QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
Depositary Shares, each representing 1/1,000th interest in a share of 6.500%
MS/PP
New York Stock Exchange
Non-Cumulative Preferred Stock, Series P, $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)
Global Medium-Term Notes, Series A, Floating Rate Notes Due 2029
MS/29
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 October 31, 2022, there were 1,690,109,419 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.
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, Governance and Sustainability 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;
•Climate 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.
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.
Consolidated Results—Three Months Ended September 30, 2022
•The Firm reported net revenues of $13.0 billion, against a volatile market backdrop.
•The Firm delivered ROTCE of 14.6%, or 15.2% excluding the impact of integration-related expenses (see “Selected Non-GAAP Financial Information” herein).
•The Firm’s expense efficiency ratio of 74% in the current quarter, or 73% excluding the impact of integration-related expenses (see “Selected Non-GAAP Financial Information” herein), contributed to an expense efficiency ratio in the current year period of 72%, or 71% excluding the impact of integration-related expenses (see “Selected Non-GAAP Financial Information” herein).
•At September 30, 2022 our Standardized Common Equity Tier 1 capital ratio was 14.8%.
•Institutional Securities net revenues of $5.8 billion reflect strong performance in Fixed Income and solid results in Equity, while the uncertain macroeconomic environment continued to drive limited activity in Investment Banking.
•Wealth Management delivered a pre-tax margin of 26.9%, or 28.4% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein). Results reflect higher net interest income driven by higher interest rates. The business added $65 billion in net new assets, bringing total net new assets year-to-date to $260 billion.
•Investment Management delivered net revenues of $1.2 billion on AUM of $1.3 trillion in a challenging market environment.
Net Revenues
($ in millions)
Net Income Applicable to Morgan Stanley
($ in millions)
Earnings per Diluted Common Share1
1.Adjusted Diluted EPS was $1.53 for the current quarter and $2.04 for the prior year quarter. Adjusted Diluted EPS was $5.04 for the current year period and $6.15 for the prior year period (see “Selected Non-GAAP Financial Information” herein for further information).
We reported net revenues of $13.0 billion in the quarter ended September 30, 2022 (“current quarter,” or “3Q 2022”) compared with $14.8 billion in the quarter ended September 30, 2021 (“prior year quarter,” or “3Q 2021”). For the current quarter, net income applicable to Morgan Stanley was $2.6 billion, or $1.47 per diluted common share, compared with $3.7 billion or $1.98 per diluted common share in the prior year quarter.
We reported net revenues of $40.9 billion in the nine months ended September 30, 2022 (“current year period,” or “YTD 2022”), compared with $45.2 billion in the period ended September 30, 2021 (“prior year period,” or “YTD 2021”). For the current year period, net income applicable to Morgan Stanley was $8.8 billion, or $4.88 per diluted common share, compared with $11.3 billion or $6.02 per diluted common share in the prior year period.
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 $5,614 million in the current quarter decreased 5% from the prior year quarter, primarily due to lower discretionary incentive compensation and a decrease due to the formulaic payout to Wealth Management representatives driven by lower compensable revenues, partially offset by higher salary expenses driven in part by the impact of higher headcount. Compensation and benefits expenses of $17,438 million in the current year period decreased 9% from the prior year period, primarily due to lower expenses related to certain deferred compensation plans linked to investment performance and lower stock-based compensation expense driven by the Firm’s share price, and lower discretionary incentive compensation, partially offset by higher salary expenses driven in part by the impact of higher headcount.
•Non-compensation expenses of $3,949 million in the current quarter were relatively unchanged from the prior year quarter. Non-compensation expenses of $11,993 million in the current year period increased 6% from the prior year period, primarily due to higher legal expenses, including $200 million related to a regulatory matter in the second quarter of 2022 and increased spend on technology.
Provision for Credit Losses
The Provision for credit losses on loans and lending commitments of $35 million in the current quarter was primarily driven by deterioration in macroeconomic outlook.The Provision for credit losses on loans and lending commitments in the prior year quarter was $24 million, primarily driven by growth in corporate lending commitments.
The Provision for credit losses on loans and lending commitments of $193 million in the current year period was due to portfolio growth and deterioration in macroeconomic outlook. The Provision for credit losses on loans and lending commitments in the prior year period was flat, primarily as a result of paydowns on corporate loans, including by lower-rated borrowers, offset by the provision for one secured lending facility in the second quarter of 2021.
For further information on the Provision for credit losses, see “Credit Risk” herein.
Income Taxes
The effective tax rate of 21.4% for the current quarter and 21.1% for the current year period was lower than the prior respective periods, primarily driven by the realization of certain tax benefits.
Net Income Applicable to Morgan Stanley by Segment1
($ 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 $5,817 million in the current quarter decreased 22% from the prior year quarter, primarily reflecting lower results from Investment banking and Equity, partially offset by higher Fixed income results. Net revenues of $19,593 million in the current year period decreased 15% from the prior year period, primarily reflecting lower underwriting results, partially offset by higher results in Fixed income.
•Wealth Management net revenues of $6,120 million in the current quarter increased 3% from the prior year quarter, primarily reflecting higher Net interest revenues, partially offset by lower Asset management revenues and Transactional revenues. Net revenues of $17,791 million in the current year period were relatively unchanged from the prior year period, as lower Transactional revenues, primarily driven by losses on investments associated with certain employee deferred compensation plans, were offset by higher Net interest revenues and Asset management revenues.
•Investment Management net revenues of $1,168 million in the current quarter decreased 20% from the prior year quarter, reflecting lower Asset management and related fees and lower Performance-based income and other revenues. Net revenues of $3,914 million in the current year period decreased 12% from the prior year period, primarily reflecting lower Performance-based income and other revenues.
Net Revenues by Region1, 2
($ 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 10% from the prior year quarter, primarily driven by Investment banking results within the Institutional Securities business segment. EMEA net revenues decreased 21% from the prior year quarter, primarily driven by Investment banking results within the Institutional Securities business segment. Asia net revenues decreased 14% from the prior year quarter, primarily driven by Equity results within the Institutional Securities business segment.
