MORGAN STANLEY - Quarter Report: 2022 March (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
Commission File Number 1-11758
(Exact name of Registrant as specified in its charter)
Delaware | 1585 Broadway | 36-3145972 | (212) | 761-4000 | |||||||||||||||||||
(State or other jurisdiction of incorporation or organization) | New York, | NY | 10036 | (I.R.S. Employer Identification No.) | (Registrant’s telephone number, including area code) | ||||||||||||||||||
(Address of principal executive offices, including zip code) | |||||||||||||||||||||||
Securities registered pursuant to Section 12(b) of the Act: | ||||||||
Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||||||
Common Stock, $0.01 par value | MS | New York Stock Exchange | ||||||
Depositary Shares, each representing 1/1,000th interest in a share of Floating Rate | MS/PA | New York Stock Exchange | ||||||
Non-Cumulative Preferred Stock, Series A, $0.01 par value | ||||||||
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate | MS/PE | New York Stock Exchange | ||||||
Non-Cumulative Preferred Stock, Series E, $0.01 par value | ||||||||
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate | MS/PF | New York Stock Exchange | ||||||
Non-Cumulative Preferred Stock, Series F, $0.01 par value | ||||||||
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate | MS/PI | New York Stock Exchange | ||||||
Non-Cumulative Preferred Stock, Series I, $0.01 par value | ||||||||
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate | MS/PK | New York Stock Exchange | ||||||
Non-Cumulative Preferred Stock, Series K, $0.01 par value | ||||||||
| Depositary Shares, each representing 1/1,000th interest in a share of 4.875% | MS/PL | New York Stock Exchange | ||||||
Non-Cumulative Preferred Stock, Series L, $0.01 par value | ||||||||
| Depositary Shares, each representing 1/1,000th interest in a share of 4.250% | MS/PO | New York Stock Exchange | ||||||
| Non-Cumulative Preferred Stock, Series O, $0.01 par value | ||||||||
Global Medium-Term Notes, Series A, Fixed Rate Step-Up Senior Notes Due 2026 | MS/26C | New York Stock Exchange | ||||||
of Morgan Stanley Finance LLC (and Registrant’s guarantee with respect thereto) | ||||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 29, 2022, there were 1,749,284,059 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.
QUARTERLY REPORT ON FORM 10-Q
For the quarter ended March 31, 2022
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Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains a website, www.sec.gov, that contains annual, quarterly and current reports, proxy and information statements and other information that issuers file electronically with the SEC. Our electronic SEC filings are available to the public at the SEC’s website.
Our website is www.morganstanley.com. You can access our Investor Relations webpage at www.morganstanley.com/about-us-ir. We make available free of charge, on or through our Investor Relations webpage, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We also make available, through our Investor Relations webpage, via a link to the SEC’s website, statements of beneficial ownership of our equity securities filed by our directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.
You can access information about our corporate governance at www.morganstanley.com/about-us-governance, our sustainability initiatives at www.morganstanley.com/about-us/sustainability-at-morgan-stanley and our commitment to diversity and inclusion at www.morganstanley.com/about-us/diversity. Our webpages include:
•Amended and Restated Certificate of Incorporation;
•Amended and Restated Bylaws;
•Charters for our Audit Committee, Compensation, Management Development and Succession Committee, Nominating and Governance Committee, Operations and Technology Committee, and Risk Committee;
•Corporate Governance Policies;
•Policy Regarding Corporate Political Activities;
•Policy Regarding Shareholder Rights Plan;
•Equity Ownership Commitment;
•Code of Ethics and Business Conduct;
•Code of Conduct;
•Integrity Hotline Information;
•Environmental and Social Policies;
•Sustainability Report;
•Task Force on Climate-related Financial Disclosures Report; and
•Diversity and Inclusion Report.
Our Code of Ethics and Business Conduct applies to all directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer and Deputy Chief Financial Officer. We will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC (“NYSE”) on our website. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, 1585 Broadway, New York, NY 10036 (212-761-4000). The information on our website is not incorporated by reference into this report.
ii | ||||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
Morgan Stanley is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms “Morgan Stanley,” “Firm,” “us,” “we” or “our” mean Morgan Stanley (the “Parent Company”) together with its consolidated subsidiaries. Disclosures reflect the effects of the acquisition of Eaton Vance Corp. (“Eaton Vance”) prospectively from the March 1, 2021 acquisition date. See the “Glossary of Common Terms and Acronyms” for the definition of certain terms and acronyms used throughout this Form 10-Q.
A description of the clients and principal products and services of each of our business segments is as follows:
Institutional Securities provides a variety of products and services to corporations, governments, financial institutions and ultra-high net worth clients. Investment Banking services consist of capital raising and financial advisory services, including the underwriting of debt, equity and other securities, as well as advice on mergers and acquisitions, restructurings and project finance. Our Equity and Fixed Income businesses include sales, financing, prime brokerage, market-making, Asia wealth management services and certain business-related investments. Lending activities include originating corporate loans and commercial real estate loans, providing secured lending facilities, and extending securities-based and other financing to customers. Other activities include research.
Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small to medium-sized businesses and institutions covering: financial advisor-led brokerage and investment advisory services; self-directed brokerage services; financial and wealth planning services; workplace services, including stock plan administration; annuity and insurance products; securities-based lending, residential real estate loans and other lending products; banking; and retirement plan services.
Investment Management provides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products, which are offered through a variety of investment vehicles, include equity, fixed income, alternatives and solutions, and liquidity and overlay services. Institutional clients include defined benefit/defined contribution plans, foundations, endowments, government entities, sovereign wealth funds, insurance companies, third-party fund sponsors and corporations. Individual clients are generally served through intermediaries, including affiliated and non-affiliated distributors.
Management’s Discussion and Analysis includes certain metrics that we believe to be useful to us, investors, analysts and other stakeholders by providing further transparency about, or an additional means of assessing, our financial condition and operating results. Such metrics, when used, are defined and may be different from or inconsistent with metrics used by other companies.
The results of operations in the past have been, and in the future may continue to be, materially affected by: competition; risk factors; legislative, legal and regulatory developments; and other factors. These factors also may have an adverse impact on our ability to achieve our strategic objectives. Additionally, the discussion of our results of operations herein may contain forward-looking statements. These statements, which reflect management’s beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect our future results, see “Forward-Looking Statements,” “Business—Competition,” “Business—Supervision and Regulation,” and “Risk Factors” in the 2021 Form 10-K .
| March 2022 Form 10-Q | 1 | |||||||
| Management’s Discussion and Analysis | | ||||
Executive Summary
Overview of Financial Results
Consolidated Results—Three Months Ended March 31, 2022
•The Firm delivered quarterly net revenues of $14.8 billion on continued strong performance and contributions across our businesses.
•The Firm delivered an ROTCE of 19.8% in a volatile and uncertain market environment.
•The Firm maintained expense discipline and delivered an efficiency ratio of 69% while continuing to invest in our businesses.
•At March 31, 2022, our standardized Common Equity Tier 1 capital ratio was 14.5%.
•Institutional Securities Net revenues of $7.7 billion reflect strong performance in Equity and Fixed income on continued strong client engagement in volatile markets and in Advisory on higher completed M&A transactions.
•Wealth Management delivered a pre-tax margin of 26.5% or 27.8% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein). Results reflect higher asset management fees and continued growth in bank lending. The business added net new assets of $142 billion, including an asset acquisition.
•Investment Management results reflect incremental fee-based Asset management revenues and higher average AUM as a result of the acquisition of Eaton Vance.
Net Revenues
($ in millions)
Net Income Applicable to Morgan Stanley
($ in millions)
Earnings per Diluted Common Share1
1.Adjusted Diluted EPS was $2.06 for the current quarter and $2.22 for the prior year quarter (see “Selected Non-GAAP Financial Information” herein for further information).
We reported net revenues of $14.8 billion in the quarter ended March 31, 2022 (“current quarter,” or “1Q 2022”) compared with $15.7 billion in the quarter ended March 31, 2021 (“prior year quarter,” or “1Q 2021”). For the current quarter, net income applicable to Morgan Stanley was $3.7 billion, or $2.02 per diluted common share, compared with $4.1 billion or $2.19 per diluted common share in the prior year quarter.
2 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
Non-interest Expenses1
($ in millions)
1.The percentages on the bars in the chart represent the contribution of compensation and benefits expenses and non-compensation expenses to the total.
•Compensation and benefits expenses of $6,274 million in the current quarter decreased 8% from the prior year quarter, primarily as a result of lower expenses related to certain deferred compensation plans linked to investment performance and the Firm’s share price and lower discretionary incentive compensation, partially offset by higher salaries and an increase due to the formulaic payout to Wealth Management representatives.
•Non-compensation expenses of $3,882 million in the current quarter increased 6% from the prior year quarter, primarily driven by incremental expenses as a result of the Eaton Vance acquisition, increased investments in technology and higher litigation expenses, partially offset by lower brokerage and clearing costs.
Provision for Credit Losses
The Provision for credit losses on loans and lending commitments of $57 million in the current quarter was primarily due to portfolio growth. The Provision for credit losses on loans and lending commitments in the prior year quarter was a net release of $98 million primarily driven by improvements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated borrowers.
For further information on the Provision for credit losses, see “Credit Risk” herein.
Income Taxes
The Firm’s effective tax rate of 19.0% is lower than the prior year quarter due to higher benefits related to the conversion of employee share-based awards, which primarily occur in the first quarter of each year.
Business Segment Results
Net Revenues by Segment1
($ in millions)
Net Income Applicable to Morgan Stanley by Segment1
($ in millions)
1.The percentages on the bars in the charts represent the contribution of each business segment to the total of the applicable financial category and may not sum to 100% due to intersegment eliminations. See Note 19 to the financial statements for details of intersegment eliminations.
•Institutional Securities net revenues of $7,657 million in the current quarter decreased 11% from the prior year quarter, primarily reflecting lower underwriting revenues, partially offset by higher Advisory and Equity business revenues.
•Wealth Management net revenues of $5,935 million in the current quarter were relatively unchanged from the prior year quarter, reflecting lower Transactional revenues offset by higher Asset management revenues and Net interest.
•Investment Management net revenues of $1,335 million in the current quarter increased 2% from the prior year quarter, primarily due to higher Asset management and related fees due to incremental revenues related to the Eaton Vance acquisition, partially offset by lower Performance-based income and other revenues.
| March 2022 Form 10-Q | 3 | |||||||
| Management’s Discussion and Analysis | | ||||
Net Revenues by Region1, 2
($ in millions)
1.The percentages on the bars in the charts represent the contribution of each region to the total.
2.For a discussion of how the geographic breakdown of net revenues is determined, see Note 23 to the financial statements in the 2021 Form 10-K.
Americas net revenues in the current quarter decreased 6% from the prior year quarter, primarily driven by decreases in the Investment banking and Fixed income businesses within the Institutional securities business segment, partially offset by increases within the Investment Management business segment. EMEA net revenues increased 7% from the prior year quarter, primarily driven by increases in the Fixed income and Equity businesses within the Institutional Securities business segment. Asia net revenues decreased 14% from the prior year quarter, primarily driven by the Investment Management business segment.
Selected Financial Information and Other Statistical Data
| Three Months Ended March 31, | ||||||||
$ in millions | 2022 | 2021 | ||||||
| Consolidated results | ||||||||
| Net revenues | $ | 14,801 | $ | 15,719 | ||||
| Earnings applicable to Morgan Stanley common shareholders | $ | 3,542 | $ | 3,982 | ||||
| Earnings per diluted common share | $ | 2.02 | $ | 2.19 | ||||
| Consolidated financial measures | ||||||||
Expense efficiency ratio1 | 69 | % | 67 | % | ||||
Adjusted expense efficiency ratio1, 2 | 68 | % | 66 | % | ||||
ROE3 | 14.7 | % | 16.9 | % | ||||
Adjusted ROE2, 3 | 15.0 | % | 17.1 | % | ||||
ROTCE2, 3 | 19.8 | % | 21.1 | % | ||||
Adjusted ROTCE2, 3 | 20.3 | % | 21.4 | % | ||||
Pre-tax margin4 | 31 | % | 34 | % | ||||
| Effective tax rate | 19.0 | % | 22.0 | % | ||||
Pre-tax margin by segment4 | ||||||||
| Institutional Securities | 36 | % | 39 | % | ||||
| Wealth Management | 27 | % | 27 | % | ||||
Wealth Management, adjusted2 | 28 | % | 28 | % | ||||
| Investment Management | 17 | % | 28 | % | ||||
Investment Management, adjusted2 | 19 | % | 29 | % | ||||
in millions, except per share and employee data | At March 31, 2022 | At December 31, 2021 | ||||||
Liquidity resources5 | $ | 323,227 | $ | 356,003 | ||||
Loans6 | $ | 208,750 | $ | 200,761 | ||||
| Total assets | $ | 1,222,233 | $ | 1,188,140 | ||||
| Deposits | $ | 360,840 | $ | 347,574 | ||||
| Borrowings | $ | 229,817 | $ | 233,127 | ||||
| Common shareholders' equity | $ | 95,151 | $ | 97,691 | ||||
Tangible common shareholders’ equity2 | $ | 70,083 | $ | 72,499 | ||||
| Common shares outstanding | 1,756 | 1,772 | ||||||
Book value per common share7 | $ | 54.18 | $ | 55.12 | ||||
Tangible book value per common share2, 7 | $ | 39.91 | $ | 40.91 | ||||
| Worldwide employees (in thousands) | 77 | 75 | ||||||
Client assets8 (in billions) | $ | 6,247 | $ | 6,495 | ||||
Capital Ratios9 | ||||||||
| Common Equity Tier 1 capital—Standardized | 14.5 | % | 16.0 | % | ||||
| Tier 1 capital—Standardized | 16.0 | % | 17.7 | % | ||||
| Common Equity Tier 1 capital—Advanced | 15.9 | % | 17.4 | % | ||||
| Tier 1 capital—Advanced | 17.6 | % | 19.1 | % | ||||
| Tier 1 leverage | 6.8 | % | 7.1 | % | ||||
| SLR | 5.5 | % | 5.6 | % | ||||
1.The expense efficiency ratio represents total non-interest expenses as a percentage of net revenues.
2.Represents a non-GAAP financial measure. See “Selected Non-GAAP Financial Information” herein.
3.ROE and ROTCE represent annualized earnings applicable to Morgan Stanley common shareholders as a percentage of average common equity and average tangible common equity, respectively.
4.Pre-tax margin represents income before income taxes as a percentage of net revenues.
5.For a discussion of Liquidity resources, see “Liquidity and Capital Resources—Balance Sheet—Liquidity Risk Management Framework—Liquidity Resources” herein.
6.Includes loans held for investment, net of ACL, loans held for sale and also includes loans at fair value, which are included in Trading assets in the balance sheet.
7.Book value per common share and tangible book value per common share equal common shareholders’ equity and tangible common shareholders’ equity, respectively, divided by common shares outstanding.
8.Client assets represents Wealth Management client assets and Investment Management AUM. Certain Wealth Management client assets are invested in Investment Management products and are also included in Investment Management’s AUM.
9.For a discussion of our capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein.
Russia and Ukraine War
We are monitoring the war in Ukraine and its impact on both the Ukrainian and Russian economies, as well as related impacts on other world economies and the financial markets. Our direct exposure to both Russia and Ukraine is limited. We are not entering any new business onshore in Russia and our activities in Russia are limited to helping global clients address and close out pre-existing obligations.
Refer to “Risk Factors” and “Forward-Looking Statements” in the 2021 Form 10-K for more information on the potential effects of geopolitical events and acts of war or aggression.
Selected Non-GAAP Financial Information
We prepare our financial statements using U.S. GAAP. From time to time, we may disclose certain “non-GAAP financial measures” in this document or in the course of our earnings releases, earnings and other conference calls, financial presentations, definitive proxy statement and otherwise. A “non-GAAP financial measure” excludes, or includes, amounts from the most directly comparable measure
4 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
calculated and presented in accordance with U.S. GAAP. We consider the non-GAAP financial measures we disclose to be useful to us, investors, analysts and other stakeholders by providing further transparency about, or an alternate means of assessing or comparing our financial condition, operating results and capital adequacy.
These measures are not in accordance with, or a substitute for, U.S. GAAP and may be different from or inconsistent with non-GAAP financial measures used by other companies. Whenever we refer to a non-GAAP financial measure, we will also generally define it or present the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, along with a reconciliation of the differences between the U.S. GAAP financial measure and the non-GAAP financial measure.
The principal non-GAAP financial measures presented in this document are set forth in the following tables.
Reconciliations from U.S. GAAP to Non-GAAP Consolidated Financial Measures
| Three Months Ended March 31, | ||||||||
| $ in millions, except per share data | 2022 | 2021 | ||||||
| Earnings applicable to Morgan Stanley common shareholders | $ | 3,542 | $ | 3,982 | ||||
| Impact of adjustments: | ||||||||
| Wealth Management—Compensation expenses | 1 | 30 | ||||||
| Wealth Management—Non-compensation expenses | 74 | 34 | ||||||
| Investment Management—Compensation expenses | 9 | 3 | ||||||
| Investment Management—Non-compensation expenses | 23 | 8 | ||||||
| Integration-related expenses | 107 | 75 | ||||||
| Related tax benefit | (25) | (17) | ||||||
Adjusted earnings applicable to Morgan Stanley common shareholders—non-GAAP1 | $ | 3,624 | $ | 4,040 | ||||
| Earnings per diluted common share | $ | 2.02 | $ | 2.19 | ||||
| Impact of adjustments | 0.04 | 0.03 | ||||||
Adjusted earnings per diluted common share—non-GAAP1 | $ | 2.06 | $ | 2.22 | ||||
| Expense efficiency ratio | 69 | % | 67 | % | ||||
| Impact of adjustments | (1) | % | (1) | % | ||||
Adjusted expense efficiency ratio—non-GAAP1 | 68 | % | 66 | % | ||||
| Wealth Management Pre-tax margin | 27 | % | 27 | % | ||||
| Impact of adjustments | 1 | % | 1 | % | ||||
Adjusted Wealth Management pre-tax margin—non-GAAP1 | 28 | % | 28 | % | ||||
| Investment Management Pre-tax margin | 17 | % | 28 | % | ||||
| Impact of adjustments | 2 | % | 1 | % | ||||
Adjusted Investment Management pre-tax margin—non-GAAP1 | 19 | % | 29 | % | ||||
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Tangible equity | ||||||||
| Common shareholders' equity | $ | 95,151 | $ | 97,691 | ||||
| Less: Goodwill and net intangible assets | (25,068) | (25,192) | ||||||
| Tangible common shareholders' equity—non-GAAP | $ | 70,083 | $ | 72,499 | ||||
| Average Monthly Balance | ||||||||
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Tangible equity | ||||||||
| Common shareholders' equity | $ | 96,667 | $ | 94,343 | ||||
| Less: Goodwill and net intangible assets | (25,120) | (18,849) | ||||||
| Tangible common shareholders' equity—non-GAAP | $ | 71,547 | $ | 75,494 | ||||
| Three Months Ended March 31, | ||||||||
| $ in billions | 2022 | 2021 | ||||||
| Average common equity | ||||||||
| Unadjusted—GAAP | $ | 96.7 | $ | 94.3 | ||||
Adjusted1—Non-GAAP | 96.7 | 94.4 | ||||||
ROE2 | ||||||||
| Unadjusted—GAAP | 14.7 | % | 16.9 | % | ||||
Adjusted1—Non-GAAP | 15.0 | % | 17.1 | % | ||||
| Average tangible common equity—Non-GAAP | ||||||||
| Unadjusted | $ | 71.5 | $ | 75.5 | ||||
Adjusted1 | 71.6 | 75.5 | ||||||
ROTCE2—Non-GAAP | ||||||||
| Unadjusted | 19.8 | % | 21.1 | % | ||||
Adjusted1 | 20.3 | % | 21.4 | % | ||||
Non-GAAP Financial Measures by Business Segment
| Three Months Ended March 31, | ||||||||
| $ in billions | 2022 | 2021 | ||||||
Average common equity3 | ||||||||
| Institutional Securities | $ | 48.8 | $ | 43.5 | ||||
| Wealth Management | 31.0 | 28.5 | ||||||
| Investment Management | 10.6 | 4.4 | ||||||
ROE4 | ||||||||
| Institutional Securities | 17 | % | 23 | % | ||||
| Wealth Management | 16 | % | 17 | % | ||||
| Investment Management | 8 | % | 25 | % | ||||
Average tangible common equity3 | ||||||||
| Institutional Securities | $ | 48.3 | $ | 42.9 | ||||
| Wealth Management | 16.3 | 13.4 | ||||||
| Investment Management | 0.8 | 1.2 | ||||||
ROTCE4 | ||||||||
| Institutional Securities | 17 | % | 23 | % | ||||
| Wealth Management | 30 | % | 36 | % | ||||
| Investment Management | 106 | % | 88 | % | ||||
1.Adjusted amounts exclude the effect of costs related to the integrations of E*TRADE and Eaton Vance, net of tax as appropriate.
2.ROE and ROTCE represent earnings applicable to Morgan Stanley common shareholders as a percentage of average common equity and average tangible common equity, respectively. When excluding integration-related costs, both the numerator and average denominator are adjusted.
3.Average common equity and average tangible common equity for each business segment is determined using our Required Capital framework (see "Liquidity and Capital Resources—Regulatory Requirements—Attribution of Average Common Equity According to the Required Capital Framework” herein). The sums of the segments’ Average common equity and Average tangible common equity do not equal the Consolidated measures due to Parent equity.
4.The calculation of ROE and ROTCE by segment uses net income applicable to Morgan Stanley by segment less preferred dividends allocated to each segment as a percentage of average common equity and average tangible common equity, respectively, allocated to each segment.
Return on Tangible Common Equity Goal
In January 2022, we established an ROTCE goal of over 20%, excluding integration-related expenses. Our ROTCE goal is a forward-looking statement that was based on a normal market environment and may be materially affected by many factors.
| March 2022 Form 10-Q | 5 | |||||||
| Management’s Discussion and Analysis | | ||||
See “Risk Factors” and “Forward-Looking Statements” in the 2021 Form 10-K for further information on market and economic conditions and their potential effects on our future operating results.
For further information on non-GAAP measures (ROTCE excluding integration-related expenses), see “Selected Non-GAAP Financial Information” herein.
Business Segments
Substantially all of our operating revenues and operating expenses are directly attributable to our business segments. Certain revenues and expenses have been allocated to each business segment, generally in proportion to its respective net revenues, non-interest expenses or other relevant measures. See Note 19 to the financial statements for segment net revenues by income statement line item and information on intersegment transactions.
For an overview of the components of our business segments, net revenues, compensation expense and income taxes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments” in the 2021 Form 10-K.
6 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
Institutional Securities
Income Statement Information
| Three Months Ended March 31, | |||||||||||
| $ in millions | 2022 | 2021 | % Change | ||||||||
| Revenues | |||||||||||
| Advisory | $ | 944 | $ | 480 | 97 | % | |||||
| Equity | 258 | 1,502 | (83) | % | |||||||
| Fixed income | 432 | 631 | (32) | % | |||||||
| Total Underwriting | 690 | 2,133 | (68) | % | |||||||
| Total Investment banking | 1,634 | 2,613 | (37) | % | |||||||
| Equity | 3,174 | 2,875 | 10 | % | |||||||
| Fixed income | 2,923 | 2,966 | (1) | % | |||||||
| Other | (74) | 123 | (160) | % | |||||||
| Net revenues | $ | 7,657 | $ | 8,577 | (11) | % | |||||
| Provision for credit losses | 44 | (93) | 147 | % | |||||||
| Compensation and benefits | 2,604 | 3,114 | (16) | % | |||||||
| Non-compensation expenses | 2,222 | 2,185 | 2 | % | |||||||
| Total non-interest expenses | 4,826 | 5,299 | (9) | % | |||||||
| Income before provision for income taxes | 2,787 | 3,371 | (17) | % | |||||||
| Provision for income taxes | 535 | 736 | (27) | % | |||||||
| Net income | 2,252 | 2,635 | (15) | % | |||||||
| Net income applicable to noncontrolling interests | 61 | 34 | 79 | % | |||||||
| Net income applicable to Morgan Stanley | $ | 2,191 | $ | 2,601 | (16) | % | |||||
Investment Banking
Investment Banking Volumes
| Three Months Ended March 31, | ||||||||
$ in billions | 2022 | 2021 | ||||||
Completed mergers and acquisitions1 | $ | 320 | $ | 228 | ||||
Equity and equity-related offerings2, 3 | 8 | 37 | ||||||
Fixed income offerings2, 4 | 81 | 105 | ||||||
Source: Refinitiv data as of April 1, 2022. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal, change in value or change in timing of certain transactions.
1.Includes transactions of $100 million or more. Based on full credit to each of the advisors in a transaction.
2.Based on full credit for single book managers and equal credit for joint book managers.
3.Includes Rule 144A issuances and registered public offerings of common stock, convertible securities and rights offerings.
4.Includes Rule 144A and publicly registered issuances, non-convertible preferred stock, mortgage-backed and asset-backed securities, and taxable municipal debt. Excludes leveraged loans and self-led issuances.
Investment Banking Revenues
Revenues of $1,634 million in the current quarter decreased 37% compared with the prior year quarter, primarily reflecting a decrease in equity underwriting revenues, partially offset by an increase in advisory revenues.
•Advisory revenues increased primarily due to higher completed transactions.
•Equity underwriting revenues decreased on lower volumes in line with market levels, with lower revenues across all products.
•Fixed income underwriting revenues decreased primarily due to lower bond issuances.
See “Investment Banking Volumes” herein.
Equity, Fixed Income and Other Net Revenues
Equity and Fixed Income Net Revenues
| Three Months Ended March 31, 2022 | |||||||||||||||||
Net Interest2 | All Other3 | ||||||||||||||||
| $ in millions | Trading | Fees1 | Total | ||||||||||||||
| Financing | $ | 1,251 | $ | 132 | $ | 87 | $ | 4 | $ | 1,474 | |||||||
| Execution services | 924 | 693 | (34) | 117 | 1,700 | ||||||||||||
| Total Equity | $ | 2,175 | $ | 825 | $ | 53 | $ | 121 | $ | 3,174 | |||||||
| Total Fixed Income | $ | 2,258 | $ | 97 | $ | 508 | $ | 60 | $ | 2,923 | |||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||
Net Interest2 | All Other3 | ||||||||||||||||
| $ in millions | Trading | Fees1 | Total | ||||||||||||||
| Financing | $ | 645 | $ | 130 | $ | 182 | $ | 3 | $ | 960 | |||||||
| Execution services | 1,114 | 800 | (62) | 63 | 1,915 | ||||||||||||
| Total Equity | $ | 1,759 | $ | 930 | $ | 120 | $ | 66 | $ | 2,875 | |||||||
| Total Fixed Income | $ | 2,313 | $ | 81 | $ | 439 | $ | 133 | $ | 2,966 | |||||||
1.Includes Commissions and fees and Asset management revenues.
2.Includes funding costs, which are allocated to the businesses based on funding usage.
3.Includes Investments and Other revenues.
Equity
Net revenues of $3,174 million in the current quarter increased 10% compared with the prior year quarter, reflecting an increase in financing, partially offset by a decrease in execution services.
•Financing revenues increased primarily due to the absence of a credit event for a single client in the prior year quarter.
•Execution services revenues decreased, primarily due to the impact of market conditions on inventory held to facilitate client activity and lower client activity compared to the prior year quarter, partially offset by the absence of trading losses related to the aforementioned credit event.
Fixed Income
Net revenues of $2,923 million in the current quarter were relatively unchanged when compared with the prior year quarter, as a decrease in credit products was offset by an increase in commodities and global macro products.
•Global macro products revenues increased primarily in foreign exchange products due to the impact of market conditions on inventory held to facilitate client activity. Client activity levels were elevated consistent with the prior year quarter.
•Credit products revenues decreased primarily due to the impact of market conditions on inventory held to facilitate client activity across products.
•Commodities products and other fixed income revenues increased primarily driven by higher client activity and the impact of market conditions on inventory held to facilitate client activity in Commodities.
| March 2022 Form 10-Q | 7 | |||||||
| Management’s Discussion and Analysis | | ||||
Other Net Revenues
Other Net revenues in the current quarter decreased compared with the prior year quarter, primarily due to losses compared with gains in the prior year quarter on investments associated with certain employee deferred compensation plans, and higher mark-to-market losses on corporate loans held for sale, net of related hedges in the current quarter.
Provision for Credit Losses
Provision for credit losses on loans and lending commitments of $44 million in the current quarter was primarily driven by portfolio growth. The Provision for credit losses on loans and lending commitments was a net release of $93 million in the prior year quarter, primarily driven by improvements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated borrowers.
For further information on the Provision for credit losses, see “Credit Risk” herein.
Non-interest Expenses
Non-interest expenses of $4,826 million in the current quarter decreased 9% compared with the prior year quarter, primarily as a result of lower Compensation and benefits expenses offset by higher Non-compensation expenses.
•Compensation and benefits expenses decreased in the current quarter, primarily due to lower discretionary incentive compensation on lower revenues and lower expenses related to certain deferred compensation plans linked to the Firm’s share price and investment performance, partially offset by higher salaries.
•Non-compensation expenses increased in the current quarter, primarily due to an increase in litigation expenses and investments in technology, partially offset by lower volume-related and other expenses.
Income Tax Items
The effective tax rate of 19.2% is lower than the prior year quarter due to higher benefits related to the conversion of employee share-based awards, which primarily occur in the first quarter of each year.
8 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
Wealth Management
Income Statement Information
| Three Months Ended March 31, | |||||||||||
| $ in millions | 2022 | 2021 | % Change | ||||||||
| Revenues | |||||||||||
| Asset management | $ | 3,626 | $ | 3,191 | 14 | % | |||||
Transactional1 | 635 | 1,228 | (48) | % | |||||||
| Net interest | 1,540 | 1,385 | 11 | % | |||||||
Other1 | 134 | 155 | (14) | % | |||||||
| Net revenues | 5,935 | 5,959 | — | % | |||||||
| Provision for credit losses | 13 | (5) | N/M | ||||||||
| Compensation and benefits | 3,125 | 3,170 | (1) | % | |||||||
| Non-compensation expenses | 1,224 | 1,194 | 3 | % | |||||||
| Total non-interest expenses | 4,349 | 4,364 | — | % | |||||||
Income before provision for income taxes | $ | 1,573 | $ | 1,600 | (2) | % | |||||
| Provision for income taxes | 301 | 358 | (16) | % | |||||||
Net income applicable to Morgan Stanley | $ | 1,272 | $ | 1,242 | 2 | % | |||||
1.Transactional includes Investment banking, Trading, and Commissions and fees revenues. Other includes Investments and Other revenues.
Wealth Management Metrics
| $ in billions | At March 31, 2022 | At December 31, 2021 | ||||||
| Total client assets | $ | 4,800 | $ | 4,930 | ||||
| U.S. Bank Subsidiary loans | $ | 137 | $ | 129 | ||||
Margin and other lending1 | $ | 29 | $ | 31 | ||||
Deposits2 | $ | 352 | $ | 346 | ||||
| Annualized weighted average cost of deposits | 0.09% | 0.10% | ||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
Net new assets3 | $ | 142.0 | $ | 104.9 | ||||
1.Margin and other lending represents margin lending arrangements, which allow customers to borrow against the value of qualifying securities and other lending which includes non‐purpose securities-based lending on non‐bank entities.
2.Deposits are sourced from Wealth Management clients and other sources of funding on the U.S. Bank Subsidiaries. Deposits include sweep deposit programs, savings and other, and time deposits. Excludes approximately $8 billion and $9 billion of off-balance sheet deposits as of March 31, 2022 and December 31, 2021, respectively.
3.Net new assets represent client inflows, including dividends and interest, and asset acquisitions, less client outflows, and exclude activity from business combinations/divestitures and the impact of fees and commissions.
Advisor-led Channel
| $ in billions | At March 31, 2022 | At December 31, 2021 | ||||||
Advisor-led client assets1 | $ | 3,835 | $ | 3,886 | ||||
Fee-based client assets2 | $ | 1,873 | $ | 1,839 | ||||
| Fee-based client assets as a percentage of advisor-led client assets | 49% | 47% | ||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
Fee-based asset flows3 | $ | 97.2 | $ | 37.2 | ||||
1.Advisor-led client assets represent client assets in accounts that have a Wealth Management representative assigned.
2.Fee‐based client assets represent the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets.
3.Fee-based asset flows include net new fee-based assets (including asset acquisitions), net account transfers, dividends, interest and client fees, and exclude institutional cash management related activity. For a description of the Inflows and Outflows included in Fee-based asset flows, see Fee-based client assets in the 2021 Form 10-K.
Self-directed Channel
| $ in billions | At March 31, 2022 | At December 31, 2021 | ||||||
Self-directed assets1 | $ | 965 | $ | 1,044 | ||||
Self-directed households (in millions)2 | 7.6 | 7.4 | ||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
Daily average revenue trades (“DARTs”) (in thousands)3 | 1,016 | 1,619 | ||||||
1.Self-directed assets represent active accounts which are not advisor led. Active accounts are defined as having at least $25 in assets.
2.Self-directed households represent the total number of households that include at least one account with self-directed assets. Individual households or participants that are engaged in one or more of our Wealth Management channels will be included in each of the respective channel counts.
3.DARTs represent the total self-directed trades in a period divided by the number of trading days during that period.
Workplace Channel1
| $ in billions | At March 31, 2022 | At December 31, 2021 | ||||||
Stock plan unvested assets2 | $ | 454 | $ | 509 | ||||
Stock plan participants (in millions)3 | 5.8 | 5.6 | ||||||
1.The workplace channel includes equity compensation solutions for companies, their executives and employees.
2.Stock plan unvested assets represent the market value of public company securities at the end of the period.
3.Stock plan participants represent total accounts with vested and/or unvested stock plan assets in the workplace channel. Individuals with accounts in multiple plans are counted as participants in each plan.
Net Revenues
Asset Management
Asset management revenues of $3,626 million in the current quarter increased 14% compared with the prior year quarter, primarily due to higher fee-based asset levels in the current quarter as a result of positive fee-based flows and market appreciation since the prior year quarter.
See “Fee-Based Client Assets—Rollforwards” herein.
Transactional Revenues
Transactional revenues of $635 million in the current quarter decreased 48% compared with the prior year quarter, primarily due to losses on investments associated with certain employee deferred compensation plans, lower client activity in equities, and lower revenues from closed-end fund issuances.
Net Interest
Net interest of $1,540 million in the current quarter increased 11% compared with the prior year quarter, primarily due to growth in bank lending and net effect of higher interest rates.
Non-interest Expenses
Non-interest expenses of $4,349 million in the current quarter were relatively unchanged from the prior year quarter.
•Compensation and benefits expenses decreased in the current quarter primarily due to lower expenses related to
| March 2022 Form 10-Q | 9 | |||||||
| Management’s Discussion and Analysis | | ||||
certain deferred compensation plans linked to investment performance, partially offset by an increase in the formulaic payout to Wealth Management representatives driven by higher compensable revenues, as well as higher salaries.
•Non-compensation expenses increased in the current quarter primarily due to higher professional services expenses and investments in technology, partially offset by lower brokerage and clearing costs.
Fee-Based Client Assets Rollforwards
$ in billions | At December 31, 2021 | Inflows1 | Outflows | Market Impact | At March 31, 2022 | ||||||||||||
Separately managed2 | $ | 479 | $ | 87 | $ | (8) | $ | 7 | $ | 565 | |||||||
| Unified managed | 467 | 25 | (14) | (31) | 447 | ||||||||||||
| Advisor | 211 | 9 | (11) | (10) | 199 | ||||||||||||
| Portfolio manager | 636 | 30 | (21) | (30) | 615 | ||||||||||||
| Subtotal | $ | 1,793 | $ | 151 | $ | (54) | $ | (64) | $ | 1,826 | |||||||
| Cash management | 46 | 9 | (8) | — | 47 | ||||||||||||
Total fee-based client assets | $ | 1,839 | $ | 160 | $ | (62) | $ | (64) | $ | 1,873 | |||||||
$ in billions | At December 31, 2020 | Inflows | Outflows | Market Impact | At March 31, 2021 | ||||||||||||
Separately managed2 | $ | 359 | $ | 13 | $ | (7) | $ | 20 | $ | 385 | |||||||
Unified managed | 379 | 27 | (14) | 13 | 405 | ||||||||||||
Advisor | 177 | 12 | (9) | 8 | 188 | ||||||||||||
Portfolio manager | 509 | 33 | (18) | 25 | 549 | ||||||||||||
Subtotal | $ | 1,424 | $ | 85 | $ | (48) | $ | 66 | $ | 1,527 | |||||||
| Cash management | 48 | 8 | (9) | — | 47 | ||||||||||||
Total fee-based client assets | $ | 1,472 | $ | 93 | $ | (57) | $ | 66 | $ | 1,574 | |||||||
1.Includes $75 billion of fee-based assets acquired in an asset acquisition in the current quarter reflected in Separately managed.
2.Includes non-custody account values reflecting prior quarter-end balances due to a lag in the reporting of asset values by third-party custodians.
Average Fee Rates1
| Three Months Ended March 31, | ||||||||
Fee rate in bps | 2022 | 2021 | ||||||
Separately managed | 13 | 14 | ||||||
Unified managed | 94 | 97 | ||||||
| Advisor | 81 | 81 | ||||||
| Portfolio manager | 92 | 93 | ||||||
| Subtotal | 68 | 73 | ||||||
| Cash management | 6 | 5 | ||||||
| Total fee-based client assets | 67 | 71 | ||||||
1.Based on Asset management revenues related to advisory services associated with fee-based assets.
For a description of fee-based client assets and rollforward items in the previous tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Wealth Management Fee-Based Client Assets” in the 2021 Form 10-K.
10 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
Investment Management
Income Statement Information
| Three Months Ended March 31, | |||||||||||
| $ in millions | 2022 | 2021 | % Change | ||||||||
| Revenues | |||||||||||
| Asset management and related fees | $ | 1,388 | $ | 1,103 | 26 | % | |||||
Performance-based income and other1 | (53) | 211 | (125) | % | |||||||
Net revenues | 1,335 | 1,314 | 2 | % | |||||||
Compensation and benefits | 545 | 514 | 6 | % | |||||||
Non-compensation expenses | 562 | 430 | 31 | % | |||||||
Total non-interest expenses | 1,107 | 944 | 17 | % | |||||||
| Income before provision for income taxes | 228 | 370 | (38) | % | |||||||
Provision for income taxes | 37 | 81 | (54) | % | |||||||
Net income | 191 | 289 | (34) | % | |||||||
| Net income (loss) applicable to noncontrolling interests | (12) | 14 | (186) | % | |||||||
| Net income applicable to Morgan Stanley | $ | 203 | $ | 275 | (26) | % | |||||
1.Includes Investments, Trading, Commissions and fees, Net interest, and Other revenues.
