and at the termination of the transaction. Based upon factors, which include an analysis
of the nature of the assets, including whether the assets were issued in a transaction sponsored by the Company and the
extent of the information available to the Company and to investors, the number, nature and involvement of investors, other
rights held by the Company and investors, the standardization of the legal documentation and the level of continuing
involvement by the Company, including the amount and type of interests owned by the Company and by other investors, the
Company concluded in most of these transactions that decisions made prior to the initial closing were shared between the
Company and the initial investors. The Company focused its control decision on any right held by the Company or investors
related to the termination of the VIE. Most re-securitization transactions, CLNs and other asset-repackaged notes have no
such termination rights.
Consolidated VIEs.
Except for consolidated VIEs included in other structured financings and managed real estate partnerships in the tables
below, the Company accounts for the assets held by the entities primarily in Trading assets and the liabilities of the entities in
Other secured financings in its consolidated statements of financial condition. For consolidated VIEs included in other
structured financings, the Company accounts for the assets held by the entities primarily in Premises, equipment and software
costs, and Other assets in its consolidated statements of financial condition. For consolidated VIEs included in managed real
estate partnerships, the Company accounts for the assets held by the entities primarily in Trading assets in its consolidated
statements of financial condition. Except for consolidated VIEs included in other structured financings, the assets and
liabilities are measured at fair value, with changes in fair value reflected in earnings.
The assets owned by many consolidated VIEs cannot be removed unilaterally by the Company and are not generally
available to the Company. The related liabilities issued by many consolidated VIEs are non-recourse to the Company. In
certain other consolidated VIEs, the Company either has the unilateral right to remove assets or provide additional recourse
through derivatives such as total return swaps, guarantees or other forms of involvement.
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