Americas net revenues in the current year period decreased 9% from the prior year period, primarily driven by results within the Institutional Securities business segment, with lower Investment banking and Other net revenues, partially
offset by higher results from Fixed Income. EMEA net revenues decreased 10% from the prior year quarter, primarily driven by Investment banking results within the Institutional Securities business segment. Asia net revenues decreased 10% from the prior year quarter, primarily driven by results within the Institutional Securities business segment, with lower results in Investment banking and Equity, partially offset by higher results from Fixed Income.
Selected Financial Information and Other Statistical Data
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Consolidated results
Net revenues
$
12,986
$
14,753
$
40,919
$
45,231
Earnings applicable to Morgan Stanley common shareholders
$
2,494
$
3,584
$
8,427
$
10,974
Earnings per diluted common share
$
1.47
$
1.98
$
4.88
$
6.02
Consolidated financial measures
Expense efficiency ratio1
74
%
67
%
72
%
67
%
Adjusted expense efficiency ratio1, 2
73
%
66
%
71
%
67
%
ROE3
10.7
%
14.5
%
11.9
%
15.1
%
Adjusted ROE2, 3
11.1
%
15.0
%
12.2
%
15.4
%
ROTCE2, 3
14.6
%
19.6
%
16.1
%
19.7
%
Adjusted ROTCE2, 3
15.2
%
20.2
%
16.6
%
20.2
%
Pre-tax margin4
26
%
33
%
28
%
33
%
Effective tax rate
21.4
%
23.6
%
21.1
%
22.9
%
Average liquidity resources5
$
308,001
$
358,310
N/M
N/M
Pre-tax margin by segment4
Institutional Securities
28
%
40
%
30
%
38
%
Wealth Management
27
%
26
%
27
%
26
%
Wealth Management, adjusted2
28
%
28
%
28
%
28
%
Investment Management
10
%
25
%
15
%
26
%
Investment Management, adjusted2
13
%
28
%
17
%
28
%
in millions, except per share and employee data
At September 30, 2022
At December 31, 2021
Loans6
$
218,448
$
200,761
Total assets
$
1,160,029
$
1,188,140
Deposits
$
338,123
$
347,574
Borrowings
$
220,423
$
233,127
Common shareholders' equity
$
92,261
$
97,691
Tangible common shareholders’ equity2
$
67,648
$
72,499
Common shares outstanding
1,694
1,772
Book value per common share7
$
54.46
$
55.12
Tangible book value per common share2, 7
$
39.93
$
40.91
Worldwide employees (in thousands)
82
75
Client assets8 (in billions)
$
5,413
$
6,554
Capital Ratios9
Common Equity Tier 1 capital—Standardized
14.8
%
16.0
%
Tier 1 capital—Standardized
16.7
%
17.7
%
Common Equity Tier 1 capital—Advanced
15.2
%
17.4
%
Tier 1 capital—Advanced
17.1
%
19.1
%
Tier 1 leverage
6.6
%
7.1
%
SLR
5.4
%
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 provision for 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. The prior period has been revised to conform to the current period presentation. See “Business Segments—Wealth Management” herein for additional information.
9.For a discussion of our capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein.
Russia and Ukraine War
We continue to monitor 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 remains 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 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.
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. 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.
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.
The global economic and geopolitical environment continues to be characterized by persistent inflation, rising interest rates and volatility in global financial markets. This environment has impacted our businesses, as discussed further herein.
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.
Source: Refinitiv data as of October 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 $1,277 million in the current quarter decreased 55% compared with the prior year quarter, primarily reflecting a decrease in underwriting revenues in line with market levels and lower advisory revenues.
•Advisory revenues decreased primarily due to fewer completed M&A transactions.
•Equity underwriting revenues decreased on lower volumes, with lower revenues across all products.
•Fixed income underwriting revenues decreased primarily due to lower issuances.
Revenues of $3,983 million in the current year period decreased 49% compared with the prior year period, primarily reflecting a decrease in underwriting revenues in line with market levels.
•Advisory revenues decreased primarily due to fewer completed M&A transactions.
•Equity underwriting revenues decreased on lower volumes, with lower revenues across all products.
•Fixed income underwriting revenues decreased primarily due to lower issuances.
In the near term, lower levels of announced M&A transactions are expected to impact Advisory revenues.
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.
Current Quarter
Equity
Net revenues of $2,459 million in the current quarter decreased 14% compared with elevated levels in the prior year quarter, primarily reflecting a decrease in execution services.
•Financing revenues decreased primarily due to lower average client balances and lower client activity.
•Execution services revenues decreased primarily due to a mark-to-market loss on a business-related investment and lower client activity in derivatives and cash equities.
Fixed Income
Net revenues of $2,181 million in the current quarter increased 33% compared with the prior year quarter, primarily reflecting an increase in global macro products.
•Global macro products benefited from client engagement and increased client flow activity in an environment characterized by inflationary pressures, central bank actions and fiscal activity driving higher volatility. Revenues increased primarily due to the impact of market conditions
on inventory held to facilitate client activity and increased client activity.
•Credit products revenues were relatively unchanged from the prior year quarter as an increase due to the impact of market conditions on inventory held to facilitate client activity in corporate credit products was offset by a decrease in client activity in corporate credit products.
•Commodities products and other fixed income revenues decreased primarily due to lower client activity in Commodities.
Other Net Revenues
Other Net revenues in the current quarter decreased compared with the prior year quarter, primarily due to higher mark-to-market losses on corporate loans held for sale, net of hedges compared with gains in the prior year quarter.
Current Year Period
Equity
Net revenues of $8,593 million in the current year period were relatively unchanged compared with the prior year period as an increase in financing was offset by a decrease in execution services.
•Absent the loss from a credit event for a single client in the prior year period, Financing revenues decreased as the impact of marginally lower average client balances was partially offset by the impact of a change in client balance mix.
•Execution services revenues decreased primarily due to lower client activity and the impact of market conditions on inventory held to facilitate client activity in cash equities, as well as a mark-to-market loss on a business-related investment, partially offset by the absence of trading losses related to the aforementioned credit event.
Fixed Income
Net revenues of $7,604 million in the current year period increased 21% compared with the prior year period, primarily reflecting an increase in global macro and commodities products, partially offset by a decrease in credit products.