Acquisition of Eaton Vance
The comparisons of current year results to prior periods are impacted by the acquisition of Eaton Vance on March 1, 2021. For additional information on the acquisition of Eaton Vance, see Note 3 to the financial statements in the Form 2021 10-K.
Net Revenues
Asset Management and Related Fees
Asset management and related fees of $1,388 million in the current quarter increased 26% from the prior year quarter, primarily due to incremental revenues and higher average AUM as a result of the Eaton Vance acquisition.
See “Assets under Management or Supervision” herein.
Performance-based Income and Other
Performance-based income and other revenues was a loss of $53 million, a 125% decrease from the prior year quarter, primarily due to lower carried interest and mark downs on investments, including the reversal of accrued carried interest and investment losses in an Asia private equity fund compared with gains in the prior year quarter, and the reversal of accrued carried interest in an international real estate fund. Also contributing to the decrease were losses on investments associated with certain employee deferred compensation plans.
Non-interest Expenses
Non-interest expenses of $1,107 million in the current quarter increased 17% from the prior year quarter as a result of higher Non-compensation expenses and higher Compensation and benefits.
•Compensation and benefits expenses increased in the current quarter primarily due to incremental compensation as a result of the Eaton Vance acquisition, partially offset by lower expenses related to certain deferred compensation plans linked to investment performance and lower compensation associated with carried interest.
•Non-compensation expenses increased in the current quarter primarily due to incremental expenses as a result of the Eaton Vance acquisition.
Assets under Management or Supervision
Rollforwards
| $ in billions | Equity | Fixed Income | Alternatives and Solutions | Long-Term AUM Subtotal | Liquidity and Overlay Services | Total | ||||||||||||||
| December 31, 2021 | $ | 395 | $ | 207 | $ | 466 | $ | 1,068 | $ | 497 | $ | 1,565 | ||||||||
| Inflows | 19 | 19 | 27 | 65 | 494 | 559 | ||||||||||||||
| Outflows | (26) | (22) | (29) | (77) | (523) | (600) | ||||||||||||||
| Market Impact | (48) | (7) | (14) | (69) | (2) | (71) | ||||||||||||||
| Other | (3) | (2) | (1) | (6) | — | (6) | ||||||||||||||
| March 31, 2022 | $ | 337 | $ | 195 | $ | 449 | $ | 981 | $ | 466 | $ | 1,447 | ||||||||
| $ in billions | Equity | Fixed Income | Alternatives and Solutions | Long-Term AUM Subtotal | Liquidity and Overlay Services | Total | ||||||||||||||
| December 31, 2020 | $ | 242 | $ | 98 | $ | 153 | $ | 493 | $ | 288 | $ | 781 | ||||||||
| Inflows | 31 | 13 | 15 | 59 | 459 | 518 | ||||||||||||||
| Outflows | (23) | (9) | (10) | (42) | (433) | (475) | ||||||||||||||
| Market Impact | 4 | (2) | 10 | 12 | — | 12 | ||||||||||||||
Acquired1 | 119 | 103 | 251 | 473 | 116 | 589 | ||||||||||||||
| Other | (2) | (2) | (1) | (5) | (1) | (6) | ||||||||||||||
| March 31, 2021 | $ | 371 | $ | 201 | $ | 418 | $ | 990 | $ | 429 | $ | 1,419 | ||||||||
1.Related to the Eaton Vance acquisition.
| March 2022 Form 10-Q | 11 | |||||||
| Management’s Discussion and Analysis | | ||||
Average AUM
| Three Months Ended March 31, | ||||||||
$ in billions | 2022 | 2021 | ||||||
| Equity | $ | 355 | $ | 288 | ||||
| Fixed income | 201 | 131 | ||||||
| Alternatives and Solutions | 454 | 242 | ||||||
| Long-term AUM subtotal | 1,010 | 661 | ||||||
| Liquidity and Overlay Services | 476 | 339 | ||||||
| Total AUM | $ | 1,486 | $ | 1,000 | ||||
Average Fee Rates1
| Three Months Ended March 31, | ||||||||
Fee rate in bps | 2022 | 2021 | ||||||
| Equity | 70 | 77 | ||||||
| Fixed income | 36 | 33 | ||||||
| Alternatives and Solutions | 35 | 45 | ||||||
| Long-term AUM | 48 | 57 | ||||||
| Liquidity and Overlay Services | 7 | 8 | ||||||
| Total AUM | 35 | 40 | ||||||
1.Based on Asset management revenues, net of waivers, excluding performance-based fees and other non-management fees. For certain non-U.S. funds, it includes the portion of advisory fees that the advisor collects on behalf of third-party distributors. The payment of those fees to the distributor is included in Non-compensation expenses in the income statement.
Certain Eaton Vance products may have higher or lower average fee rates than similar products prior to the acquisition, with the overall impact yielding a lower average fee rate; however, Asset management and related fees arising from the acquisition are incremental to our revenues.
For a description of the asset classes and rollforward items in the previous tables, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments—Investment Management—Assets Under Management or Supervision” in the 2021 Form 10-K.
12 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
Supplemental Financial Information
U.S. Bank Subsidiaries
Our U.S. bank subsidiaries, Morgan Stanley Bank N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA”) (collectively, “U.S. Bank Subsidiaries”), accept deposits, provide loans to a variety of customers, including large corporate and institutional clients as well as high to ultra-high net worth individuals, and invest in securities. Lending activity in the U.S. Bank Subsidiaries from the Institutional Securities business segment primarily includes Secured lending facilities and Commercial real estate loans. Lending activity in the U.S. Bank Subsidiaries from the Wealth Management business segment primarily includes Securities-based lending, which allows clients to borrow money against the value of qualifying securities, and Residential real estate loans.
For a further discussion of our credit risks, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk.” For a further discussion about loans and lending commitments, see Notes 9 and 13 to the financial statements.
U.S. Bank Subsidiaries’ Supplemental Financial Information1
| $ in billions | At March 31, 2022 | At December 31, 2021 | ||||||
| Investment securities portfolio: | ||||||||
| Investment securities—AFS | $ | 69.3 | $ | 81.6 | ||||
| Investment securities—HTM | 60.6 | 61.7 | ||||||
| Total investment securities | $ | 129.9 | $ | 143.3 | ||||
Wealth Management Loans2 | ||||||||
| Residential real estate | $ | 47.2 | $ | 44.2 | ||||
Securities-based lending and Other3 | 89.5 | 85.0 | ||||||
| Total, net of ACL | $ | 136.7 | $ | 129.2 | ||||
Institutional Securities Loans2 | ||||||||
| Corporate | $ | 7.0 | $ | 6.5 | ||||
| Secured lending facilities | 32.6 | 33.1 | ||||||
| Commercial and Residential real estate | 11.7 | 10.4 | ||||||
| Securities-based lending and Other | 6.8 | 6.3 | ||||||
| Total, net of ACL | $ | 58.1 | $ | 56.3 | ||||
| Total Assets | $ | 390.0 | $ | 386.1 | ||||
Deposits4 | $ | 352.1 | $ | 346.2 | ||||
1.Amounts exclude transactions between the bank subsidiaries, as well as deposits from the Parent Company and affiliates.
2.For a further discussion of loans in the Wealth Management and Institutional Securities business segments, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk” herein.
3.Other loans primarily include tailored lending.
4.For further information on deposits, see “Liquidity and Capital Resources—Funding Management—Balance Sheet—Unsecured Financing” herein.
Accounting Development Updates
The Financial Accounting Standards Board has issued certain accounting updates that apply to us. Accounting updates not listed below were assessed and either determined to be not applicable or to not have a material impact on our financial condition or results of operations upon adoption.
The following accounting updates are currently being evaluated, however, we do not expect a material impact on our financial condition or results of operations upon adoption:
•Financial Instruments—Credit Losses. This accounting update eliminates the accounting guidance for Troubled Debt Restructurings (“TDRs”) and requires new disclosures regarding certain modifications of financing receivables (i.e., principal forgiveness, interest rate reductions, other-than-insignificant payment delays and term extensions) to borrowers experiencing financial difficulty. The update also requires disclosure of current period gross charge-offs by year of origination for financing receivables measured at amortized cost. The ASU is effective January 1, 2023 with early adoption permitted.
•Derivatives and Hedging. The accounting update allows entities to designate fair value hedging relationships to multiple layers in a closed portfolio of prepayable and non-prepayable financial assets. It also provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method. As of the adoption date, entities are permitted to reclassify HTM debt securities to AFS if the securities will be included in a closed portfolio that are designated in a portfolio layer method hedge. The ASU is effective January 1, 2023 with early adoption permitted.
Critical Accounting Policies
Our financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions (see Note 1 to the financial statements). We believe that of our significant accounting policies (see Note 2 to the financial statements in the 2021 Form 10-K and Note 2 to the financial statements), the fair value, goodwill and intangible assets, legal and regulatory contingencies and income taxes policies involve a higher degree of judgment and complexity. For a further discussion about our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the 2021 Form 10-K.
Liquidity and Capital Resources
Our liquidity and capital policies are established and maintained by senior management, with oversight by the Asset/Liability Management Committee and the Board of Directors (“Board”). Through various risk and control committees, senior management reviews business
| March 2022 Form 10-Q | 13 | |||||||
| Management’s Discussion and Analysis | | ||||
performance relative to these policies, monitors the availability of alternative sources of financing, and oversees the liquidity, interest rate and currency sensitivity of our asset and liability position. Our Treasury department, Firm Risk Committee, Asset/Liability Management Committee, and other committees and control groups assist in evaluating, monitoring and controlling the impact that our business activities have on our balance sheet, liquidity and capital structure. Liquidity and capital matters are reported regularly to the Board and the Risk Committee of the Board.
Balance Sheet
We monitor and evaluate the composition and size of our balance sheet on a regular basis. Our balance sheet management process includes quarterly planning, business-specific thresholds, monitoring of business-specific usage versus key performance metrics and new business impact assessments.
We establish balance sheet thresholds at the consolidated and business segment levels. We monitor balance sheet utilization and review variances resulting from business activity and market fluctuations. On a regular basis, we review current performance versus established thresholds and assess the need to re-allocate our balance sheet based on business segment needs. We also monitor key metrics, including asset and liability size and capital usage.
Total Assets by Business Segment
| At March 31, 2022 | ||||||||||||||
| $ in millions | IS | WM | IM | Total | ||||||||||
| Assets | ||||||||||||||
Cash and cash equivalents | $ | 98,944 | $ | 36,603 | $ | 539 | $ | 136,086 | ||||||
Trading assets at fair value | 290,709 | 1,598 | 4,574 | 296,881 | ||||||||||
Investment securities | 43,300 | 127,493 | — | 170,793 | ||||||||||
| Securities purchased under agreements to resell | 112,144 | 15,623 | — | 127,767 | ||||||||||
Securities borrowed | 149,957 | 1,038 | — | 150,995 | ||||||||||
| Customer and other receivables | 57,315 | 36,186 | 1,303 | 94,804 | ||||||||||
Loans1 | 59,542 | 136,713 | 5 | 196,260 | ||||||||||
Other assets2 | 14,331 | 23,247 | 11,069 | 48,647 | ||||||||||
| Total assets | $ | 826,242 | $ | 378,501 | $ | 17,490 | $ | 1,222,233 | ||||||
| At December 31, 2021 | ||||||||||||||
$ in millions | IS | WM | IM | Total | ||||||||||
Assets | ||||||||||||||
Cash and cash equivalents | $ | 91,251 | $ | 36,003 | $ | 471 | $ | 127,725 | ||||||
Trading assets at fair value | 288,405 | 1,921 | 4,543 | 294,869 | ||||||||||
Investment securities | 41,407 | 141,591 | — | 182,998 | ||||||||||
| Securities purchased under agreements to resell | 112,267 | 7,732 | — | 119,999 | ||||||||||
Securities borrowed | 128,154 | 1,559 | — | 129,713 | ||||||||||
| Customer and other receivables | 57,009 | 37,643 | 1,366 | 96,018 | ||||||||||
Loans1 | 58,822 | 129,307 | 5 | 188,134 | ||||||||||
Other assets2 | 14,820 | 22,682 | 11,182 | 48,684 | ||||||||||
Total assets | $ | 792,135 | $ | 378,438 | $ | 17,567 | $ | 1,188,140 | ||||||
1.Amounts include loans held for investment, net of ACL, and loans held for sale but exclude loans at fair value, which are included in Trading assets in the balance sheet (see Note 9 to the financial statements).
2.Other assets primarily includes Goodwill and Intangible assets, premises, equipment and software, ROU assets related to leases, other investments, and deferred tax assets.
A substantial portion of total assets consists of liquid marketable securities and short-term receivables. In the Institutional Securities business segment, these arise from market-making, financing and prime brokerage activities, and in the Wealth Management business segment, these arise from banking activities, including management of the investment portfolio, comprising Investment securities, Cash and cash equivalents and Securities purchased under agreements to resell. Total assets of $1,222 billion at March 31, 2022 were relatively unchanged from $1,188 billion at December 31, 2021.
Liquidity Risk Management Framework
The core components of our Liquidity Risk Management Framework are the Required Liquidity Framework, Liquidity Stress Tests and Liquidity Resources, which support our target liquidity profile. For a further discussion about the Firm’s Required Liquidity Framework and Liquidity Stress Tests, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Risk Management Framework” in the 2021 Form 10-K.
At March 31, 2022 and December 31, 2021, we maintained sufficient liquidity to meet current and contingent funding obligations as modeled in our Liquidity Stress Tests.
Liquidity Resources
We maintain sufficient liquidity resources, which consist of HQLA and cash deposits with banks (“Liquidity Resources”) to cover daily funding needs and to meet strategic liquidity targets sized by the Required Liquidity Framework and Liquidity Stress Tests. We actively manage the amount of our Liquidity Resources considering the following components: unsecured debt maturity profile; balance sheet size and composition; funding needs in a stressed environment, inclusive of contingent cash outflows; legal entity, regional and segment liquidity requirements; regulatory requirements; and collateral requirements.
14 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
The amount of Liquidity Resources we hold is based on our risk appetite and is calibrated to meet various internal and regulatory requirements as well as fund prospective business activities. The Liquidity Resources are primarily held within the Parent Company and its major operating subsidiaries. The Total HQLA values in the tables immediately following are different from Eligible HQLA, which, in accordance with the LCR rule, also takes into account certain regulatory weightings and other operational considerations.
Liquidity Resources by Type of Investment
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Cash deposits with central banks | $ | 78,160 | $ | 70,147 | ||||
Unencumbered HQLA Securities1: | ||||||||
U.S. government obligations | 122,646 | 154,879 | ||||||
U.S. agency and agency mortgage-backed securities | 91,265 | 110,435 | ||||||
Non-U.S. sovereign obligations2 | 22,522 | 11,959 | ||||||
Other investment grade securities | 648 | 607 | ||||||
Total HQLA1 | $ | 315,241 | $ | 348,027 | ||||
| Cash deposits with banks (non-HQLA) | 7,986 | 7,976 | ||||||
| Total Liquidity Resources | $ | 323,227 | $ | 356,003 | ||||
1.HQLA is presented prior to applying weightings and includes all HQLA held in subsidiaries.
2.Primarily composed of unencumbered Japanese, U.K., French and German government obligations.
Liquidity Resources by Bank and Non-Bank Legal Entities
| At March 31, 2022 | At December 31, 2021 | Average Daily Balance Three Months Ended | |||||||||
| $ in millions | March 31, 2022 | ||||||||||
Bank legal entities | |||||||||||
| U.S. | $ | 160,425 | $ | 171,642 | $ | 165,108 | |||||
| Non-U.S. | 9,480 | 8,582 | 8,978 | ||||||||
| Total Bank legal entities | 169,905 | 180,224 | 174,086 | ||||||||
Non-Bank legal entities | |||||||||||
| U.S.: | |||||||||||
| Parent Company | 35,496 | 60,391 | 44,846 | ||||||||
| Non-Parent Company | 58,073 | 52,932 | 59,925 | ||||||||
| Total U.S. | 93,569 | 113,323 | 104,771 | ||||||||
| Non-U.S. | 59,753 | 62,456 | 59,424 | ||||||||
| Total Non-Bank legal entities | 153,322 | 175,779 | 164,195 | ||||||||
| Total Liquidity Resources | $ | 323,227 | $ | 356,003 | $ | 338,281 | |||||
Liquidity Resources may fluctuate from period to period based on the overall size and composition of our balance sheet, the maturity profile of our unsecured debt and estimates of funding needs in a stressed environment, among other factors.
Regulatory Liquidity Framework
Liquidity Coverage Ratio and Net Stable Funding Ratio
We and our U.S. Bank Subsidiaries are required to maintain a minimum LCR and NSFR of 100%. The LCR requires that banking organizations have sufficient Eligible HQLA to cover net cash outflows arising from significant stress over 30 calendar days, thus promoting the short-term resilience of the liquidity risk profile of banking organizations. In determining Eligible HQLA for LCR purposes, weightings (or asset haircuts) are applied to HQLA, and certain HQLA held in subsidiaries is excluded. The NSFR requires large banking organizations to maintain sufficiently stable sources of funding over a one-year time horizon.
As of March 31, 2022, we and our U.S. Bank Subsidiaries are compliant with the minimum LCR and NSFR requirements of 100%.
Liquidity Coverage Ratio
| Average Daily Balance Three Months Ended | ||||||||
| $ in millions | March 31, 2022 | December 31, 2021 | ||||||
Eligible HQLA1 | ||||||||
| Cash deposits with central banks | $ | 63,336 | $ | 54,606 | ||||
Securities2 | 171,692 | 183,105 | ||||||
Total Eligible HQLA1 | $ | 235,028 | $ | 237,711 | ||||
| LCR | 130 | % | 134 | % | ||||
1.Under the LCR rule, Eligible HQLA is calculated using weightings and excluding certain HQLA held in subsidiaries.
2.Primarily includes U.S. Treasuries, U.S. agency mortgage-backed securities, sovereign bonds and investment grade corporate bonds.
Funding Management
We manage our funding in a manner that reduces the risk of disruption to our operations. We pursue a strategy of diversification of secured and unsecured funding sources (by product, investor and region) and attempt to ensure that the tenor of our liabilities equals or exceeds the expected holding period of the assets being financed. Our goal is to achieve an optimal mix of durable secured and unsecured financing.
We fund our balance sheet on a global basis through diverse sources. These sources include our equity capital, borrowings, securities sold under agreements to repurchase, securities lending, deposits, letters of credit and lines of credit. We have active financing programs for both standard and structured products targeting global investors and currencies.
Secured Financing
For a discussion of our secured financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Funding Management—Secured Financing” in the 2021 Form 10-K.
| March 2022 Form 10-Q | 15 | |||||||
| Management’s Discussion and Analysis | | ||||
Collateralized Financing Transactions
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Securities purchased under agreements to resell and Securities borrowed | $ | 278,762 | $ | 249,712 | ||||
| Securities sold under agreements to repurchase and Securities loaned | $ | 74,290 | $ | 74,487 | ||||
Securities received as collateral1 | $ | 7,844 | $ | 10,504 | ||||
| Average Daily Balance Three Months Ended | ||||||||
| $ in millions | March 31, 2022 | December 31, 2021 | ||||||
| Securities purchased under agreements to resell and Securities borrowed | $ | 259,971 | $ | 236,327 | ||||
| Securities sold under agreements to repurchase and Securities loaned | $ | 72,387 | $ | 69,565 | ||||
1.Included within Trading assets in the balance sheet.
See “Total Assets by Business Segment” herein for additional information on the assets shown in the previous table and Note 2 to the financial statements in the 2021 Form 10-K and Note 8 to the financial statements for additional information on collateralized financing transactions.
In addition to the collateralized financing transactions shown in the previous table, we engage in financing transactions collateralized by customer-owned securities, which are segregated in accordance with regulatory requirements. Receivables under these financing transactions, primarily margin loans, are included in Customer and other receivables in the balance sheet, and payables under these financing transactions, primarily to prime brokerage customers, are included in Customer and other payables in the balance sheet. Our risk exposure on these transactions is mitigated by collateral maintenance policies and the elements of our Liquidity Risk Management Framework.
Unsecured Financing
For a discussion of our unsecured financing activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Funding Management—Unsecured Financing” in the 2021 Form 10-K.
Deposits
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Savings and demand deposits: | ||||||||
Brokerage sweep deposits1 | $ | 316,044 | $ | 298,352 | ||||
| Savings and other | 32,607 | 34,395 | ||||||
Total Savings and demand deposits | 348,651 | 332,747 | ||||||
Time deposits | 12,189 | 14,827 | ||||||
Total2 | $ | 360,840 | $ | 347,574 | ||||
1.Amounts represent balances swept from client brokerage accounts.
2.Excludes approximately $8 billion and $9 billion of off-balance sheet deposits at unaffiliated financial institutions as of March 31, 2022 and December 31, 2021, respectively. This client cash held by third parties is not reflected in our balance sheet and is not immediately available for liquidity purposes.
Deposits are primarily sourced from our Wealth Management clients and are considered to have stable, low-cost funding
characteristics. Total deposits were relatively unchanged in the current quarter.
Borrowings by Remaining Maturity at March 31, 20221
| $ in millions | Parent Company | Subsidiaries | Total | ||||||||
| Original maturities of one year or less | $ | — | $ | 4,146 | $ | 4,146 | |||||
| Original maturities greater than one year | |||||||||||
| 2022 | $ | 7,034 | $ | 5,273 | $ | 12,307 | |||||
| 2023 | 13,710 | 7,555 | 21,265 | ||||||||
| 2024 | 20,066 | 8,779 | 28,845 | ||||||||
| 2025 | 19,821 | 7,121 | 26,942 | ||||||||
| 2026 | 19,652 | 5,537 | 25,189 | ||||||||
| Thereafter | 85,382 | 25,741 | 111,123 | ||||||||
| Total | $ | 165,665 | $ | 60,006 | $ | 225,671 | |||||
| Total Borrowings | $ | 165,665 | $ | 64,152 | $ | 229,817 | |||||
Maturities over next 12 months2 | $ | 21,328 | |||||||||
1.Original maturity in the table is generally based on contractual final maturity. For borrowings with put options, remaining maturity represents the earliest put date.
2.Includes only borrowings with original maturities greater than one year.
Borrowings of $230 billion as of March 31, 2022 were relatively unchanged when compared with $233 billion at December 31, 2021.
We believe that accessing debt investors through multiple distribution channels helps provide consistent access to the unsecured markets. In addition, the issuance of borrowings with original maturities greater than one year allows us to reduce reliance on short-term credit sensitive instruments. Borrowings with original maturities greater than one year are generally managed to achieve staggered maturities, thereby mitigating refinancing risk, and to maximize investor diversification through sales to global institutional and retail clients across regions, currencies and product types.
The availability and cost of financing to us can vary depending on market conditions, the volume of certain trading and lending activities, our credit ratings and the overall availability of credit. We also engage in, and may continue to engage in, repurchases of our borrowings as part of our market-making activities.
For further information on Borrowings, see Note 12 to the financial statements.
Credit Ratings
We rely on external sources to finance a significant portion of our daily operations. Our credit ratings are one of the factors in the cost and availability of financing and can have an impact on certain trading revenues, particularly in those businesses where longer-term counterparty performance is a key consideration, such as certain OTC derivative transactions. When determining credit ratings, rating agencies consider both company-specific and industry-wide factors. See also “Risk Factors—Liquidity Risk” in the 2021 Form 10-K.
16 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
Parent Company and U.S. Bank Subsidiaries Issuer Ratings at April 29, 2022
| Parent Company | |||||||||||
| Short-Term Debt | Long-Term Debt | Rating Outlook | |||||||||
| DBRS, Inc. | R-1 (middle) | A (high) | Stable | ||||||||
| Fitch Ratings, Inc. | F1 | A | Positive | ||||||||
| Moody’s Investors Service, Inc. | P-1 | A1 | Stable | ||||||||
| Rating and Investment Information, Inc. | a-1 | A | Stable | ||||||||
| S&P Global Ratings | A-2 | BBB+ | Positive | ||||||||
| MSBNA | |||||||||||
| Short-Term Debt | Long-Term Debt | Rating Outlook | |||||||||
| Fitch Ratings, Inc. | F1 | A+ | Positive | ||||||||
| Moody’s Investors Service, Inc. | P-1 | Aa3 | Stable | ||||||||
| S&P Global Ratings | A-1 | A+ | Stable | ||||||||
| MSPBNA | |||||||||||
| Short-Term Debt | Long-Term Debt | Rating Outlook | |||||||||
| Moody’s Investors Service, Inc. | P-1 | Aa3 | Stable | ||||||||
| S&P Global Ratings | A-1 | A+ | Stable | ||||||||
Incremental Collateral or Terminating Payments
In connection with certain OTC derivatives and certain other agreements where we are a liquidity provider to certain financing vehicles associated with the Institutional Securities business segment, we may be required to provide additional collateral, immediately settle any outstanding liability balances with certain counterparties or pledge additional collateral to certain clearing organizations in the event of a future credit rating downgrade irrespective of whether we are in a net asset or net liability position. See Note 6 to the financial statements for additional information on OTC derivatives that contain such contingent features.
While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact it would have on our business and results of operations in future periods is inherently uncertain and would depend on a number of interrelated factors, including, among other things, the magnitude of the downgrade, the rating relative to peers, the rating assigned by the relevant agency pre-downgrade, individual client behavior and future mitigating actions we might take. The liquidity impact of additional collateral requirements is included in our Liquidity Stress Tests.
Capital Management
We view capital as an important source of financial strength and actively manage our consolidated capital position based upon, among other things, business opportunities, risks, capital availability and rates of return together with internal capital policies, regulatory requirements and rating agency guidelines. In the future, we may expand or contract our capital base to address the changing needs of our businesses.
Common Stock Repurchases
| Three Months Ended March 31, | ||||||||
in millions, except for per share data | 2022 | 2021 | ||||||
| Number of shares | 30 | 28 | ||||||
| Average price per share | $ | 95.20 | $ | 77.47 | ||||
| Total | $ | 2,872 | $ | 2,135 | ||||
For additional information on our common stock repurchases, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Capital Buffer” herein and Note 16 to the financial statements.
For a description of our capital plan, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Capital Buffer” herein.
Common Stock Dividend Announcement
| Announcement date | April 14, 2022 | ||||
| Amount per share | $0.70 | ||||
| Date to be paid | May 13, 2022 | ||||
| Shareholders of record as of | April 29, 2022 | ||||
For additional information on our common stock dividends, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Capital Buffer” herein.
For additional information on our common stock and information on our preferred stock, see Note 16 to the financial statements.
Off-Balance Sheet Arrangements
We enter into various off-balance sheet arrangements, including through unconsolidated SPEs and lending-related financial instruments (e.g., guarantees and commitments), primarily in connection with the Institutional Securities and Investment Management business segments.
We utilize SPEs primarily in connection with securitization activities. For information on our securitization activities, see Note 16 to the financial statements in the 2021 Form 10-K.
For information on our commitments, obligations under certain guarantee arrangements and indemnities, see Note 13 to the financial statements. For a further discussion of our lending commitments, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk—Loans and Lending Commitments” herein.
Regulatory Requirements
Regulatory Capital Framework
We are an FHC under the Bank Holding Company Act of 1956, as amended (“BHC Act”) and are subject to the regulation and oversight of the Federal Reserve. The Federal Reserve establishes capital requirements for us, including “well-capitalized” standards, and evaluates our compliance
| March 2022 Form 10-Q | 17 | |||||||
| Management’s Discussion and Analysis | | ||||
with such capital requirements. The OCC establishes similar capital requirements and standards for our U.S. Bank Subsidiaries. The regulatory capital requirements are largely based on the Basel III capital standards established by the Basel Committee and also implement certain provisions of the Dodd-Frank Act. For us to remain an FHC, we must remain well-capitalized in accordance with standards established by the Federal Reserve, and our U.S. Bank Subsidiaries must remain well-capitalized in accordance with standards established by the OCC. In addition, many of our regulated subsidiaries are subject to regulatory capital requirements, including regulated subsidiaries provisionally registered as swap dealers with the CFTC or conditionally registered as security-based swap dealers with the SEC or registered as broker-dealers or futures commission merchants. For additional information on regulatory capital requirements for our U.S. Bank Subsidiaries, as well as our subsidiaries that are Swap Entities, see Note 15 to the financial statements.
Regulatory Capital Requirements
We are required to maintain minimum risk-based and leverage-based capital and TLAC ratios. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Capital Requirements” in the 2021 Form 10-K. For additional information on TLAC, see “Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements” herein.
Risk-Based Regulatory Capital. Risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital (which includes Tier 2 capital), each as a percentage of RWA, and consist of regulatory minimum required ratios plus our capital buffer requirement. Capital requirements require certain adjustments to, and deductions from, capital for purposes of determining these ratios.
Risk-Based Regulatory Capital Ratio Requirements
At March 31, 2022 and December 31, 2021 | |||||||||||
| Standardized | Advanced | ||||||||||
| Capital buffers | |||||||||||
| Capital conservation buffer | — | 2.5% | |||||||||
SCB1 | 5.7% | N/A | |||||||||
G-SIB capital surcharge2 | 3.0% | 3.0% | |||||||||
CCyB3 | 0% | 0% | |||||||||
| Capital buffer requirement | 8.7% | 5.5% | |||||||||
1.For additional information on the SCB, see “Capital Plans, Stress Tests and the Stress Capital Buffer” herein and in the 2021 Form 10-K.
2.For a further discussion of the G-SIB capital surcharge, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—G-SIB Capital Surcharge” in the 2021 Form 10-K.
3.The CCyB can be set up to 2.5%, but is currently set by the Federal Reserve at zero.
The capital buffer requirement represents the amount of Common Equity Tier 1 capital we must maintain above the minimum risk-based capital requirements in order to avoid restrictions on our ability to make capital distributions, including the payment of dividends and the repurchase of
stock, and to pay discretionary bonuses to executive officers. Our Standardized Approach capital buffer requirement is equal to the sum of our SCB, G-SIB capital surcharge and CCyB, and our Advanced Approach capital buffer requirement is equal to our 2.5% capital conservation buffer, G-SIB capital surcharge and CCyB.
| Regulatory Minimum | At March 31, 2022 and December 31, 2021 | ||||||||||
| Standardized | Advanced | ||||||||||
Required ratios1 | |||||||||||
| Common Equity Tier 1 capital ratio | 4.5 | % | 13.2% | 10.0% | |||||||
| Tier 1 capital ratio | 6.0 | % | 14.7% | 11.5% | |||||||
| Total capital ratio | 8.0 | % | 16.7% | 13.5% | |||||||
1.Required ratios represent the regulatory minimum plus the capital buffer requirement.
Our risk-based capital ratios are computed under each of (i) the standardized approaches for calculating credit risk and market risk RWA (“Standardized Approach”) and (ii) the applicable advanced approaches for calculating credit risk, market risk and operational risk RWA (“Advanced Approach”). The credit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWA using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At March 31, 2022 and December 31, 2021, the differences between the actual and required ratios were lower under the Standardized Approach.
Leverage-Based Regulatory Capital. Leverage-based capital requirements include a minimum Tier 1 leverage ratio of 4%, a minimum SLR of 3% and an enhanced SLR capital buffer of at least 2%.
CECL Deferral. As of December 31, 2021, our risk-based and leverage-based capital amounts and ratios, as well as RWA, adjusted average assets and supplementary leverage exposure were calculated excluding the effect of the adoption of CECL based on our election to defer this effect over a five-year transition period that began on January 1, 2020. In 2022 the deferral impacts began to phase in at 25% per year and will become fully phased-in beginning in 2025.
Regulatory Capital Ratios
| $ in millions | Required Ratio1 | At March 31, 2022 | At December 31, 2021 | |||||||||||
| Risk-based capital— Standardized | ||||||||||||||
| Common Equity Tier 1 capital | $ | 72,477 | $ | 75,742 | ||||||||||
| Tier 1 capital | 80,121 | 83,348 | ||||||||||||
| Total capital | 89,468 | 93,166 | ||||||||||||
| Total RWA | 501,429 | 471,921 | ||||||||||||
| Common Equity Tier 1 capital ratio | 13.2 | % | 14.5 | % | 16.0 | % | ||||||||
| Tier 1 capital ratio | 14.7 | % | 16.0 | % | 17.7 | % | ||||||||
| Total capital ratio | 16.7 | % | 17.8 | % | 19.7 | % | ||||||||
18 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
| $ in millions | Required Ratio1 | At March 31, 2022 | At December 31, 2021 | |||||||||||
| Risk-based capital— Advanced | ||||||||||||||
| Common Equity Tier 1 capital | $ | 72,477 | $ | 75,742 | ||||||||||
| Tier 1 capital | 80,121 | 83,348 | ||||||||||||
| Total capital | 89,129 | 92,927 | ||||||||||||
| Total RWA | 456,524 | 435,749 | ||||||||||||
| Common Equity Tier 1 capital ratio | 10.0 | % | 15.9 | % | 17.4 | % | ||||||||
| Tier 1 capital ratio | 11.5 | % | 17.6 | % | 19.1 | % | ||||||||
| Total capital ratio | 13.5 | % | 19.5 | % | 21.3 | % | ||||||||
| $ in millions | Required Ratio1 | At March 31, 2022 | At December 31, 2021 | |||||||||||
| Leverage-based capital | ||||||||||||||
Adjusted average assets2 | $ | 1,184,494 | $ | 1,169,939 | ||||||||||
| Tier 1 leverage ratio | 4.0 | % | 6.8 | % | 7.1 | % | ||||||||
Supplementary leverage exposure3 | $ | 1,466,624 | $ | 1,476,962 | ||||||||||
| SLR | 5.0 | % | 5.5 | % | 5.6 | % | ||||||||
1.Required ratios are inclusive of any buffers applicable as of the date presented.
2.Adjusted average assets represents the denominator of the Tier 1 leverage ratio and is composed of the average daily balance of consolidated on-balance sheet assets for the quarters ending on the respective balance sheet dates, reduced by disallowed goodwill, intangible assets, investments in covered funds, defined benefit pension plan assets, after-tax gain on sale from assets sold into securitizations, investments in our own capital instruments, certain deferred tax assets and other capital deductions.
3.Supplementary leverage exposure is the sum of Adjusted average assets used in the Tier 1 leverage ratio and other adjustments, primarily: (i) for derivatives, potential future exposure and the effective notional principal amount of sold credit protection offset by qualifying purchased credit protection; (ii) the counterparty credit risk for repo-style transactions; and (iii) the credit equivalent amount for off-balance sheet exposures.
Regulatory Capital
$ in millions | At March 31, 2022 | At December 31, 2021 | Change | ||||||||
| Common Equity Tier 1 capital | |||||||||||
| Common stock and surplus | $ | 8,331 | $ | 11,361 | $ | (3,030) | |||||
| Retained earnings | 91,907 | 89,679 | 2,228 | ||||||||
| AOCI | (4,902) | (3,102) | (1,800) | ||||||||
| Regulatory adjustments and deductions: | |||||||||||
| Net goodwill | (16,610) | (16,641) | 31 | ||||||||
| Net intangible assets | (6,610) | (6,704) | 94 | ||||||||
Other adjustments and deductions1 | 361 | 1,149 | (788) | ||||||||
| Total Common Equity Tier 1 capital | $ | 72,477 | $ | 75,742 | $ | (3,265) | |||||
| Additional Tier 1 capital | |||||||||||
| Preferred stock | $ | 7,750 | $ | 7,750 | $ | — | |||||
| Noncontrolling interests | 572 | 562 | 10 | ||||||||
| Additional Tier 1 capital | $ | 8,322 | $ | 8,312 | $ | 10 | |||||
| Deduction for investments in covered funds | (678) | (706) | 28 | ||||||||
| Total Tier 1 capital | $ | 80,121 | $ | 83,348 | $ | (3,227) | |||||
| Standardized Tier 2 capital | |||||||||||
| Subordinated debt | $ | 8,119 | $ | 8,609 | $ | (490) | |||||
| Eligible ACL | 1,329 | 1,155 | 174 | ||||||||
| Other adjustments and deductions | (101) | 54 | (155) | ||||||||
| Total Standardized Tier 2 capital | $ | 9,347 | $ | 9,818 | $ | (471) | |||||
| Total Standardized capital | $ | 89,468 | $ | 93,166 | $ | (3,698) | |||||
| Advanced Tier 2 capital | |||||||||||
| Subordinated debt | $ | 8,119 | $ | 8,609 | $ | (490) | |||||
| Eligible credit reserves | 990 | 916 | 74 | ||||||||
| Other adjustments and deductions | (101) | 54 | (155) | ||||||||
| Total Advanced Tier 2 capital | $ | 9,008 | $ | 9,579 | $ | (571) | |||||
| Total Advanced capital | $ | 89,129 | $ | 92,927 | $ | (3,798) | |||||
1.Other adjustments and deductions used in the calculation of Common Equity Tier 1 capital primarily includes net after-tax DVA, the credit spread premium over risk-free rate for derivative liabilities, defined benefit pension plan assets, after-tax gain on sale from assets sold into securitizations, investments in our own capital instruments and certain deferred tax assets.
| March 2022 Form 10-Q | 19 | |||||||
| Management’s Discussion and Analysis | | ||||
RWA Rollforward
| Three Months Ended March 31, 2022 | ||||||||
$ in millions | Standardized | Advanced | ||||||
Credit risk RWA | ||||||||
| Balance at December 31, 2021 | $ | 416,502 | $ | 285,247 | ||||
Change related to the following items: | ||||||||
Derivatives | 13,678 | 12,933 | ||||||
Securities financing transactions | 8,826 | 2,692 | ||||||
Investment securities | (1,586) | (4,303) | ||||||
Commitments, guarantees and loans | 6,926 | 116 | ||||||
Equity investments | (2,465) | (2,568) | ||||||
| Other credit risk | 3,945 | 4,863 | ||||||
Total change in credit risk RWA | $ | 29,324 | $ | 13,733 | ||||
| Balance at March 31, 2022 | $ | 445,826 | $ | 298,980 | ||||
Market risk RWA | ||||||||
| Balance at December 31, 2021 | $ | 55,419 | $ | 55,419 | ||||
Change related to the following items: | ||||||||
Regulatory VaR | 277 | 277 | ||||||
Regulatory stressed VaR | 2,564 | 2,564 | ||||||
Incremental risk charge | (230) | (230) | ||||||
Comprehensive risk measure | (395) | (527) | ||||||
| Specific risk | (2,032) | (2,032) | ||||||
Total change in market risk RWA | $ | 184 | $ | 52 | ||||
| Balance at March 31, 2022 | $ | 55,603 | $ | 55,471 | ||||
Operational risk RWA | ||||||||
| Balance at December 31, 2021 | N/A | $ | 95,083 | |||||
Change in operational risk RWA | N/A | 6,990 | ||||||
| Balance at March 31, 2022 | N/A | $ | 102,073 | |||||
Total RWA | $ | 501,429 | $ | 456,524 | ||||
Regulatory VaR—VaR for regulatory capital requirements
Credit risk RWA increased in the current quarter under both the Standardized and Advanced Approaches due to larger foreign exchange and commodities Derivatives exposure and increased client activity in Securities financing transactions, partially offset by decreases in Investment securities and Equity investments. RWA under the Standardized Approach also increased due to lending growth.