•Global macro products benefited from client engagement and increased client flow activity in an environment characterized by inflationary pressures, central bank actions and fiscal activity driving higher volatility. Revenues increased primarily due to the impact of market conditions on inventory held to facilitate client activity and increased client activity.
•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 due to higher client activity and the impact of market conditions on inventory held to facilitate client activity in Commodities.
Other Net revenues in the current year period decreased compared with the prior year period, primarily due to higher mark-to-market losses on corporate loans held for sale, net of hedges, as well as losses compared with gains in the prior year period on investments associated with certain employee deferred compensation plans and lower results from our Japanese joint venture, MUMSS.
Provision for Credit Losses
Provision for credit losses on loans and lending commitments of $24 million in the current quarter was primarily driven by deterioration in macroeconomic outlook. The Provision for credit losses on loans and lending commitments was $24 million in the prior year quarter, primarily driven by growth in corporate lending commitments.
Provision for credit losses on loans and lending commitments of $150 million in the current year period was driven by portfolio growth and deterioration in macroeconomic outlook. In the prior year period, the Provision for credit losses on loans and lending commitments was flat, primarily as a result of provision for one secured lending facility in the second quarter of 2021, offset by 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 $4,167 million in the current quarter decreased 7% compared with the prior year quarter, primarily due to lower Compensation and benefits expenses.
•Compensation and benefits expenses decreased in the current quarter, primarily due to lower discretionary incentive compensation on lower revenues.
•Non-compensation expenses were relatively unchanged in the current quarter.
Non-interest expenses of $13,476 million in the current year period decreased 6% compared with the prior year period, primarily due to lower Compensation and benefits expenses, partially offset by higher Non-compensation expenses.
•Compensation and benefits expenses decreased in the current year period, primarily due to lower discretionary incentive compensation on lower revenues, lower stock-based compensation expense driven by the Firm’s share price, and lower expenses related to certain deferred compensation plans linked to investment performance, partially offset by higher salary expenses driven in part by the impact of higher headcount.
•Non-compensation expenses increased in the current year period, primarily due to an increase in legal expenses, including $200 million related to a regulatory matter in the second quarter of 2022 and increased spend on technology.
Income Taxes
The effective tax rate of 18.8% for the current quarter and 20.7% for the current year period was lower than the prior respective periods, primarily driven by the realization of certain tax benefits.
1.Transactional includes Investment banking, Trading, and Commissions and fees revenues. Other includes Investments and Other revenues.
Wealth Management Metrics
$ in billions
At September 30, 2022
At December 31, 2021
Total client assets1
$
4,134
$
4,989
U.S. Bank Subsidiary loans
$
146
$
129
Margin and other lending2
$
24
$
31
Deposits3
$
332
$
346
Annualized weighted average cost of deposits
0.93%
0.10%
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Net new assets4
$
64.8
$
134.5
$
259.7
$
310.6
1.The prior period amount has been revised. See “Self-directed Channel” herein for additional information.
2.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.
3.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 September 30, 2022 and December 31, 2021, respectively.
4.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 September 30, 2022
At December 31, 2021
Advisor-led client assets1
$
3,305
$
3,886
Fee-based client assets2
$
1,628
$
1,839
Fee-based client assets as a percentage of advisor-led client assets
49%
47%
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Fee-based asset flows3
$
16.7
$
70.6
$
142.4
$
141.5
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 September 30, 2022
At December 31, 2021
Self-directed assets1
$
829
$
1,103
Self-directed households (in millions)2
7.8
7.4
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Daily average revenue trades (“DARTs”) (in thousands)3
805
959
900
1,200
1.Self-directed assets represent active accounts which are not advisor led. Active accounts are defined as having at least $25 in assets. The prior period amount has been revised to include certain additional vested client employee stock options to align the timing of recognition with other existing Morgan Stanley client 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 are 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.
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 $3,389 million in the current quarter decreased 7% compared with the prior year quarter, primarily due to lower fee-based asset levels in the current quarter as a result of lower market levels, partially offset by positive fee-based flows.
In the current year period, asset management increased 3% to $10,525 million compared with the prior year period, primarily due to higher fee-based asset levels in the current year period as a result of positive fee-based flows, partially offset by lower market levels.
See “Fee-Based Client Assets—Rollforwards” herein.
Transactional Revenues
Transactional revenues of $616 million in the current quarter decreased 26% compared with the prior year quarter, primarily due to lower client activity.
In the current year period, transactional revenues decreased 52% to $1,542 million compared with the prior year period, primarily due to losses on investments associated with certain employee deferred compensation plans and lower client activity in equities.
Net Interest
Net interest revenues of $2,004 million in the current quarter and $5,291 million in the current year period increased 49% and 33% compared with the prior year quarter and the prior year period, respectively, primarily due to net effect of higher interest rates and growth in bank lending.
The level and pace of interest rate changes may impact the composition of deposits and customer behavior, which may impact net interest income in future periods.
Non-interest Expenses
Non-interest expenses of $4,460 million in the current quarter increased 1% compared with the prior year quarter, as a result of higher Non-compensation expenses .
•Compensation and benefits expenses were relatively unchanged in the current quarter as the impact of higher
headcount was offset by a decrease in the formulaic payout to Wealth Management representatives driven by lower compensable revenues.
•Non-compensation expenses increased in the current quarter primarily driven by spend on technology and higher marketing and business development costs.
In the current year period, Non-interest expenses decreased 2% to $13,005 million compared with the prior year period, primarily as a result of lower Compensation and benefits expenses, partially offset by higher Non-compensation expenses.
•Compensation and benefits expenses decreased in the current year period primarily due to lower expenses related to certain deferred compensation plans linked to investment performance, partially offset by the impact of higher headcount.
•Non-compensation expenses increased in the current year period primarily driven by spend on technology and higher marketing and business development costs.
1.Includes non-custody account values reflecting prior quarter-end balances due to lag in the reporting of asset values by third-party custodians.
2.Includes $75 billion of fee-based assets acquired in an asset acquisition in the current year period reflected in Separately managed.
Average Fee Rates1
Three Months Ended September 30,
Nine Months Ended September 30,
Fee rate in bps
2022
2021
2022
2021
Separately managed
11
14
12
14
Unified managed
94
95
94
96
Advisor
80
82
81
82
Portfolio manager
91
93
92
93
Subtotal
65
71
66
72
Cash management
6
5
6
5
Total fee-based client assets
63
70
65
70
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.
Net income (loss) applicable to noncontrolling interests
(17)
(14)
(21)
%
Net income applicable to Morgan Stanley
$
107
$
320
(67)
%
Nine Months Ended September 30,
$ in millions
2022
2021
% Change
Revenues
Asset management and related fees
$
3,961
$
3,991
(1)
%
Performance-based income and other1
(47)
478
(110)
%
Net revenues
3,914
4,469
(12)
%
Compensation and benefits
1,645
1,742
(6)
%
Non-compensation expenses
1,676
1,557
8
%
Total non-interest expenses
3,321
3,299
1
%
Income before provision for income taxes
593
1,170
(49)
%
Provision for income taxes
121
253
(52)
%
Net income
472
917
(49)
%
Net income (loss) applicable to noncontrolling interests
(26)
(19)
(37)
%
Net income applicable to Morgan Stanley
$
498
$
936
(47)
%
1.Includes Investments, Trading, Commissions and fees, Net interest, and Other revenues.
Acquisition of Eaton Vance
The comparison of the current year period results to the prior year period is 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 2021 Form 10-K.
Net Revenues
Asset Management and Related Fees
Asset management and related fees of $1,269 million in the current quarter decreased 14% from the prior year quarter, primarily due to lower average AUM driven by the decline in equity markets, partially offset by the impact of lower fee waivers in certain money market funds.
Asset management and related fees of $3,961 million in the current year period were relatively unchanged from the prior year period, reflecting the impact of the decline in equity markets, offset by incremental revenues as a result of the Eaton Vance acquisition and the impact of lower fee waivers in certain money market funds.
Asset management revenues are influenced by the level and relative mix of AUM. The current market environment may impact AUM and net flows within asset classes and therefore our asset management revenues.
See “Assets under Management or Supervision” herein.
Performance-based Income and Other
Performance-based income and other revenues were a loss of $101 million in the current quarter, representing a decrease from the prior year quarter, primarily due to the reversal of accrued carried interest in certain private equity and real estate funds.
Performance-based income and other revenues were a loss of $47 million in the current year period, representing a 110% decrease from the prior year period, primarily due to lower accrued carried interest in certain private equity funds, losses on investments associated with certain employee deferred compensation plans compared with gains in the prior year period, and mark-to-market losses on public investments.
Non-interest Expenses
Non-interest expenses of $1,052 million in the current quarter decreased 3% from the prior year quarter as a result of lower Compensation and benefits.
•Compensation and benefits expenses decreased in the current quarter primarily due to lower discretionary incentive compensation driven by lower asset management revenues, partially offset by higher salary costs.
•Non-compensation expenses were relatively unchanged.
Non-interest expenses of $3,321 million in the current year period increased 1% from the prior year period as a result of higher Non-compensation expenses, partially offset with lower Compensation and benefits.
•Compensation and benefits expenses decreased in the current year period primarily due to lower discretionary incentive compensation driven by lower asset management revenues and lower expenses related to certain deferred compensation plans linked to investment performance, partially offset by higher salary costs, including the impact of incremental compensation as a result of the Eaton Vance acquisition.
•Non-compensation expenses increased in the current year period 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
June 30, 2022
$
265
$
181
$
415
$
861
$
490
$
1,351
Inflows
10
13
24
47
572
619
Outflows
(14)
(17)
(15)
(46)
(602)
(648)
Market Impact
(9)
(3)
(15)
(27)
(2)
(29)
Other
(3)
(3)
(4)
(10)
(4)
(14)
September 30, 2022
$
249
$
171
$
405
$
825
$
454
$
1,279
$ in billions
Equity
Fixed Income
Alternatives and Solutions
Long-Term AUM Subtotal
Liquidity and Overlay Services
Total
June 30, 2021
$
404
$
207
$
445
$
1,056
$
468
$
1,524
Inflows
18
17
24
59
462
521
Outflows
(19)
(16)
(23)
(58)
(448)
(506)
Market Impact
(12)
—
—
(12)
—
(12)
Other
—
(2)
(3)
(5)
—
(5)
September 30, 2021
$
391
$
206
$
443
$
1,040
$
482
$
1,522
$ 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
42
50
74
166
1,675
1,841
Outflows
(60)
(59)
(60)
(179)
(1,702)
(1,881)
Market Impact
(117)
(19)
(67)
(203)
(11)
(214)
Other
(11)
(8)
(8)
(27)
(5)
(32)
September 30, 2022
$
249
$
171
$
405
$
825
$
454
$
1,279
$ 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
73
49
68
190
1,375
1,565
Outflows
(63)
(40)
(53)
(156)
(1,300)
(1,456)
Market Impact
23
1
29
53
4
57
Acquired1
119
103
251
473
116
589
Other
(3)
(5)
(5)
(13)
(1)
(14)
September 30, 2021
$
391
$
206
$
443
$
1,040
$
482
$
1,522
1.Related to the Eaton Vance acquisition.
Average AUM
Three Months Ended September 30,
Nine Months Ended September 30,
$ in billions
2022
2021
2022
2021
Equity
$
269
$
402
$
308
$
350
Fixed income
179
207
190
173
Alternatives and Solutions
420
451
436
356
Long-term AUM subtotal
868
1,060
934
879
Liquidity and Overlay Services
466
476
469
413
Total AUM
$
1,334
$
1,536
$
1,403
$
1,292
Average Fee Rates1
Three Months Ended September 30,
Nine Months Ended September 30,
Fee rate in bps
2022
2021
2022
2021
Equity
71
72
70
76
Fixed income
34
37
36
38
Alternatives and Solutions
34
32
34
37
Long-term AUM
46
48
46
53
Liquidity and Overlay Services
13
5
11
6
Total AUM
34
35
35
38
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.
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.