Market risk RWA was relatively unchanged in the current quarter under both the Standardized and Advanced Approaches.
The increase in Operational risk RWA in the current quarter reflects growth in litigation and execution-related losses.
Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements
The Federal Reserve has established external TLAC, long-term debt (“LTD”) and clean holding company requirements for top-tier BHCs of U.S. G-SIBs (“covered BHCs”), including the Parent Company. These requirements are designed to ensure that covered BHCs will have enough loss-absorbing resources at the point of failure to be recapitalized through the conversion of eligible LTD to equity or otherwise by imposing losses on eligible LTD or other forms of TLAC where an SPOE resolution strategy is used.
Required and Actual TLAC and Eligible LTD Ratios
Actual Amount/Ratio | ||||||||||||||
$ in millions | Regulatory Minimum | Required Ratio1 | At March 31, 2022 | At December 31, 2021 | ||||||||||
External TLAC2 | $ | 230,546 | $ | 235,681 | ||||||||||
| External TLAC as a % of RWA | 18.0 | % | 21.5 | % | 46.0 | % | 49.9 | % | ||||||
| External TLAC as a % of leverage exposure | 7.5 | % | 9.5 | % | 15.7 | % | 16.0 | % | ||||||
Eligible LTD3 | $ | 144,959 | $ | 144,659 | ||||||||||
| Eligible LTD as a % of RWA | 9.0 | % | 9.0 | % | 28.9 | % | 30.7 | % | ||||||
| Eligible LTD as a % of leverage exposure | 4.5 | % | 4.5 | % | 9.9 | % | 9.8 | % | ||||||
1.Required ratios are inclusive of applicable buffers.
2.External TLAC consists of Common Equity Tier 1 capital and Additional Tier 1 capital (each excluding any noncontrolling minority interests), as well as eligible LTD.
3.Consists of TLAC-eligible LTD reduced by 50% for amounts of unpaid principal due to be paid in more than one year but less than two years from each respective balance sheet date.
We are in compliance with all TLAC requirements as of March 31, 2022 and December 31, 2021.
For a further discussion of TLAC and related requirements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements” in the 2021 Form 10-K.
Capital Plans, Stress Tests and the Stress Capital Buffer
The Federal Reserve has capital planning and stress test requirements for large BHCs, which form part of the Federal Reserve’s annual CCAR framework.
We must submit, on at least an annual basis, a capital plan to the Federal Reserve, taking into account the results of separate annual stress tests designed by us and the Federal Reserve, so that the Federal Reserve may assess our systems and processes that incorporate forward-looking projections of revenues and losses to monitor and maintain our internal capital adequacy. As banks with less than $250 billion of total assets, our U.S. Bank Subsidiaries are not subject to company-run stress test regulatory requirements.
As part of its annual capital supervisory stress testing process, the Federal Reserve determines an SCB for each large BHC, including us.
Our SCB will remain at 5.7% through September 30, 2022. Together with other features of the regulatory capital framework, this SCB results in an aggregate Standardized Approach Common Equity Tier 1 required ratio of 13.2%.
Our Board of Directors authorized the repurchase of up to $12 billion of outstanding common stock from July 1, 2021 through June 30, 2022, from time to time as conditions warrant.
20 | March 2022 Form 10-Q | |||||||
| Management’s Discussion and Analysis | | ||||
For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Capital Buffer” in the 2021 Form 10-K.
For the 2022 capital planning and stress test cycle, we submitted our capital plan and company-run stress test results to the Federal Reserve on April 5, 2022. The Federal Reserve is expected to publish summary results of the CCAR and Dodd-Frank Act supervisory stress tests of each large BHC, including us, by June 30, 2022. We are required to disclose a summary of the results of our company-run stress tests within 15 days of the date the Federal Reserve discloses the results of the supervisory stress tests.
Attribution of Average Common Equity According to the Required Capital Framework
Our required capital (“Required Capital”) estimation is based on the Required Capital framework, an internal capital adequacy measure. Common equity attribution to the business segments is based on capital usage calculated under the Required Capital framework, as well as each business segment’s relative contribution to our total Required Capital.
The Required Capital framework is a risk-based and leverage-based capital measure, which is compared with our regulatory capital to ensure that we maintain an amount of going concern capital after absorbing potential losses from stress events, where applicable, at a point in time. The amount of capital allocated to the business segments is generally set at the beginning of each year and remains fixed throughout the year until the next annual reset unless a significant business change occurs (e.g., acquisition or disposition). We define the difference between our total average common equity and the sum of the average common equity amounts allocated to our business segments as Parent common equity. We generally hold Parent common equity for prospective regulatory requirements, organic growth, potential future acquisitions and other capital needs.
Average Common Equity Attribution under the Required Capital Framework1
| Three Months Ended March 31, | ||||||||
$ in billions | 2022 | 2021 | ||||||
Institutional Securities | $ | 48.8 | $ | 43.5 | ||||
| Wealth Management | 31.0 | 28.5 | ||||||
Investment Management2 | 10.6 | 4.4 | ||||||
Parent | 6.3 | 17.9 | ||||||
Total | $ | 96.7 | $ | 94.3 | ||||
1.The attribution of average common equity to the business segments is a non-GAAP financial measure. See “Selected Non-GAAP Financial Information” herein.
2. The total average common equity and the allocation to the Investment Management business segment in 2021 reflect the Eaton Vance acquisition on March 1, 2021.
We continue to evaluate our Required Capital framework with respect to the impact of evolving regulatory requirements, as appropriate.
Resolution and Recovery Planning
We are required to submit once every two years to the Federal Reserve and the FDIC a resolution plan that describes our strategy for a rapid and orderly resolution under the U.S. Bankruptcy Code in the event of our material financial distress or failure. We submitted our 2021 targeted resolution plan on June 30, 2021.
As described in our most recent resolution plan, our preferred resolution strategy is an SPOE strategy. In line with our SPOE strategy, the Parent Company has transferred, and has agreed to transfer on an ongoing basis, certain assets to its wholly owned, direct subsidiary Morgan Stanley Holdings LLC (the “Funding IHC”). In addition, the Parent Company has entered into an amended and restated support agreement with its material entities (including the Funding IHC) and certain other subsidiaries. In the event of a resolution scenario, the Parent Company would be obligated to contribute all of its Contributable Assets to our material entities and/or the Funding IHC. The Funding IHC would be obligated to provide capital and liquidity, as applicable, to our material entities. The combined implication of the SPOE resolution strategy and the requirement to maintain certain levels of TLAC is that losses in resolution would be imposed on the holders of eligible long-term debt and other forms of eligible TLAC issued by the Parent Company before any losses are imposed on creditors of our material entities and without requiring taxpayer or government financial support.
For more information about resolution and recovery planning requirements and our activities in these areas, including the implications of such activities in a resolution scenario, see “Business—Supervision and Regulation—Financial Holding Company—Resolution and Recovery Planning,” “Risk Factors—Legal, Regulatory and Compliance Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Resolution and Recovery Planning” in the 2021 Form 10-K.
Regulatory Developments and Other Matters
Replacement of London Interbank Offered Rate and Replacement or Reform of Other Interest Rate Benchmarks
Central banks around the world, including the Federal Reserve, have commissioned committees and working groups of market participants and official sector representatives to replace LIBOR and replace or reform other interest rate benchmarks (collectively, the “IBORs”). A transition away from use of the IBORs to alternative rates and other potential interest rate benchmark reforms is underway and will continue over the course of the next few years.
The publication of most non-U.S. dollar LIBOR rates ceased as of the end of December 2021. The publication of certain non-U.S. dollar LIBOR rates on the basis of a “synthetic” methodology (known as “synthetic LIBOR”) will continue at
| March 2022 Form 10-Q | 21 | |||||||
| Management’s Discussion and Analysis | | ||||
least until the end of 2022 and certain U.S. dollar LIBOR tenors are expected to continue to be published until June 30, 2023. On March 15, 2022 the U.S. enacted federal legislation that is intended to minimize legal and economic uncertainty following U.S. dollar LIBOR’s cessation by replacing LIBOR references in certain contracts under certain circumstances with a SOFR-based rate to be established in a Federal Reserve rule that incorporates a spread adjustment specified in the statute. While some states have already adopted LIBOR legislation, the federal legislation expressly preempts any provision of any state or local law, statute, rule, regulation or standard.
As of March 31, 2022, our LIBOR-referenced contracts were primarily concentrated in derivative contracts and to a lesser extent, loans, floating rate notes, preferred shares, securitizations and mortgages. A significant majority of our derivative contracts, and a majority of our non-derivative contracts contain fallback provisions or otherwise have an expected path that will allow for the transition to an alternative reference rate upon the cessation of the applicable LIBOR rate.
While we have made substantial progress in the transition away from the IBORs, we nonetheless currently remain party to a significant number of U.S. dollar LIBOR-linked contracts. For those U.S. dollar LIBOR-linked contracts without appropriate fallbacks, and for which the federal legislation is not expected to apply, we are actively developing appropriate transition plans in light of the planned June 30, 2023 cessation date for the remaining U.S. dollar LIBOR tenors.
Our IBOR transition plan is overseen by a global steering committee, with senior management oversight, and we continue to execute against our Firm-wide IBOR transition plan to complete the transition to alternative reference rates.
See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments and Other Matters” and “Risk Factors—Risk Management” in the 2021 Form 10-K for a further discussion of the replacement of the IBORs and/or reform of other interest rate benchmarks and related risks.
22 | March 2022 Form 10-Q | |||||||
Quantitative and Qualitative Disclosures about Risk
Management believes effective risk management is vital to the success of our business activities. For a discussion of our Enterprise Risk Management framework and risk management functions, see “Quantitative and Qualitative Disclosures about Risk—Risk Management” in the 2021 Form 10-K.
Market Risk
Market risk refers to the risk that a change in the level of one or more market prices, rates, spreads, indices, volatilities, correlations or other market factors, such as market liquidity, will result in losses for a position or portfolio. Generally, we incur market risk as a result of trading, investing and client facilitation activities, principally within the Institutional Securities business segment where the substantial majority of our VaR for market risk exposures is generated. In addition, we incur non-trading market risk, principally within the Wealth Management and Investment Management business segments. The Wealth Management business segment primarily incurs non-trading market risk (including interest rate risk) from lending and deposit-taking activities. The Investment Management business segment primarily incurs non-trading market risk from capital investments in its funds. For a further discussion of market risk, see “Quantitative and Qualitative Disclosures about Risk—Market Risk” in the 2021 Form 10-K.
Trading Risks
We have exposures to a wide range of risks related to interest rates and credit spreads, equity prices, foreign exchange rates and commodity prices as well as the associated implied volatilities and spreads of the global markets in which we conduct our trading activities.
The statistical technique known as VaR is one of the tools we use to measure, monitor and review the market risk exposures of our trading portfolios.
For information regarding our primary risk exposures and market risk management, VaR methodology, assumptions and limitations, see “Quantitative and Qualitative Disclosures about Risk—Market Risk—Trading Risks” in the 2021 Form 10-K.
95%/One-Day Management VaR for the Trading Portfolio
| Three Months Ended | ||||||||||||||
| March 31, 2022 | ||||||||||||||
$ in millions | Period End | Average | High1 | Low1 | ||||||||||
Interest rate and credit spread | $ | 30 | $ | 25 | $ | 33 | $ | 21 | ||||||
Equity price | 28 | 25 | 41 | 17 | ||||||||||
Foreign exchange rate | 16 | 8 | 19 | 3 | ||||||||||
Commodity price | 24 | 20 | 27 | 15 | ||||||||||
Less: Diversification benefit2 | (51) | (41) | N/A | N/A | ||||||||||
Primary Risk Categories | $ | 47 | $ | 37 | $ | 47 | $ | 31 | ||||||
Credit Portfolio | 15 | 13 | 15 | 12 | ||||||||||
Less: Diversification benefit2 | (15) | (11) | N/A | N/A | ||||||||||
Total Management VaR | $ | 47 | $ | 39 | $ | 48 | $ | 32 | ||||||
| Three Months Ended | ||||||||||||||
| December 31, 2021 | ||||||||||||||
$ in millions | Period End | Average | High1 | Low1 | ||||||||||
Interest rate and credit spread | $ | 21 | $ | 25 | $ | 32 | $ | 21 | ||||||
Equity price | 20 | 25 | 32 | 20 | ||||||||||
Foreign exchange rate | 6 | 6 | 9 | 4 | ||||||||||
Commodity price | 16 | 17 | 26 | 14 | ||||||||||
Less: Diversification benefit2 | (31) | (35) | N/A | N/A | ||||||||||
Primary Risk Categories | $ | 32 | $ | 38 | $ | 51 | $ | 32 | ||||||
Credit Portfolio | 12 | 12 | 13 | 12 | ||||||||||
Less: Diversification benefit2 | (12) | (10) | N/A | N/A | ||||||||||
Total Management VaR | $ | 32 | $ | 40 | $ | 54 | $ | 32 | ||||||
1.The high and low VaR values for the Total Management VaR and each of the component VaRs might have occurred on different days during the quarter, and, therefore, the diversification benefit is not an applicable measure.
2.Diversification benefit equals the difference between the total VaR and the sum of the component VaRs. This benefit arises because the simulated one-day losses for each of the components occur on different days; similar diversification benefits also are taken into account within each component.
Average Total Management VaR and average Management VaR for the Primary Risk Categories were relatively unchanged from the three months ended December 31, 2021. Period end Total Management VaR increased from December 31, 2021, primarily from the interest rate and credit spread, equity price and commodity price risk categories, which were driven by increased exposure in the Fixed Income and Equity businesses and by increased market volatility. These increases were partially offset by increased diversification benefit.
Distribution of VaR Statistics and Net Revenues
We evaluate the reasonableness of our VaR model by comparing the potential declines in portfolio values generated by the model with corresponding actual trading results for the Firm, as well as individual business units. For days where losses exceed the VaR statistic, we examine the drivers of trading losses to evaluate the VaR model’s accuracy. There were two loss days in the current quarter, which did not exceed 95% Total Management VaR.
| March 2022 Form 10-Q | 23 | |||||||
| Risk Disclosures | | ||||
Daily 95%/One-Day Total Management VaR for the Current Quarter
($ in millions)
Daily Net Trading Revenues for the Current Quarter
($ in millions)
The previous histogram shows the distribution of daily net trading revenues for the current quarter. Daily net trading revenues include 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 our trading businesses. Certain items such as fees, commissions, net interest income and counterparty default risk are excluded from daily net trading revenues and the VaR model. Revenues required for Regulatory VaR backtesting further exclude intraday trading.
Non-Trading Risks
We believe that sensitivity analysis is an appropriate representation of our non-trading risks. The following sensitivity analyses cover substantially all of the non-trading risk in our portfolio.
Credit Spread Risk Sensitivity1
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Derivatives | $ | 7 | $ | 7 | ||||
Borrowings carried at fair value | 44 | 48 | ||||||
1.Amounts represent the potential gain for each 1 bps widening of our credit spread.
U.S. Bank Subsidiaries' Net Interest Income Sensitivity Analysis
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Basis point change | ||||||||
| +100 | $ | 162 | $ | 1,267 | ||||
| -100 | (622) | (893) | ||||||
The previous table presents an analysis of selected instantaneous upward and downward parallel interest rate shocks (subject to a floor of zero percent in the downward scenario) on net interest income over the next 12 months for our U.S. Bank Subsidiaries. These shocks are applied to our 12-month forecast for our U.S. Bank Subsidiaries, which incorporates market expectations of interest rates and our forecasted business activity.
We do not manage to any single rate scenario but rather manage net interest income in our U.S. Bank Subsidiaries to optimize across a range of possible outcomes, including non-parallel rate change scenarios. The sensitivity analysis assumes that we take no action in response to these scenarios, assumes there are no changes in other macroeconomic variables normally correlated with changes in interest rates, and includes subjective assumptions regarding customer and market re-pricing behavior and other factors. The change in sensitivity to interest rates between March 31, 2022 and December 31, 2021 was primarily driven by the significant changes in market rates and effects of changes in the mix of our assets and liabilities.
Investments Sensitivity, Including Related Carried Interest
Loss from 10% Decline | ||||||||
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Investments related to Investment Management activities | $ | 415 | $ | 407 | ||||
Other investments: | ||||||||
MUMSS | 158 | 167 | ||||||
Other Firm investments | 344 | 331 | ||||||
We have exposure to public and private companies through direct investments, as well as through funds that invest in these assets. These investments are predominantly equity positions with long investment horizons, a portion of which is for business facilitation purposes. The market risk related to these investments is measured by estimating the potential reduction in net revenues associated with a reasonably possible 10% decline in investment values and related impact on performance-based income, as applicable.
24 | March 2022 Form 10-Q | |||||||
| Risk Disclosures | | ||||
Asset Management Revenue Sensitivity
Certain asset management revenues in the Wealth Management and Investment Management business segments are derived from management fees, which are based on fee-based client assets in Wealth Management or AUM in Investment Management (together, “client holdings”). The assets underlying client holdings are primarily composed of equity, fixed income and alternative investments and are sensitive to changes in related markets. The overall level of these revenues depends on multiple factors that include, but are not limited to, the level and duration of a market increase or decline, price volatility, the geographic and industry mix of client assets, and client behavior such as the rate and magnitude of client investments and redemptions. Therefore, overall revenues do not correlate completely with changes in the related 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 us. We are primarily exposed to credit risk from institutions and individuals through our Institutional Securities and Wealth Management business segments. For a further discussion of our credit risks, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk” in the 2021 Form 10-K.
Loans and Lending Commitments
| At March 31, 2022 | ||||||||||||||
| $ in millions | HFI | HFS | FVO | Total | ||||||||||
| Institutional Securities: | ||||||||||||||
Corporate | $ | 6,105 | $ | 7,069 | $ | 8 | $ | 13,182 | ||||||
Secured lending facilities | 29,896 | 4,661 | — | 34,557 | ||||||||||
Commercial and Residential real estate | 8,276 | 1,986 | 4,492 | 14,754 | ||||||||||
Securities-based lending and Other | 1,972 | 131 | 7,633 | 9,736 | ||||||||||
| Total Institutional Securities | 46,249 | 13,847 | 12,133 | 72,229 | ||||||||||
| Wealth Management: | ||||||||||||||
Residential real estate | 47,236 | 6 | — | 47,242 | ||||||||||
Securities-based lending and Other | 89,436 | 160 | — | 89,596 | ||||||||||
| Total Wealth Management | 136,672 | 166 | — | 136,838 | ||||||||||
Total Investment Management1 | 5 | — | 357 | 362 | ||||||||||
Total loans2 | 182,926 | 14,013 | 12,490 | 209,429 | ||||||||||
| ACL | (679) | (679) | ||||||||||||
| Total loans, net of ACL | $ | 182,247 | $ | 14,013 | $ | 12,490 | $ | 208,750 | ||||||
Lending commitments3 | $ | 142,492 | ||||||||||||
| Total exposure | $ | 351,242 | ||||||||||||
| At December 31, 2021 | ||||||||||||||
| $ in millions | HFI | HFS | FVO | Total | ||||||||||
| Institutional Securities: | ||||||||||||||
Corporate | $ | 5,567 | $ | 8,107 | $ | 8 | $ | 13,682 | ||||||
Secured lending facilities | 31,471 | 3,879 | — | 35,350 | ||||||||||
Commercial and Residential real estate | 7,227 | 1,777 | 4,774 | 13,778 | ||||||||||
Securities-based lending and Other | 1,292 | 45 | 7,710 | 9,047 | ||||||||||
| Total Institutional Securities | 45,557 | 13,808 | 12,492 | 71,857 | ||||||||||
| Wealth Management: | ||||||||||||||
Residential real estate | 44,251 | 7 | — | 44,258 | ||||||||||
Securities-based lending and Other | 85,143 | 17 | — | 85,160 | ||||||||||
| Total Wealth Management | 129,394 | 24 | — | 129,418 | ||||||||||
Total Investment Management1 | 5 | — | 135 | 140 | ||||||||||
Total loans2 | 174,956 | 13,832 | 12,627 | 201,415 | ||||||||||
| ACL | (654) | (654) | ||||||||||||
| Total loans, net of ACL | $ | 174,302 | $ | 13,832 | $ | 12,627 | $ | 200,761 | ||||||
Lending commitments3 | $ | 134,934 | ||||||||||||
| Total exposure | $ | 335,695 | ||||||||||||
Total exposure—consists of Total loans, net of ACL, and Lending commitments
1.Investment Management business segment loans are related to certain of our activities as an investment advisor and manager. Loans held at fair value are the result of the consolidation of investment vehicles (including CLOs) managed by Investment Management, composed primarily of senior secured loans to corporations.
2.FVO also includes the fair value of certain unfunded lending commitments.
3.Lending commitments represent the notional amount of legally binding obligations to provide funding to clients for lending transactions. Since commitments associated with these business activities may expire unused or may not be utilized to full capacity, they do not necessarily reflect the actual future cash funding requirements.
We provide loans and lending commitments to a variety of customers, including large corporate and institutional clients, as well as high to ultra-high net worth individuals. In addition, we purchase loans in the secondary market. Loans and lending commitments are either held for investment, held for sale or carried at fair value. For more information on these loan classifications, see Note 2 to the financial statements in the 2021 Form 10-K.
Total loans and lending commitments increased by approximately $16 billion since December 31, 2021, primarily due to growth in Secured lending facilities and Corporate lending commitments within the Institutional Securities business segment, as well as increases in Securities-based and Residential real estate loans within the Wealth Management business segment.
See Notes 4, 5, 9 and 13 to the financial statements for further information.
| March 2022 Form 10-Q | 25 | |||||||
| Risk Disclosures | | ||||
Allowance for Credit Losses—Loans and Lending Commitments
$ in millions | |||||
| ACL—Loans | $ | 654 | |||
| ACL—Lending Commitments | 444 | ||||
| Total at December 31, 2021 | 1,098 | ||||
| Gross charge-offs | (11) | ||||
| Provision for credit losses | 57 | ||||
| Other | (6) | ||||
| Total at March 31, 2022 | $ | 1,138 | |||
| ACL—Loans | $ | 679 | |||
| ACL—Lending commitments | 459 | ||||
Provision for Credit Losses by Business Segment
| Three Months Ended March 31, 2022 | |||||||||||
| $ in millions | IS | WM | Total | ||||||||
| Loans | $ | 24 | $ | 15 | $ | 39 | |||||
| Lending commitments | 20 | (2) | 18 | ||||||||
| Total | $ | 44 | $ | 13 | $ | 57 | |||||
Credit exposure arising from our loans and lending commitments is measured in accordance with our internal risk management standards. Risk factors considered in determining the allowance for credit losses for loans and lending commitments include the borrower’s financial strength, industry, facility structure, LTV ratio, debt service ratio, collateral and covenants. Qualitative and environmental factors such as economic and business conditions, nature and volume of the portfolio and lending terms, and volume and severity of past due loans may also be considered.
The aggregate allowance for credit losses for loans and lending commitments increased in the current quarter, reflecting the Provision for credit losses primarily due to portfolio growth.
The base scenario used in our ACL models as of March 31, 2022 was generated using a combination of industry consensus economic forecasts, forward rates, and internally developed and validated models, and assumes continued growth over the forecast period. Given the nature of our lending portfolio, the most sensitive model input is U.S. gross domestic product.
Forecasted U.S. GDP Growth Rates in Base Scenario
| 4Q 2022 | 4Q 2023 | |||||||
| Year-over-year growth rate | 3.3 | % | 2.1 | % | ||||
See Note 9 to the financial statements for further information. See Note 2 to the financial statements in the 2021 Form 10-K for a discussion of the Firm’s ACL methodology under CECL.
Status of Loans Held for Investment
| At March 31, 2022 | At December 31, 2021 | |||||||||||||
IS | WM | IS | WM | |||||||||||
Accrual | 99.0 | % | 99.8 | % | 98.7 | % | 99.8 | % | ||||||
Nonaccrual1 | 1.0 | % | 0.2 | % | 1.3 | % | 0.2 | % | ||||||
1.These loans are on nonaccrual status because the loans were past due for a period of 90 days or more or payment of principal or interest was in doubt.
Net Charge-off Ratios for Loans Held for Investment
| $ in millions | Corporate | Secured Lending Facilities | CRE | Residential Real Estate | SBL and Other | Total | ||||||||||||||
| For the Three Months Ended March 31, 2022 | ||||||||||||||||||||
Net charge-off ratio1 | — | % | 0.01 | % | 0.09 | % | — | % | — | % | 0.01 | % | ||||||||
| Average loans | $ | 5,802 | $ | 31,353 | $ | 7,805 | $ | 45,521 | $ | 87,900 | $ | 178,381 | ||||||||
| For the Three Months Ended March 31, 2021 | ||||||||||||||||||||
Net charge-off ratio1 | 0.02 | % | — | % | 0.12 | % | — | % | — | % | 0.01 | % | ||||||||
| Average loans | $ | 5,637 | $ | 25,915 | $ | 7,292 | $ | 35,888 | $ | 65,888 | $ | 140,620 | ||||||||
1.Net charge-off ratio represents gross charge-offs net of recoveries divided by total average loans held for investment before ACL.
Institutional Securities Loans and Lending Commitments1
| At March 31, 2022 | |||||||||||||||||
Contractual Years to Maturity | |||||||||||||||||
$ in millions | <1 | 1-5 | 5-15 | >15 | Total | ||||||||||||
Loans | |||||||||||||||||
AA | $ | 18 | $ | 5 | $ | — | $ | — | $ | 23 | |||||||
A | 986 | 892 | 740 | — | 2,618 | ||||||||||||
BBB | 6,239 | 8,634 | 474 | — | 15,347 | ||||||||||||
BB | 10,520 | 18,820 | 1,758 | 59 | 31,157 | ||||||||||||
Other NIG | 5,364 | 9,235 | 3,220 | 160 | 17,979 | ||||||||||||
Unrated2 | 76 | 790 | 679 | 3,006 | 4,551 | ||||||||||||
| Total loans, net of ACL | 23,203 | 38,376 | 6,871 | 3,225 | 71,675 | ||||||||||||
Lending commitments | |||||||||||||||||
AAA | — | 50 | — | — | 50 | ||||||||||||
AA | 3,367 | 2,813 | — | — | 6,180 | ||||||||||||
A | 6,485 | 17,355 | 508 | 309 | 24,657 | ||||||||||||
BBB | 5,997 | 43,083 | 777 | — | 49,857 | ||||||||||||
BB | 4,432 | 21,411 | 2,220 | 1 | 28,064 | ||||||||||||
Other NIG | 891 | 14,942 | 3,290 | 3 | 19,126 | ||||||||||||
Unrated2 | — | 20 | 10 | — | 30 | ||||||||||||
| Total lending commitments | 21,172 | 99,674 | 6,805 | 313 | 127,964 | ||||||||||||
Total exposure | $ | 44,375 | $ | 138,050 | $ | 13,676 | $ | 3,538 | $ | 199,639 | |||||||
26 | March 2022 Form 10-Q | |||||||
| Risk Disclosures | | ||||
| At December 31, 2021 | |||||||||||||||||
Contractual Years to Maturity | |||||||||||||||||
$ in millions | <1 | 1-5 | 5-15 | >15 | Total | ||||||||||||
Loans | |||||||||||||||||
AA | $ | — | $ | 35 | $ | 38 | $ | — | $ | 73 | |||||||
A | 890 | 1,089 | 675 | — | 2,654 | ||||||||||||
BBB | 5,335 | 8,944 | 563 | — | 14,842 | ||||||||||||
BB | 10,734 | 18,349 | 814 | 18 | 29,915 | ||||||||||||
Other NIG | 4,656 | 10,475 | 3,439 | 160 | 18,730 | ||||||||||||
Unrated2 | 171 | 665 | 511 | 3,753 | 5,100 | ||||||||||||
| Total loans, net of ACL | 21,786 | 39,557 | 6,040 | 3,931 | 71,314 | ||||||||||||
Lending commitments | |||||||||||||||||
AAA | — | 50 | — | — | 50 | ||||||||||||
AA | 3,283 | 2,690 | — | — | 5,973 | ||||||||||||
A | 5,255 | 17,646 | 407 | 303 | 23,611 | ||||||||||||
BBB | 6,703 | 36,096 | 766 | — | 43,565 | ||||||||||||
BB | 2,859 | 19,698 | 3,122 | — | 25,679 | ||||||||||||
Other NIG | 992 | 13,420 | 6,180 | 55 | 20,647 | ||||||||||||
Unrated2 | 672 | 40 | 3 | — | 715 | ||||||||||||
| Total lending commitments | 19,764 | 89,640 | 10,478 | 358 | 120,240 | ||||||||||||
Total exposure | $ | 41,550 | $ | 129,197 | $ | 16,518 | $ | 4,289 | $ | 191,554 | |||||||
NIG–Non-investment grade
1.Counterparty credit ratings are internally determined by the CRM.
2.Unrated loans and lending commitments are primarily trading positions that are measured at fair value and risk-managed as a component of market risk. For a further discussion of our market risk, see “Quantitative and Qualitative Disclosures about Risk—Market Risk” herein.
Institutional Securities Loans and Lending Commitments by Industry
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Industry | ||||||||
| Financials | $ | 54,331 | $ | 52,066 | ||||
| Real estate | 33,438 | 31,560 | ||||||
| Industrials | 14,855 | 17,446 | ||||||
| Healthcare | 13,513 | 12,618 | ||||||
| Information technology | 12,844 | 13,471 | ||||||
| Communications services | 12,705 | 12,645 | ||||||
| Consumer discretionary | 12,204 | 11,628 | ||||||
| Utilities | 9,931 | 10,310 | ||||||
| Materials | 9,275 | 6,394 | ||||||
| Energy | 9,212 | 8,544 | ||||||
| Consumer staples | 8,254 | 7,855 | ||||||
| Insurance | 7,041 | 4,954 | ||||||
| Other | 2,036 | 2,063 | ||||||
| Total exposure | $ | 199,639 | $ | 191,554 | ||||
Sectors Currently in Focus due to COVID-19
We continue to monitor the developments of the coronavirus disease (“COVID-19”) and its impact on various sectors and industries, particularly those most sensitive to the ongoing effects of the pandemic, including retail, air travel and lodging and leisure, which are included across the Industrials, Financials, Real estate and Consumer discretionary industries in the previous table. Refer to “Risk Factors” in the 2021 Form 10-K.
Institutional Securities Lending Activities
The Institutional Securities business segment lending activities include Corporate, Secured lending facilities, Commercial real estate and Securities-based lending and Other. As of March 31, 2022, over 90% of our total lending exposure, which consists of loans and lending commitments, is investment grade and/or secured by collateral. For a description of Institutional Securities’ lending activities, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk” in the 2021 Form 10-K.
Institutional Securities Event-Driven Loans and Lending Commitments
| At March 31, 2022 | ||||||||||||||
Contractual Years to Maturity | ||||||||||||||
$ in millions | <1 | 1-5 | 5-15 | Total | ||||||||||
Loans, net of ACL | $ | 923 | $ | 1,168 | $ | 2,254 | $ | 4,345 | ||||||
Lending commitments | 3,017 | 9,288 | 4,900 | 17,205 | ||||||||||
| Total exposure | $ | 3,940 | $ | 10,456 | $ | 7,154 | $ | 21,550 | ||||||
| At December 31, 2021 | ||||||||||||||
Contractual Years to Maturity | ||||||||||||||
$ in millions | <1 | 1-5 | 5-15 | Total | ||||||||||
Loans, net of ACL | $ | 951 | $ | 2,088 | $ | 1,803 | $ | 4,842 | ||||||
Lending commitments | 1,619 | 5,288 | 8,879 | 15,786 | ||||||||||
| Total exposure | $ | 2,570 | $ | 7,376 | $ | 10,682 | $ | 20,628 | ||||||
Event-driven loans and lending commitments are associated with a particular event or transaction, such as to support client merger, acquisition, recapitalization or project finance activities. Balances may fluctuate as such lending is related to transactions that vary in timing and size from period to period.
Institutional Securities Loans and Lending Commitments Held for Investment
| At March 31, 2022 | |||||||||||
| $ in millions | Loans | Lending Commitments | Total | ||||||||
| Corporate | $ | 6,105 | $ | 76,006 | $ | 82,111 | |||||
| Secured lending facilities | 29,896 | 14,025 | 43,921 | ||||||||
| Commercial real estate | 8,276 | 711 | 8,987 | ||||||||
| Other | 1,972 | 885 | 2,857 | ||||||||
| Total, before ACL | $ | 46,249 | $ | 91,627 | $ | 137,876 | |||||
| ACL | $ | (554) | $ | (443) | $ | (997) | |||||
| At December 31, 2021 | |||||||||||
| $ in millions | Loans | Lending Commitments | Total | ||||||||
| Corporate | $ | 5,567 | $ | 73,585 | $ | 79,152 | |||||
| Secured lending facilities | 31,471 | 10,003 | 41,474 | ||||||||
| Commercial real estate | 7,227 | 1,475 | 8,702 | ||||||||
| Other | 1,292 | 887 | 2,179 | ||||||||
| Total, before ACL | $ | 45,557 | $ | 85,950 | $ | 131,507 | |||||
| ACL | $ | (543) | $ | (426) | $ | (969) | |||||
| March 2022 Form 10-Q | 27 | |||||||
| Risk Disclosures | | ||||
Institutional Securities Allowance for Credit Losses—Loans and Lending Commitments
| $ in millions | Corporate | Secured Lending Facilities | Commercial Real Estate | Other | Total | ||||||||||||
| ACL—Loans | $ | 165 | $ | 163 | $ | 206 | $ | 9 | $ | 543 | |||||||
| ACL—Lending commitments | 356 | 41 | 20 | 9 | 426 | ||||||||||||
| Total at December 31, 2021 | $ | 521 | $ | 204 | $ | 226 | $ | 18 | $ | 969 | |||||||
| Gross charge-offs | — | (3) | (7) | — | (10) | ||||||||||||
| Provision for credit losses | 26 | 20 | (1) | (1) | 44 | ||||||||||||
| Other | (4) | — | (2) | — | (6) | ||||||||||||
| Total at March 31, 2022 | $ | 543 | $ | 221 | $ | 216 | $ | 17 | $ | 997 | |||||||
| ACL—Loans | $ | 170 | $ | 172 | $ | 203 | $ | 9 | $ | 554 | |||||||
| ACL—Lending commitments | 373 | 49 | 13 | 8 | 443 | ||||||||||||
Institutional Securities HFI Loans—Ratios of Allowance for Credit Losses to Balance Before Allowance
| At March 31, 2022 | At December 31, 2021 | |||||||
| Corporate | 2.8 | % | 3.0 | % | ||||
| Secured lending facilities | 0.6 | % | 0.5 | % | ||||
Commercial real estate | 2.5 | % | 2.9 | % | ||||
| Other | 0.5 | % | 0.7 | % | ||||
| Total Institutional Securities loans | 1.2 | % | 1.2 | % | ||||
Wealth Management Loans and Lending Commitments
| At March 31, 2022 | |||||||||||||||||
Contractual Years to Maturity | |||||||||||||||||
$ in millions | <1 | 1-5 | 5-15 | >15 | Total | ||||||||||||
| Securities-based lending and Other loans | $ | 78,507 | $ | 9,307 | $ | 1,588 | $ | 141 | $ | 89,543 | |||||||
| Residential real estate loans | 3 | 13 | 1,277 | 45,877 | 47,170 | ||||||||||||
| Total loans, net of ACL | $ | 78,510 | $ | 9,320 | $ | 2,865 | $ | 46,018 | $ | 136,713 | |||||||
| Lending commitments | 11,398 | 2,824 | 47 | 259 | 14,528 | ||||||||||||
| Total exposure | $ | 89,908 | $ | 12,144 | $ | 2,912 | $ | 46,277 | $ | 151,241 | |||||||
| At December 31, 2021 | |||||||||||||||||
Contractual Years to Maturity | |||||||||||||||||
$ in millions | <1 | 1-5 | 5-15 | >15 | Total | ||||||||||||
| Securities-based lending and Other loans | $ | 74,466 | $ | 8,927 | $ | 1,571 | $ | 144 | $ | 85,108 | |||||||
| Residential real estate loans | 4 | 10 | 1,231 | 42,954 | 44,199 | ||||||||||||
| Total loans, net of ACL | $ | 74,470 | $ | 8,937 | $ | 2,802 | $ | 43,098 | $ | 129,307 | |||||||
| Lending commitments | 11,894 | 2,467 | 51 | 282 | 14,694 | ||||||||||||
| Total exposure | $ | 86,364 | $ | 11,404 | $ | 2,853 | $ | 43,380 | $ | 144,001 | |||||||
The principal Wealth Management business segment lending activities include Securities-based lending and Residential real estate loans.
Securities-based lending allows clients to borrow money against the value of qualifying securities, generally for any purpose other than purchasing, trading or carrying securities or refinancing margin debt. For more information about our Securities-based lending and Residential real estate loans, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk” in the 2021 Form 10-K.
Wealth Management Allowance for Credit Losses—Loans and Lending Commitments
$ in millions | |||||
| ACL—Loans | $ | 111 | |||
| ACL—Lending commitments | 18 | ||||
| Total at December 31, 2021 | 129 | ||||
| Gross charge-offs | (1) | ||||
| Provision for credit losses | 13 | ||||
| Total at March 31, 2022 | $ | 141 | |||
| ACL—Loans | $ | 125 | |||
| ACL—Lending commitments | 16 | ||||
At March 31, 2022, more than 75% of Wealth Management residential real estate loans were to borrowers with “Exceptional” or “Very Good” FICO scores (i.e., exceeding 740). Additionally, Wealth Management’s securities-based lending portfolio remains well-collateralized and subject to daily client margining, which includes requiring customers to deposit additional collateral or reduce debt positions, when necessary.
Customer and Other Receivables
Margin Loans and Other Lending
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Institutional Securities | $ | 27,177 | $ | 40,545 | ||||
| Wealth Management | 29,171 | 30,987 | ||||||
| Total | $ | 56,348 | $ | 71,532 | ||||
The Institutional Securities and Wealth Management business segments provide margin lending arrangements that allow customers to borrow against the value of qualifying securities, primarily for the purpose of purchasing additional securities, as well as to collateralize short positions. Institutional Securities primarily includes margin loans in the Equity Financing business. Wealth Management includes margin loans as well as non-purpose securities-based lending on non-bank entities. Amounts may fluctuate from period to period as overall client balances change as a result of market levels, client positioning and leverage.
Credit exposures arising from margin lending activities are generally mitigated by their short-term nature, the value of collateral held and our right to call for additional margin when collateral values decline. However, we could incur losses in the event that the customer fails to meet margin calls and collateral values decline below the loan amount. This risk is elevated in loans backed by collateral pools with significant concentrations in individual issuers or securities with similar risk characteristics. For a further discussion, see “Risk Factors—Credit Risk” in the 2021 Form 10-K.
Employee Loans
For information on employee loans and related ACL, see Note 9 to the financial statements.
28 | March 2022 Form 10-Q | |||||||
| Risk Disclosures | | ||||
Derivatives
Fair Value of OTC Derivative Assets
Counterparty Credit Rating1 | ||||||||||||||||||||
| $ in millions | AAA | AA | A | BBB | NIG | Total | ||||||||||||||
| At March 31, 2022 | ||||||||||||||||||||
Less than 1 year | $ | 2,641 | $ | 19,678 | $ | 44,744 | $ | 37,429 | $ | 17,803 | $ | 122,295 | ||||||||
1-3 years | 850 | 6,623 | 16,964 | 19,316 | 7,979 | 51,732 | ||||||||||||||
3-5 years | 1,109 | 6,317 | 7,749 | 9,729 | 3,497 | 28,401 | ||||||||||||||
Over 5 years | 4,366 | 32,016 | 49,904 | 53,086 | 6,223 | 145,595 | ||||||||||||||
Total, gross | $ | 8,966 | $ | 64,634 | $ | 119,361 | $ | 119,560 | $ | 35,502 | $ | 348,023 | ||||||||
Counterparty netting | (3,982) | (53,118) | (84,229) | (89,891) | (16,705) | (247,925) | ||||||||||||||
| Cash and securities collateral | (3,552) | (8,765) | (27,333) | (17,907) | (6,675) | (64,232) | ||||||||||||||
| Total, net | $ | 1,432 | $ | 2,751 | $ | 7,799 | $ | 11,762 | $ | 12,122 | $ | 35,866 | ||||||||
Counterparty Credit Rating1 | ||||||||||||||||||||
| $ in millions | AAA | AA | A | BBB | NIG | Total | ||||||||||||||
| At December 31, 2021 | ||||||||||||||||||||
Less than 1 year | $ | 1,561 | $ | 11,088 | $ | 32,069 | $ | 25,680 | $ | 11,924 | $ | 82,322 | ||||||||
1-3 years | 780 | 4,577 | 16,821 | 15,294 | 6,300 | 43,772 | ||||||||||||||
3-5 years | 593 | 4,807 | 6,805 | 8,030 | 3,317 | 23,552 | ||||||||||||||
Over 5 years | 4,359 | 26,056 | 61,091 | 44,091 | 4,633 | 140,230 | ||||||||||||||
Total, gross | $ | 7,293 | $ | 46,528 | $ | 116,786 | $ | 93,095 | $ | 26,174 | $ | 289,876 | ||||||||
Counterparty netting | (3,093) | (36,957) | (91,490) | (68,365) | (11,642) | (211,547) | ||||||||||||||
| Cash and securities collateral | (3,539) | (7,608) | (20,500) | (17,755) | (5,762) | (55,164) | ||||||||||||||
| Total, net | $ | 661 | $ | 1,963 | $ | 4,796 | $ | 6,975 | $ | 8,770 | $ | 23,165 | ||||||||
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Industry | ||||||||
| Financials | $ | 10,483 | $ | 5,096 | ||||
| Utilities | 7,830 | 5,918 | ||||||
| Energy | 5,785 | 2,587 | ||||||
| Consumer Discretionary | 3,185 | 3,069 | ||||||
| Regional governments | 1,495 | 963 | ||||||
| Industrials | 1,259 | 985 | ||||||
| Information technology | 928 | 1,060 | ||||||
| Communications services | 852 | 348 | ||||||
| Sovereign governments | 659 | 386 | ||||||
| Healthcare | 632 | 682 | ||||||
| Materials | 575 | 240 | ||||||
| Consumer staples | 510 | 324 | ||||||
| Not-for-profit organizations | 411 | 531 | ||||||
| Insurance | 356 | 174 | ||||||
| Real estate | 181 | 280 | ||||||
| Other | 725 | 522 | ||||||
Total | $ | 35,866 | $ | 23,165 | ||||
1.Counterparty credit ratings are determined internally by the CRM.
We are exposed to credit risk as a dealer in OTC derivatives. Credit risk with respect to derivative instruments arises from the possibility that a counterparty may fail to perform according to the terms of the contract. For more information on derivatives, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk—Derivatives” in the 2021 Form 10-K and Note 6 to the financial statements.
Country Risk
Country risk exposure is the risk that events in, or that affect, a foreign country (any country other than the U.S.) might adversely affect us. We actively manage country risk exposure through a comprehensive risk management framework that combines credit and market fundamentals and allows us to effectively identify, monitor and limit country risk. For a further discussion of our country risk exposure see “Quantitative and Qualitative Disclosures about Risk—Country and Other Risks” in the 2021 Form 10-K.
Top 10 Non-U.S. Country Exposures at March 31, 2022
| $ in millions | United Kingdom | Germany | Japan | France | India | ||||||||||||
| Sovereign | |||||||||||||||||
Net inventory1 | $ | (544) | $ | 1,794 | $ | 3,557 | $ | 320 | $ | 1,946 | |||||||
Net counterparty exposure2 | 33 | 170 | 79 | 8 | — | ||||||||||||
| Exposure before hedges | (511) | 1,964 | 3,636 | 328 | 1,946 | ||||||||||||
Hedges3 | (303) | (286) | (113) | (6) | — | ||||||||||||
| Net exposure | $ | (814) | $ | 1,678 | $ | 3,523 | $ | 322 | $ | 1,946 | |||||||
| Non-sovereign | |||||||||||||||||
Net inventory1 | $ | 1,088 | $ | 561 | $ | 873 | $ | 661 | $ | 883 | |||||||
Net counterparty exposure2 | 17,657 | 3,180 | 4,702 | 3,445 | 1,315 | ||||||||||||
| Loans | 3,997 | 1,531 | 426 | 536 | 220 | ||||||||||||
| Lending commitments | 7,290 | 3,860 | — | 3,220 | 8 | ||||||||||||
| Exposure before hedges | 30,032 | 9,132 | 6,001 | 7,862 | 2,426 | ||||||||||||
Hedges3 | (1,824) | (1,350) | (148) | (2,075) | — | ||||||||||||
| Net exposure | $ | 28,208 | $ | 7,782 | $ | 5,853 | $ | 5,787 | $ | 2,426 | |||||||
| Total net exposure | $ | 27,394 | $ | 9,460 | $ | 9,376 | $ | 6,109 | $ | 4,372 | |||||||
| March 2022 Form 10-Q | 29 | |||||||
| Risk Disclosures | | ||||
| $ in millions | Spain | Canada | Brazil | Netherlands | Ireland | ||||||||||||
| Sovereign | |||||||||||||||||
Net inventory1 | $ | (102) | $ | 387 | $ | 3,030 | $ | 274 | $ | 147 | |||||||
Net counterparty exposure2 | 55 | 24 | — | — | 6 | ||||||||||||
| Exposure before hedges | (47) | 411 | 3,030 | 274 | 153 | ||||||||||||
Hedges3 | (8) | — | (135) | (17) | — | ||||||||||||
| Net exposure | $ | (55) | $ | 411 | $ | 2,895 | $ | 257 | $ | 153 | |||||||
| Non-sovereign | |||||||||||||||||
Net inventory1 | $ | 337 | $ | 517 | $ | 19 | $ | (15) | $ | 1,053 | |||||||
Net counterparty exposure2 | 1,271 | 1,530 | 488 | 1,319 | 663 | ||||||||||||
| Loans | 2,457 | 185 | 294 | 527 | 968 | ||||||||||||
| Lending commitments | 970 | 1,476 | 224 | 1,843 | 582 | ||||||||||||
| Exposure before hedges | 5,035 | 3,708 | 1,025 | 3,674 | 3,266 | ||||||||||||
Hedges3 | (952) | (108) | (39) | (492) | (4) | ||||||||||||
| Net exposure | $ | 4,083 | $ | 3,600 | $ | 986 | $ | 3,182 | $ | 3,262 | |||||||
| Total net exposure | $ | 4,028 | $ | 4,011 | $ | 3,881 | $ | 3,439 | $ | 3,415 | |||||||
1.Net inventory represents exposure to both long and short single-name and index positions (i.e., bonds and equities at fair value and CDS based on a notional amount assuming zero recovery adjusted for the fair value of any receivable or payable).
2.Net counterparty exposure (e.g., repurchase transactions, securities lending and OTC derivatives) is net of the benefit of collateral received and also is net by counterparty when legally enforceable master netting agreements are in place. For more information, see “Additional Information—Top 10 Non-U.S. Country Exposures” herein.
3.Amounts represent net CDS hedges (purchased and sold) on net counterparty exposure and lending executed by trading desks responsible for hedging counterparty and lending credit risk exposures. Amounts are based on the CDS notional amount assuming zero recovery adjusted for any fair value receivable or payable. For further description of the contractual terms for purchased credit protection and whether they may limit the effectiveness of our hedges, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk—Derivatives” in the 2021 Form 10-K.
Additional Information—Top 10 Non-U.S. Country Exposures
Collateral Held against Net Counterparty Exposure1
$ in millions | At March 31, 2022 | |||||||
Country of Risk | Collateral2 | |||||||
| Germany | Spain and France | $ | 9,973 | |||||
| United Kingdom | U.K., U.S. and Spain | 8,050 | ||||||
| Other | Japan, Germany and U.S. | 23,114 | ||||||
1.The benefit of collateral received is reflected in the Top 10 Non-U.S. Country Exposures at March 31, 2022.
2.Primarily consists of cash and government obligations of the countries listed.
Operational Risk
Operational risk refers to the risk of loss, or of damage to our reputation, resulting from inadequate or failed processes or systems, from human factors or from external events (e.g., cyber attacks or third-party vulnerabilities) that may manifest as, for example, loss of information, business disruption, theft and fraud, legal and compliance risks, or damage to physical assets. We may incur operational risk across the full scope of our business activities, including revenue-generating activities and support and control groups (e.g., information technology and trade processing). For a further discussion about our operational risk, see “Quantitative and Qualitative Disclosures about Risk—Operational Risk” in the 2021 Form 10-K.
Model Risk
Model risk refers to the potential for adverse consequences from decisions based on incorrect or misused model outputs. Model risk can lead to financial loss, poor business and strategic decision making or damage to our reputation. The risk inherent in a model is a function of the materiality, complexity and uncertainty around inputs and assumptions. Model risk is generated from the use of models impacting financial statements, regulatory filings, capital adequacy assessments and the formulation of strategy. For a further discussion about our model risk, see “Quantitative and Qualitative Disclosures about Risk—Model Risk” in the 2021 Form 10-K.
Liquidity Risk
Liquidity risk refers to the risk that we will be unable to finance our operations due to a loss of access to the capital markets or difficulty in liquidating our assets. Liquidity risk also encompasses our ability (or perceived ability) to meet our financial obligations without experiencing significant business disruption or reputational damage that may threaten our viability as a going concern. For a further discussion about our liquidity risk, see “Quantitative and Qualitative Disclosures about Risk—Liquidity Risk” in the 2021 Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” herein.
Legal and Compliance Risk
Legal and compliance risk includes the risk of legal or regulatory sanctions, material financial loss, including fines, penalties, judgments, damages and/or settlements, limitations on our business, or loss to reputation that we may suffer as a result of failure to comply with laws, regulations, rules, related self-regulatory organization standards and codes of conduct applicable to our business activities. This risk also includes contractual and commercial risk, such as the risk that a counterparty’s performance obligations will be unenforceable. It also includes compliance with AML, terrorist financing, and anti-corruption rules and regulations. For a further discussion about our legal and compliance risk, see “Quantitative and Qualitative Disclosures about Risk—Legal and Compliance Risk” in the 2021 Form 10-K.
30 | March 2022 Form 10-Q | |||||||
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Morgan Stanley:
Results of Review of Interim Financial Information
We have reviewed the accompanying condensed consolidated balance sheet of Morgan Stanley and subsidiaries (the “Firm”) as of March 31, 2022, and the related condensed consolidated income statements, comprehensive income statements, cash flow statements and statements of changes in total equity for the three-month periods ended March 31, 2022 and 2021, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Firm as of December 31, 2021, and the related consolidated income statement, comprehensive income statement, cash flow statement and statement of changes in total equity for the year then ended (not presented herein) included in the Firm’s Annual Report on Form 10-K; and in our report dated February 24, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Firm’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Firm in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Deloitte & Touche LLP | ||
New York, New York | ||
| May 4, 2022 | ||
| March 2022 Form 10-Q | 31 | |||||||
| Consolidated Income Statement (Unaudited) | | ||||
| Three Months Ended March 31, | ||||||||
| in millions, except per share data | 2022 | 2021 | ||||||
| Revenues | ||||||||
| Investment banking | $ | 1,758 | $ | 2,840 | ||||
| Trading | 3,983 | 4,225 | ||||||
| Investments | 75 | 318 | ||||||
| Commissions and fees | 1,416 | 1,626 | ||||||
| Asset management | 5,119 | 4,398 | ||||||
| Other | 234 | 284 | ||||||
| Total non-interest revenues | 12,585 | 13,691 | ||||||
| Interest income | 2,650 | 2,437 | ||||||
| Interest expense | 434 | 409 | ||||||
| Net interest | 2,216 | 2,028 | ||||||
| Net revenues | 14,801 | 15,719 | ||||||
| Provision for credit losses | 57 | (98) | ||||||
| Non-interest expenses | ||||||||
| Compensation and benefits | 6,274 | 6,798 | ||||||
| Brokerage, clearing and exchange fees | 882 | 910 | ||||||
| Information processing and communications | 829 | 733 | ||||||
| Professional services | 705 | 624 | ||||||
| Occupancy and equipment | 427 | 405 | ||||||
| Marketing and business development | 175 | 146 | ||||||
| Other | 864 | 857 | ||||||
| Total non-interest expenses | 10,156 | 10,473 | ||||||
| Income before provision for income taxes | 4,588 | 5,344 | ||||||
| Provision for income taxes | 873 | 1,176 | ||||||
| Net income | $ | 3,715 | $ | 4,168 | ||||
| Net income applicable to noncontrolling interests | 49 | 48 | ||||||
| Net income applicable to Morgan Stanley | $ | 3,666 | $ | 4,120 | ||||
| Preferred stock dividends | 124 | 138 | ||||||
| Earnings applicable to Morgan Stanley common shareholders | $ | 3,542 | $ | 3,982 | ||||
| Earnings per common share | ||||||||
| Basic | $ | 2.04 | $ | 2.22 | ||||
| Diluted | $ | 2.02 | $ | 2.19 | ||||
| Average common shares outstanding | ||||||||
| Basic | 1,733 | 1,795 | ||||||
| Diluted | 1,755 | 1,818 | ||||||
Consolidated Comprehensive Income Statement
(Unaudited)
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Net income | $ | 3,715 | $ | 4,168 | ||||
| Other comprehensive income (loss), net of tax: | ||||||||
| Foreign currency translation adjustments | (105) | (219) | ||||||
| Change in net unrealized gains (losses) on available-for-sale securities | (2,395) | (776) | ||||||
| Pension and other | 5 | 5 | ||||||
| Change in net debt valuation adjustment | 660 | 137 | ||||||
| Total other comprehensive income (loss) | $ | (1,835) | $ | (853) | ||||
| Comprehensive income | $ | 1,880 | $ | 3,315 | ||||
| Net income applicable to noncontrolling interests | 49 | 48 | ||||||
| Other comprehensive income (loss) applicable to noncontrolling interests | (35) | (61) | ||||||
| Comprehensive income applicable to Morgan Stanley | $ | 1,866 | $ | 3,328 | ||||
| March 2022 Form 10-Q | 32 | See Notes to Consolidated Financial Statements | ||||||
| Consolidated Balance Sheet | | ||||
$ in millions, except share data | (Unaudited) At March 31, 2022 | At December 31, 2021 | ||||||
| Assets | ||||||||
Cash and cash equivalents | $ | 136,086 | $ | 127,725 | ||||
Trading assets at fair value ($107,196 and $104,186 were pledged to various parties) | 296,881 | 294,869 | ||||||
Investment securities (includes $90,354 and $102,830 at fair value) | 170,793 | 182,998 | ||||||
Securities purchased under agreements to resell (includes $2 and $7 at fair value) | 127,767 | 119,999 | ||||||
| Securities borrowed | 150,995 | 129,713 | ||||||
| Customer and other receivables | 94,804 | 96,018 | ||||||
| Loans: | ||||||||
Held for investment (net of allowance for credit losses of $679 and $654) | 182,247 | 174,302 | ||||||
| Held for sale | 14,013 | 13,832 | ||||||
| Goodwill | 16,825 | 16,833 | ||||||
Intangible assets (net of accumulated amortization of $3,972 and $3,819) | 8,244 | 8,360 | ||||||
| Other assets | 23,578 | 23,491 | ||||||
| Total assets | $ | 1,222,233 | $ | 1,188,140 | ||||
| Liabilities | ||||||||
Deposits (includes $2,013 and $1,940 at fair value) | $ | 360,840 | $ | 347,574 | ||||
| Trading liabilities at fair value | 176,580 | 158,328 | ||||||
Securities sold under agreements to repurchase (includes $964 and $791 at fair value) | 60,068 | 62,188 | ||||||
| Securities loaned | 14,222 | 12,299 | ||||||
Other secured financings (includes $4,751 and $5,133 at fair value) | 8,808 | 10,041 | ||||||
| Customer and other payables | 243,609 | 228,685 | ||||||
| Other liabilities and accrued expenses | 24,214 | 29,300 | ||||||
Borrowings (includes $75,963 and $76,340 at fair value) | 229,817 | 233,127 | ||||||
| Total liabilities | 1,118,158 | 1,081,542 | ||||||
| Commitments and contingent liabilities (see Note 13) | ||||||||
| Equity | ||||||||
| Morgan Stanley shareholders’ equity: | ||||||||
| Preferred stock | 7,750 | 7,750 | ||||||
Common stock, $0.01 par value: | ||||||||
Shares authorized: 3,500,000,000; Shares issued: 2,038,893,979; Shares outstanding: 1,756,153,374 and 1,772,226,530 | 20 | 20 | ||||||
| Additional paid-in capital | 28,007 | 28,841 | ||||||
| Retained earnings | 91,722 | 89,432 | ||||||
| Employee stock trusts | 4,975 | 3,955 | ||||||
| Accumulated other comprehensive income (loss) | (4,902) | (3,102) | ||||||
Common stock held in treasury at cost, $0.01 par value (282,740,605 and 266,667,449 shares) | (19,696) | (17,500) | ||||||
| Common stock issued to employee stock trusts | (4,975) | (3,955) | ||||||
| Total Morgan Stanley shareholders’ equity | 102,901 | 105,441 | ||||||
| Noncontrolling interests | 1,174 | 1,157 | ||||||
| Total equity | 104,075 | 106,598 | ||||||
| Total liabilities and equity | $ | 1,222,233 | $ | 1,188,140 | ||||
| See Notes to Consolidated Financial Statements | 33 | March 2022 Form 10-Q | ||||||
| Consolidated Statement of Changes in Total Equity (Unaudited) | | ||||
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
Preferred Stock | ||||||||
| Beginning balance | $ | 7,750 | $ | 9,250 | ||||
| Redemption of preferred stock | — | (1,500) | ||||||
| Ending balance | 7,750 | 7,750 | ||||||
Common Stock | ||||||||
Beginning and ending balance | 20 | 20 | ||||||
Additional Paid-in Capital | ||||||||
| Beginning balance | 28,841 | 25,546 | ||||||
| Share-based award activity | (834) | (332) | ||||||
| Issuance of common stock for the acquisition of Eaton Vance | — | 2,185 | ||||||
| Other net increases (decreases) | — | 7 | ||||||
Ending balance | 28,007 | 27,406 | ||||||
Retained Earnings | ||||||||
| Beginning balance | 89,432 | 78,694 | ||||||
Net income applicable to Morgan Stanley | 3,666 | 4,120 | ||||||
Preferred stock dividends1 | (124) | (138) | ||||||
Common stock dividends1 | (1,252) | (635) | ||||||
| Other net increases (decreases) | — | (7) | ||||||
Ending balance | 91,722 | 82,034 | ||||||
Employee Stock Trusts | ||||||||
Beginning balance | 3,955 | 3,043 | ||||||
Share-based award activity | 1,020 | 818 | ||||||
Ending balance | 4,975 | 3,861 | ||||||
Accumulated Other Comprehensive Income (Loss) | ||||||||
Beginning balance | (3,102) | (1,962) | ||||||
Net change in Accumulated other comprehensive income (loss) | (1,800) | (792) | ||||||
Ending balance | (4,902) | (2,754) | ||||||
| Common Stock Held in Treasury at Cost | ||||||||
Beginning balance | (17,500) | (9,767) | ||||||
Share-based award activity | 1,485 | 1,020 | ||||||
Repurchases of common stock and employee tax withholdings | (3,681) | (2,582) | ||||||
| Issuance of common stock for the acquisition of Eaton Vance | — | 3,132 | ||||||
Ending balance | (19,696) | (8,197) | ||||||
Common Stock Issued to Employee Stock Trusts | ||||||||
Beginning balance | (3,955) | (3,043) | ||||||
Share-based award activity | (1,020) | (818) | ||||||
Ending balance | (4,975) | (3,861) | ||||||
| Noncontrolling Interests | ||||||||
Beginning balance | 1,157 | 1,368 | ||||||
| Net income applicable to noncontrolling interests | 49 | 48 | ||||||
| Net change in Accumulated other comprehensive income (loss) applicable to noncontrolling interests | (35) | (61) | ||||||
Other net increases (decreases) | 3 | (26) | ||||||
Ending balance | 1,174 | 1,329 | ||||||
Total Equity | $ | 104,075 | $ | 107,588 | ||||
1.See Note 16 for information regarding dividends per share for each class of stock.
| March 2022 Form 10-Q | 34 | See Notes to Consolidated Financial Statements | ||||||
| Consolidated Cash Flow Statement (Unaudited) | | ||||
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 3,715 | $ | 4,168 | ||||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | ||||||||
| Stock-based compensation expense | 431 | 518 | ||||||
| Depreciation and amortization | 942 | 887 | ||||||
| Provision for credit losses | 57 | (98) | ||||||
| Other operating adjustments | 51 | (95) | ||||||
| Changes in assets and liabilities: | ||||||||
| Trading assets, net of Trading liabilities | 5,069 | 20,463 | ||||||
| Securities borrowed | (21,282) | 10,242 | ||||||
| Securities loaned | 1,923 | 695 | ||||||
| Customer and other receivables and other assets | 1,227 | (18,721) | ||||||
| Customer and other payables and other liabilities | 17,994 | 3,270 | ||||||
| Securities purchased under agreements to resell | (7,768) | 1,513 | ||||||
| Securities sold under agreements to repurchase | (2,120) | 4,037 | ||||||
| Net cash provided by (used for) operating activities | 239 | 26,879 | ||||||
| Cash flows from investing activities | ||||||||
| Proceeds from (payments for): | ||||||||
| Other assets—Premises, equipment and software, net | (652) | (525) | ||||||
| Changes in loans, net | (7,479) | (6,474) | ||||||
| Investment securities: | ||||||||
| Purchases | (17,459) | (32,333) | ||||||
| Proceeds from sales | 18,469 | 6,825 | ||||||
| Proceeds from paydowns and maturities | 7,403 | 12,638 | ||||||
| Cash paid as part of the Eaton Vance acquisition, net of cash acquired | — | (2,648) | ||||||
| Other investing activities | (124) | (44) | ||||||
| Net cash provided by (used for) investing activities | 158 | (22,561) | ||||||
| Cash flows from financing activities | ||||||||
| Net proceeds from (payments for): | ||||||||
| Other secured financings | (636) | (3,798) | ||||||
| Deposits | 5,834 | 12,391 | ||||||
| Proceeds from issuance of Borrowings | 20,284 | 24,112 | ||||||
| Payments for: | ||||||||
| Borrowings | (11,094) | (19,774) | ||||||
| Repurchases of common stock and employee tax withholdings | (3,681) | (2,582) | ||||||
| Cash dividends | (1,314) | (755) | ||||||
| Other financing activities | (102) | (30) | ||||||
| Net cash provided by (used for) financing activities | 9,291 | 9,564 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (1,327) | (1,418) | ||||||
| Net increase (decrease) in cash and cash equivalents | 8,361 | 12,464 | ||||||
| Cash and cash equivalents, at beginning of period | 127,725 | 105,654 | ||||||
| Cash and cash equivalents, at end of period | $ | 136,086 | $ | 118,118 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash payments for: | ||||||||
| Interest | $ | 623 | $ | 586 | ||||
| Income taxes, net of refunds | 383 | 339 | ||||||
| See Notes to Consolidated Financial Statements | 35 | March 2022 Form 10-Q | ||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
1. Introduction and Basis of Presentation
The Firm
Morgan Stanley is a global financial services firm that maintains significant market positions in each of its business segments—Institutional Securities, Wealth Management and Investment Management. Morgan Stanley, through its subsidiaries and affiliates, provides a wide variety of products and services to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individuals. Unless the context otherwise requires, the terms “Morgan Stanley” or the “Firm” mean Morgan Stanley (the “Parent Company”) together with its consolidated subsidiaries. Disclosures reflect the effects of the acquisition of Eaton Vance Corp. (“Eaton Vance”) prospectively from the March 1, 2021 acquisition date. See Note 3 to the financial statements in the 2021 Form 10-K for further information. See the “Glossary of Common Terms and Acronyms” for the definition of certain terms and acronyms used throughout this Form 10-Q.
A description of the clients and principal products and services of each of the Firm’s business segments is as follows:
Institutional Securities provides a variety of products and services to corporations, governments, financial institutions and ultra-high net worth clients. Investment Banking services consist of capital raising and financial advisory services, including the underwriting of debt, equity and other securities, as well as advice on mergers and acquisitions, restructurings and project finance. Our Equity and Fixed Income businesses include sales, financing, prime brokerage, market-making, Asia wealth management services and certain business-related investments. Lending activities include originating corporate loans and commercial real estate loans, providing secured lending facilities, and extending securities-based and other financing to customers. Other activities include research.
Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small to medium-sized businesses and institutions covering: financial advisor-led brokerage and investment advisory services; self-directed brokerage services; financial and wealth planning services; workplace services, including stock plan administration; annuity and insurance products; securities-based lending, residential real estate loans and other lending products; banking; and retirement plan services.
Investment Management provides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products, which are offered through a variety of investment vehicles, include equity, fixed
income, alternatives and solutions, and liquidity and overlay services. Institutional clients include defined benefit/defined contribution plans, foundations, endowments, government entities, sovereign wealth funds, insurance companies, third-party fund sponsors and corporations. Individual clients are generally served through intermediaries, including affiliated and non-affiliated distributors.
Basis of Financial Information
The financial statements are prepared in accordance with U.S. GAAP, which requires the Firm to make estimates and assumptions regarding the valuations of certain financial instruments, the valuations of goodwill and intangible assets, the outcome of legal and tax matters, deferred tax assets, ACL, and other matters that affect its financial statements and related disclosures. The Firm believes that the estimates utilized in the preparation of its financial statements are prudent and reasonable. Actual results could differ materially from these estimates.
The notes are an integral part of the Firm’s financial statements. The Firm has evaluated subsequent events for adjustment to or disclosure in these financial statements through the date of this report and has not identified any recordable or disclosable events not otherwise reported in these financial statements or the notes thereto.
The accompanying financial statements should be read in conjunction with the Firm’s financial statements and notes thereto included in the 2021 Form 10-K. Certain footnote disclosures included in the 2021 Form 10-K have been condensed or omitted from these financial statements as they are not required for interim reporting under U.S. GAAP. The financial statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The results of operations for interim periods are not necessarily indicative of results for the entire year.
Consolidation
The financial statements include the accounts of the Firm, its wholly owned subsidiaries and other entities in which the Firm has a controlling financial interest, including certain VIEs (see Note 14). Intercompany balances and transactions have been eliminated. For consolidated subsidiaries that are not wholly owned, the third-party holdings of equity interests are referred to as Noncontrolling interests. The net income attributable to Noncontrolling interests for such subsidiaries is presented as Net income applicable to noncontrolling interests in the income statement. The portion of shareholders’ equity that is attributable to noncontrolling interests for such subsidiaries is presented as Noncontrolling interests, a component of Total equity, in the balance sheet.
For a discussion of the Firm’s significant regulated U.S. and international subsidiaries and its involvement with VIEs, see Note 1 to the financial statements in the 2021 Form 10-K.
| March 2022 Form 10-Q | 36 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
2. Significant Accounting Policies
For a detailed discussion about the Firm’s significant accounting policies and for further information on accounting updates adopted, see Note 2 to the financial statements in the 2021 Form 10-K.
During the three months ended March 31, 2022 (“current quarter”), there were no significant updates to the Firm’s significant accounting policies.
3. Cash and Cash Equivalents
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Cash and due from banks | $ | 9,086 | $ | 8,394 | ||||
| Interest bearing deposits with banks | 127,000 | 119,331 | ||||||
| Total Cash and cash equivalents | $ | 136,086 | $ | 127,725 | ||||
| Restricted cash | $ | 41,315 | $ | 40,887 | ||||
For additional information on cash and cash equivalents, including restricted cash, see Note 2 to the financial statements in the 2021 Form 10-K.
4. Fair Values
Recurring Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
| At March 31, 2022 | |||||||||||||||||
| $ in millions | Level 1 | Level 2 | Level 3 | Netting1 | Total | ||||||||||||
| Assets at fair value | |||||||||||||||||
| Trading assets: | |||||||||||||||||
| U.S. Treasury and agency securities | $ | 44,038 | $ | 19,680 | $ | 8 | $ | — | $ | 63,726 | |||||||
| Other sovereign government obligations | 24,449 | 7,422 | 188 | — | 32,059 | ||||||||||||
| State and municipal securities | — | 1,664 | — | — | 1,664 | ||||||||||||
| MABS | — | 929 | 351 | — | 1,280 | ||||||||||||
Loans and lending commitments2 | — | 9,349 | 3,141 | — | 12,490 | ||||||||||||
| Corporate and other debt | — | 28,751 | 1,753 | — | 30,504 | ||||||||||||
Corporate equities3 | 86,106 | 790 | 239 | — | 87,135 | ||||||||||||
| Derivative and other contracts: | |||||||||||||||||
| Interest rate | 10,124 | 163,417 | 1,086 | — | 174,627 | ||||||||||||
| Credit | — | 10,860 | 646 | — | 11,506 | ||||||||||||
| Foreign exchange | 39 | 101,193 | 63 | — | 101,295 | ||||||||||||
| Equity | 997 | 64,521 | 391 | — | 65,909 | ||||||||||||
| Commodity and other | 12,202 | 33,688 | 3,416 | — | 49,306 | ||||||||||||
Netting1 | (17,166) | (271,135) | (993) | (55,468) | (344,762) | ||||||||||||
| Total derivative and other contracts | 6,196 | 102,544 | 4,609 | (55,468) | 57,881 | ||||||||||||
Investments4 | 661 | 761 | 1,120 | — | 2,542 | ||||||||||||
| Physical commodities | — | 2,709 | — | — | 2,709 | ||||||||||||
Total trading assets4 | 161,450 | 174,599 | 11,409 | (55,468) | 291,990 | ||||||||||||
| Investment securities—AFS | 56,479 | 33,875 | — | — | 90,354 | ||||||||||||
| Securities purchased under agreements to resell | — | 2 | — | — | 2 | ||||||||||||
| Total assets at fair value | $ | 217,929 | $ | 208,476 | $ | 11,409 | $ | (55,468) | $ | 382,346 | |||||||
| At March 31, 2022 | |||||||||||||||||
| $ in millions | Level 1 | Level 2 | Level 3 | Netting1 | Total | ||||||||||||
| Liabilities at fair value | |||||||||||||||||
| Deposits | $ | — | $ | 1,987 | $ | 26 | $ | — | $ | 2,013 | |||||||
| Trading liabilities: | |||||||||||||||||
| U.S. Treasury and agency securities | 15,090 | 112 | — | — | 15,202 | ||||||||||||
| Other sovereign government obligations | 24,751 | 2,911 | 2 | — | 27,664 | ||||||||||||
| Corporate and other debt | — | 11,081 | 17 | — | 11,098 | ||||||||||||
Corporate equities3 | 80,037 | 191 | 29 | — | 80,257 | ||||||||||||
| Derivative and other contracts: | |||||||||||||||||
| Interest rate | 9,127 | 155,763 | 452 | — | 165,342 | ||||||||||||
| Credit | — | 10,949 | 553 | — | 11,502 | ||||||||||||
| Foreign exchange | 31 | 93,168 | 96 | — | 93,295 | ||||||||||||
| Equity | 1,184 | 71,669 | 1,045 | — | 73,898 | ||||||||||||
| Commodity and other | 12,716 | 28,140 | 1,982 | — | 42,838 | ||||||||||||
Netting1 | (17,166) | (271,135) | (993) | (55,224) | (344,518) | ||||||||||||
| Total derivative and other contracts | 5,892 | 88,554 | 3,135 | (55,224) | 42,357 | ||||||||||||
| Total trading liabilities | 125,770 | 102,849 | 3,183 | (55,224) | 176,578 | ||||||||||||
| Securities sold under agreements to repurchase | — | 448 | 516 | — | 964 | ||||||||||||
| Other secured financings | — | 4,631 | 120 | — | 4,751 | ||||||||||||
| Borrowings | — | 73,564 | 2,399 | — | 75,963 | ||||||||||||
| Total liabilities at fair value | $ | 125,770 | $ | 183,479 | $ | 6,244 | $ | (55,224) | $ | 260,269 | |||||||
| At December 31, 2021 | |||||||||||||||||
| $ in millions | Level 1 | Level 2 | Level 3 | Netting1 | Total | ||||||||||||
| Assets at fair value | |||||||||||||||||
| Trading assets: | |||||||||||||||||
| U.S. Treasury and agency securities | $ | 45,970 | $ | 29,749 | $ | 2 | $ | — | $ | 75,721 | |||||||
| Other sovereign government obligations | 28,041 | 4,533 | 211 | — | 32,785 | ||||||||||||
| State and municipal securities | — | 1,905 | 13 | — | 1,918 | ||||||||||||
| MABS | — | 1,237 | 344 | — | 1,581 | ||||||||||||
Loans and lending commitments2 | — | 8,821 | 3,806 | — | 12,627 | ||||||||||||
| Corporate and other debt | — | 27,309 | 1,973 | — | 29,282 | ||||||||||||
Corporate equities3 | 91,630 | 832 | 115 | — | 92,577 | ||||||||||||
| Derivative and other contracts: | |||||||||||||||||
| Interest rate | 1,364 | 153,048 | 1,153 | — | 155,565 | ||||||||||||
| Credit | — | 8,441 | 509 | — | 8,950 | ||||||||||||
| Foreign exchange | 28 | 74,571 | 132 | — | 74,731 | ||||||||||||
| Equity | 1,562 | 68,519 | 251 | — | 70,332 | ||||||||||||
| Commodity and other | 4,462 | 20,194 | 3,057 | — | 27,713 | ||||||||||||
Netting1 | (5,696) | (241,814) | (794) | (50,833) | (299,137) | ||||||||||||
| Total derivative and other contracts | 1,720 | 82,959 | 4,308 | (50,833) | 38,154 | ||||||||||||
Investments4 | 735 | 846 | 1,125 | — | 2,706 | ||||||||||||
| Physical commodities | — | 2,771 | — | — | 2,771 | ||||||||||||
Total trading assets4 | 168,096 | 160,962 | 11,897 | (50,833) | 290,122 | ||||||||||||
| Investment securities—AFS | 59,021 | 43,809 | — | — | 102,830 | ||||||||||||
| Securities purchased under agreements to resell | — | 7 | — | — | 7 | ||||||||||||
| Total assets at fair value | $ | 227,117 | $ | 204,778 | $ | 11,897 | $ | (50,833) | $ | 392,959 | |||||||
37 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
| At December 31, 2021 | |||||||||||||||||
| $ in millions | Level 1 | Level 2 | Level 3 | Netting1 | Total | ||||||||||||
| Liabilities at fair value | |||||||||||||||||
| Deposits | $ | — | $ | 1,873 | $ | 67 | $ | — | $ | 1,940 | |||||||
| Trading liabilities: | |||||||||||||||||
| U.S. Treasury and agency securities | 16,433 | 319 | — | — | 16,752 | ||||||||||||
| Other sovereign government obligations | 20,771 | 2,062 | — | — | 22,833 | ||||||||||||
| Corporate and other debt | — | 8,707 | 16 | — | 8,723 | ||||||||||||
Corporate equities3 | 75,181 | 226 | 45 | — | 75,452 | ||||||||||||
| Derivative and other contracts: | |||||||||||||||||
| Interest rate | 1,087 | 145,670 | 445 | — | 147,202 | ||||||||||||
| Credit | — | 9,090 | 411 | — | 9,501 | ||||||||||||
| Foreign exchange | 19 | 73,096 | 80 | — | 73,195 | ||||||||||||
| Equity | 2,119 | 77,363 | 1,196 | — | 80,678 | ||||||||||||
| Commodity and other | 4,563 | 16,837 | 1,528 | — | 22,928 | ||||||||||||
Netting1 | (5,696) | (241,814) | (794) | (50,632) | (298,936) | ||||||||||||
| Total derivative and other contracts | 2,092 | 80,242 | 2,866 | (50,632) | 34,568 | ||||||||||||
| Total trading liabilities | 114,477 | 91,556 | 2,927 | (50,632) | 158,328 | ||||||||||||
| Securities sold under agreements to repurchase | — | 140 | 651 | — | 791 | ||||||||||||
| Other secured financings | — | 4,730 | 403 | — | 5,133 | ||||||||||||
| Borrowings | — | 74,183 | 2,157 | — | 76,340 | ||||||||||||
| Total liabilities at fair value | $ | 114,477 | $ | 172,482 | $ | 6,205 | $ | (50,632) | $ | 242,532 | |||||||
MABS—Mortgage- and asset-backed securities
1.For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled “Netting.” Positions classified within the same level that are with the same counterparty are netted within that level. For further information on derivative instruments and hedging activities, see Note 6.
2.For a further breakdown by type, see the following Detail of Loans and Lending Commitments at Fair Value table.
3.For trading purposes, the Firm holds or sells short equity securities issued by entities in diverse industries and of varying sizes.
4.Amounts exclude certain investments that are measured based on NAV per share, which are not classified in the fair value hierarchy. For additional disclosure about such investments, see “Net Asset Value Measurements” herein.