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 September 30, 2022
At December 31, 2021
Investment securities portfolio:
Investment securities—AFS
$
65.6
$
81.6
Investment securities—HTM
57.4
61.7
Total investment securities
$
123.0
$
143.3
Wealth Management Loans2
Residential real estate
$
52.8
$
44.2
Securities-based lending and Other3
92.9
85.0
Total, net of ACL
$
145.7
$
129.2
Institutional Securities Loans2
Corporate
$
6.7
$
6.5
Secured lending facilities
36.9
33.1
Commercial and Residential real estate
10.2
10.4
Securities-based lending and Other
5.4
6.3
Total, net of ACL
$
59.2
$
56.3
Total Assets
$
371.2
$
386.1
Deposits4
$
331.9
$
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.
•Fair Value Measurement. This accounting update clarifies, consistent with our current accounting policy, that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The update also requires additional disclosures including the fair value of equity securities subject to contractual sale restrictions, the nature and remaining duration of the restriction and circumstances that could cause the restriction to lapse. The ASU is effective January 1, 2024 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.
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 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 managing 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 September 30, 2022
$ in millions
IS
WM
IM
Total
Assets
Cash and cash equivalents
$
89,524
$
21,911
$
261
$
111,696
Trading assets at fair value
284,683
1,752
4,753
291,188
Investment securities
41,503
119,766
—
161,269
Securities purchased under agreements to resell
100,251
10,873
—
111,124
Securities borrowed
135,570
908
—
136,478
Customer and other receivables
55,202
31,517
1,216
87,935
Loans1
65,169
145,763
4
210,936
Other assets2
14,482
23,977
10,944
49,403
Total assets
$
786,384
$
356,467
$
17,178
$
1,160,029
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 cash and cash equivalents, 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. Total assets of $1,160 billion at September 30, 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 September 30, 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.
The amount of Liquidity Resources we hold is based on our risk appetite and is calibrated to meet various internal and
regulatory requirements and to 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
Average Daily Balance Three Months Ended
$ in millions
September 30, 2022
June 30, 2022
Cash deposits with central banks
$
61,447
$
65,144
Unencumbered HQLA Securities1:
U.S. government obligations
132,788
123,950
U.S. agency and agency mortgage-backed securities
89,279
92,825
Non-U.S. sovereign obligations2
15,812
15,661
Other investment grade securities
607
629
Total HQLA1
$
299,933
$
298,209
Cash deposits with banks (non-HQLA)
8,068
8,161
Total Liquidity Resources
$
308,001
$
306,370
1.HQLA is presented prior to applying weightings and includes all HQLA held in subsidiaries.
2.Primarily composed of unencumbered U.K., Japanese, French, German and Dutch government obligations.
Liquidity Resources by Bank and Non-Bank Legal Entities
Average Daily Balance Three Months Ended
$ in millions
September 30, 2022
June 30, 2022
Bank legal entities
U.S.
$
133,306
$
142,290
Non-U.S.
7,607
8,712
Total Bank legal entities
140,913
151,002
Non-Bank legal entities
U.S.:
Parent Company
54,189
43,158
Non-Parent Company
55,098
55,342
Total U.S.
109,287
98,500
Non-U.S.
57,801
56,868
Total Non-Bank legal entities
167,088
155,368
Total Liquidity Resources
$
308,001
$
306,370
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 large 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 September 30, 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
September 30, 2022
June 30, 2022
Eligible HQLA1
Cash deposits with central banks
$
57,133
$
59,887
Securities2
183,102
169,708
Total Eligible HQLA1
$
240,235
$
229,595
LCR
136
%
128
%
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.
Securities purchased under agreements to resell and Securities borrowed
$
247,602
$
249,712
Securities sold under agreements to repurchase and Securities loaned
$
73,230
$
74,487
Securities received as collateral1
$
6,853
$
10,504
Average Daily Balance Three Months Ended
$ in millions
September 30, 2022
December 31, 2021
Securities purchased under agreements to resell and Securities borrowed
$
261,256
$
236,327
Securities sold under agreements to repurchase and Securities loaned
$
73,487
$
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 September 30, 2022
At December 31, 2021
Savings and demand deposits:
Brokerage sweep deposits1
$
233,519
$
298,352
Savings and other
83,610
34,395
Total Savings and demand deposits
317,129
332,747
Time deposits
20,994
14,827
Total2
$
338,123
$
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 September 30, 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 decreased in the current year period, primarily driven by a reduction in Brokerage sweep deposits, partially offset by higher savings deposits.
Borrowings by Remaining Maturity at September 30, 20221
$ in millions
Parent Company
Subsidiaries
Total
Original maturities of one year or less
$
—
$
4,062
$
4,062
Original maturities greater than one year
2022
$
3,151
$
1,198
$
4,349
2023
13,376
7,491
20,867
2024
19,224
8,798
28,022
2025
21,353
7,632
28,985
2026
21,957
4,785
26,742
Thereafter
81,708
25,688
107,396
Total
$
160,769
$
55,592
$
216,361
Total Borrowings
$
160,769
$
59,654
$
220,423
Maturities over next 12 months2
$
18,755
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 $220 billion as of September 30, 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.
Parent Company and U.S. Bank Subsidiaries Issuer Ratings at October 31, 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
A-
Stable
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
On May 17, 2022, S&P Global Ratings upgraded the issuer ratings of the Parent Company from BBB+ to A-, and revised the Parent Company outlook from positive to 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 before the 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 September 30,
Nine Months Ended September 30,
in millions, except for per share data
2022
2021
2022
2021
Number of shares
30
36
93
98
Average price per share
$
85.79
$
99.44
$
87.50
$
88.60
Total
$
2,555
$
3,557
$
8,165
$
8,631
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
October 14, 2022
Amount per share
$0.775
Date to be paid
November 15, 2022
Shareholders of record as of
October 31, 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
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 September 30, 2022 andDecember 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 September 30, 2022 andDecember 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 and exposure methodologies, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At September 30, 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.