Detail of Loans and Lending Commitments at Fair Value
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Corporate | $ | 8 | $ | 8 | ||||
| Commercial Real Estate | 1,407 | 863 | ||||||
| Residential Real Estate | 3,085 | 3,911 | ||||||
| Securities-based lending and Other loans | 7,990 | 7,845 | ||||||
| Total | $ | 12,490 | $ | 12,627 | ||||
Unsettled Fair Value of Futures Contracts1
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Customer and other receivables (payables), net | $ | 377 | $ | 948 | ||||
1.These contracts are primarily Level 1, actively traded, valued based on quoted prices from the exchange and are excluded from the previous recurring fair value tables.
For a description of the valuation techniques applied to the Firm’s major categories of assets and liabilities measured at fair value on a recurring basis, see Note 5 to the financial statements in the 2021 Form 10-K. During the current quarter, there were no significant revisions made to the Firm’s valuation techniques.
Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| U.S. Treasury and agency securities | ||||||||
| Beginning balance | $ | 2 | $ | 9 | ||||
| Purchases | 1 | 12 | ||||||
| Sales | — | (9) | ||||||
| Net transfers | 5 | — | ||||||
| Ending balance | $ | 8 | $ | 12 | ||||
| Unrealized gains (losses) | $ | — | $ | — | ||||
| Other sovereign government obligations | ||||||||
| Beginning balance | $ | 211 | $ | 268 | ||||
| Purchases | 6 | 15 | ||||||
| Sales | (40) | (256) | ||||||
| Net transfers | 11 | (10) | ||||||
| Ending balance | $ | 188 | $ | 17 | ||||
| Unrealized gains (losses) | $ | — | $ | — | ||||
| State and municipal securities | ||||||||
| Beginning balance | $ | 13 | $ | — | ||||
| Net transfers | (13) | — | ||||||
| Ending balance | $ | — | $ | — | ||||
| Unrealized gains (losses) | $ | — | $ | — | ||||
| MABS | ||||||||
| Beginning balance | $ | 344 | $ | 322 | ||||
| Realized and unrealized gains (losses) | (1) | 51 | ||||||
| Purchases | 56 | 144 | ||||||
| Sales | (96) | (103) | ||||||
| Net transfers | 48 | (40) | ||||||
| Ending balance | $ | 351 | $ | 374 | ||||
| Unrealized gains (losses) | $ | (3) | $ | (2) | ||||
| Loans and lending commitments | ||||||||
| Beginning balance | $ | 3,806 | $ | 5,759 | ||||
| Realized and unrealized gains (losses) | 26 | (26) | ||||||
| Purchases and originations | 369 | 1,833 | ||||||
| Sales | (210) | (2,060) | ||||||
| Settlements | (409) | (388) | ||||||
| Net transfers | (441) | (73) | ||||||
| Ending balance | $ | 3,141 | $ | 5,045 | ||||
| Unrealized gains (losses) | $ | 22 | $ | (32) | ||||
| Corporate and other debt | ||||||||
| Beginning balance | $ | 1,973 | $ | 3,435 | ||||
| Realized and unrealized gains (losses) | 12 | (51) | ||||||
| Purchases and originations | 71 | 867 | ||||||
| Sales | (160) | (749) | ||||||
| Settlements | — | (255) | ||||||
| Net transfers | (143) | 72 | ||||||
| Ending balance | $ | 1,753 | $ | 3,319 | ||||
| Unrealized gains (losses) | $ | 7 | $ | 2 | ||||
| Corporate equities | ||||||||
| Beginning balance | $ | 115 | $ | 86 | ||||
| Realized and unrealized gains (losses) | — | 16 | ||||||
| Purchases | 24 | 25 | ||||||
| Sales | (82) | (46) | ||||||
| Net transfers | 182 | 33 | ||||||
| Ending balance | $ | 239 | $ | 114 | ||||
| Unrealized gains (losses) | $ | — | $ | 18 | ||||
| March 2022 Form 10-Q | 38 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Investments | ||||||||
| Beginning balance | $ | 1,125 | $ | 828 | ||||
| Realized and unrealized gains (losses) | (24) | 6 | ||||||
| Purchases | 20 | 64 | ||||||
| Sales | (4) | (15) | ||||||
| Net transfers | 3 | 41 | ||||||
| Ending balance | $ | 1,120 | $ | 924 | ||||
| Unrealized gains (losses) | $ | (26) | $ | (6) | ||||
| Investment securities —AFS | ||||||||
| Beginning balance | $ | — | $ | 2,804 | ||||
| Realized and unrealized gains (losses) | — | (4) | ||||||
| Sales | — | (192) | ||||||
Net transfers1 | — | (2,481) | ||||||
| Ending balance | $ | — | $ | 127 | ||||
| Unrealized gains (losses) | $ | — | $ | (5) | ||||
| Securities purchased under agreements to resell | ||||||||
| Beginning balance | $ | — | $ | 3 | ||||
| Net transfers | — | (3) | ||||||
| Ending balance | $ | — | $ | — | ||||
| Unrealized gains (losses) | $ | — | $ | — | ||||
| Net derivatives: Interest rate | ||||||||
| Beginning balance | $ | 708 | $ | 682 | ||||
| Realized and unrealized gains (losses) | 39 | (413) | ||||||
| Purchases | 3 | 31 | ||||||
| Issuances | (2) | (17) | ||||||
| Settlements | (21) | 83 | ||||||
| Net transfers | (93) | 325 | ||||||
| Ending balance | $ | 634 | $ | 691 | ||||
| Unrealized gains (losses) | $ | 147 | $ | (403) | ||||
| Net derivatives: Credit | ||||||||
| Beginning balance | $ | 98 | $ | 49 | ||||
| Realized and unrealized gains (losses) | 43 | (4) | ||||||
| Purchases | 8 | 19 | ||||||
| Issuances | (8) | (8) | ||||||
| Settlements | (68) | (72) | ||||||
| Net transfers | 20 | (66) | ||||||
| Ending balance | $ | 93 | $ | (82) | ||||
| Unrealized gains (losses) | $ | 28 | $ | (13) | ||||
| Net derivatives: Foreign exchange | ||||||||
| Beginning balance | $ | 52 | $ | 61 | ||||
| Realized and unrealized gains (losses) | (145) | (236) | ||||||
| Purchases | 5 | 2 | ||||||
| Issuances | — | (4) | ||||||
| Settlements | 81 | 26 | ||||||
| Net transfers | (26) | 41 | ||||||
| Ending balance | $ | (33) | $ | (110) | ||||
| Unrealized gains (losses) | $ | (138) | $ | (206) | ||||
| Net derivatives: Equity | ||||||||
| Beginning balance | $ | (945) | $ | (2,231) | ||||
| Realized and unrealized gains (losses) | 98 | 63 | ||||||
| Purchases | 28 | 77 | ||||||
| Issuances | (68) | (297) | ||||||
| Settlements | 117 | 65 | ||||||
| Net transfers | 116 | 206 | ||||||
| Ending balance | $ | (654) | $ | (2,117) | ||||
| Unrealized gains (losses) | $ | 88 | $ | 12 | ||||
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Net derivatives: Commodity and other | ||||||||
| Beginning balance | $ | 1,529 | $ | 1,709 | ||||
| Realized and unrealized gains (losses) | 4 | 331 | ||||||
| Purchases | 9 | 7 | ||||||
| Issuances | (11) | (1) | ||||||
| Settlements | (47) | (131) | ||||||
| Net transfers | (50) | 29 | ||||||
| Ending balance | $ | 1,434 | $ | 1,944 | ||||
| Unrealized gains (losses) | $ | (216) | $ | 215 | ||||
| Deposits | ||||||||
| Beginning balance | $ | 67 | $ | 126 | ||||
| Realized and unrealized losses (gains) | — | (4) | ||||||
| Issuances | — | 11 | ||||||
| Settlements | (5) | (2) | ||||||
| Net transfers | (36) | 46 | ||||||
| Ending balance | $ | 26 | $ | 177 | ||||
| Unrealized losses (gains) | $ | — | $ | (4) | ||||
| Nonderivative trading liabilities | ||||||||
| Beginning balance | $ | 61 | $ | 79 | ||||
| Realized and unrealized losses (gains) | (3) | (9) | ||||||
| Purchases | (33) | (20) | ||||||
| Sales | 11 | 13 | ||||||
| Net transfers | 12 | (1) | ||||||
| Ending balance | $ | 48 | $ | 62 | ||||
| Unrealized losses (gains) | $ | (3) | $ | (9) | ||||
| Securities sold under agreements to repurchase | ||||||||
| Beginning balance | $ | 651 | $ | 444 | ||||
| Realized and unrealized losses (gains) | 2 | (2) | ||||||
| Settlements | (10) | — | ||||||
| Net transfers | (127) | (1) | ||||||
| Ending balance | $ | 516 | $ | 441 | ||||
| Unrealized losses (gains) | $ | 2 | $ | (2) | ||||
| Other secured financings | ||||||||
| Beginning balance | $ | 403 | $ | 516 | ||||
| Realized and unrealized losses (gains) | (3) | (5) | ||||||
| Issuances | 28 | 370 | ||||||
| Settlements | (305) | (322) | ||||||
| Net transfers | (3) | (4) | ||||||
| Ending balance | $ | 120 | $ | 555 | ||||
| Unrealized losses (gains) | $ | (3) | $ | (5) | ||||
| Borrowings | ||||||||
| Beginning balance | $ | 2,157 | $ | 4,374 | ||||
| Realized and unrealized losses (gains) | (143) | (118) | ||||||
| Issuances | 161 | 231 | ||||||
| Settlements | (42) | (316) | ||||||
| Net transfers | 266 | 91 | ||||||
| Ending balance | $ | 2,399 | $ | 4,262 | ||||
| Unrealized losses (gains) | $ | (143) | $ | (116) | ||||
| Portion of Unrealized losses (gains) recorded in OCI—Change in net DVA | (29) | (29) | ||||||
1.Net transfers in the prior year quarter reflect the transfer of $2.5 billion of AFS securities from Level 3 to Level 2 due to increased trading activity and observability of pricing inputs.
Level 3 instruments may be hedged with instruments classified in Level 1 and Level 2. The realized and unrealized gains or losses for assets and liabilities within the Level 3 category presented in the previous tables do not reflect the related realized and unrealized gains or losses on hedging
39 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
instruments that have been classified by the Firm within the Level 1 and/or Level 2 categories.
The unrealized gains (losses) during the period for assets and liabilities within the Level 3 category may include changes in fair value during the period that were attributable to both observable and unobservable inputs. Total realized and unrealized gains (losses) are primarily included in Trading revenues in the income statement.
Additionally, in the previous tables, consolidations of VIEs are included in Purchases, and deconsolidations of VIEs are included in Settlements.
Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements
Valuation Techniques and Unobservable Inputs
Balance / Range (Average1) | ||||||||
| $ in millions, except inputs | At March 31, 2022 | At December 31, 2021 | ||||||
| Assets at Fair Value on a Recurring Basis | ||||||||
| Other sovereign government obligations | $ | 188 | $ | 211 | ||||
| Comparable pricing: | ||||||||
| Bond price | 91 to 108 points (100 points) | 100 to 140 points (120 points) | ||||||
| MABS | $ | 351 | $ | 344 | ||||
| Comparable pricing: | ||||||||
| Bond price | 0 to 83 points (58 points) | 0 to 86 points (59 points) | ||||||
| Loans and lending commitments | $ | 3,141 | $ | 3,806 | ||||
| Margin loan model: | ||||||||
| Margin loan rate | 1% to 4% (3%) | 1% to 4% (3%) | ||||||
| Comparable pricing: | ||||||||
| Loan price | 88 to 102 points (97 points) | 89 to 101 points (97 points) | ||||||
| Corporate and other debt | $ | 1,753 | $ | 1,973 | ||||
| Comparable pricing: | ||||||||
| Bond price | 50 to 165 points (98 points) | 50 to 163 points (99 points) | ||||||
| Discounted cash flow: | ||||||||
| Loss given default | 54% to 84% (62% / 54%) | 54% to 84% (62% / 54%) | ||||||
| Corporate equities | $ | 239 | $ | 115 | ||||
| Comparable pricing: | ||||||||
| Equity price | 100% | 100% | ||||||
| Investments | $ | 1,120 | $ | 1,125 | ||||
| Discounted cash flow: | ||||||||
| WACC | 13% to 16% (15%) | 10% to 16% (15%) | ||||||
| Exit multiple | 8 to 17 times (12 times) | 8 to 17 times (12 times) | ||||||
| Market approach: | ||||||||
| EBITDA multiple | 8 to 23 times (9 times) | 8 to 25 times (10 times) | ||||||
| Comparable pricing: | ||||||||
| Equity price | 43% to 100% (99%) | 43% to 100% (99%) | ||||||
Balance / Range (Average1) | ||||||||
| $ in millions, except inputs | At March 31, 2022 | At December 31, 2021 | ||||||
| Net derivative and other contracts: | ||||||||
| Interest rate | $ | 634 | $ | 708 | ||||
| Option model: | ||||||||
| IR volatility skew | 45% to 79% (61% / 63%) | 39% to 79% (64% / 63%) | ||||||
| IR curve correlation | 46% to 93% (73% / 76%) | 62% to 98% (83% / 84%) | ||||||
| Bond volatility | 8% to 26% (15% / 14%) | 5% to 32% (12% / 9%) | ||||||
| Inflation volatility | 24% to 65% (44% / 40%) | 24% to 65% (44% / 40%) | ||||||
| IR curve | N/M | 4% | ||||||
| Credit | $ | 93 | $ | 98 | ||||
| Credit default swap model: | ||||||||
| Cash-synthetic basis | 7 points | 7 points | ||||||
| Bond price | N/M | 0 to 83 points (46 points) | ||||||
| Credit spread | 10 to 481 bps (95 bps) | 14 to 477 bps (68 bps) | ||||||
| Funding spread | 15 to 590 bps (77 bps) | 15 to 433 bps (55 bps) | ||||||
Foreign exchange2 | $ | (33) | $ | 52 | ||||
| Option model: | ||||||||
| IR - FX correlation | 54% to 56% (55% 55%) | 53% to 56% (55% / 54%) | ||||||
| IR volatility skew | 45% to 79% (61% / 63%) | 39% to 79% (64% / 63%) | ||||||
| IR curve | 2% to 7% (5% / 7%) | -1% to 7% (2% / 0%) | ||||||
| Foreign exchange volatility skew | -37% to 25% (0% / 1%) | -4% to -2% (-3% / -3%) | ||||||
| Contingency probability | 80% to 95% (93% / 95%) | 90% to 95% (94% / 95%) | ||||||
Equity2 | $ | (654) | $ | (945) | ||||
| Option model: | ||||||||
| Equity volatility | 7% to 96% (24%) | 5% to 99% (24%) | ||||||
| Equity volatility skew | -6% to 0% (-1%) | -4% to 0% (-1%) | ||||||
| Equity correlation | 5% to 97% (75%) | 5% to 99% (73%) | ||||||
| FX correlation | -85% to 60% (-47%) | -85% to 37% (-42%) | ||||||
| IR correlation | 12% to 30% (14%) | 13% to 30% (15%) | ||||||
| Commodity and other | $ | 1,434 | $ | 1,529 | ||||
| Option model: | ||||||||
| Forward power price | $7 to $260 ($48) per MWh | $4 to $263 ($39) per MWh | ||||||
| Commodity volatility | 8% to 196% (32%) | 8% to 385% (22%) | ||||||
| Cross-commodity correlation | 41% to 100% (94%) | 43% to 100% (94%) | ||||||
| Liabilities Measured at Fair Value on a Recurring Basis | ||||||||
| Deposits | $ | 26 | $ | 67 | ||||
| Option model: | ||||||||
| Equity volatility | N/M | 7% | ||||||
| Securities sold under agreements to repurchase | $ | 516 | $ | 651 | ||||
| Discounted cash flow: | ||||||||
| Funding spread | 84 to 131 bps (108 bps) | 112 to 127 bps (120 bps) | ||||||
| Other secured financings | $ | 120 | $ | 403 | ||||
| Comparable pricing: | ||||||||
| Loan price | 23 to 100 points (80 points) | 30 to 100 points (83 points) | ||||||
| March 2022 Form 10-Q | 40 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
Balance / Range (Average1) | ||||||||
| $ in millions, except inputs | At March 31, 2022 | At December 31, 2021 | ||||||
| Borrowings | $ | 2,399 | $ | 2,157 | ||||
| Option model: | ||||||||
| Equity volatility | 7% to 93% (24%) | 7% to 85% (20%) | ||||||
| Equity volatility skew | -1% to 0% (0%) | -1% to 0% (0%) | ||||||
| Equity correlation | 39% to 95% (85%) | 41% to 95% (81%) | ||||||
| Equity - FX correlation | -55% to 25% (-27%) | -55% to 25% (-30%) | ||||||
| IR FX Correlation | -27% to 12% (-6% / -6%) | -26% to 8% (-5% / -5%) | ||||||
| IR curve correlation | 46% to 93% (73% / 76%) | N/M | ||||||
| IR volatility skew | 34% to 82% (51% / 45%) | N/M | ||||||
| Discounted cash flow: | ||||||||
| Loss given default | 54% to 84% (62% / 54%) | 54% to 84% (62% / 54%) | ||||||
| Nonrecurring Fair Value Measurement | ||||||||
| Loans | $ | 1,370 | $ | 1,576 | ||||
| Corporate loan model: | ||||||||
| Credit spread | 79 to 447 bps (266 bps) | 108 to 565 bps (284 bps) | ||||||
| Comparable pricing: | ||||||||
| Loan price | 47 to 80 points (63 points) | 40 to 80 points (61 points) | ||||||
| Warehouse model: | ||||||||
| Credit spread | 187 to 280 bps (226 bps) | 182 to 446 bps (376 bps) | ||||||
Points—Percentage of par
IR—Interest rate
FX—Foreign exchange
1.A single amount is disclosed for range and average when there is no significant difference between the minimum, maximum and average. Amounts represent weighted averages except where simple averages and the median of the inputs are more relevant.
2.Includes derivative contracts with multiple risks (i.e., hybrid products).
The previous table provides information on the valuation techniques, significant unobservable inputs, and the ranges and averages for each major category of assets and liabilities measured at fair value on a recurring and nonrecurring basis with a significant Level 3 balance. The level of aggregation and breadth of products cause the range of inputs to be wide and not evenly distributed across the inventory of financial instruments. Further, the range of unobservable inputs may differ across firms in the financial services industry because of diversity in the types of products included in each firm’s inventory. Generally, there are no predictable relationships between multiple significant unobservable inputs attributable to a given valuation technique.
For a description of the Firm’s significant unobservable inputs and qualitative information about the effect of hypothetical changes in the values of those inputs, see Note 5 to the financial statements in the 2021 Form 10-K. During the current quarter, there were no significant revisions made to the descriptions of the Firm’s significant unobservable inputs.
Net Asset Value Measurements
Fund Interests
| At March 31, 2022 | At December 31, 2021 | |||||||||||||
$ in millions | Carrying Value | Commitment | Carrying Value | Commitment | ||||||||||
| Private equity | $ | 2,607 | $ | 579 | $ | 2,492 | $ | 615 | ||||||
| Real estate | 2,089 | 243 | 2,064 | 248 | ||||||||||
Hedge1 | 195 | 2 | 191 | 2 | ||||||||||
| Total | $ | 4,891 | $ | 824 | $ | 4,747 | $ | 865 | ||||||
1.Investments in hedge funds may be subject to initial period lock-up or gate provisions, which restrict an investor from withdrawing from the fund during a certain initial period or restrict the redemption amount on any redemption date, respectively.
Amounts in the previous table represent the Firm’s carrying value of general and limited partnership interests in fund investments, as well as any related performance-based income in the form of carried interest. The carrying amounts are measured based on the NAV of the fund taking into account the distribution terms applicable to the interest held. This same measurement applies whether the fund investments are accounted for under the equity method or fair value.
For a description of the Firm’s investments in private equity funds, real estate funds and hedge funds, which are measured based on NAV, see Note 5 to the financial statements in the 2021 Form 10-K.
See Note 13 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received. See Note 19 for information regarding unrealized carried interest at risk of reversal.
Nonredeemable Funds by Contractual Maturity
| Carrying Value at March 31, 2022 | ||||||||
$ in millions | Private Equity | Real Estate | ||||||
| Less than 5 years | $ | 1,041 | $ | 327 | ||||
| 5-10 years | 1,109 | 1,745 | ||||||
| Over 10 years | 457 | 17 | ||||||
| Total | $ | 2,607 | $ | 2,089 | ||||
Nonrecurring Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
| At March 31, 2022 | |||||||||||
Fair Value | |||||||||||
| $ in millions | Level 2 | Level 31 | Total | ||||||||
| Assets | |||||||||||
| Loans | $ | 1,531 | $ | 1,370 | $ | 2,901 | |||||
| Other assets—Other investments | — | 7 | 7 | ||||||||
| Other assets—ROU assets | 4 | — | 4 | ||||||||
| Total | $ | 1,535 | $ | 1,377 | $ | 2,912 | |||||
| Liabilities | |||||||||||
| Other liabilities and accrued expenses—Lending commitments | $ | 201 | $ | 86 | $ | 287 | |||||
| Total | $ | 201 | $ | 86 | $ | 287 | |||||
41 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
| At December 31, 2021 | |||||||||||
Fair Value | |||||||||||
| $ in millions | Level 2 | Level 31 | Total | ||||||||
| Assets | |||||||||||
| Loans | $ | 4,035 | $ | 1,576 | $ | 5,611 | |||||
| Other assets—Other investments | — | 8 | 8 | ||||||||
| Other assets—ROU assets | $ | 16 | $ | — | $ | 16 | |||||
| Total | $ | 4,051 | $ | 1,584 | $ | 5,635 | |||||
| Liabilities | |||||||||||
| Other liabilities and accrued expenses—Lending commitments | $ | 173 | $ | 70 | $ | 243 | |||||
| Total | $ | 173 | $ | 70 | $ | 243 | |||||
1.For significant Level 3 balances, refer to “Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements” section herein for details of the significant unobservable inputs used for nonrecurring fair value measurement.
Gains (Losses) from Nonrecurring Fair Value Remeasurements1
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Assets | ||||||||
Loans2 | $ | (43) | $ | (13) | ||||
| Goodwill | — | (8) | ||||||
| Intangibles | — | (2) | ||||||
Other assets—Other investments3 | (2) | (51) | ||||||
| Other assets—Premises, equipment and software | (1) | (2) | ||||||
| Other assets—ROU assets | (2) | — | ||||||
| Total | $ | (48) | $ | (76) | ||||
| Liabilities | ||||||||
Other liabilities and accrued expenses—Lending commitments2 | $ | (49) | $ | 4 | ||||
| Total | $ | (49) | $ | 4 | ||||
1.Gains and losses for Loans and Other assets—Other investments are classified in Other revenues. For other items, gains and losses are recorded in Other revenues if the item is held for sale; otherwise, they are recorded in Other expenses.
2.Nonrecurring changes in the fair value of loans and lending commitments, which exclude the impact of related economic hedges, are calculated as follows: for the held-for-investment category, based on the value of the underlying collateral; and for the held-for-sale category, based on recently executed transactions, market price quotations, valuation models that incorporate market observable inputs where possible, such as comparable loan or debt prices and CDS spread levels adjusted for any basis difference between cash and derivative instruments, or default recovery analysis where such transactions and quotations are unobservable.
3.Losses related to Other assets—Other investments were determined using techniques that included discounted cash flow models, methodologies that incorporate multiples of certain comparable companies and recently executed transactions.
Financial Instruments Not Measured at Fair Value
| At March 31, 2022 | |||||||||||||||||
| Carrying Value | Fair Value | ||||||||||||||||
| $ in millions | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial assets | |||||||||||||||||
| Cash and cash equivalents | $ | 136,086 | $ | 136,086 | $ | — | $ | — | $ | 136,086 | |||||||
| Investment securities—HTM | 80,439 | 29,099 | 45,633 | 1,044 | 75,776 | ||||||||||||
| Securities purchased under agreements to resell | 127,765 | — | 125,543 | 2,186 | 127,729 | ||||||||||||
| Securities borrowed | 150,995 | — | 150,995 | — | 150,995 | ||||||||||||
| Customer and other receivables | 90,134 | — | 86,417 | 3,453 | 89,870 | ||||||||||||
Loans1 | 196,260 | — | 24,140 | 170,269 | 194,409 | ||||||||||||
| Other assets | 509 | — | 509 | — | 509 | ||||||||||||
| Financial liabilities | |||||||||||||||||
| Deposits | $ | 358,827 | $ | — | $ | 358,993 | $ | — | $ | 358,993 | |||||||
| Securities sold under agreements to repurchase | 59,104 | — | 59,089 | — | 59,089 | ||||||||||||
| Securities loaned | 14,222 | — | 14,223 | — | 14,223 | ||||||||||||
| Other secured financings | 4,057 | — | 4,059 | — | 4,059 | ||||||||||||
| Customer and other payables | 243,281 | — | 243,281 | — | 243,281 | ||||||||||||
| Borrowings | 153,854 | — | 155,443 | 4 | 155,447 | ||||||||||||
| Commitment Amount | |||||||||||||||||
Lending commitments2 | $ | 141,421 | $ | — | $ | 1,162 | $ | 514 | $ | 1,676 | |||||||
| At December 31, 2021 | |||||||||||||||||
| Carrying Value | Fair Value | ||||||||||||||||
| $ in millions | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial assets | |||||||||||||||||
| Cash and cash equivalents | $ | 127,725 | $ | 127,725 | $ | — | $ | — | $ | 127,725 | |||||||
| Investment securities—HTM | 80,168 | 29,454 | 49,352 | 1,076 | 79,882 | ||||||||||||
| Securities purchased under agreements to resell | 119,992 | — | 117,922 | 2,075 | 119,997 | ||||||||||||
| Securities borrowed | 129,713 | — | 129,713 | — | 129,713 | ||||||||||||
| Customer and other receivables | 91,664 | — | 88,091 | 3,442 | 91,533 | ||||||||||||
Loans1 | 188,134 | — | 25,706 | 163,784 | 189,490 | ||||||||||||
| Other assets | 528 | — | 528 | — | 528 | ||||||||||||
| Financial liabilities | |||||||||||||||||
| Deposits | $ | 345,634 | $ | — | $ | 345,911 | $ | — | $ | 345,911 | |||||||
| Securities sold under agreements to repurchase | 61,397 | — | 61,419 | — | 61,419 | ||||||||||||
| Securities loaned | 12,299 | — | 12,296 | — | 12,296 | ||||||||||||
| Other secured financings | 4,908 | — | 4,910 | — | 4,910 | ||||||||||||
| Customer and other payables | 228,631 | — | 228,631 | — | 228,631 | ||||||||||||
| Borrowings | 156,787 | — | 162,154 | 4 | 162,158 | ||||||||||||
| Commitment Amount | |||||||||||||||||
Lending commitments2 | $ | 133,519 | $ | — | $ | 890 | $ | 470 | $ | 1,360 | |||||||
1.Amounts include loans measured at fair value on a nonrecurring basis.
2.Represents Lending commitments accounted for as Held for Investment and Held for Sale. For a further discussion on lending commitments, see Note 13.
| March 2022 Form 10-Q | 42 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
The previous tables exclude all non-financial assets and liabilities, such as Goodwill and Intangible assets, and certain financial instruments, such as equity method investments and certain receivables.
5. Fair Value Option
The Firm has elected the fair value option for certain eligible instruments that are risk managed on a fair value basis to mitigate income statement volatility caused by measurement basis differences between the elected instruments and their associated risk management transactions or to eliminate complexities of applying certain accounting models.
Borrowings Measured at Fair Value on a Recurring Basis
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Business Unit Responsible for Risk Management | ||||||||
| Equity | $ | 37,987 | $ | 37,046 | ||||
| Interest rates | 27,100 | 28,638 | ||||||
| Commodities | 8,401 | 7,837 | ||||||
| Credit | 1,310 | 1,347 | ||||||
| Foreign exchange | 1,165 | 1,472 | ||||||
| Total | $ | 75,963 | $ | 76,340 | ||||
Net Revenues from Borrowings under the Fair Value Option
| Three Months Ended March 31, | ||||||||
$ in millions | 2022 | 2021 | ||||||
| Trading revenues | $ | 4,655 | $ | 2,485 | ||||
| Interest expense | 72 | 73 | ||||||
Net revenues1 | $ | 4,583 | $ | 2,412 | ||||
1.Amounts do not reflect any gains or losses from related economic hedges.
Gains (losses) from changes in fair value are recorded in Trading revenues and are mainly attributable to movements in the reference price or index, interest rates or foreign exchange rates.
Gains (Losses) Due to Changes in Instrument-Specific Credit Risk
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| $ in millions | Trading Revenues | OCI | Trading Revenues | OCI | ||||||||||
Loans and other receivables1 | $ | 24 | $ | — | $ | 158 | $ | — | ||||||
| Deposits | — | (7) | — | (1) | ||||||||||
| Borrowings | — | 878 | (17) | 185 | ||||||||||
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Cumulative pre-tax DVA gain (loss) recognized in AOCI | $ | (1,568) | $ | (2,439) | ||||
1.Loans and other receivables-specific credit gains (losses) were determined by excluding the non-credit components of gains and losses.
Difference Between Contractual Principal and Fair Value1
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Loans and other receivables2 | $ | 12,360 | $ | 12,633 | ||||
Nonaccrual loans2 | 9,608 | 9,999 | ||||||
Borrowings3 | 704 | (2,106) | ||||||
1.Amounts indicate contractual principal greater than or (less than) fair value.
2.The majority of the difference between principal and fair value amounts for loans and other receivables relates to distressed debt positions purchased at amounts well below par.
3.Excludes borrowings where the repayment of the initial principal amount fluctuates based on changes in a reference price or index.
The previous tables exclude non-recourse debt from consolidated VIEs, liabilities related to transfers of financial assets treated as collateralized financings, pledged commodities and other liabilities that have specified assets attributable to them.
Fair Value Loans on Nonaccrual Status
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Nonaccrual loans | $ | 908 | $ | 989 | ||||
Nonaccrual loans 90 or more days past due | 264 | 363 | ||||||
6. Derivative Instruments and Hedging Activities
Fair Values of Derivative Contracts
| Assets at March 31, 2022 | ||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||
| Designated as accounting hedges | ||||||||||||||
| Interest rate | $ | 235 | $ | 3 | $ | — | $ | 238 | ||||||
| Foreign exchange | 202 | 14 | — | 216 | ||||||||||
| Total | 437 | 17 | — | 454 | ||||||||||
| Not designated as accounting hedges | ||||||||||||||
| Economic hedges of loans | ||||||||||||||
| Credit | 2 | 12 | — | 14 | ||||||||||
| Other derivatives | ||||||||||||||
| Interest rate | 152,234 | 20,630 | 1,525 | 174,389 | ||||||||||
| Credit | 7,494 | 3,998 | — | 11,492 | ||||||||||
| Foreign exchange | 97,624 | 3,389 | 66 | 101,079 | ||||||||||
| Equity | 27,669 | — | 38,240 | 65,909 | ||||||||||
| Commodity and other | 34,517 | — | 14,789 | 49,306 | ||||||||||
| Total | 319,540 | 28,029 | 54,620 | 402,189 | ||||||||||
| Total gross derivatives | $ | 319,977 | $ | 28,046 | $ | 54,620 | $ | 402,643 | ||||||
| Amounts offset | ||||||||||||||
| Counterparty netting | (222,597) | (25,328) | (50,605) | (298,530) | ||||||||||
| Cash collateral netting | (44,621) | (1,611) | — | (46,232) | ||||||||||
| Total in Trading assets | $ | 52,759 | $ | 1,107 | $ | 4,015 | $ | 57,881 | ||||||
Amounts not offset1 | ||||||||||||||
| Financial instruments collateral | (18,000) | — | — | (18,000) | ||||||||||
| Net amounts | $ | 34,759 | $ | 1,107 | $ | 4,015 | $ | 39,881 | ||||||
| Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable | $ | 10,704 | ||||||||||||
43 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
| Liabilities at March 31, 2022 | ||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||
| Designated as accounting hedges | ||||||||||||||
| Interest rate | $ | 51 | $ | — | $ | — | $ | 51 | ||||||
| Foreign exchange | 59 | 36 | — | 95 | ||||||||||
| Total | 110 | 36 | — | 146 | ||||||||||
| Not designated as accounting hedges | ||||||||||||||
| Economic hedges of loans | ||||||||||||||
| Credit | 15 | 308 | — | 323 | ||||||||||
| Other derivatives | ||||||||||||||
| Interest rate | 142,935 | 21,368 | 988 | 165,291 | ||||||||||
| Credit | 7,029 | 4,150 | — | 11,179 | ||||||||||
| Foreign exchange | 90,134 | 2,970 | 96 | 93,200 | ||||||||||
| Equity | 34,116 | — | 39,782 | 73,898 | ||||||||||
| Commodity and other | 27,290 | — | 15,548 | 42,838 | ||||||||||
| Total | 301,519 | 28,796 | 56,414 | 386,729 | ||||||||||
| Total gross derivatives | $ | 301,629 | $ | 28,832 | $ | 56,414 | $ | 386,875 | ||||||
| Amounts offset | ||||||||||||||
| Counterparty netting | (222,597) | (25,328) | (50,605) | (298,530) | ||||||||||
| Cash collateral netting | (44,557) | (1,431) | — | (45,988) | ||||||||||
| Total in Trading liabilities | $ | 34,475 | $ | 2,073 | $ | 5,809 | $ | 42,357 | ||||||
Amounts not offset1 | ||||||||||||||
| Financial instruments collateral | (3,641) | — | (1,543) | (5,184) | ||||||||||
| Net amounts | $ | 30,834 | $ | 2,073 | $ | 4,266 | $ | 37,173 | ||||||
| Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable | 8,824 | |||||||||||||
| Assets at December 31, 2021 | ||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||
| Designated as accounting hedges | ||||||||||||||
| Interest rate | $ | 594 | $ | 1 | $ | — | $ | 595 | ||||||
| Foreign exchange | 191 | 6 | — | 197 | ||||||||||
| Total | 785 | 7 | — | 792 | ||||||||||
| Not designated as accounting hedges | ||||||||||||||
| Economic hedges of loans | ||||||||||||||
| Credit | — | 15 | — | 15 | ||||||||||
| Other derivatives | ||||||||||||||
| Interest rate | 147,585 | 7,002 | 383 | 154,970 | ||||||||||
| Credit | 5,749 | 3,186 | — | 8,935 | ||||||||||
| Foreign exchange | 73,276 | 1,219 | 39 | 74,534 | ||||||||||
| Equity | 28,877 | — | 41,455 | 70,332 | ||||||||||
| Commodity and other | 22,175 | — | 5,538 | 27,713 | ||||||||||
| Total | 277,662 | 11,422 | 47,415 | 336,499 | ||||||||||
| Total gross derivatives | $ | 278,447 | $ | 11,429 | $ | 47,415 | $ | 337,291 | ||||||
| Amounts offset | ||||||||||||||
| Counterparty netting | (201,729) | (9,818) | (42,883) | (254,430) | ||||||||||
| Cash collateral netting | (43,495) | (1,212) | — | (44,707) | ||||||||||
| Total in Trading assets | $ | 33,223 | $ | 399 | $ | 4,532 | $ | 38,154 | ||||||
Amounts not offset1 | ||||||||||||||
| Financial instruments collateral | (10,457) | — | — | (10,457) | ||||||||||
| Net amounts | $ | 22,766 | $ | 399 | $ | 4,532 | $ | 27,697 | ||||||
| Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable | $ | 6,725 | ||||||||||||
| Liabilities at December 31, 2021 | ||||||||||||||
$ in millions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||
| Designated as accounting hedges | ||||||||||||||
| Interest rate | $ | 86 | $ | 1 | $ | — | $ | 87 | ||||||
| Foreign exchange | 57 | 50 | — | 107 | ||||||||||
| Total | 143 | 51 | — | 194 | ||||||||||
| Not designated as accounting hedges | ||||||||||||||
| Economic hedges of loans | ||||||||||||||
| Credit | 17 | 412 | — | 429 | ||||||||||
| Other derivatives | ||||||||||||||
| Interest rate | 140,770 | 6,112 | 233 | 147,115 | ||||||||||
| Credit | 5,609 | 3,463 | — | 9,072 | ||||||||||
| Foreign exchange | 71,851 | 1,196 | 41 | 73,088 | ||||||||||
| Equity | 39,597 | — | 41,081 | 80,678 | ||||||||||
| Commodity and other | 17,188 | — | 5,740 | 22,928 | ||||||||||
| Total | 275,032 | 11,183 | 47,095 | 333,310 | ||||||||||
| Total gross derivatives | $ | 275,175 | $ | 11,234 | $ | 47,095 | $ | 333,504 | ||||||
| Amounts offset | ||||||||||||||
| Counterparty netting | (201,729) | (9,818) | (42,883) | (254,430) | ||||||||||
| Cash collateral netting | (43,305) | (1,201) | — | (44,506) | ||||||||||
| Total in Trading liabilities | $ | 30,141 | $ | 215 | $ | 4,212 | $ | 34,568 | ||||||
Amounts not offset1 | ||||||||||||||
| Financial instruments collateral | (5,866) | (8) | (39) | (5,913) | ||||||||||
| Net amounts | $ | 24,275 | $ | 207 | $ | 4,173 | $ | 28,655 | ||||||
| Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable | $ | 6,194 | ||||||||||||
1.Amounts relate to master netting agreements and collateral agreements that have been determined by the Firm to be legally enforceable in the event of default but where certain other criteria are not met in accordance with applicable offsetting accounting guidance.
See Note 4 for information related to the unsettled fair value of futures contracts not designated as accounting hedges, which are excluded from the previous tables.