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 September 30, 2022
At December 31, 2021
Change
Common Equity Tier 1 capital
Common stock and surplus
$
3,964
$
11,361
$
(7,397)
Retained earnings
94,240
89,679
4,561
AOCI
(5,758)
(3,102)
(2,656)
Regulatory adjustments and deductions:
Net goodwill
(16,456)
(16,641)
185
Net intangible assets
(6,290)
(6,704)
414
Other adjustments and deductions1
(1,767)
1,149
(2,916)
Total Common Equity Tier 1 capital
$
67,933
$
75,742
$
(7,809)
Additional Tier 1 capital
Preferred stock
$
8,750
$
7,750
$
1,000
Noncontrolling interests
542
562
(20)
Additional Tier 1 capital
$
9,292
$
8,312
$
980
Deduction for investments in covered funds
(797)
(706)
(91)
Total Tier 1 capital
$
76,428
$
83,348
$
(6,920)
Standardized Tier 2 capital
Subordinated debt
$
8,161
$
8,609
$
(448)
Eligible ACL
1,505
1,155
350
Other adjustments and deductions
45
54
(9)
Total Standardized Tier 2 capital
$
9,711
$
9,818
$
(107)
Total Standardized capital
$
86,139
$
93,166
$
(7,027)
Advanced Tier 2 capital
Subordinated debt
$
8,161
$
8,609
$
(448)
Eligible credit reserves
1,129
916
213
Other adjustments and deductions
45
54
(9)
Total Advanced Tier 2 capital
$
9,335
$
9,579
$
(244)
Total Advanced capital
$
85,763
$
92,927
$
(7,164)
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.
Regulatory VaR—VaR for regulatory capital requirements
In the current year period, Credit risk RWA decreased under the Standardized Approach, but increased under the Advanced Approach. Under the Standardized Approach, the decrease was primarily driven by lower equity and credit Derivatives as well as lower Securities financing transactions from margin lending, partially offset by lending growth. Under the Advanced Approach, the increase was primarily driven by higher commodities and foreign exchange Derivatives exposures as well as lending growth, partially offset by a decrease in Investment securities.
Market risk RWA decreased in the current year period under both the Standardized and Advanced Approaches primarily driven by lower Incremental Risk Charge driven by exposure reduction in the Fixed Income business and lower Specific risk standardized charges and securitizations, partially offset by higher Regulatory VaR.
The increase in Operational risk RWA in the current year period reflects higher legal expenses 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 September 30, 2022
At December 31, 2021
External TLAC2
$
235,864
$
235,681
External TLAC as a % of RWA
18.0
%
21.5
%
51.5
%
49.9
%
External TLAC as a % of leverage exposure
7.5
%
9.5
%
16.8
%
16.0
%
Eligible LTD3
$
149,694
$
144,659
Eligible LTD as a % of RWA
9.0
%
9.0
%
32.7
%
30.7
%
Eligible LTD as a % of leverage exposure
4.5
%
4.5
%
10.6
%
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 September 30, 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.
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. On June 23, 2022, the Federal Reserve published summary results of its supervisory stress tests of each large BHC, in which the projected decline in our Common Equity Tier 1 ratio in the severely adverse scenario improved from the prior annual supervisory stress test, from 4.7% to 4.6%. Following the publication of the supervisory stress test results, and as a
result of the increase in our common stock dividend and the resulting dividend add-on, we announced that our SCB will be 5.8% from October 1, 2022 through September 30, 2023. Together with other features of the regulatory capital framework, this SCB results in an aggregate Standardized Approach Common Equity Tier 1 ratio of 13.3%. Generally, our SCB is determined annually based on the results of the supervisory stress test.
We also disclosed a summary of the results of our company-run stress tests on our Investor Relations website and increased our quarterly common stock dividend to $0.775 per share from $0.70, beginning with the common stock dividend announced on July 14, 2022. Additionally, our Board of Directors approved a new multi-year repurchase authorization of up to $20 billion of outstanding common stock, without a set expiration date, beginning in the third quarter of 2022, which will be exercised from time to time as conditions warrant.
For additional 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.
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 September 30,
Nine Months Ended September 30,
$ in billions
2022
2021
2022
2021
Institutional Securities
$
48.8
$
43.5
$
48.8
$
43.5
Wealth Management
31.0
28.6
31.0
28.6
Investment Management2
10.6
10.7
10.6
8.2
Parent
2.5
15.8
4.3
16.6
Total
$
92.9
$
98.6
$
94.7
$
96.9
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. On July 1, 2022, the Federal Reserve and the FDIC announced that they have extended the period for issuing feedback for the U.S. G-SIBs’ 2021 resolution plans to allow the agencies additional time to analyze them.
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
Covered Funds Restrictions under the Volcker Rule
The Volcker Rule prohibits certain investments and relationships by banking entities with covered funds, as defined in the Volcker Rule. We requested and received additional time until July 21, 2023 to conform investments in certain legacy illiquid funds. During the current quarter, we have continued our efforts to conform these illiquid funds by July 21, 2023, including but not limited to assessing alternative conformance options permitted under the Volcker Rule. As a result, as of September 30, 2022, we continued to estimate the fair value of our investments in such covered funds using the net asset value per share (“NAV”), which approximated $300 million. For additional information on the Volcker Rule, see “Business—Supervision and Regulation—Financial Holding Company—Activities Restrictions Under the Volcker Rule” in the 2021 Form 10-K. For information on investments measured at NAV, see Note 4 to the financial statements.
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 through the cessation dates.
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 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. On July 19, 2022, the Federal Reserve issued a proposed rule to implement the federal legislation. 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 September 30, 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 the limited number of U.S. dollar LIBOR-linked contracts without a current market standard fallback, or for which the federal legislation does not 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.