Notionals of Derivative Contracts
| Assets at March 31, 2022 | ||||||||||||||
$ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||
| Designated as accounting hedges | ||||||||||||||
| Interest rate | $ | 4 | $ | 73 | $ | — | $ | 77 | ||||||
| Foreign exchange | 9 | 1 | — | 10 | ||||||||||
| Total | 13 | 74 | — | 87 | ||||||||||
| Not designated as accounting hedges | ||||||||||||||
| Economic hedges of loans | ||||||||||||||
| Credit | — | 1 | — | 1 | ||||||||||
| Other derivatives | ||||||||||||||
| Interest rate | 3,626 | 9,434 | 758 | 13,818 | ||||||||||
| Credit | 231 | 150 | — | 381 | ||||||||||
| Foreign exchange | 3,806 | 146 | 10 | 3,962 | ||||||||||
| Equity | 516 | — | 419 | 935 | ||||||||||
| Commodity and other | 171 | — | 75 | 246 | ||||||||||
| Total | 8,350 | 9,731 | 1,262 | 19,343 | ||||||||||
| Total gross derivatives | $ | 8,363 | $ | 9,805 | $ | 1,262 | $ | 19,430 | ||||||
| March 2022 Form 10-Q | 44 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
| Liabilities at March 31, 2022 | ||||||||||||||
$ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||
| Designated as accounting hedges | ||||||||||||||
| Interest rate | $ | — | $ | 128 | $ | — | $ | 128 | ||||||
| Foreign exchange | 4 | 3 | — | 7 | ||||||||||
| Total | 4 | 131 | — | 135 | ||||||||||
| Not designated as accounting hedges | ||||||||||||||
| Economic hedges of loans | ||||||||||||||
| Credit | 1 | 10 | — | 11 | ||||||||||
| Other derivatives | ||||||||||||||
| Interest rate | 3,577 | 9,060 | 629 | 13,266 | ||||||||||
| Credit | 231 | 146 | — | 377 | ||||||||||
| Foreign exchange | 3,690 | 139 | 19 | 3,848 | ||||||||||
| Equity | 547 | — | 770 | 1,317 | ||||||||||
| Commodity and other | 129 | — | 91 | 220 | ||||||||||
| Total | 8,175 | 9,355 | 1,509 | 19,039 | ||||||||||
| Total gross derivatives | $ | 8,179 | $ | 9,486 | $ | 1,509 | $ | 19,174 | ||||||
| Assets at December 31, 2021 | ||||||||||||||
$ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||
| Designated as accounting hedges | ||||||||||||||
| Interest rate | $ | 4 | $ | 104 | $ | — | $ | 108 | ||||||
| Foreign exchange | 8 | 1 | — | 9 | ||||||||||
| Total | 12 | 105 | — | 117 | ||||||||||
| Not designated as accounting hedges | ||||||||||||||
| Economic hedges of loans | ||||||||||||||
| Credit | — | — | — | — | ||||||||||
| Other derivatives | ||||||||||||||
| Interest rate | 3,488 | 7,082 | 570 | 11,140 | ||||||||||
| Credit | 216 | 105 | — | 321 | ||||||||||
| Foreign exchange | 3,386 | 95 | 10 | 3,491 | ||||||||||
| Equity | 495 | — | 407 | 902 | ||||||||||
| Commodity and other | 139 | — | 73 | 212 | ||||||||||
| Total | 7,724 | 7,282 | 1,060 | 16,066 | ||||||||||
| Total gross derivatives | $ | 7,736 | $ | 7,387 | $ | 1,060 | $ | 16,183 | ||||||
| Liabilities at December 31, 2021 | ||||||||||||||
$ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total | ||||||||||
| Designated as accounting hedges | ||||||||||||||
| Interest rate | $ | — | $ | 99 | $ | — | $ | 99 | ||||||
| Foreign exchange | 5 | 3 | — | 8 | ||||||||||
| Total | 5 | 102 | — | 107 | ||||||||||
| Not designated as accounting hedges | ||||||||||||||
| Economic hedges of loans | ||||||||||||||
| Credit | 1 | 12 | — | 13 | ||||||||||
| Other derivatives | ||||||||||||||
| Interest rate | 3,827 | 6,965 | 445 | 11,237 | ||||||||||
| Credit | 225 | 106 | — | 331 | ||||||||||
| Foreign exchange | 3,360 | 88 | 12 | 3,460 | ||||||||||
| Equity | 552 | — | 735 | 1,287 | ||||||||||
| Commodity and other | 110 | — | 81 | 191 | ||||||||||
| Total | 8,075 | 7,171 | 1,273 | 16,519 | ||||||||||
| Total gross derivatives | $ | 8,080 | $ | 7,273 | $ | 1,273 | $ | 16,626 | ||||||
The notional amounts of derivative contracts generally overstate the Firm’s exposure. In most circumstances, notional amounts are used only as a reference point from which to calculate amounts owed between the parties to the contract. Furthermore, notional amounts do not reflect the
benefit of legally enforceable netting arrangements or risk mitigating transactions.
For a discussion of the Firm’s derivative instruments and hedging activities, see Note 7 to the financial statements in the 2021 Form 10-K.
Gains (Losses) on Accounting Hedges
| Three Months Ended | ||||||||
| March 31, | ||||||||
$ in millions | 2022 | 2021 | ||||||
| Fair value hedges—Recognized in Interest income | ||||||||
| Interest rate contracts | $ | 795 | $ | 831 | ||||
| Investment Securities—AFS | (751) | (772) | ||||||
| Fair value hedges—Recognized in Interest expense | ||||||||
| Interest rate contracts | $ | (6,233) | $ | (4,108) | ||||
| Deposits | 88 | 36 | ||||||
| Borrowings | 6,155 | 4,021 | ||||||
| Net investment hedges—Foreign exchange contracts | ||||||||
Recognized in OCI | $ | 139 | $ | 405 | ||||
| Forward points excluded from hedge effectiveness testing—Recognized in Interest income | (41) | 1 | ||||||
Fair Value Hedges—Hedged Items
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Investment Securities—AFS | ||||||||
| Amortized cost basis currently or previously hedged | $ | 11,039 | $ | 17,902 | ||||
Basis adjustments included in amortized cost1 | $ | (840) | $ | (591) | ||||
| Deposits | ||||||||
Carrying amount currently or previously hedged | $ | 4,807 | $ | 6,279 | ||||
Basis adjustments included in carrying amount1 | $ | (83) | $ | 5 | ||||
Borrowings | ||||||||
| Carrying amount currently or previously hedged | $ | 122,770 | $ | 122,919 | ||||
Basis adjustments included in carrying amount—Outstanding hedges | $ | (3,831) | $ | 2,324 | ||||
Basis adjustments included in carrying amount—Terminated hedges | $ | (736) | $ | (743) | ||||
1.Hedge accounting basis adjustments are primarily related to outstanding hedges.
Gains (Losses) on Economic Hedges of Loans
| Three Months Ended | ||||||||
| March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Recognized in Other revenues | ||||||||
Credit contracts1 | $ | 51 | $ | (105) | ||||
1.Amounts related to hedges of certain held-for-investment and held-for-sale loans.
Net Derivative Liabilities and Collateral Posted
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Net derivative liabilities with credit risk-related contingent features | $ | 22,090 | $ | 20,548 | ||||
| Collateral posted | 14,470 | 14,789 | ||||||
The previous table presents the aggregate fair value of certain derivative contracts that contain credit risk-related contingent features that are in a net liability position for which the Firm has posted collateral in the normal course of business.
45 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
Incremental Collateral and Termination Payments upon Potential Future Ratings Downgrade
$ in millions | At March 31, 2022 | ||||
| One-notch downgrade | $ | 310 | |||
| Two-notch downgrade | 550 | ||||
Bilateral downgrade agreements included in the amounts above1 | $ | 637 | |||
1.Amount represents arrangements between the Firm and other parties where upon the downgrade of one party, the downgraded party must deliver collateral to the other party. These bilateral downgrade arrangements are used by the Firm to manage the risk of counterparty downgrades.
The additional collateral or termination payments that may be called in the event of a future credit rating downgrade vary by contract and can be based on ratings by either or both of Moody’s Investors Service, Inc. and S&P Global Ratings. The previous table shows the future potential collateral amounts and termination payments that could be called or required by counterparties or exchange and clearing organizations in the event of one-notch or two-notch downgrade scenarios based on the relevant contractual downgrade triggers.
Maximum Potential Payout/Notional of Credit Protection Sold1
| Years to Maturity at March 31, 2022 | |||||||||||||||||
$ in billions | < 1 | 1-3 | 3-5 | Over 5 | Total | ||||||||||||
| Single-name CDS | |||||||||||||||||
| Investment grade | $ | 11 | $ | 27 | $ | 30 | $ | 13 | $ | 81 | |||||||
| Non-investment grade | 5 | 13 | 17 | 5 | 40 | ||||||||||||
| Total | $ | 16 | $ | 40 | $ | 47 | $ | 18 | $ | 121 | |||||||
| Index and basket CDS | |||||||||||||||||
| Investment grade | $ | 2 | $ | 11 | $ | 107 | $ | 48 | $ | 168 | |||||||
| Non-investment grade | 9 | 16 | 37 | 24 | 86 | ||||||||||||
| Total | $ | 11 | $ | 27 | $ | 144 | $ | 72 | $ | 254 | |||||||
| Total CDS sold | $ | 27 | $ | 67 | $ | 191 | $ | 90 | $ | 375 | |||||||
| Other credit contracts | — | — | — | — | — | ||||||||||||
| Total credit protection sold | $ | 27 | $ | 67 | $ | 191 | $ | 90 | $ | 375 | |||||||
| CDS protection sold with identical protection purchased | $ | 331 | |||||||||||||||
| Years to Maturity at December 31, 2021 | |||||||||||||||||
$ in billions | < 1 | 1-3 | 3-5 | Over 5 | Total | ||||||||||||
| Single-name CDS | |||||||||||||||||
| Investment grade | $ | 10 | $ | 26 | $ | 29 | $ | 9 | $ | 74 | |||||||
| Non-investment grade | 5 | 13 | 17 | 2 | 37 | ||||||||||||
| Total | $ | 15 | $ | 39 | $ | 46 | $ | 11 | $ | 111 | |||||||
| Index and basket CDS | |||||||||||||||||
| Investment grade | $ | 2 | $ | 11 | $ | 106 | $ | 15 | $ | 134 | |||||||
| Non-investment grade | 9 | 14 | 37 | 12 | 72 | ||||||||||||
| Total | $ | 11 | $ | 25 | $ | 143 | $ | 27 | $ | 206 | |||||||
| Total CDS sold | $ | 26 | $ | 64 | $ | 189 | $ | 38 | $ | 317 | |||||||
| Other credit contracts | — | — | — | — | — | ||||||||||||
| Total credit protection sold | $ | 26 | $ | 64 | $ | 189 | $ | 38 | $ | 317 | |||||||
| CDS protection sold with identical protection purchased | $ | 278 | |||||||||||||||
Fair Value Asset (Liability) of Credit Protection Sold1
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Single-name CDS | ||||||||
| Investment grade | $ | 1,309 | $ | 1,428 | ||||
| Non-investment grade | (1,805) | (370) | ||||||
| Total | $ | (496) | $ | 1,058 | ||||
| Index and basket CDS | ||||||||
| Investment grade | $ | 1,422 | $ | 1,393 | ||||
| Non-investment grade | (1,243) | (650) | ||||||
| Total | $ | 179 | $ | 743 | ||||
| Total CDS sold | $ | (317) | $ | 1,801 | ||||
| Other credit contracts | (3) | (3) | ||||||
| Total credit protection sold | $ | (320) | $ | 1,798 | ||||
1.Investment grade/non-investment grade determination is based on the internal credit rating of the reference obligation. Internal credit ratings serve as the CRM’s assessment of credit risk and the basis for a comprehensive credit limits framework used to control credit risk. The Firm uses quantitative models and judgment to estimate the various risk parameters related to each obligor.
Protection Purchased with CDS
| Notional | ||||||||
$ in billions | At March 31, 2022 | At December 31, 2021 | ||||||
| Single name | $ | 138 | $ | 126 | ||||
| Index and basket | 235 | 204 | ||||||
| Tranched index and basket | 22 | 18 | ||||||
Total | $ | 395 | $ | 348 | ||||
| Fair Value Asset (Liability) | ||||||||
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Single name | $ | 433 | $ | (1,338) | ||||
| Index and basket | 228 | (563) | ||||||
| Tranched index and basket | (340) | (451) | ||||||
| Total | $ | 321 | $ | (2,352) | ||||
The Firm enters into credit derivatives, principally CDS, under which it receives or provides protection against the risk of default on a set of debt obligations issued by a specified reference entity or entities. A majority of the Firm’s counterparties for these derivatives are banks, broker-dealers, and insurance and other financial institutions.
The fair value amounts as shown in the previous tables are prior to cash collateral or counterparty netting. For further information on credit derivatives and other credit contracts, see Note 7 to the financial statements in the 2021 Form 10-K.
| March 2022 Form 10-Q | 46 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
7. Investment Securities
AFS and HTM Securities
| At March 31, 2022 | ||||||||||||||
| $ in millions | Amortized Cost1 | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||
| AFS securities | ||||||||||||||
| U.S. Treasury securities | $ | 57,973 | $ | 25 | $ | 1,519 | $ | 56,479 | ||||||
U.S. agency securities2 | 23,863 | 13 | 1,143 | 22,733 | ||||||||||
| Agency CMBS | 8,596 | 42 | 189 | 8,449 | ||||||||||
| State and municipal securities | 1,334 | 5 | 37 | 1,302 | ||||||||||
FFELP student loan ABS3 | 1,401 | 4 | 14 | 1,391 | ||||||||||
| Total AFS securities | 93,167 | 89 | 2,902 | 90,354 | ||||||||||
| HTM securities | ||||||||||||||
| U.S. Treasury securities | 29,526 | 117 | 544 | 29,099 | ||||||||||
U.S. agency securities2 | 47,656 | 5 | 4,079 | 43,582 | ||||||||||
| Agency CMBS | 2,166 | — | 115 | 2,051 | ||||||||||
| Non-agency CMBS | 1,091 | 1 | 48 | 1,044 | ||||||||||
| Total HTM securities | 80,439 | 123 | 4,786 | 75,776 | ||||||||||
| Total investment securities | $ | 173,606 | $ | 212 | $ | 7,688 | $ | 166,130 | ||||||
| At December 31, 2021 | ||||||||||||||
| $ in millions | Amortized Cost1 | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||
| AFS securities | ||||||||||||||
| U.S. Treasury securities | $ | 58,974 | $ | 343 | $ | 296 | $ | 59,021 | ||||||
U.S. agency securities2 | 26,780 | 274 | 241 | 26,813 | ||||||||||
| Agency CMBS | 14,476 | 289 | 89 | 14,676 | ||||||||||
| State and municipal securities | 613 | 37 | 2 | 648 | ||||||||||
FFELP student loan ABS3 | 1,672 | 11 | 11 | 1,672 | ||||||||||
| Total AFS securities | 102,515 | 954 | 639 | 102,830 | ||||||||||
| HTM securities | ||||||||||||||
| U.S. Treasury securities | 28,653 | 882 | 81 | 29,454 | ||||||||||
U.S. agency securities2 | 48,195 | 169 | 1,228 | 47,136 | ||||||||||
| Agency CMBS | 2,267 | — | 51 | 2,216 | ||||||||||
| Non-agency CMBS | 1,053 | 28 | 5 | 1,076 | ||||||||||
| Total HTM securities | 80,168 | 1,079 | 1,365 | 79,882 | ||||||||||
| Total investment securities | $ | 182,683 | $ | 2,033 | $ | 2,004 | $ | 182,712 | ||||||
1.Amounts are net of any ACL.
2.U.S. agency securities consist mainly of agency mortgage pass-through pool securities, CMOs and agency-issued debt.
3.Underlying loans are backed by a guarantee, ultimately from the U.S. Department of Education, of at least 95% of the principal balance and interest outstanding.
AFS Securities in an Unrealized Loss Position
| At March 31, 2022 | At December 31, 2021 | |||||||||||||
| $ in millions | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||
| U.S. Treasury securities | ||||||||||||||
| Less than 12 months | $ | 39,314 | $ | 1,252 | $ | 31,459 | $ | 296 | ||||||
| 12 months or longer | 6,828 | 267 | — | — | ||||||||||
| Total | 46,142 | 1,519 | 31,459 | 296 | ||||||||||
| U.S. agency securities | ||||||||||||||
| Less than 12 months | 16,478 | 816 | 12,283 | 219 | ||||||||||
| 12 months or longer | 3,624 | 327 | 1,167 | 22 | ||||||||||
| Total | 20,102 | 1,143 | 13,450 | 241 | ||||||||||
| Agency CMBS | ||||||||||||||
| Less than 12 months | 3,634 | 182 | 2,872 | 89 | ||||||||||
| 12 months or longer | 142 | 7 | 10 | — | ||||||||||
| Total | 3,776 | 189 | 2,882 | 89 | ||||||||||
| State and municipal securities | ||||||||||||||
| Less than 12 months | 1,112 | 37 | 21 | 2 | ||||||||||
| Total | 1,112 | 37 | 21 | 2 | ||||||||||
| FFELP student loan ABS | ||||||||||||||
| Less than 12 months | 580 | 5 | 320 | 1 | ||||||||||
| 12 months or longer | 412 | 9 | 591 | 10 | ||||||||||
| Total | 992 | 14 | 911 | 11 | ||||||||||
Total AFS securities in an unrealized loss position | ||||||||||||||
| Less than 12 months | 61,118 | 2,292 | 46,955 | 607 | ||||||||||
| 12 months or longer | 11,006 | 610 | 1,775 | 32 | ||||||||||
| Total | $ | 72,124 | $ | 2,902 | $ | 48,730 | $ | 639 | ||||||
For AFS securities, the Firm believes there are no securities in an unrealized loss position that have credit losses after performing the analysis described in Note 2 in the 2021 Form 10-K and the Firm expects to recover the amortized cost basis of these securities. Additionally, the Firm does not intend to sell these securities and is not likely to be required to sell these securities prior to recovery of the amortized cost basis. As of March 31, 2022 and December 31, 2021, the securities in an unrealized loss position are predominantly investment grade.
The HTM securities net carrying amounts at March 31, 2022 and December 31, 2021 reflect an ACL of $30 million and $33 million, respectively, related to Non-agency CMBS. See Note 2 in the 2021 Form 10-K for a description of the ACL methodology used for HTM Securities. As of March 31, 2022, and December 31, 2021, Non-Agency CMBS HTM securities were predominantly on accrual status and investment grade.
See Note 14 for additional information on securities issued by VIEs, including U.S. agency mortgage-backed securities, non-agency CMBS, and FFELP student loan ABS.
47 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
Investment Securities by Contractual Maturity
| At March 31, 2022 | |||||||||||
| $ in millions | Amortized Cost1 | Fair Value | Annualized Average Yield2 | ||||||||
| AFS securities | |||||||||||
| U.S. Treasury securities: | |||||||||||
| Due within 1 year | $ | 8,901 | $ | 8,911 | 1.6 | % | |||||
| After 1 year through 5 years | 45,839 | 44,349 | 1.0 | % | |||||||
| After 5 years through 10 years | 3,233 | 3,219 | 1.1 | % | |||||||
| Total | 57,973 | 56,479 | |||||||||
| U.S. agency securities: | |||||||||||
| Due within 1 year | 12 | 12 | 0.5 | % | |||||||
| After 1 year through 5 years | 335 | 322 | 1.2 | % | |||||||
| After 5 years through 10 years | 1,179 | 1,148 | 1.8 | % | |||||||
| After 10 years | 22,337 | 21,251 | 1.8 | % | |||||||
| Total | 23,863 | 22,733 | |||||||||
| Agency CMBS: | |||||||||||
| Due within 1 year | 217 | 217 | 1.8 | % | |||||||
| After 1 year through 5 years | 1,318 | 1,298 | 1.6 | % | |||||||
| After 5 years through 10 years | 5,339 | 5,337 | 1.8 | % | |||||||
| After 10 years | 1,722 | 1,597 | 1.4 | % | |||||||
| Total | 8,596 | 8,449 | |||||||||
| State and municipal securities: | |||||||||||
| Due within 1 year | 7 | 7 | 1.4 | % | |||||||
| After 1 year through 5 years | 24 | 25 | 2.3 | % | |||||||
| After 5 years through 10 years | 106 | 103 | 2.4 | % | |||||||
| After 10 Years | 1,197 | 1,167 | 2.6 | % | |||||||
| Total | 1,334 | 1,302 | |||||||||
| FFELP student loan ABS: | |||||||||||
| After 1 year through 5 years | 131 | 129 | 0.9 | % | |||||||
| After 5 years through 10 years | 139 | 135 | 0.7 | % | |||||||
| After 10 years | 1,131 | 1,127 | 1.2 | % | |||||||
| Total | 1,401 | 1,391 | |||||||||
| Total AFS securities | 93,167 | 90,354 | 1.4 | % | |||||||
| HTM securities | |||||||||||
| U.S. Treasury securities: | |||||||||||
| Due within 1 year | 3,749 | 3,761 | 1.9 | % | |||||||
| After 1 year through 5 years | 19,336 | 18,974 | 1.7 | % | |||||||
| After 5 years through 10 years | 4,879 | 4,865 | 2.4 | % | |||||||
| After 10 years | 1,562 | 1,499 | 2.3 | % | |||||||
| Total | 29,526 | 29,099 | |||||||||
| U.S. agency securities: | |||||||||||
| After 5 years through 10 years | 456 | 450 | 2.0 | % | |||||||
| After 10 years | 47,200 | 43,132 | 1.7 | % | |||||||
| Total | 47,656 | 43,582 | |||||||||
| Agency CMBS: | |||||||||||
| Due within 1 year | 78 | 77 | 1.1 | % | |||||||
| After 1 year through 5 years | 1,371 | 1,312 | 1.3 | % | |||||||
| After 5 years through 10 years | 567 | 526 | 1.5 | % | |||||||
| After 10 years | 150 | 136 | 1.5 | % | |||||||
| Total | 2,166 | 2,051 | |||||||||
| At March 31, 2022 | |||||||||||
| $ in millions | Amortized Cost1 | Fair Value | Annualized Average Yield2 | ||||||||
| Non-agency CMBS: | |||||||||||
| Due within 1 year | 167 | 167 | 4.2 | % | |||||||
| After 1 year through 5 years | 90 | 89 | 3.4 | % | |||||||
| After 5 years through 10 years | 798 | 753 | 3.6 | % | |||||||
| After 10 years | 36 | 35 | 4.4 | % | |||||||
| Total | 1,091 | 1,044 | |||||||||
| Total HTM securities | 80,439 | 75,776 | 1.8 | % | |||||||
Total investment securities | $ | 173,606 | $ | 166,130 | 1.6 | % | |||||
1.Amounts are net of any ACL.
2.Annualized average yield is computed using the effective yield, weighted based on the amortized cost of each security. The effective yield is shown pre-tax and considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives.
Gross Realized Gains (Losses) on Sales of AFS Securities
| Three Months Ended March 31, | ||||||||
$ in millions | 2022 | 2021 | ||||||
| Gross realized gains | $ | 126 | $ | 145 | ||||
| Gross realized (losses) | (82) | (11) | ||||||
Total1 | $ | 44 | $ | 134 | ||||
1.Realized gains and losses are recognized in Other revenues in the income statement.
8. Collateralized Transactions
Offsetting of Certain Collateralized Transactions
| At March 31, 2022 | |||||||||||||||||
$ in millions | Gross Amounts | Amounts Offset | Balance Sheet Net Amounts | Amounts Not Offset1 | Net Amounts | ||||||||||||
| Assets | |||||||||||||||||
| Securities purchased under agreements to resell | $ | 238,485 | $ | (110,718) | $ | 127,767 | $ | (123,988) | $ | 3,779 | |||||||
| Securities borrowed | 164,657 | (13,662) | 150,995 | (143,492) | 7,503 | ||||||||||||
| Liabilities | |||||||||||||||||
| Securities sold under agreements to repurchase | $ | 170,786 | $ | (110,718) | $ | 60,068 | $ | (53,563) | $ | 6,505 | |||||||
| Securities loaned | 27,884 | (13,662) | 14,222 | (13,930) | 292 | ||||||||||||
| Net amounts for which master netting agreements are not in place or may not be legally enforceable | |||||||||||||||||
| Securities purchased under agreements to resell | $ | 2,772 | |||||||||||||||
| Securities borrowed | 849 | ||||||||||||||||
| Securities sold under agreements to repurchase | 5,010 | ||||||||||||||||
| Securities loaned | 151 | ||||||||||||||||
| March 2022 Form 10-Q | 48 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
| At December 31, 2021 | |||||||||||||||||
| $ in millions | Gross Amounts | Amounts Offset | Balance Sheet Net Amounts | Amounts Not Offset1 | Net Amounts | ||||||||||||
| Assets | |||||||||||||||||
| Securities purchased under agreements to resell | $ | 197,486 | $ | (77,487) | $ | 119,999 | $ | (106,896) | $ | 13,103 | |||||||
| Securities borrowed | 139,395 | (9,682) | 129,713 | (124,028) | 5,685 | ||||||||||||
| Liabilities | |||||||||||||||||
| Securities sold under agreements to repurchase | $ | 139,675 | $ | (77,487) | $ | 62,188 | $ | (53,692) | $ | 8,496 | |||||||
| Securities loaned | 21,981 | (9,682) | 12,299 | (12,019) | 280 | ||||||||||||
| Net amounts for which master netting agreements are not in place or may not be legally enforceable | |||||||||||||||||
| Securities purchased under agreements to resell | $ | 12,514 | |||||||||||||||
| Securities borrowed | 1,041 | ||||||||||||||||
| Securities sold under agreements to repurchase | 8,295 | ||||||||||||||||
| Securities loaned | 139 | ||||||||||||||||
1.Amounts relate to master netting agreements that have been determined by the Firm to be legally enforceable in the event of default but where certain other criteria are not met in accordance with applicable offsetting accounting guidance.
For further discussion of the Firm’s collateralized transactions, see Note 2 and Note 9 to the financial statements in the 2021 Form 10-K. For information related to offsetting of derivatives, see Note 6.
Gross Secured Financing Balances by Remaining Contractual Maturity
| At March 31, 2022 | |||||||||||||||||
$ in millions | Overnight and Open | Less than 30 Days | 30-90 Days | Over 90 Days | Total | ||||||||||||
| Securities sold under agreements to repurchase | $ | 57,575 | $ | 55,401 | $ | 15,420 | $ | 42,390 | $ | 170,786 | |||||||
| Securities loaned | 17,040 | — | 675 | 10,169 | 27,884 | ||||||||||||
| Total included in the offsetting disclosure | $ | 74,615 | $ | 55,401 | $ | 16,095 | $ | 52,559 | $ | 198,670 | |||||||
| Trading liabilities— Obligation to return securities received as collateral | 26,399 | — | — | — | 26,399 | ||||||||||||
| Total | $ | 101,014 | $ | 55,401 | $ | 16,095 | $ | 52,559 | $ | 225,069 | |||||||
| At December 31, 2021 | |||||||||||||||||
$ in millions | Overnight and Open | Less than 30 Days | 30-90 Days | Over 90 Days | Total | ||||||||||||
| Securities sold under agreements to repurchase | $ | 29,271 | $ | 53,987 | $ | 17,099 | $ | 39,318 | $ | 139,675 | |||||||
| Securities loaned | 11,480 | 364 | 650 | 9,487 | 21,981 | ||||||||||||
| Total included in the offsetting disclosure | $ | 40,751 | $ | 54,351 | $ | 17,749 | $ | 48,805 | $ | 161,656 | |||||||
| Trading liabilities— Obligation to return securities received as collateral | 30,104 | — | — | — | 30,104 | ||||||||||||
| Total | $ | 70,855 | $ | 54,351 | $ | 17,749 | $ | 48,805 | $ | 191,760 | |||||||
Gross Secured Financing Balances by Class of Collateral Pledged
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Securities sold under agreements to repurchase | ||||||||
| U.S. Treasury and agency securities | $ | 51,940 | $ | 30,790 | ||||
| Other sovereign government obligations | 87,195 | 73,063 | ||||||
| Corporate equities | 19,200 | 25,881 | ||||||
| Other | 12,451 | 9,941 | ||||||
| Total | $ | 170,786 | $ | 139,675 | ||||
| Securities loaned | ||||||||
| Other sovereign government obligations | $ | 858 | $ | 748 | ||||
| Corporate equities | 26,528 | 20,656 | ||||||
| Other | 498 | 577 | ||||||
| Total | $ | 27,884 | $ | 21,981 | ||||
| Total included in the offsetting disclosure | $ | 198,670 | $ | 161,656 | ||||
| Trading liabilities—Obligation to return securities received as collateral | ||||||||
| Corporate equities | $ | 26,370 | $ | 30,048 | ||||
| Other | 29 | 56 | ||||||
Total | $ | 26,399 | $ | 30,104 | ||||
| Total | $ | 225,069 | $ | 191,760 | ||||
Carrying Value of Assets Loaned or Pledged without Counterparty Right to Sell or Repledge
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Trading assets | $ | 32,061 | $ | 32,458 | ||||
The Firm pledges certain of its trading assets to collateralize securities sold under agreements to repurchase, securities loaned, other secured financings and derivatives and to cover customer short sales. Counterparties may or may not have the right to sell or repledge the collateral.
Pledged financial instruments that can be sold or repledged by the secured party are identified as Trading assets (pledged to various parties) in the balance sheet.
Fair Value of Collateral Received with Right to Sell or Repledge
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Collateral received with right to sell or repledge | $ | 725,931 | $ | 672,104 | ||||
Collateral that was sold or repledged1 | 564,304 | 510,000 | ||||||
1.Does not include securities used to meet federal regulations for the Firm’s U.S. broker-dealers.
The Firm receives collateral in the form of securities in connection with securities purchased under agreements to resell, securities borrowed, securities-for-securities transactions, derivative transactions, customer margin loans and securities-based lending. In many cases, the Firm is permitted to sell or repledge this collateral to secure securities sold under agreements to repurchase, to enter into securities lending and derivative transactions or to deliver to counterparties to cover short positions.
49 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
Securities Segregated for Regulatory Purposes
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Segregated securities1 | $ | 30,324 | $ | 20,092 | ||||
1.Securities segregated under federal regulations for the Firm’s U.S. broker-dealers are sourced from Securities purchased under agreements to resell and Trading assets in the balance sheet.
Customer Margin and Other Lending
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Margin and other lending | $ | 56,348 | $ | 71,532 | ||||
The Firm provides margin lending arrangements that allow customers to borrow against the value of qualifying securities. Receivables from these arrangements are included within Customer and other receivables in the balance sheet. Under these arrangements, the Firm receives collateral, which includes U.S. government and agency securities, other sovereign government obligations, corporate and other debt, and corporate equities. Margin loans are collateralized by customer-owned securities held by the Firm. The Firm monitors required margin levels and established credit terms daily and, pursuant to such guidelines, requires customers to deposit additional collateral, or reduce positions, when necessary.
For a further discussion of the Firm’s margin lending activities, see Note 9 to the financial statements in the 2021 Form 10-K.
Also included in the amounts in the previous table is non-purpose securities-based lending on non-bank entities in the Wealth Management business segment.
Other Secured Financings
The Firm has additional secured liabilities. For a further discussion of other secured financings, see Note 12.
9. Loans, Lending Commitments and Related Allowance for Credit Losses
Loans by Type
| At March 31, 2022 | |||||||||||
$ in millions | HFI Loans | HFS Loans | Total Loans | ||||||||
| Corporate | $ | 6,105 | $ | 7,069 | $ | 13,174 | |||||
Secured lending facilities | 29,896 | 4,661 | 34,557 | ||||||||
Commercial real estate | 8,276 | 1,986 | 10,262 | ||||||||
Residential real estate | 47,236 | 6 | 47,242 | ||||||||
| Securities-based lending and Other loans | 91,413 | 291 | 91,704 | ||||||||
Total loans | 182,926 | 14,013 | 196,939 | ||||||||
| ACL | (679) | (679) | |||||||||
| Total loans, net | $ | 182,247 | $ | 14,013 | $ | 196,260 | |||||
| Loans to non-U.S. borrowers, net | $ | 24,286 | |||||||||
| At December 31, 2021 | |||||||||||
$ in millions | HFI Loans | HFS Loans | Total Loans | ||||||||
| Corporate | $ | 5,567 | $ | 8,107 | $ | 13,674 | |||||
Secured lending facilities | 31,471 | 3,879 | 35,350 | ||||||||
Commercial real estate | 7,227 | 1,777 | 9,004 | ||||||||
| Residential real estate | 44,251 | 7 | 44,258 | ||||||||
| Securities-based lending and Other loans | 86,440 | 62 | 86,502 | ||||||||
| Total loans | 174,956 | 13,832 | 188,788 | ||||||||
| ACL | (654) | (654) | |||||||||
| Total loans, net | $ | 174,302 | $ | 13,832 | $ | 188,134 | |||||
| Loans to non-U.S. borrowers, net | $ | 24,322 | |||||||||
For additional information on the Firm’s held-for-investment and held-for-sale loan portfolios, see Note 10 to the financial statements in the 2021 Form 10-K.
Loans by Interest Rate Type
| At March 31, 2022 | At December 31, 2021 | |||||||||||||
| $ in millions | Fixed Rate | Floating or Adjustable Rate | Fixed Rate | Floating or Adjustable Rate | ||||||||||
| Corporate | $ | — | $ | 13,174 | $ | — | $ | 13,674 | ||||||
| Secured lending facilities | — | 34,557 | — | 35,350 | ||||||||||
| Commercial real estate | 342 | 9,920 | 343 | 8,661 | ||||||||||
| Residential real estate | 20,754 | 26,488 | 18,966 | 25,292 | ||||||||||
| Securities-based lending and Other loans | 24,705 | 66,999 | 22,832 | 63,670 | ||||||||||
| Total loans, before ACL | $ | 45,801 | $ | 151,138 | $ | 42,141 | $ | 146,647 | ||||||
Note 4 for further information regarding Loans and lending commitments held at fair value. See Note 13 for details of current commitments to lend in the future.
Loans Held for Investment before Allowance by Origination Year
| At March 31, 2022 | At December 31, 2021 | |||||||||||||||||||
| Corporate | ||||||||||||||||||||
$ in millions | IG | NIG | Total | IG | NIG | Total | ||||||||||||||
Revolving | $ | 2,681 | $ | 2,541 | $ | 5,222 | $ | 2,356 | $ | 2,328 | $ | 4,684 | ||||||||
| 2022 | — | 3 | 3 | |||||||||||||||||
| 2021 | — | 94 | 94 | — | 85 | 85 | ||||||||||||||
| 2020 | 110 | 27 | 137 | 111 | 26 | 137 | ||||||||||||||
| 2019 | — | 169 | 169 | — | 176 | 176 | ||||||||||||||
| 2018 | 196 | — | 196 | 196 | — | 196 | ||||||||||||||
Prior | 225 | 59 | 284 | 229 | 60 | 289 | ||||||||||||||
Total | $ | 3,212 | $ | 2,893 | $ | 6,105 | $ | 2,892 | $ | 2,675 | $ | 5,567 | ||||||||
| At March 31, 2022 | At December 31, 2021 | |||||||||||||||||||
| Secured Lending Facilities | ||||||||||||||||||||
$ in millions | IG | NIG | Total | IG | NIG | Total | ||||||||||||||
Revolving | $ | 7,784 | $ | 18,539 | $ | 26,323 | $ | 7,603 | $ | 20,172 | $ | 27,775 | ||||||||
| 2022 | — | 403 | 403 | |||||||||||||||||
| 2021 | 32 | 429 | 461 | 32 | 467 | 499 | ||||||||||||||
| 2020 | — | 140 | 140 | 35 | 160 | 195 | ||||||||||||||
| 2019 | 43 | 753 | 796 | 43 | 819 | 862 | ||||||||||||||
| 2018 | 268 | 415 | 683 | 297 | 703 | 1,000 | ||||||||||||||
Prior | 144 | 946 | 1,090 | 144 | 996 | 1,140 | ||||||||||||||
Total | $ | 8,271 | $ | 21,625 | $ | 29,896 | $ | 8,154 | $ | 23,317 | $ | 31,471 | ||||||||
| March 2022 Form 10-Q | 50 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
| At March 31, 2022 | At December 31, 2021 | |||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||
$ in millions | IG | NIG | Total | IG | NIG | Total | ||||||||||||||
Revolving | $ | 4 | $ | 83 | $ | 87 | $ | 3 | $ | 149 | $ | 152 | ||||||||
| 2022 | 122 | 1,020 | 1,142 | |||||||||||||||||
| 2021 | 457 | 1,490 | 1,947 | 423 | 1,292 | 1,715 | ||||||||||||||
| 2020 | 92 | 812 | 904 | 91 | 819 | 910 | ||||||||||||||
| 2019 | 1,182 | 936 | 2,118 | 976 | 1,266 | 2,242 | ||||||||||||||
| 2018 | 603 | 325 | 928 | 527 | 416 | 943 | ||||||||||||||
Prior | 188 | 962 | 1,150 | 189 | 1,076 | 1,265 | ||||||||||||||
Total | $ | 2,648 | $ | 5,628 | $ | 8,276 | $ | 2,209 | $ | 5,018 | $ | 7,227 | ||||||||
| At March 31, 2022 | ||||||||||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||||
by FICO Scores | by LTV Ratio | Total | ||||||||||||||||||||||||
$ in millions | ≥ 740 | 680-739 | ≤ 679 | ≤ 80% | > 80% | |||||||||||||||||||||
| Revolving | $ | 64 | $ | 24 | $ | 4 | $ | 92 | $ | — | $ | 92 | ||||||||||||||
| 2022 | 3,468 | 733 | 93 | 3,980 | 314 | 4,294 | ||||||||||||||||||||
| 2021 | 12,115 | 2,623 | 263 | 13,996 | 1,005 | 15,001 | ||||||||||||||||||||
| 2020 | 7,711 | 1,592 | 130 | 8,935 | 498 | 9,433 | ||||||||||||||||||||
| 2019 | 4,520 | 1,039 | 143 | 5,351 | 351 | 5,702 | ||||||||||||||||||||
| 2018 | 1,775 | 481 | 53 | 2,130 | 179 | 2,309 | ||||||||||||||||||||
Prior | 7,701 | 2,345 | 359 | 9,535 | 870 | 10,405 | ||||||||||||||||||||
| Total | $ | 37,354 | $ | 8,837 | $ | 1,045 | $ | 44,019 | $ | 3,217 | $ | 47,236 | ||||||||||||||
| At December 31, 2021 | ||||||||||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||||
| by FICO Scores | by LTV Ratio | Total | ||||||||||||||||||||||||
| $ in millions | ≥ 740 | 680-739 | ≤ 679 | ≤ 80% | > 80% | |||||||||||||||||||||
| Revolving | $ | 65 | $ | 27 | $ | 4 | $ | 96 | $ | — | $ | 96 | ||||||||||||||
| 2021 | 12,230 | 2,638 | 257 | 14,116 | 1,009 | 15,125 | ||||||||||||||||||||
| 2020 | 7,941 | 1,648 | 131 | 9,210 | 510 | 9,720 | ||||||||||||||||||||
| 2019 | 4,690 | 1,072 | 140 | 5,536 | 366 | 5,902 | ||||||||||||||||||||
| 2018 | 1,865 | 497 | 55 | 2,231 | 186 | 2,417 | ||||||||||||||||||||
| 2017 | 2,157 | 558 | 65 | 2,588 | 192 | 2,780 | ||||||||||||||||||||
| Prior | 5,973 | 1,919 | 319 | 7,485 | 726 | 8,211 | ||||||||||||||||||||
| Total | $ | 34,921 | $ | 8,359 | $ | 971 | $ | 41,262 | $ | 2,989 | $ | 44,251 | ||||||||||||||
| At March 31, 2022 | ||||||||||||||
Securities-based Lending1 | Other2 | |||||||||||||
$ in millions | IG | NIG | Total | |||||||||||
| Revolving | $ | 75,570 | $ | 6,105 | $ | 988 | $ | 82,663 | ||||||
| 2022 | 720 | 477 | 85 | 1,282 | ||||||||||
| 2021 | 800 | 565 | 152 | 1,517 | ||||||||||
| 2020 | — | 596 | 657 | 1,253 | ||||||||||
| 2019 | 19 | 994 | 602 | 1,615 | ||||||||||
| 2018 | 213 | 273 | 288 | 774 | ||||||||||
Prior | 16 | 1,682 | 611 | 2,309 | ||||||||||
| Total | $ | 77,338 | $ | 10,692 | $ | 3,383 | $ | 91,413 | ||||||
| December 31, 2021 | ||||||||||||||
Securities-based Lending1 | Other2 | |||||||||||||
$ in millions | IG | NIG | Total | |||||||||||
| Revolving | $ | 71,485 | $ | 6,170 | $ | 858 | $ | 78,513 | ||||||
| 2021 | 807 | 708 | 103 | 1,618 | ||||||||||
| 2020 | — | 651 | 626 | 1,277 | ||||||||||
| 2019 | 19 | 1,079 | 633 | 1,731 | ||||||||||
| 2018 | 232 | 273 | 375 | 880 | ||||||||||
| 2017 | — | 531 | 217 | 748 | ||||||||||
Prior | 16 | 1,294 | 363 | 1,673 | ||||||||||
| Total | $ | 72,559 | $ | 10,706 | $ | 3,175 | $ | 86,440 | ||||||
IG—Investment Grade
NIG—Non-investment Grade
1. Securities-based loans are subject to collateral maintenance provisions, and at March 31, 2022 and December 31, 2021, these loans are predominantly over-collateralized. For more information on the ACL methodology related to securities-based loans, see Note 2 to the financial statements in the 2021 Form 10-K.
2. Other loans primarily include certain loans originated in the tailored lending business within the Wealth Management business segment.
Past Due Loans Held for Investment before Allowance1
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Residential real estate | 191 | 209 | ||||||
1.The majority of the amounts are past due for a period of less than 90 days.
Nonaccrual Loans Held for Investment before Allowance
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Corporate | $ | 77 | $ | 34 | ||||
| Secured lending facilities | 110 | 375 | ||||||
| Commercial real estate | 287 | 195 | ||||||
| Residential real estate | 119 | 138 | ||||||
| Securities-based lending and Other loans | 142 | 151 | ||||||
Total1 | $ | 735 | $ | 893 | ||||
| Nonaccrual loans without an ACL | $ | 112 | $ | 356 | ||||
1.Includes all loans held for investment that are 90 days or more past due as of March 31, 2022 and December 31, 2021.
See Note 2 to the financial statements in the 2021 Form 10-K for a description of the ACL calculated under the CECL methodology, including credit quality indicators, used for HFI loans.
Troubled Debt Restructurings
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Loans, before ACL | $ | 30 | $ | 49 | ||||
| Allowance for credit losses | — | 8 | ||||||
Troubled debt restructurings typically include modifications of interest rates, collateral requirements, other loan covenants and payment extensions. See Note 2 to the financial statements in the 2021 Form 10-K for further information on TDR guidance issued by Congress in the CARES Act as well as by the U.S. banking agencies.
51 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
Allowance for Credit Losses Rollforward and Allocation—Loans
$ in millions | Corporate | Secured Lending Facilities | CRE | Residential Real Estate | SBL and Other | Total | ||||||||||||||
| December 31, 2021 | $ | 165 | $ | 163 | $ | 206 | $ | 60 | $ | 60 | $ | 654 | ||||||||
| Gross charge-offs | — | (3) | (7) | — | (1) | (11) | ||||||||||||||
| Provision (release) | 6 | 12 | 6 | 13 | 2 | 39 | ||||||||||||||
| Other | (1) | — | (2) | — | — | (3) | ||||||||||||||
| March 31, 2022 | $ | 170 | $ | 172 | $ | 203 | $ | 73 | $ | 61 | $ | 679 | ||||||||
Percent of loans to total loans1 | 3 | % | 16 | % | 5 | % | 26 | % | 50 | % | 100 | % | ||||||||
$ in millions | Corporate | Secured Lending Facilities | CRE | Residential Real Estate | SBL and Other | Total | ||||||||||||||
| December 31, 2020 | $ | 309 | $ | 198 | $ | 211 | $ | 59 | $ | 58 | $ | 835 | ||||||||
| Gross charge-offs | (1) | — | (9) | — | — | (10) | ||||||||||||||
| Provision (release) | (56) | (3) | 5 | (5) | 1 | (58) | ||||||||||||||
| Other | (2) | (2) | (1) | — | — | (5) | ||||||||||||||
| March 31, 2021 | $ | 250 | $ | 193 | $ | 206 | $ | 54 | $ | 59 | $ | 762 | ||||||||
Percent of loans to total loans1 | 4 | % | 18 | % | 5 | % | 25 | % | 48 | % | 100 | % | ||||||||
CRE—Commercial real estate
SBL—Securities-based lending
1.Percent of loans to total loans represents loans held for investment by loan type to total loans held for investment.
Allowance for Credit Losses Rollforward—Lending Commitments
$ in millions | Corporate | Secured Lending Facilities | CRE | Residential Real Estate | SBL and Other | Total | ||||||||||||||
| December 31, 2021 | $ | 356 | $ | 41 | $ | 20 | $ | 1 | $ | 26 | $ | 444 | ||||||||
| Provision (release) | 20 | 8 | (7) | — | (3) | 18 | ||||||||||||||
| Other | (3) | — | — | — | — | (3) | ||||||||||||||
| March 31, 2022 | $ | 373 | $ | 49 | $ | 13 | $ | 1 | $ | 23 | $ | 459 | ||||||||
$ in millions | Corporate | Secured Lending Facilities | CRE | Residential Real Estate | SBL and Other | Total | ||||||||||||||
| December 31, 2020 | $ | 323 | $ | 38 | $ | 11 | $ | 1 | $ | 23 | $ | 396 | ||||||||
| Provision (release) | (33) | (4) | (2) | — | (1) | (40) | ||||||||||||||
| Other | (1) | 1 | (1) | — | (1) | (2) | ||||||||||||||
| March 31, 2021 | $ | 289 | $ | 35 | $ | 8 | $ | 1 | $ | 21 | $ | 354 | ||||||||
The aggregate allowance for credit losses for loans and lending commitments increased in the current quarter, reflecting the Provision for credit losses primarily due to portfolio growth.The base scenario used in our ACL models as of March 31, 2022 was generated using a combination of industry consensus economic forecasts, forward rates, and internally developed and validated models, and assumes continued growth over the forecast period. Given the nature of our lending portfolio, the most sensitive model input is U.S. gross domestic product. For a further discussion of the Firm’s loans as well as the Firm’s allowance methodology, refer to Notes 2 and 10 to the financial statements in the 2021 Form 10-K.
Selected Credit Ratios
| At March 31, 2022 | At December 31, 2021 | |||||||
ACL to total loans1 | 0.4 | % | 0.4 | % | ||||
Nonaccrual loans to total loans2 | 0.4 | % | 0.5 | % | ||||
ACL to nonaccrual loans3 | 92.4 | % | 73.2 | % | ||||
1.Allowance for credit losses for loans to total loans held for investment.
2.Nonaccrual loans held for investment, which are loans that are 90 days or more past due, to total loans held for investment.
3.Allowance for credit losses for loans to nonaccrual loans held for investment.
Employee Loans
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Currently employed by the Firm1 | $ | 3,759 | $ | 3,613 | ||||
No longer employed by the Firm2 | 105 | $ | 113 | |||||
| Employee loans | $ | 3,864 | $ | 3,726 | ||||
| ACL | (146) | (153) | ||||||
| Employee loans, net of ACL | $ | 3,718 | $ | 3,573 | ||||
| Remaining repayment term, weighted average in years | 5.7 | 5.7 | ||||||
1.These loans are predominantly current as of March 31, 2022 and December 31, 2021.
2.These loans are predominantly past due for a period of 90 days or more as of March 31, 2022 and December 31, 2021.
Employee loans are granted in conjunction with a program established primarily to recruit certain Wealth Management representatives, are full recourse and generally require periodic repayments, and are due in full upon termination of employment with the Firm. These loans are recorded in Customer and other receivables in the balance sheet. See Note 2 to the financial statements in the 2021 Form 10-K for a description of the CECL allowance methodology, including credit quality indicators, for employee loans.
10. Other Assets—Equity Method Investments
Equity Method Investments
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Investments | $ | 2,138 | $ | 2,214 | ||||
| Three Months Ended March 31, | ||||||||
$ in millions | 2022 | 2021 | ||||||
| Income (loss) | $ | 6 | $ | (24) | ||||
Equity method investments, other than investments in certain fund interests, are summarized above and are included in Other assets in the balance sheet with related income or loss included in Other revenues in the income statement. See “Net Asset Value Measurements—Fund Interests” in Note 4 for the carrying value of certain of the Firm’s fund interests, which are composed of general and limited partnership interests, as well as any related carried interest.
| March 2022 Form 10-Q | 52 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
Japanese Securities Joint Venture
| Three Months Ended March 31, | ||||||||
$ in millions | 2022 | 2021 | ||||||
| Income (loss) from investment in MUMSS | $ | 4 | $ | 32 | ||||
For more information on Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (“MUMSS”) and other relationships with Mitsubishi UFJ Financial Group, Inc., see Note 12 to the financial statements in the 2021 Form 10-K.
11. Deposits
Deposits
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Savings and demand deposits | $ | 348,651 | $ | 332,747 | ||||
| Time deposits | 12,189 | 14,827 | ||||||
| Total | $ | 360,840 | $ | 347,574 | ||||
| Deposits subject to FDIC insurance | $ | 234,779 | $ | 230,894 | ||||
| Deposits not subject to FDIC insurance | $ | 126,061 | $ | 116,680 | ||||
Time Deposit Maturities
| $ in millions | At March 31, 2022 | ||||
| 2022 | $ | 3,423 | |||
| 2023 | 4,187 | ||||
| 2024 | 2,796 | ||||
| 2025 | 882 | ||||
| 2026 | 306 | ||||
| Thereafter | 595 | ||||
| Total | $ | 12,189 | |||
12. Borrowings and Other Secured Financings
Borrowings
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Original maturities of one year or less | $ | 4,146 | $ | 5,764 | ||||
| Original maturities greater than one year | ||||||||
| Senior | $ | 212,687 | $ | 213,776 | ||||
| Subordinated | 12,984 | 13,587 | ||||||
| Total | $ | 225,671 | $ | 227,363 | ||||
| Total borrowings | $ | 229,817 | $ | 233,127 | ||||
Weighted average stated maturity, in years1 | 7.3 | 7.7 | ||||||
1.Only includes borrowings with original maturities greater than one year.
Other Secured Financings
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Original maturities: | ||||||||
| One year or less | $ | 3,778 | $ | 4,573 | ||||
| Greater than one year | 5,030 | 5,468 | ||||||
| Total | $ | 8,808 | $ | 10,041 | ||||
| Transfers of assets accounted for as secured financings | $ | 1,071 | $ | 1,556 | ||||
Other secured financings include the liabilities related to collateralized notes, transfers of financial assets that are accounted for as financings rather than sales and consolidated VIEs where the Firm is deemed to be the primary beneficiary. These liabilities are generally payable from the cash flows of the related assets accounted for as Trading assets. See Note 14 for further information on other secured financings related to VIEs and securitization activities.
For transfers of assets that fail to meet accounting criteria for a sale, the Firm continues to record the assets and recognizes the associated liabilities in the balance sheet.
13. Commitments, Guarantees and Contingencies
Commitments
| Years to Maturity at March 31, 2022 | |||||||||||||||||
| $ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | Total | ||||||||||||
| Lending: | |||||||||||||||||
| Corporate | $ | 14,186 | $ | 36,316 | $ | 50,242 | $ | 6,200 | $ | 106,944 | |||||||
| Secured lending facilities | 6,524 | 7,576 | 3,640 | 553 | 18,293 | ||||||||||||
| Commercial and Residential real estate | 412 | 813 | 26 | 259 | 1,510 | ||||||||||||
| Securities-based lending and Other | 11,447 | 3,380 | 506 | 412 | 15,745 | ||||||||||||
| Forward-starting secured financing receivables | 61,272 | — | — | — | 61,272 | ||||||||||||
| Central counterparty | 300 | — | — | 4,772 | 5,072 | ||||||||||||
| Underwriting | 40 | 3,150 | — | — | 3,190 | ||||||||||||
| Investment activities | 1,157 | 176 | 52 | 380 | 1,765 | ||||||||||||
| Letters of credit and other financial guarantees | 129 | — | — | 3 | 132 | ||||||||||||
| Total | $ | 95,467 | $ | 51,411 | $ | 54,466 | $ | 12,579 | $ | 213,923 | |||||||
| Lending commitments participated to third parties | $ | 7,963 | |||||||||||||||
| Forward-starting secured financing receivables settled within three business days | $ | 51,192 | |||||||||||||||
Since commitments associated with these instruments may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.
For a further description of these commitments, refer to Note 15 to the financial statements in the 2021 Form 10-K.
53 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
Guarantees
| At March 31, 2022 | ||||||||||||||||||||
Maximum Potential Payout/Notional of Obligations by Years to Maturity | Carrying Amount Asset (Liability) | |||||||||||||||||||
| $ in millions | Less than 1 | 1-3 | 3-5 | Over 5 | ||||||||||||||||
Non-credit derivatives1 | $ | 1,316,262 | $ | 914,129 | $ | 322,125 | $ | 821,128 | $ | (67,840) | ||||||||||
Standby letters of credit and other financial guarantees issued2 | 1,441 | 1,079 | 1,124 | 2,686 | 29 | |||||||||||||||
| Market value guarantees | 89 | 2 | — | — | — | |||||||||||||||
| Liquidity facilities | 4,382 | — | — | — | 4 | |||||||||||||||
| Whole loan sales guarantees | — | 2 | 85 | 23,095 | — | |||||||||||||||
Securitization representations and warranties3 | — | — | — | 79,059 | (42) | |||||||||||||||
| General partner guarantees | 348 | 12 | 32 | 152 | (79) | |||||||||||||||
| Client clearing guarantees | 150 | — | — | — | — | |||||||||||||||
1.The carrying amounts of derivative contracts that meet the accounting definition of a guarantee are shown on a gross basis. For further information on derivatives contracts, see Note 6.
2.These amounts include certain issued standby letters of credit participated to third parties, totaling $0.8 billion of notional and collateral/recourse, due to the nature of the Firm’s obligations under these arrangements. As of March 31, 2022, the carrying amount of standby letters of credit and other financial guarantees issued includes an allowance for credit losses of $78 million.
3.Related to commercial and residential mortgage securitizations.
The Firm has obligations under certain guarantee arrangements, including contracts and indemnification agreements, that contingently require the Firm to make payments to the guaranteed party based on changes in an underlying measure (such as an interest or foreign exchange rate, security or commodity price, an index, or the occurrence or non-occurrence of a specified event) related to an asset, liability or equity security of a guaranteed party. Also included as guarantees are contracts that contingently require the Firm to make payments to the guaranteed party based on another entity’s failure to perform under an agreement, as well as indirect guarantees of the indebtedness of others.
For more information on the nature of the obligations and related business activities for our guarantees, see Note 15 to the financial statements in the 2021 Form 10-K.
Other Guarantees and Indemnities
In the normal course of business, the Firm provides guarantees and indemnifications in a variety of transactions. These provisions generally are standard contractual terms. Certain of these guarantees and indemnifications related to indemnities, exchange and clearinghouse member guarantees and merger and acquisition guarantees are described in Note 15 to the financial statements in the 2021 Form 10-K.
In addition, in the ordinary course of business, the Firm guarantees the debt and/or certain trading obligations (including obligations associated with derivatives, foreign exchange contracts and the settlement of physical commodities) of certain subsidiaries. These guarantees generally are entity or product specific and are required by investors or trading counterparties. The activities of the Firm’s subsidiaries covered by these guarantees (including
any related debt or trading obligations) are included in the financial statements.
Finance Subsidiary
The Parent Company fully and unconditionally guarantees the securities issued by Morgan Stanley Finance LLC, a wholly owned finance subsidiary. No other subsidiary of the Parent Company guarantees these securities.
Contingencies
Legal
In addition to the matter described below, in the normal course of business, the Firm has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases are bankrupt or are in financial distress. These actions have included, but are not limited to, antitrust, false claims act, residential mortgage and credit crisis-related matters.
While the Firm has identified below any individual proceedings where the Firm believes a material loss to be reasonably possible and reasonably estimable, there can be no assurance that material losses will not be incurred from claims that have not yet been asserted or those where potential losses have not yet been determined to be probable or possible and reasonably estimable.
In many proceedings and investigations, however, it is inherently difficult to determine whether any loss is probable or even possible or to estimate the amount of any loss. In addition, even where a loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is not always possible to reasonably estimate the size of the possible loss or range of loss, particularly for proceedings and investigations where the factual record is being developed or contested or where plaintiffs or government entities seek substantial or indeterminate damages, restitution, disgorgement or penalties. Numerous issues may need to be resolved before a loss or additional loss, or range of loss or additional range of loss, can be reasonably estimated for a proceeding or investigation, including through potentially lengthy discovery and determination of important factual matters, determination of issues related to class certification and the calculation of damages or other relief, and consideration of novel or unsettled legal questions relevant to the proceedings or investigations in question.
For certain other legal proceedings and investigations, the Firm can estimate reasonably possible losses, additional
| March 2022 Form 10-Q | 54 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
losses, ranges of loss or ranges of additional loss in excess of amounts accrued but does not believe, based on current knowledge and after consultation with counsel, that such losses could have a material adverse effect on the Firm’s financial statements as a whole, other than the matter referred to in the following paragraph.
Tax
In matters styled Case number 15/3637 and Case number 15/4353, the Dutch Tax Authority (“Dutch Authority”) is challenging in the Dutch courts the prior set-off by the Firm of approximately €124 million (approximately $137 million) plus accrued interest of withholding tax credits against the Firm’s corporation tax liabilities for the tax years 2007 to 2012. The Dutch Authority alleges that the Firm was not entitled to receive the withholding tax credits on the basis, inter alia, that a Firm subsidiary did not hold legal title to certain securities subject to withholding tax on the relevant dates. The Dutch Authority has also alleged that the Firm failed to provide certain information to the Dutch Authority and to keep adequate books and records. On April 26, 2018, the District Court in Amsterdam issued a decision dismissing the Dutch Authority’s claims with respect to certain of the tax years in dispute. On May 12, 2020, the Court of Appeal in Amsterdam granted the Dutch Authority’s appeal in matters re-styled Case number 18/00318 and Case number 18/00319. On June 22, 2020, the Firm filed an appeal against the decision of the Court of Appeal in Amsterdam before the Dutch High Court. On January 29, 2021, the Advocate General of the Dutch High Court issued an advisory opinion on the Firm’s appeal, which rejected the Firm’s principal grounds of appeal. On February 11, 2021, the Firm and the Dutch Authority each responded to this opinion. On June 22, 2021, Dutch criminal authorities sought various documents in connection with an investigation of the Firm related to the civil claims asserted by the Dutch Authority concerning the accuracy of the Firm subsidiary’s tax returns and the maintenance of its books and records for 2007 to 2012.
14. Variable Interest Entities and Securitization Activities
Consolidated VIE Assets and Liabilities by Type of Activity
| At March 31, 2022 | At December 31, 2021 | |||||||||||||
| $ in millions | VIE Assets | VIE Liabilities | VIE Assets | VIE Liabilities | ||||||||||
MABS1 | $ | 1,272 | $ | 383 | $ | 1,177 | $ | 409 | ||||||
Investment vehicles2 | 813 | 429 | 717 | 294 | ||||||||||
| Operating entities | 509 | 37 | 508 | 39 | ||||||||||
| Other | 579 | 288 | 510 | 286 | ||||||||||
| Total | $ | 3,173 | $ | 1,137 | $ | 2,912 | $ | 1,028 | ||||||
1.Amounts include transactions backed by residential mortgage loans, commercial mortgage loans and other types of assets, including consumer or commercial assets and may be in loan or security form. The value of assets is determined based on the fair value of the liabilities and the interests owned by the Firm in such VIEs as the fair values for the liabilities and interests owned are more observable.
2.Amounts include investment funds and CLOs.
Consolidated VIE Assets and Liabilities by Balance Sheet Caption
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 334 | $ | 341 | ||||
| Trading assets at fair value | 2,252 | 1,965 | ||||||
| Investment securities | 34 | 37 | ||||||
| Securities purchased under agreements to resell | 200 | 200 | ||||||
| Customer and other receivables | 26 | 31 | ||||||
| Intangible assets | 82 | 85 | ||||||
| Other assets | 245 | 253 | ||||||
| Total | $ | 3,173 | $ | 2,912 | ||||
| Liabilities | ||||||||
| Other secured financings | $ | 963 | $ | 767 | ||||
| Other liabilities and accrued expenses | 174 | 261 | ||||||
| Total | $ | 1,137 | $ | 1,028 | ||||
| Noncontrolling interests | $ | 119 | $ | 115 | ||||
Consolidated VIE assets and liabilities are presented in the previous tables after intercompany eliminations. Generally, most assets owned by consolidated VIEs cannot be removed unilaterally by the Firm and are not available to the Firm while the related liabilities issued by consolidated VIEs are non-recourse to the Firm. However, in certain consolidated VIEs, the Firm either has the unilateral right to remove assets or provides additional recourse through derivatives such as total return swaps, guarantees or other forms of involvement.
In general, the Firm’s exposure to loss in consolidated VIEs is limited to losses that would be absorbed on the VIE net assets recognized in its financial statements, net of amounts absorbed by third-party variable interest holders.
Non-consolidated VIEs
| At March 31, 2022 | |||||||||||||||||
$ in millions | MABS1 | CDO | MTOB | OSF | Other2 | ||||||||||||
| VIE assets (UPB) | $ | 116,627 | $ | 1,379 | $ | 6,465 | $ | 2,043 | $ | 54,186 | |||||||
Maximum exposure to loss3 | |||||||||||||||||
| Debt and equity interests | $ | 13,005 | $ | 157 | $ | — | $ | 1,449 | $ | 11,055 | |||||||
| Derivative and other contracts | — | — | 4,382 | — | 4,374 | ||||||||||||
| Commitments, guarantees and other | 1,007 | — | — | — | 1,454 | ||||||||||||
| Total | $ | 14,012 | $ | 157 | $ | 4,382 | $ | 1,449 | $ | 16,883 | |||||||
| Carrying value of variable interests—Assets | |||||||||||||||||
| Debt and equity interests | $ | 13,005 | $ | 157 | $ | — | $ | 1,449 | $ | 11,055 | |||||||
| Derivative and other contracts | — | — | 6 | — | 1,642 | ||||||||||||
| Total | $ | 13,005 | $ | 157 | $ | 6 | $ | 1,449 | $ | 12,697 | |||||||
Additional VIE assets owned4 | $ | 13,339 | |||||||||||||||
| Carrying value of variable interests—Liabilities | |||||||||||||||||
| Derivative and other contracts | $ | — | $ | — | $ | 1 | $ | — | $ | 280 | |||||||
55 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
| At December 31, 2021 | |||||||||||||||||
$ in millions | MABS1 | CDO | MTOB | OSF | Other2 | ||||||||||||
| VIE assets (UPB) | $ | 146,071 | $ | 667 | $ | 6,089 | $ | 2,086 | $ | 52,111 | |||||||
Maximum exposure to loss3 | |||||||||||||||||
| Debt and equity interests | $ | 18,062 | $ | 129 | $ | — | $ | 1,459 | $ | 10,339 | |||||||
| Derivative and other contracts | — | — | 4,100 | — | 5,599 | ||||||||||||
| Commitments, guarantees and other | 771 | — | — | — | 1,005 | ||||||||||||
| Total | $ | 18,833 | $ | 129 | $ | 4,100 | $ | 1,459 | $ | 16,943 | |||||||
Carrying value of variable interests–Assets | |||||||||||||||||
| Debt and equity interests | $ | 18,062 | $ | 129 | $ | — | $ | 1,459 | $ | 10,339 | |||||||
| Derivative and other contracts | — | — | 5 | — | 2,006 | ||||||||||||
| Total | $ | 18,062 | $ | 129 | $ | 5 | $ | 1,459 | $ | 12,345 | |||||||
Additional VIE assets owned4 | $ | 15,392 | |||||||||||||||
| Carrying value of variable interests—Liabilities | |||||||||||||||||
| Derivative and other contracts | $ | — | $ | — | $ | — | $ | — | $ | 362 | |||||||
MTOB—Municipal tender option bonds
1.Amounts include transactions backed by residential mortgage loans, commercial mortgage loans and other types of assets, including consumer or commercial assets, and may be in loan or security form.
2.Other primarily includes exposures to commercial real estate property and investment funds.
3.Where notional amounts are utilized in quantifying the maximum exposure related to derivatives, such amounts do not reflect changes in fair value recorded by the Firm.
4.Additional VIE assets owned represents the carrying value of total exposure to non-consolidated VIEs for which the maximum exposure to loss is less than specific thresholds, primarily interests issued by securitization SPEs. The Firm’s maximum exposure to loss generally equals the fair value of the assets owned. These assets are primarily included in Trading assets and Investment securities and are measured at fair value (see Note 4). The Firm does not provide additional support in these transactions through contractual facilities, guarantees or similar derivatives.
The majority of the VIEs included in the previous tables are sponsored by unrelated parties; examples of the Firm’s involvement with these VIEs include its secondary market-making activities and the securities held in its Investment securities portfolio (see Note 7).
The Firm’s maximum exposure to loss is dependent on the nature of the Firm’s variable interest in the VIE and is limited to the notional amounts of certain liquidity facilities and other credit support, total return swaps and written put options, as well as the fair value of certain other derivatives and investments the Firm has made in the VIE.
The Firm’s maximum exposure to loss in the previous tables does not include the offsetting benefit of hedges or any reductions associated with the amount of collateral held as part of a transaction with the VIE or any party to the VIE directly against a specific exposure to loss.
Liabilities issued by VIEs generally are non-recourse to the Firm.
Detail of Mortgage- and Asset-Backed Securitization Assets
| At March 31, 2022 | At December 31, 2021 | |||||||||||||
$ in millions | UPB | Debt and Equity Interests | UPB | Debt and Equity Interests | ||||||||||
| Residential mortgages | $ | 12,741 | $ | 2,164 | $ | 15,216 | $ | 2,182 | ||||||
| Commercial mortgages | 67,450 | 4,058 | 68,503 | 4,092 | ||||||||||
| U.S. agency collateralized mortgage obligations | 31,914 | 4,818 | 57,972 | 9,835 | ||||||||||
| Other consumer or commercial loans | 4,522 | 1,965 | 4,380 | 1,953 | ||||||||||
| Total | $ | 116,627 | $ | 13,005 | $ | 146,071 | $ | 18,062 | ||||||
Transferred Assets with Continuing Involvement
| At March 31, 2022 | ||||||||||||||
$ in millions | RML | CML | U.S. Agency CMO | CLN and Other1 | ||||||||||
SPE assets (UPB)2 | $ | 8,677 | $ | 101,928 | $ | 33,602 | $ | 12,574 | ||||||
| Retained interests | ||||||||||||||
| Investment grade | $ | 96 | $ | 754 | $ | 363 | $ | — | ||||||
| Non-investment grade | 26 | 576 | — | 57 | ||||||||||
| Total | $ | 122 | $ | 1,330 | $ | 363 | $ | 57 | ||||||
| Interests purchased in the secondary market | ||||||||||||||
| Investment grade | $ | 55 | $ | 65 | $ | 134 | $ | 4 | ||||||
| Non-investment grade | 44 | 49 | — | 2 | ||||||||||
| Total | $ | 99 | $ | 114 | $ | 134 | $ | 6 | ||||||
| Derivative assets | $ | — | $ | — | $ | — | $ | 1,050 | ||||||
| Derivative liabilities | — | — | — | 185 | ||||||||||
| At December 31, 2021 | ||||||||||||||
$ in millions | RML | CML | U.S. Agency CMO | CLN and Other1 | ||||||||||
SPE assets (UPB)2 | $ | 6,802 | $ | 94,276 | $ | 28,697 | $ | 13,121 | ||||||
| Retained interests | ||||||||||||||
| Investment grade | $ | 72 | $ | 638 | $ | 465 | $ | — | ||||||
| Non-investment grade | 19 | 586 | — | 69 | ||||||||||
| Total | $ | 91 | $ | 1,224 | $ | 465 | $ | 69 | ||||||
| Interests purchased in the secondary market | ||||||||||||||
| Investment grade | $ | 18 | $ | 118 | $ | 33 | $ | — | ||||||
| Non-investment grade | 38 | 53 | — | 4 | ||||||||||
| Total | $ | 56 | $ | 171 | $ | 33 | $ | 4 | ||||||
Derivative assets | $ | — | $ | — | $ | — | $ | 891 | ||||||
| Derivative liabilities | — | — | — | 284 | ||||||||||
| Fair Value At March 31, 2022 | |||||||||||
$ in millions | Level 2 | Level 3 | Total | ||||||||
| Retained interests | |||||||||||
| Investment grade | $ | 461 | $ | — | $ | 461 | |||||
| Non-investment grade | 11 | 45 | 56 | ||||||||
| Total | $ | 472 | $ | 45 | $ | 517 | |||||
| Interests purchased in the secondary market | |||||||||||
| Investment grade | $ | 250 | $ | 8 | $ | 258 | |||||
| Non-investment grade | 60 | 35 | 95 | ||||||||
| Total | $ | 310 | $ | 43 | $ | 353 | |||||
| Derivative assets | $ | 1,050 | $ | — | $ | 1,050 | |||||
| Derivative liabilities | 140 | 45 | 185 | ||||||||
| March 2022 Form 10-Q | 56 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
| Fair Value at December 31, 2021 | |||||||||||
$ in millions | Level 2 | Level 3 | Total | ||||||||
| Retained interests | |||||||||||
| Investment grade | $ | 536 | $ | 2 | $ | 538 | |||||
| Non-investment grade | 40 | 40 | 80 | ||||||||
| Total | $ | 576 | $ | 42 | $ | 618 | |||||
| Interests purchased in the secondary market | |||||||||||
| Investment grade | $ | 168 | $ | 1 | $ | 169 | |||||
| Non-investment grade | 70 | 25 | 95 | ||||||||
| Total | $ | 238 | $ | 26 | $ | 264 | |||||
| Derivative assets | $ | 891 | $ | — | $ | 891 | |||||
| Derivative liabilities | 194 | 90 | 284 | ||||||||
RML—Residential mortgage loans
CML—Commercial mortgage loans
1.Amounts include CLO transactions managed by unrelated third parties.
2.Amounts include assets transferred by unrelated transferors.
The previous tables include transactions with SPEs in which the Firm, acting as principal, transferred financial assets with continuing involvement and received sales treatment. The transferred assets are carried at fair value prior to securitization, and any changes in fair value are recognized in the income statement. The Firm may act as underwriter of the beneficial interests issued by these securitization vehicles, for which Investment banking revenues are recognized. The Firm may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are generally carried at fair value in the balance sheet with changes in fair value recognized in the income statement. Fair value for these interests is measured using techniques that are consistent with the valuation techniques applied to the Firm’s major categories of assets and liabilities as described in Note 2 in the 2021 Form 10-K and Note 4 herein. Further, as permitted by applicable guidance, certain transfers of assets where the Firm’s only continuing involvement is a derivative are only reported in the following Assets Sold with Retained Exposure table.
Proceeds from New Securitization Transactions and Sales of Loans
| Three Months Ended March 31, | ||||||||
$ in millions | 2022 | 2021 | ||||||
New transactions1 | $ | 8,260 | $ | 14,790 | ||||
| Retained interests | 1,622 | 2,579 | ||||||
Sales of corporate loans to CLO SPEs1, 2 | 4 | — | ||||||
1.Net gains on new transactions and sales of corporate loans to CLO entities at the time of the sale were not material for all periods presented.
2.Sponsored by non-affiliates.
The Firm has provided, or otherwise agreed to be responsible for, representations and warranties regarding certain assets transferred in securitization transactions sponsored by the Firm (see Note 13).
Assets Sold with Retained Exposure
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Gross cash proceeds from sale of assets1 | $ | 60,826 | $ | 67,930 | ||||
| Fair value | ||||||||
| Assets sold | $ | 62,015 | $ | 68,992 | ||||
| Derivative assets recognized in the balance sheet | 1,474 | 1,195 | ||||||
| Derivative liabilities recognized in the balance sheet | 284 | 132 | ||||||
1.The carrying value of assets derecognized at the time of sale approximates gross cash proceeds.
The Firm enters into transactions in which it sells securities, primarily equities, and contemporaneously enters into bilateral OTC derivatives with the purchasers of the securities, through which it retains exposure to the sold securities.
For a discussion of the Firm’s VIEs, the determination and structure of VIEs and securitization activities, see Note 16 to the financial statements in the 2021 Form 10-K.
15. Regulatory Requirements
Regulatory Capital Framework and Requirements
For a discussion of the Firm’s regulatory capital framework, see Note 17 to the financial statements in the 2021 Form 10-K.
The Firm is required to maintain minimum risk-based and leverage-based capital ratios under regulatory capital requirements. A summary of the calculations of regulatory capital and RWA follows.
Risk-Based Regulatory Capital. Risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital (which includes Tier 2 capital), each as a percentage of RWA, and consist of regulatory minimum required ratios plus the Firm’s capital buffer requirement. Capital requirements require certain adjustments to, and deductions from, capital for purposes of determining these ratios. At March 31, 2022 and December 31, 2021, the differences between the actual and required ratios were lower under the Standardized Approach.
CECL Deferral. As of December 31, 2021, the risk-based and leverage-based capital amounts and ratios, as well as RWA, adjusted average assets and supplementary leverage exposure were calculated excluding the effect of the adoption of CECL based on the Firm’s election to defer this effect over a five-year transition period that began on January 1, 2020. In 2022 the deferral impacts began to phase in at 25% per year and will become fully phased-in beginning in 2025.
57 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
Capital Buffer Requirements
At March 31, 2022 and December 31, 2021 | ||||||||
| Standardized | Advanced | |||||||
| Capital buffers | ||||||||
| Capital conservation buffer | — | 2.5% | ||||||
| SCB | 5.7% | N/A | ||||||
| G-SIB capital surcharge | 3.0% | 3.0% | ||||||
CCyB1 | 0% | 0% | ||||||
| Capital buffer requirement | 8.7% | 5.5% | ||||||
1.The CCyB can be set up to 2.5%, but is currently set by the Federal Reserve at zero.
The capital buffer requirement represents the amount of Common Equity Tier 1 capital the Firm must maintain above the minimum risk-based capital requirements in order to avoid restrictions on the Firm’s ability to make capital distributions, including the payment of dividends and the repurchase of stock, and to pay discretionary bonuses to executive officers. The Firm’s Standardized Approach capital buffer requirement is equal to the sum of the SCB, G-SIB capital surcharge and CCyB, and the Advanced Approach capital buffer requirement is equal to the 2.5% capital conservation buffer, G-SIB capital surcharge and CCyB.
Risk-Based Regulatory Capital Ratio Requirements
Regulatory Minimum | At March 31, 2022 and December 31, 2021 | ||||||||||
| Standardized | Advanced | ||||||||||
Required ratios1 | |||||||||||
| Common Equity Tier 1 capital ratio | 4.5 | % | 13.2% | 10.0% | |||||||
| Tier 1 capital ratio | 6.0 | % | 14.7% | 11.5% | |||||||
| Total capital ratio | 8.0 | % | 16.7% | 13.5% | |||||||
1.Required ratios represent the regulatory minimum plus the capital buffer requirement.
The Firm’s Regulatory Capital and Capital Ratios
| $ in millions | Required Ratio1 | At March 31, 2022 | At December 31, 2021 | ||||||||
| Risk-based capital | |||||||||||
| Common Equity Tier 1 capital | $ | 72,477 | $ | 75,742 | |||||||
| Tier 1 capital | 80,121 | 83,348 | |||||||||
| Total capital | 89,468 | 93,166 | |||||||||
| Total RWA | 501,429 | 471,921 | |||||||||
| Common Equity Tier 1 capital ratio | 13.2 | % | 14.5 | % | 16.0 | % | |||||
| Tier 1 capital ratio | 14.7 | % | 16.0 | % | 17.7 | % | |||||
| Total capital ratio | 16.7 | % | 17.8 | % | 19.7 | % | |||||
| $ in millions | Required Ratio1 | At March 31, 2022 | At December 31, 2021 | ||||||||
| Leverage-based capital | |||||||||||
Adjusted average assets2 | $ | 1,184,494 | $ | 1,169,939 | |||||||
| Tier 1 leverage ratio | 4.0 | % | 6.8 | % | 7.1 | % | |||||
Supplementary leverage exposure3 | $ | 1,466,624 | $ | 1,476,962 | |||||||
| SLR | 5.0 | % | 5.5 | % | 5.6 | % | |||||
1.Required ratios are inclusive of any buffers applicable as of the date presented.
2.Adjusted average assets represents the denominator of the Tier 1 leverage ratio and is composed of the average daily balance of consolidated on-balance sheet assets for the quarters ending on the respective balance sheet dates, reduced by disallowed goodwill, intangible assets, investments in covered funds, defined benefit pension plan assets, after-tax gain on sale from assets sold into securitizations, investments in the Firm’s own capital instruments, certain defined tax assets and other capital deductions.
3.Supplementary leverage exposure is the sum of Adjusted average assets used in the Tier 1 leverage ratio and other adjustments, primarily: (i) for derivatives, potential future exposure and the effective notional principal amount of sold credit protection, offset by qualifying purchased credit protection; (ii) the counterparty credit risk for repo-style transactions; and (iii) the credit equivalent amount for off-balance sheet exposures.
U.S. Bank Subsidiaries’ Regulatory Capital and Capital Ratios
The OCC establishes capital requirements for the Firm’s U.S. bank subsidiaries, which includes Morgan Stanley Bank, N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA”) (collectively, “U.S. Bank Subsidiaries”), and evaluates their compliance with such capital requirements. Regulatory capital requirements for the U.S. Bank Subsidiaries are calculated in a similar manner to the Firm’s regulatory capital requirements, although G-SIB capital surcharge and SCB requirements do not apply to the U.S. Bank Subsidiaries.