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, correlations 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
September 30, 2022
$ in millions
Period End
Average
High1
Low1
Interest rate and credit spread
$
36
$
34
$
38
$
30
Equity price
22
24
31
19
Foreign exchange rate
9
8
12
5
Commodity price
26
30
36
24
Less: Diversification benefit2
(37)
(39)
N/A
N/A
Primary Risk Categories
$
56
$
57
$
65
$
49
Credit Portfolio
16
16
18
15
Less: Diversification benefit2
(11)
(12)
N/A
N/A
Total Management VaR
$
61
$
61
$
74
$
50
Three Months Ended
June 30, 2022
$ in millions
Period End
Average
High1
Low1
Interest rate and credit spread
$
33
$
30
$
43
$
24
Equity price
24
24
28
19
Foreign exchange rate
6
7
15
4
Commodity price
24
31
40
24
Less: Diversification benefit2
(42)
(48)
N/A
N/A
Primary Risk Categories
$
45
$
44
$
57
$
36
Credit Portfolio
15
15
18
14
Less: Diversification benefit2
(10)
(13)
N/A
N/A
Total Management VaR
$
50
$
46
$
57
$
40
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 increased from the three months ended June 30, 2022, primarily from an increase in interest rate and credit spread risk categories driven by market volatility and a reduction in 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 2 loss days in the current quarter, which did not exceed 95% Total Management VaR.
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 September 30, 2022
At June 30, 2022
Derivatives
$
7
$
7
Borrowings carried at fair value
33
38
1.Amounts represent the potential gain for each 1 bps widening of our credit spread.
Credit spread risk sensitivity for borrowings carried at fair value at September 30, 2022 decreased from June 30, 2022 primarily due to widening credit spreads, partially offset by new debt issuance.
The Wealth Management business segment reflects a substantial portion of our non-trading interest rate risk. Historically, net interest income sensitivity for our U.S. Bank Subsidiaries was representative of such sensitivity for the Wealth Management business segment and, accordingly, we presented net interest income sensitivity for our U.S. Bank Subsidiaries. However, over time the Wealth Management business segment has grown its assets that generate net interest income outside of the U.S. Bank Subsidiaries, such as margin and other lending on non-bank entities, and this growth has been further accelerated by the acquisition of E*TRADE. Net interest in the Wealth Management business segment primarily consists of interest income earned on non-trading assets, including loans and investment securities, as well as margin and other lending on non-bank entities and interest expense incurred on non-trading liabilities, primarily deposits.
Wealth Management Net Interest Income Sensitivity Analysis1
$ in millions
At September 30, 2022
At June 30, 2022
Basis point change
+100
$
398
$
93
-100
(568)
(360)
1.The prior period has been revised to conform to the current period presentation.
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 Wealth Management business segment. These shocks are applied to our 12-month forecast for our Wealth Management business segment, 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 Wealth Management business segment 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. Net interest income sensitivity to interest rates at September
30, 2022 increased from June 30, 2022, primarily driven by the changes in deposit pricing, mix and expected customer behavior.
Investments Sensitivity, Including Related Carried Interest
Loss from 10% Decline
$ in millions
At September 30, 2022
At June 30, 2022
Investments related to Investment Management activities
$
423
$
423
Other investments:
MUMSS
131
139
Other Firm investments
348
348
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.
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. These revenues depend on multiple factors including, but 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 may 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 September 30, 2022
$ in millions
HFI
HFS
FVO
Total
Institutional Securities:
Corporate
$
6,858
$
7,640
$
—
$
14,498
Secured lending facilities
34,788
3,707
7
38,502
Commercial and Residential real estate
8,191
1,750
2,044
11,985
Securities-based lending and Other
2,728
109
5,013
7,850
Total Institutional Securities
52,565
13,206
7,064
72,835
Wealth Management:
Residential real estate
52,904
5
—
52,909
Securities-based lending and Other
92,859
142
—
93,001
Total Wealth Management
145,763
147
—
145,910
Total Investment Management1
4
—
448
452
Total loans2
198,332
13,353
7,512
219,197
ACL
(749)
(749)
Total loans, net of ACL
$
197,583
$
13,353
$
7,512
$
218,448
Lending commitments3
$
136,605
Total exposure
$
355,053
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 $19 billion since December 31, 2021, primarily due to growth in Residential real estate loans and Securities-based loans within the Wealth Management segment.
See Notes 4, 5, 9 and 13 to the financial statements for further information.
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
(31)
Recoveries
7
Net (charge-offs) recoveries
(24)
Provision for credit losses
193
Other
(31)
Total at September 30, 2022
$
1,236
ACL—Loans
$
749
ACL—Lending commitments
487
Provision for Credit Losses by Business Segment
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
$ in millions
IS
WM
Total
IS
WM
Total
Loans
$
(9)
$
15
$
6
$
88
$
49
$
137
Lending commitments
33
(4)
29
62
(6)
56
Total
$
24
$
11
$
35
$
150
$
43
$
193
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 year period, reflecting the Provision for credit losses due to portfolio growth and deterioration in macroeconomic outlook.