The OCC’s regulatory capital framework includes Prompt Corrective Action (“PCA”) standards, including “well-capitalized” PCA standards that are based on specified regulatory capital ratio minimums. For the Firm to remain an FHC, its U.S. Bank Subsidiaries must remain well-capitalized in accordance with the OCC’s PCA standards. In addition, failure by the U.S. Bank Subsidiaries to meet minimum capital requirements may result in certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on the U.S. Bank Subsidiaries’ and the Firm’s financial statements.
At March 31, 2022 and December 31, 2021, MSBNA and MSPBNA risk-based capital ratios are based on the Standardized Approach rules. As of December 31, 2021, the risk-based and leverage-based capital amounts and ratios were
| March 2022 Form 10-Q | 58 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
calculated excluding the effect of the adoption of CECL based on MSBNA’s and MSPBNA’s election to defer this effect over a five-year transition period that began on January 1, 2020. In 2022 the deferral impacts began to phase in at 25% per year and will become fully phased-in beginning in 2025.
MSBNA’s Regulatory Capital
| Well-Capitalized Requirement | Required Ratio1 | At March 31, 2022 | At December 31, 2021 | |||||||||||||||||
| $ in millions | Amount | Ratio | Amount | Ratio | ||||||||||||||||
| Risk-based capital | ||||||||||||||||||||
| Common Equity Tier 1 capital | 6.5 | % | 7.0 | % | $ | 18,386 | 18.7 | % | $ | 18,960 | 20.5 | % | ||||||||
| Tier 1 capital | 8.0 | % | 8.5 | % | 18,386 | 18.7 | % | 18,960 | 20.5 | % | ||||||||||
| Total capital | 10.0 | % | 10.5 | % | 18,961 | 19.3 | % | 19,544 | 21.1 | % | ||||||||||
| Leverage-based capital | ||||||||||||||||||||
| Tier 1 leverage | 5.0 | % | 4.0 | % | $ | 18,386 | 9.3 | % | $ | 18,960 | 10.2 | % | ||||||||
| SLR | 6.0 | % | 3.0 | % | 18,386 | 7.4 | % | 18,960 | 8.1 | % | ||||||||||
MSPBNA’s Regulatory Capital
| Well-Capitalized Requirement | Required Ratio1 | At March 31, 20222 | At December 31, 2021 | |||||||||||||||||
$ in millions | Amount | Ratio | Amount | Ratio | ||||||||||||||||
| Risk-based capital | ||||||||||||||||||||
| Common Equity Tier 1 capital | 6.5 | % | 7.0 | % | $ | 15,142 | 29.4 | % | $ | 10,293 | 24.3 | % | ||||||||
| Tier 1 capital | 8.0 | % | 8.5 | % | 15,142 | 29.4 | % | 10,293 | 24.3 | % | ||||||||||
| Total capital | 10.0 | % | 10.5 | % | 15,237 | 29.6 | % | 10,368 | 24.5 | % | ||||||||||
| Leverage-based capital | ||||||||||||||||||||
| Tier 1 leverage | 5.0 | % | 4.0 | % | $ | 15,142 | 7.4 | % | $ | 10,293 | 6.9 | % | ||||||||
| SLR | 6.0 | % | 3.0 | % | 15,142 | 7.3 | % | 10,293 | 6.7 | % | ||||||||||
1.Required ratios are inclusive of any buffers applicable as of the date presented. Failure to maintain the buffers would result in restrictions on the ability to make capital distributions, including the payment of dividends.
2.Regulatory capital amounts and ratios as of March 31, 2022 include the amounts from E*TRADE Bank (“ETB”) and E*TRADE Savings Bank (“ETSB”) as a result of the merger described herein.
Additionally, MSBNA is conditionally registered with the SEC as a security-based swap dealer and is provisionally registered with the CFTC as a swap dealer. However, as MSBNA is prudentially regulated as a bank, its capital requirements continue to be determined by its banking regulators.
Other Regulatory Capital Requirements
MS&Co. Regulatory Capital
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Net capital | $ | 16,799 | $ | 18,383 | ||||
| Excess net capital | 12,261 | 14,208 | ||||||
MS&Co. is registered as a broker-dealer and a futures commission merchant with the SEC and the CFTC, respectively, and provisionally registered as a swap dealer with the CFTC.
As an Alternative Net Capital broker-dealer, and in accordance with Securities Exchange Act of 1934 (“Exchange Act”) Rule 15c3-1, Appendix E, MS&Co. is subject to minimum net capital and tentative net capital requirements and operates with capital in excess of its regulatory capital requirements. As a futures commission merchant and
provisionally-registered swap dealer, MS&Co. is subject to CFTC capital requirements. In addition, MS&Co. must notify the SEC if its tentative net capital falls below certain levels. At March 31, 2022 and December 31, 2021, MS&Co. exceeded its net capital requirement and had tentative net capital in excess of the minimum and notification requirements.
Other Regulated Subsidiaries
The following subsidiaries are also subject to various regulatory capital requirements and operated with capital in excess of their respective regulatory capital requirements as of March 31, 2022 and December 31, 2021, as applicable:
•MSSB,
•MSIP,
•Morgan Stanley Europe Holdings SE Group, including MSESE,
•MSMS,
•MSCS,
•MSCG, and
•E*TRADE Securities LLC.
ETB and ETSB were each previously subject to the capital requirements of the OCC until January 1, 2022, when ETSB merged with and into ETB, and subsequently ETB merged with and into MSPBNA, with MSPBNA as the surviving bank.
See Note 17 to the financial statements in the 2021 Form 10-K for further information.
16. Total Equity
Preferred Stock
| Shares Outstanding | Carrying Value | |||||||||||||
$ in millions, except per share data | At March 31, 2022 | Liquidation Preference per Share | At March 31, 2022 | At December 31, 2021 | ||||||||||
| Series | ||||||||||||||
| A | 44,000 | $ | 25,000 | $ | 1,100 | $ | 1,100 | |||||||
C1 | 519,882 | 1,000 | 408 | 408 | ||||||||||
| E | 34,500 | 25,000 | 862 | 862 | ||||||||||
| F | 34,000 | 25,000 | 850 | 850 | ||||||||||
| I | 40,000 | 25,000 | 1,000 | 1,000 | ||||||||||
| K | 40,000 | 25,000 | 1,000 | 1,000 | ||||||||||
| L | 20,000 | 25,000 | 500 | 500 | ||||||||||
| M | 400,000 | 1,000 | 430 | 430 | ||||||||||
| N | 3,000 | 100,000 | 300 | 300 | ||||||||||
| O | 52,000 | 25,000 | 1,300 | 1,300 | ||||||||||
Total | $ | 7,750 | $ | 7,750 | ||||||||||
| Shares authorized | 30,000,000 | |||||||||||||
1.Series C preferred stock is held by MUFG.
On March 15, 2021, the Firm announced the redemption in whole of its outstanding Series J preferred stock. On notice of redemption, the amount due to holders of Series J Preferred Stock was reclassified to Borrowings, and on April 15, 2021, the redemption settled at the carrying value of $1.5 billion.
59 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
For a description of Series A through Series O preferred stock, see Note 18 to the financial statements in the 2021 Form 10-K. The Firm’s preferred stock has a preference over its common stock upon liquidation. The Firm’s preferred stock qualifies as and is included in Tier 1 capital in accordance with regulatory capital requirements (see Note 15).
Share Repurchases
| Three Months Ended March 31, | ||||||||
$ in millions | 2022 | 2021 | ||||||
| Repurchases of common stock under the Firm’s Share Repurchase Program | $ | 2,872 | $ | 2,135 | ||||
On June 28, 2021, the Firm announced that its Board of Directors authorized the repurchase of up to $12 billion of outstanding common stock from July 1, 2021 through June 30, 2022, from time to time as conditions warrant. For more information on share repurchases, see Note 18 to the financial statements in the 2021 Form 10-K.
Common Shares Outstanding for Basic and Diluted EPS
| Three Months Ended March 31, | ||||||||
| in millions | 2022 | 2021 | ||||||
| Weighted average common shares outstanding, basic | 1,733 | 1,795 | ||||||
| Effect of dilutive RSUs and PSUs | 22 | 23 | ||||||
| Weighted average common shares outstanding and common stock equivalents, diluted | 1,755 | 1,818 | ||||||
| Weighted average antidilutive common stock equivalents (excluded from the computation of diluted EPS) | 5 | 1 | ||||||
Dividends
$ in millions, except per share data | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | ||||||||||||
Per Share1 | Total | Per Share1 | Total | |||||||||||
| Preferred stock series | ||||||||||||||
A | $ | 242 | $ | 11 | $ | 250 | $ | 11 | ||||||
C | 25 | 13 | 25 | 13 | ||||||||||
E | 445 | 15 | 445 | 15 | ||||||||||
F | 430 | 14 | 430 | 14 | ||||||||||
H2 | — | — | 241 | 13 | ||||||||||
I | 398 | 16 | 398 | 16 | ||||||||||
J3 | — | — | 253 | 15 | ||||||||||
K | 366 | 15 | 366 | 15 | ||||||||||
| L | 305 | 6 | 305 | 6 | ||||||||||
M4 | 29 | 12 | 29 | 12 | ||||||||||
N5 | 2,650 | 8 | 2,650 | 8 | ||||||||||
O6 | 266 | 14 | — | — | ||||||||||
Total Preferred stock | $ | 124 | $ | 138 | ||||||||||
Common stock | $ | 0.70 | $ | 1,252 | $ | 0.35 | $ | 635 | ||||||
1.Common and Preferred Stock dividends are payable quarterly unless otherwise noted.
2.A notice of redemption was issued for Series H preferred stock on November 19, 2021.
3.Series J was payable semiannually until July 15, 2020, after which it was payable quarterly until its redemption.
4.Series M is payable semiannually until September 15, 2026 and thereafter will be payable quarterly.
5.Series N is payable semiannually until March 15, 2023 and thereafter will be payable quarterly.
6.Series O is payable semiannually until January 15, 2027 and thereafter will be payable quarterly.
Accumulated Other Comprehensive Income (Loss)1
$ in millions | CTA | AFS Securities | Pension and Other | DVA | Total | ||||||||||||
| December 31, 2021 | $ | (1,002) | $ | 245 | $ | (551) | $ | (1,794) | $ | (3,102) | |||||||
| OCI during the period | (48) | (2,395) | 5 | 638 | (1,800) | ||||||||||||
| March 31, 2022 | $ | (1,050) | $ | (2,150) | $ | (546) | $ | (1,156) | $ | (4,902) | |||||||
| December 31, 2020 | $ | (795) | $ | 1,787 | $ | (498) | $ | (2,456) | $ | (1,962) | |||||||
| OCI during the period | (141) | (776) | 5 | 120 | (792) | ||||||||||||
| March 31, 2021 | $ | (936) | $ | 1,011 | $ | (493) | $ | (2,336) | $ | (2,754) | |||||||
CTA—Cumulative foreign currency translation adjustments
1.Amounts are net of tax and noncontrolling interests.
Components of Period Changes in OCI
| Three Months Ended March 31, 2022 | |||||||||||||||||
$ in millions | Pre-tax Gain (Loss) | Income Tax Benefit (Provision) | After-tax Gain (Loss) | Non- controlling Interests | Net | ||||||||||||
CTA | |||||||||||||||||
OCI activity | $ | (60) | $ | (45) | $ | (105) | $ | (57) | $ | (48) | |||||||
Reclassified to earnings | — | — | — | — | — | ||||||||||||
Net OCI | $ | (60) | $ | (45) | $ | (105) | $ | (57) | $ | (48) | |||||||
Change in net unrealized gains (losses) on AFS securities | |||||||||||||||||
OCI activity | $ | (3,084) | $ | 723 | $ | (2,361) | $ | — | $ | (2,361) | |||||||
Reclassified to earnings | (44) | 10 | (34) | — | (34) | ||||||||||||
Net OCI | $ | (3,128) | $ | 733 | $ | (2,395) | $ | — | $ | (2,395) | |||||||
| Pension and other | |||||||||||||||||
OCI activity | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
Reclassified to earnings | 5 | — | 5 | — | 5 | ||||||||||||
Net OCI | $ | 5 | $ | — | $ | 5 | $ | — | $ | 5 | |||||||
Change in net DVA | |||||||||||||||||
OCI activity | $ | 871 | $ | (211) | $ | 660 | $ | 22 | $ | 638 | |||||||
Reclassified to earnings | — | — | — | — | — | ||||||||||||
Net OCI | $ | 871 | $ | (211) | $ | 660 | $ | 22 | $ | 638 | |||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||
$ in millions | Pre-tax Gain (Loss) | Income Tax Benefit (Provision) | After-tax Gain (Loss) | Non- controlling Interests | Net | ||||||||||||
CTA | |||||||||||||||||
OCI activity | $ | (104) | $ | (115) | $ | (219) | $ | (78) | $ | (141) | |||||||
Reclassified to earnings | — | — | — | — | — | ||||||||||||
Net OCI | $ | (104) | $ | (115) | $ | (219) | $ | (78) | $ | (141) | |||||||
Change in net unrealized gains (losses) on AFS securities | |||||||||||||||||
OCI activity | $ | (876) | $ | 203 | $ | (673) | $ | — | $ | (673) | |||||||
Reclassified to earnings | (134) | 31 | (103) | — | (103) | ||||||||||||
Net OCI | $ | (1,010) | $ | 234 | $ | (776) | $ | — | $ | (776) | |||||||
| Pension and other | |||||||||||||||||
OCI activity | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
Reclassified to earnings | 7 | (2) | 5 | — | 5 | ||||||||||||
Net OCI | $ | 7 | $ | (2) | $ | 5 | $ | — | $ | 5 | |||||||
Change in net DVA | |||||||||||||||||
OCI activity | $ | 167 | $ | (43) | $ | 124 | $ | 17 | $ | 107 | |||||||
Reclassified to earnings | 17 | (4) | 13 | — | 13 | ||||||||||||
Net OCI | $ | 184 | $ | (47) | $ | 137 | $ | 17 | $ | 120 | |||||||
| March 2022 Form 10-Q | 60 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
17. Interest Income and Interest Expense
| Three Months Ended March 31, | ||||||||
$ in millions | 2022 | 2021 | ||||||
| Interest income | ||||||||
| Investment securities | $ | 777 | $ | 849 | ||||
| Loans | 1,156 | 988 | ||||||
Securities purchased under agreements to resell1,2 | 13 | (55) | ||||||
Securities borrowed1,3 | (217) | (241) | ||||||
| Trading assets, net of Trading liabilities | 524 | 510 | ||||||
Customer receivables and Other4 | 397 | 386 | ||||||
| Total interest income | $ | 2,650 | $ | 2,437 | ||||
Interest expense | ||||||||
| Deposits | $ | 73 | $ | 120 | ||||
| Borrowings | 685 | 714 | ||||||
Securities sold under agreements to repurchase1,5 | 49 | 37 | ||||||
Securities loaned1,6 | 93 | 77 | ||||||
Customer payables and Other7 | (466) | (539) | ||||||
| Total interest expense | $ | 434 | $ | 409 | ||||
| Net interest | $ | 2,216 | $ | 2,028 | ||||
1.Certain prior period amounts have been reclassified to conform to the current presentation.
2.Includes interest paid on Securities purchased under agreements to resell.
3.Includes fees paid on Securities borrowed.
4.Includes interest from Cash and cash equivalents.
5.Includes interest received on Securities sold under agreements to repurchase.
6.Includes fees received on Securities loaned.
7.Includes fees received from Equity Financing customers related to their short transactions, which can be under either margin or securities lending arrangements.
Interest income and Interest expense are classified in the income statement based on the nature of the instrument and related market conventions. When included as a component of the instrument’s fair value, interest is included within Trading revenues or Investments revenues. Otherwise, it is included within Interest income or Interest expense.
Accrued Interest
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Customer and other receivables | $ | 2,309 | $ | 1,800 | ||||
| Customer and other payables | 2,659 | 2,164 | ||||||
18. Income Taxes
The Firm is routinely under examination by the IRS and other tax authorities in certain countries, such as Japan and the U.K., and in states and localities in which it has significant business operations, such as New York.
The Firm believes that the resolution of these tax examinations will not have a material effect on the annual financial statements, although a resolution could have a material impact in the income statement and on the effective tax rate for any period in which such resolutions occur.
It is reasonably possible that significant changes in the balance of unrecognized tax benefits may occur within the next 12 months. At this time, however, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits and the impact on the Firm’s effective tax rate over the next 12 months.
19. Segment, Geographic and Revenue Information
Selected Financial Information by Business Segment
| Three Months Ended March 31, 2022 | |||||||||||||||||
$ in millions | IS | WM | IM | I/E | Total | ||||||||||||
Investment banking | $ | 1,634 | $ | 143 | $ | — | $ | (19) | $ | 1,758 | |||||||
| Trading | 4,205 | (231) | (9) | 18 | 3,983 | ||||||||||||
Investments | 99 | 12 | (36) | — | 75 | ||||||||||||
Commissions and fees1 | 774 | 723 | — | (81) | 1,416 | ||||||||||||
Asset management1,2 | 147 | 3,626 | 1,388 | (42) | 5,119 | ||||||||||||
| Other | 117 | 122 | (2) | (3) | 234 | ||||||||||||
| Total non-interest revenues | 6,976 | 4,395 | 1,341 | (127) | 12,585 | ||||||||||||
Interest income | 1,062 | 1,637 | 7 | (56) | 2,650 | ||||||||||||
Interest expense | 381 | 97 | 13 | (57) | 434 | ||||||||||||
Net interest | 681 | 1,540 | (6) | 1 | 2,216 | ||||||||||||
Net revenues | $ | 7,657 | $ | 5,935 | $ | 1,335 | $ | (126) | $ | 14,801 | |||||||
| Provision for credit losses | $ | 44 | $ | 13 | $ | — | $ | — | $ | 57 | |||||||
| Compensation and benefits | 2,604 | 3,125 | 545 | — | 6,274 | ||||||||||||
| Non-compensation expenses | 2,222 | 1,224 | 562 | (126) | 3,882 | ||||||||||||
| Total non-interest expenses | $ | 4,826 | $ | 4,349 | $ | 1,107 | $ | (126) | $ | 10,156 | |||||||
| Income before provision for income taxes | $ | 2,787 | $ | 1,573 | $ | 228 | $ | — | $ | 4,588 | |||||||
| Provision for income taxes | 535 | 301 | 37 | — | 873 | ||||||||||||
Net income | 2,252 | 1,272 | 191 | — | 3,715 | ||||||||||||
| Net income applicable to noncontrolling interests | 61 | — | (12) | — | 49 | ||||||||||||
| Net income applicable to Morgan Stanley | $ | 2,191 | $ | 1,272 | $ | 203 | $ | — | $ | 3,666 | |||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||
$ in millions | IS | WM | IM | I/E | Total | ||||||||||||
Investment banking | $ | 2,613 | $ | 251 | $ | — | $ | (24) | $ | 2,840 | |||||||
| Trading | 4,073 | 126 | 3 | 23 | 4,225 | ||||||||||||
Investments | 86 | 2 | 230 | — | 318 | ||||||||||||
Commissions and fees1 | 870 | 851 | — | (95) | 1,626 | ||||||||||||
Asset management1,2 | 139 | 3,191 | 1,103 | (35) | 4,398 | ||||||||||||
| Other | 158 | 153 | (24) | (3) | 284 | ||||||||||||
| Total non-interest revenues | 7,939 | 4,574 | 1,312 | (134) | 13,691 | ||||||||||||
| Interest income | 970 | 1,486 | 8 | (27) | 2,437 | ||||||||||||
| Interest expense | 332 | 101 | 6 | (30) | 409 | ||||||||||||
| Net interest | 638 | 1,385 | 2 | 3 | 2,028 | ||||||||||||
| Net revenues | $ | 8,577 | $ | 5,959 | $ | 1,314 | $ | (131) | $ | 15,719 | |||||||
| Provision for credit losses | $ | (93) | $ | (5) | $ | — | $ | — | $ | (98) | |||||||
| Compensation and benefits | 3,114 | 3,170 | 514 | — | 6,798 | ||||||||||||
| Non-compensation expenses | 2,185 | 1,194 | 430 | (134) | 3,675 | ||||||||||||
| Total non-interest expenses | $ | 5,299 | $ | 4,364 | $ | 944 | $ | (134) | $ | 10,473 | |||||||
| Income before provision for income taxes | $ | 3,371 | $ | 1,600 | $ | 370 | $ | 3 | $ | 5,344 | |||||||
| Provision for income taxes | 736 | 358 | 81 | 1 | 1,176 | ||||||||||||
Net income | 2,635 | 1,242 | 289 | 2 | 4,168 | ||||||||||||
| Net income applicable to noncontrolling interests | 34 | — | 14 | — | 48 | ||||||||||||
| Net income applicable to Morgan Stanley | $ | 2,601 | $ | 1,242 | $ | 275 | $ | 2 | $ | 4,120 | |||||||
1.Substantially all revenues are from contracts with customers.
2.Includes certain fees that may relate to services performed in prior periods.
For a discussion about the Firm’s business segments, see Note 23 to the financial statements in the 2021 Form 10-K.
61 | March 2022 Form 10-Q | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
Detail of Investment Banking Revenues
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Institutional Securities Advisory | $ | 944 | $ | 480 | ||||
| Institutional Securities Underwriting | 690 | 2,133 | ||||||
| Firm Investment banking revenues from contracts with customers | 90 | % | 92 | % | ||||
Trading Revenues by Product Type
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Interest rate | $ | 391 | $ | 859 | ||||
| Foreign exchange | 648 | 274 | ||||||
Equity1 | 2,007 | 1,695 | ||||||
| Commodity and other | 525 | 861 | ||||||
| Credit | 412 | 536 | ||||||
| Total | $ | 3,983 | $ | 4,225 | ||||
1.Dividend income is included within equity contracts.
The previous table summarizes realized and unrealized gains and losses, from derivative and non-derivative financial instruments, included in Trading revenues in the income statement. The Firm generally utilizes financial instruments across a variety of product types in connection with its market-making and related risk management strategies. The trading revenues presented in the table are not representative of the manner in which the Firm manages its business activities and are prepared in a manner similar to the presentation of trading revenues for regulatory reporting purposes.
Investment Management Investments Revenues—Net Cumulative Unrealized Carried Interest
| $ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Net cumulative unrealized performance-based fees at risk of reversing | $ | 824 | $ | 802 | ||||
The Firm’s portion of net cumulative performance-based fees in the form of unrealized carried interest, for which the Firm is not obligated to pay compensation, is at risk of reversing when the return in certain funds fall below specified performance targets. See Note 13 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received.
Investment Management Asset Management Revenues—Reduction of Fees Due to Fee Waivers
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Fee waivers | $ | 124 | $ | 94 | ||||
The Firm waives a portion of its fees in the Investment Management business segment from certain registered money
market funds that comply with the requirements of Rule 2a-7 of the Investment Company Act of 1940.
Certain Other Fee Waivers
Separately, the Firm’s employees, including its senior officers, may participate on the same terms and conditions as other investors in certain funds that the Firm sponsors primarily for client investment, and the Firm may waive or lower applicable fees and charges for its employees.
Other Expenses—Transaction Taxes
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Transaction taxes | $ | 258 | $ | 238 | ||||
Transaction taxes are composed of securities transaction taxes and stamp duties, which are levied on the sale or purchase of securities listed on recognized stock exchanges in certain markets. These taxes are imposed mainly on trades of equity securities in Asia and EMEA. Similar transaction taxes are levied on trades of listed derivative instruments in certain countries.
Net Revenues by Region
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Americas | $ | 10,464 | $ | 11,191 | ||||
| EMEA | 2,311 | 2,159 | ||||||
| Asia | 2,026 | 2,369 | ||||||
| Total | $ | 14,801 | $ | 15,719 | ||||
For a discussion about the Firm’s geographic net revenues, see Note 23 to the financial statements in the 2021 Form 10-K.
Revenues Recognized from Prior Services
| Three Months Ended March 31, | ||||||||
| $ in millions | 2022 | 2021 | ||||||
| Non-interest revenues | $ | 1,005 | $ | 541 | ||||
The previous table includes revenues from contracts with customers recognized where some or all services were performed in prior periods. These revenues primarily include investment banking advisory fees.
Receivables from Contracts with Customers
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
| Customer and other receivables | $ | 3,445 | $ | 3,591 | ||||
Receivables from contracts with customers, which are included within Customer and other receivables in the balance
| March 2022 Form 10-Q | 62 | |||||||
| Notes to Consolidated Financial Statements (Unaudited) | | ||||
sheet, arise when the Firm has both recorded revenues and the right per the contract to bill the customer.
Assets by Business Segment
$ in millions | At March 31, 2022 | At December 31, 2021 | ||||||
Institutional Securities | $ | 826,242 | $ | 792,135 | ||||
Wealth Management | 378,501 | 378,438 | ||||||
| Investment Management | 17,490 | 17,567 | ||||||
Total1 | $ | 1,222,233 | $ | 1,188,140 | ||||
1. Parent assets have been fully allocated to the business segments.
63 | March 2022 Form 10-Q | |||||||
Average Balances and Interest Rates and Net Interest Income
| Three Months Ended March 31, | ||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||
| $ in millions | Average Daily Balance | Interest | Annualized Average Rate | Average Daily Balance | Interest | Annualized Average Rate | ||||||||||||||
| Interest earning assets | ||||||||||||||||||||
Investment securities1 | $ | 177,572 | $ | 777 | 1.8 | % | $ | 187,294 | $ | 849 | 1.8 | % | ||||||||
Loans1 | 191,551 | 1,156 | 2.4 | % | 151,636 | 988 | 2.6 | % | ||||||||||||
Securities purchased under agreements to resell2,3: | ||||||||||||||||||||
| U.S. | 52,389 | 36 | 0.3 | % | 61,935 | 27 | 0.2 | % | ||||||||||||
| Non-U.S. | 64,150 | (23) | (0.1) | % | 52,239 | (82) | (0.6) | % | ||||||||||||
Securities borrowed2,4: | ||||||||||||||||||||
| U.S. | 122,203 | (176) | (0.6) | % | 85,341 | (196) | (0.9) | % | ||||||||||||
| Non-U.S. | 21,229 | (41) | (0.8) | % | 15,095 | (45) | (1.2) | % | ||||||||||||
Trading assets, net of Trading liabilities5: | ||||||||||||||||||||
| U.S. | 79,509 | 430 | 2.2 | % | 72,416 | 410 | 2.3 | % | ||||||||||||
| Non-U.S. | 16,606 | 94 | 2.3 | % | 17,946 | 100 | 2.3 | % | ||||||||||||
Customer receivables and Other6: | ||||||||||||||||||||
| U.S. | 129,162 | 355 | 1.1 | % | 137,859 | 337 | 1.0 | % | ||||||||||||
| Non-U.S. | 76,545 | 42 | 0.2 | % | 75,177 | 49 | 0.3 | % | ||||||||||||
| Total | $ | 930,916 | $ | 2,650 | 1.2 | % | $ | 856,938 | $ | 2,437 | 1.2 | % | ||||||||
| Interest bearing liabilities | ||||||||||||||||||||
Deposits1 | $ | 348,916 | $ | 73 | 0.1 | % | $ | 320,257 | $ | 120 | 0.2 | % | ||||||||
Borrowings1,7 | 228,942 | 685 | 1.2 | % | 215,688 | 714 | 1.3 | % | ||||||||||||
Securities sold under agreements to repurchase2,8,10: | ||||||||||||||||||||
| U.S. | 22,979 | 40 | 0.7 | % | 29,661 | 47 | 0.6 | % | ||||||||||||
| Non-U.S. | 36,148 | 9 | 0.1 | % | 23,215 | (10) | (0.2) | % | ||||||||||||
Securities loaned2,9,10: | ||||||||||||||||||||
| U.S. | 5,489 | (1) | (0.1) | % | 4,428 | (3) | (0.3) | % | ||||||||||||
| Non-U.S. | 7,771 | 94 | 4.9 | % | 3,848 | 80 | 8.4 | % | ||||||||||||
Customer payables and Other11: | ||||||||||||||||||||
| U.S. | 136,407 | (368) | (1.1) | % | 129,438 | (437) | (1.4) | % | ||||||||||||
| Non-U.S. | 74,919 | (98) | (0.5) | % | 68,782 | (102) | (0.6) | % | ||||||||||||
| Total | $ | 861,571 | $ | 434 | 0.2 | % | $ | 795,317 | $ | 409 | 0.2 | % | ||||||||
| Net interest income and net interest rate spread | $ | 2,216 | 1.0 | % | $ | 2,028 | 1.0 | % | ||||||||||||
1.Amounts include primarily U.S. balances.
2.Certain prior period amounts have been reclassified to conform to the current presentation.
3.Includes interest paid on Securities purchased under agreements to resell.
4.Includes fees paid on Securities borrowed.
5.Excludes non-interest earning assets and non-interest bearing liabilities, such as equity securities.
6.Includes Cash and cash equivalents.
7.Average daily balance includes borrowings carried at fair value, but for certain borrowings, interest expense is considered part of fair value and is recorded in Trading revenues.
8.Includes interest received on Securities sold under agreements to repurchase.
9.Includes fees received on Securities loaned.
10.The annualized average rate was calculated using (a) interest expense incurred on all securities sold under agreements to repurchase and securities loaned transactions, whether or not such transactions were reported in the balance sheet and (b) net average on-balance sheet balances, which exclude certain securities-for-securities transactions.
11.Includes fees received from Equity Financing customers related to their short transactions, which can be under either margin or securities lending arrangements.
| March 2022 Form 10-Q | 64 | |||||||
| Glossary of Common Terms and Acronyms | | ||||
| 2021 Form 10-K | Annual report on Form 10-K for year ended December 31, 2021 filed with the SEC | ||||
| ABS | Asset-backed securities | ||||
| ACL | Allowance for credit losses | ||||
| AFS | Available-for-sale | ||||
| AML | Anti-money laundering | ||||
| AOCI | Accumulated other comprehensive income (loss) | ||||
| AUM | Assets under management or supervision | ||||
| Balance sheet | Consolidated balance sheet | ||||
| BHC | Bank holding company | ||||
| bps | Basis points; one basis point equals 1/100th of 1% | ||||
| Cash flow statement | Consolidated cash flow statement | ||||
| CCAR | Comprehensive Capital Analysis and Review | ||||
| CCyB | Countercyclical capital buffer | ||||
| CDO | Collateralized debt obligation(s), including Collateralized loan obligation(s) | ||||
| CDS | Credit default swaps | ||||
| CECL | Current Expected Credit Losses, as calculated under the Financial Instruments—Credit Losses accounting update | ||||
| CFTC | U.S. Commodity Futures Trading Commission | ||||
| CLN | Credit-linked note(s) | ||||
| CLO | Collateralized loan obligation(s) | ||||
| CMBS | Commercial mortgage-backed securities | ||||
| CMO | Collateralized mortgage obligation(s) | ||||
| CRM | Credit Risk Management Department | ||||
| DVA | Debt valuation adjustment | ||||
| EBITDA | Earnings before interest, taxes, depreciation and amortization | ||||
| EMEA | Europe, Middle East and Africa | ||||
| EPS | Earnings per common share | ||||
| FDIC | Federal Deposit Insurance Corporation | ||||
| FFELP | Federal Family Education Loan Program | ||||
| FHC | Financial holding company | ||||
| FICO | Fair Isaac Corporation | ||||
| Financial statements | Consolidated financial statements | ||||
| FVO | Fair value option | ||||
| G-SIB | Global systemically important banks | ||||
| HFI | Held-for-investment | ||||
| HFS | Held-for-sale | ||||
| HQLA | High-quality liquid assets | ||||
| HTM | Held-to-maturity | ||||
| I/E | Intersegment eliminations | ||||
| IHC | Intermediate holding company | ||||
| IM | Investment Management | ||||
| Income statement | Consolidated income statement | ||||
| IRS | Internal Revenue Service | ||||
| IS | Institutional Securities | ||||
| LCR | Liquidity coverage ratio, as adopted by the U.S. banking agencies | ||||
| LIBOR | London Interbank Offered Rate | ||||
| LTV | Loan-to-value | ||||
| MSBNA | Morgan Stanley Bank, N.A. | ||||
| MS&Co. | Morgan Stanley & Co. LLC | ||||
| MSCG | Morgan Stanley Capital Group Inc. | ||||
| MSCS | Morgan Stanley Capital Services LLC | ||||
| MSESE | Morgan Stanley Europe SE | ||||
| MSIP | Morgan Stanley & Co. International plc | ||||
| MSMS | Morgan Stanley MUFG Securities Co., Ltd. | ||||
| MSPBNA | Morgan Stanley Private Bank, National Association | ||||
| MSSB | Morgan Stanley Smith Barney LLC | ||||
| MUFG | Mitsubishi UFJ Financial Group, Inc. | ||||
| MUMSS | Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. | ||||
| MWh | Megawatt hour | ||||
| N/A | Not Applicable | ||||
| N/M | Not Meaningful | ||||
| NAV | Net asset value | ||||
| Non-GAAP | Non-generally accepted accounting principles | ||||
| NSFR | Net stable funding ratio, as adopted by the U.S. banking agencies | ||||
| OCC | Office of the Comptroller of the Currency | ||||
| OCI | Other comprehensive income (loss) | ||||
| OTC | Over-the-counter | ||||
| PSU | Performance-based stock unit | ||||
| ROE | Return on average common equity | ||||
| ROTCE | Return on average tangible common equity | ||||
| ROU | Right-of-use | ||||
| RSU | Restricted stock unit | ||||
| RWA | Risk-weighted assets | ||||
| SCB | Stress capital buffer | ||||
| SEC | U.S. Securities and Exchange Commission | ||||
| SLR | Supplementary leverage ratio | ||||
| SOFR | Secured Overnight Financing Rate | ||||
| S&P | Standard & Poor’s | ||||
| SPE | Special purpose entity | ||||
| SPOE | Single point of entry | ||||
| TDR | Troubled debt restructuring | ||||
| TLAC | Total loss-absorbing capacity | ||||
| U.K. | United Kingdom | ||||
| UPB | Unpaid principal balance | ||||
| U.S. | United States of America | ||||
| U.S. GAAP | Accounting principles generally accepted in the United States of America | ||||
| VaR | Value-at-Risk | ||||
| VIE | Variable interest entity | ||||
| WACC | Implied weighted average cost of capital | ||||
| WM | Wealth Management | ||||
65 | March 2022 Form 10-Q | |||||||
Controls and Procedures
Under the supervision and with the participation of the Firm’s management, including the Chief Executive Officer and Chief Financial Officer, the Firm conducted an evaluation of the effectiveness of the Firm’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Firm’s disclosure controls and procedures were effective as of the end of the period covered by this report.
No change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.
Legal Proceedings
The following developments have occurred since previously reporting certain matters in the Firm’s 2021 Form 10-K. See also the disclosures set forth under “Legal Proceedings” in the 2021 Form 10-K.
Residential Mortgage Related Matters
On March 29, 2022, Deutsche Bank National Trust Company, in its capacity as trustee, announced that the certificateholders participating in the consent solicitation had approved the settlement agreement in Deutsche Bank National Trust Company solely in its capacity as Trustee of the Morgan Stanley ABS Capital I Inc. Trust 2007-NC4 v. Morgan Stanley Mortgage Capital Holdings LLC as Successor-by-Merger to Morgan Stanley Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc. The Trustee unconditionally accepted the financial terms of that settlement on April 18, 2022, which caused the settlement to become final and binding on all parties. On April 27, 2022, the parties filed a stipulation of voluntary discontinuance, dismissing the action with prejudice.
On April 27, 2022, the parties’ agreement to settle Financial Guaranty Insurance Company v. Morgan Stanley ABS Capital I Inc. et al. became final and binding after Deutsche Bank National Trust Company solely in its capacity as Trustee of the Morgan Stanley ABS Capital I Inc. Trust 2007-NC4 v. Morgan Stanley Mortgage Capital Holdings LLC as Successor-by-Merger to Morgan Stanley Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc. was voluntarily dismissed.
Block Trading Matter
In addition to the investigations noted in the Firm’s 2021 Form 10-K, the Firm faces potential civil liability arising from claims that have been or may be asserted by block transaction participants or others who contend they were harmed or
disadvantaged including, among other things, as a result of a share price decline allegedly caused by the activities of the Firm and/or its employees.
Record Keeping Matter
The Firm has been responding to requests for information from regulators concerning its compliance with record-keeping requirements in connection with business communications on messaging platforms that have not been approved by the Firm, and is engaging in efforts to resolve such matters.
Risk Factors
For a discussion of the risk factors affecting the Firm, see “Risk Factors” in Part I, Item 1A of the 2021 Form 10-K.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
| $ in millions, except per share data | Total Number of Shares Purchased1 | Average Price Paid per Share | Total Shares Purchased as Part of Share Repurchase Program2,3 | Dollar Value of Remaining Authorized Repurchase | ||||||||||
| January | 11,020,364 | $ | 96.80 | 3,796,900 | $ | 5,235 | ||||||||
| February | 14,022,622 | $ | 100.23 | 12,855,200 | $ | 3,940 | ||||||||
| March | 13,586,163 | $ | 88.94 | 13,514,500 | $ | 2,738 | ||||||||
| Three Months Ended March 31, 2022 | 38,629,149 | $ | 95.28 | 30,166,600 | ||||||||||
1.Includes 8,462,549 shares acquired by the Firm in satisfaction of the tax withholding obligations on stock-based awards granted under the Firm’s stock-based compensation plans during the three months ended March 31, 2022.
2.Share purchases under publicly announced programs are made pursuant to open-market purchases, Rule 10b5-1 plans or privately negotiated transactions (including with employee benefit plans) as market conditions warrant and at prices the Firm deems appropriate and may be suspended at any time.
3.The Firm’s Board of Directors has authorized the repurchase of the Firm’s outstanding common stock under a share repurchase program (the “Share Repurchase Program”) from time to time as conditions warrant and subject to limitations on distributions from the Federal Reserve. The Share Repurchase Program is a program for capital management purposes that considers, among other things, business segment capital needs, as well as equity-based compensation and benefit plan requirements. The Share Repurchase Program has no set expiration or termination date.
On June 28, 2021, the Firm announced that its Board of Directors authorized the repurchase of up to $12 billion of outstanding common stock from July 1, 2021 through June 30, 2022, from time to time as conditions warrant. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Capital Buffer.”
Other Information
None.
| March 2022 Form 10-Q | 66 | |||||||
Exhibits
Exhibit No. | Description | ||||
| 15 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101 | Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline eXtensible Business Reporting Language (“Inline XBRL”). | ||||
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). | ||||
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MORGAN STANLEY (Registrant) | |||||
By: | /s/ SHARON YESHAYA | ||||
| Sharon Yeshaya Executive Vice President and Chief Financial Officer | |||||
By: | /s/ RAJA J. AKRAM | ||||
Raja J. Akram Deputy Chief Financial Officer, Chief Accounting Officer and Controller | |||||
Date: May 4, 2022
67 | March 2022 Form 10-Q | |||||||