The base scenario used in our ACL models as of September 30, 2022 was generated using a combination of consensus economic forecasts, forward rates, and internally developed and validated models, and assumes slower economic 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. Real GDP Growth Rates in Base Scenario
4Q 2022
4Q 2023
Year-over-year growth rate
0.8
%
1.3
%
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 September 30, 2022
At December 31, 2021
IS
WM
IS
WM
Accrual
99.4
%
99.9
%
98.7
%
99.8
%
Nonaccrual1
0.6
%
0.1
%
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 Nine Months Ended September 30, 2022
Net charge-off (recovery) ratio1
(0.09)
%
0.01
%
0.09
%
—
%
0.02
%
0.01
%
Average loans
$
6,441
$
32,367
$
8,196
$
48,675
$
92,681
$
188,360
For the Nine Months Ended September 30, 2021
Net charge-off ratio1
0.37
%
0.25
%
0.30
%
—
%
—
%
0.07
%
Average loans
$
5,182
$
27,151
$
7,066
$
37,897
$
72,484
$
149,780
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
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 September 30, 2022
At December 31, 2021
Industry
Financials
$
52,630
$
52,066
Real estate
32,325
31,560
Communications services
15,386
12,645
Industrials
14,555
17,446
Information technology
12,834
13,471
Healthcare
11,863
12,618
Consumer discretionary
11,352
11,628
Utilities
10,301
10,310
Energy
9,170
8,544
Consumer staples
8,186
7,855
Materials
6,296
6,394
Insurance
5,300
4,954
Other
1,678
2,063
Total exposure
$
191,876
$
191,554
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 September 30, 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 September 30, 2022
Contractual Years to Maturity
$ in millions
<1
1-5
5-15
Total
Loans, net of ACL
$
1,605
$
1,564
$
1,282
$
4,451
Lending commitments
1,400
6,436
4,787
12,623
Total exposure
$
3,005
$
8,000
$
6,069
$
17,074
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
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)
(7)
(17)
Recoveries
6
—
—
—
6
Net (charge-offs) recoveries
6
(3)
(7)
(7)
(11)
Provision for credit losses
110
5
29
6
150
Other
(18)
(3)
(10)
—
(31)
Total at September 30, 2022
$
619
$
203
$
238
$
17
$
1,077
ACL—Loans
$
211
$
156
$
224
$
11
$
602
ACL—Lending commitments
408
47
14
6
475
Institutional Securities HFI Loans—Ratios of Allowance for Credit Losses to Balance Before Allowance
At September 30, 2022
At December 31, 2021
Corporate
3.1
%
3.0
%
Secured lending facilities
0.4
%
0.5
%
Commercial real estate
2.7
%
2.9
%
Securities-based lending and Other
0.4
%
0.7
%
Total Institutional Securities loans
1.1
%
1.2
%
Wealth Management Loans and Lending Commitments
At September 30, 2022
Contractual Years to Maturity
$ in millions
<1
1-5
5-15
>15
Total
Securities-based lending and Other loans
$
81,996
$
9,204
$
1,610
$
131
$
92,941
Residential real estate loans
2
24
1,359
51,437
52,822
Total loans, net of ACL
$
81,998
$
9,228
$
2,969
$
51,568
$
145,763
Lending commitments
12,367
4,252
48
295
16,962
Total exposure
$
94,365
$
13,480
$
3,017
$
51,863
$
162,725
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
(14)
Recoveries
1
Net (charge-offs) recoveries
(13)
Provision for credit losses
43
Total at September 30, 2022
$
159
ACL—Loans
$
147
ACL—Lending commitments
12
At September 30, 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 September 30, 2022
At December 31, 2021
Institutional Securities
$
19,109
$
40,545
Wealth Management
24,306
30,987
Total
$
43,415
$
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.
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. In 2022, our exposure to credit risk arising from OTC derivatives has increased, primarily as a function of the effect of market factors and volatility on the valuation of our positions. 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 other 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 September 30, 2022
$ in millions
United Kingdom
Germany
Japan
France
Brazil
Sovereign
Net inventory1
$
(1,289)
$
1,931
$
4,714
$
2,925
$
3,045
Net counterparty exposure2
19
268
146
8
—
Exposure before hedges
(1,270)
2,199
4,860
2,933
3,045
Hedges3
(250)
(284)
(168)
(6)
(109)
Net exposure
$
(1,520)
$
1,915
$
4,692
$
2,927
$
2,936
Non-sovereign
Net inventory1
$
1,975
$
462
$
749
$
329
$
118
Net counterparty exposure2
15,075
4,126
3,695
3,888
497
Loans
5,056
1,101
357
438
254
Lending commitments
5,922
3,556
—
2,400
405
Exposure before hedges
28,028
9,245
4,801
7,055
1,274
Hedges3
(1,706)
(1,590)
(559)
(1,836)
(39)
Net exposure
$
26,322
$
7,655
$
4,242
$
5,219
$
1,235
Total net exposure
$
24,802
$
9,570
$
8,934
$
8,146
$
4,171
$ in millions
Canada
China
Spain
Korea
Netherlands
Sovereign
Net inventory1
$
67
$
(271)
$
(152)
$
1,136
$
40
Net counterparty exposure2
53
574
41
679
—
Exposure before hedges
120
303
(111)
1,815
40
Hedges3
—
(65)
(8)
(37)
(17)
Net exposure
$
120
$
238
$
(119)
$
1,778
$
23
Non-sovereign
Net inventory1
$
739
$
1,207
$
426
$
229
$
123
Net counterparty exposure2
1,781
1,252
984
915
1,428
Loans
204
393
1,938
131
484
Lending commitments
1,358
680
816
25
1,429
Exposure before hedges
4,082
3,532
4,164
1,300
3,464
Hedges3
(161)
(99)
(923)
(12)
(589)
Net exposure
$
3,921
$
3,433
$
3,241
$
1,288
$
2,875
Total net exposure
$
4,041
$
3,671
$
3,122
$
3,066
$
2,898
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 the fair value of any 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 September 30, 2022
Country of Risk
Collateral2
United Kingdom
U.K., U.S. and France
$
14,632
Japan
Japan and U.S.
9,008
Other
Netherlands, France, and Germany
28,854
1.The benefit of collateral received is reflected in the Top 10 Non-U.S. Country Exposures at September 30, 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.
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 September 30, 2022, and the related condensed consolidated income statements, comprehensive income statements and statements of changes in total equity for the three-month and nine-month periods ended September 30, 2022 and 2021, and the cash flow statements for the nine-month periods ended September 30, 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.
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Stock-based compensation expense
1,377
1,636
Depreciation and amortization
2,791
2,979
Provision for credit losses
193
(1)
Other operating adjustments
508
(149)
Changes in assets and liabilities:
Trading assets, net of Trading liabilities
(23,285)
2,832
Securities borrowed
(6,765)
(13,531)
Securities loaned
798
3,402
Customer and other receivables and other assets
7,966
(2,692)
Customer and other payables and other liabilities
8,283
19,829
Securities purchased under agreements to resell
8,875
(3,487)
Securities sold under agreements to repurchase
(2,055)
11,400
Net cash provided by (used for) operating activities
7,599
33,622
Cash flows from investing activities
Proceeds from (payments for):
Other assets—Premises, equipment and software, net
(2,308)
(1,658)
Changes in loans, net
(23,280)
(23,197)
AFS securities1:
Purchases
(22,636)
(32,483)
Proceeds from sales
21,922
18,325
Proceeds from paydowns and maturities
11,682
21,508
HTM securities1:
Purchases
(5,231)
(24,851)
Proceeds from paydowns and maturities
7,837
10,860
Cash paid as part of the Eaton Vance acquisition, net of cash acquired
—
(2,648)
Other investing activities
(516)
(447)
Net cash provided by (used for) investing activities
(12,530)
(34,591)
Cash flows from financing activities
Net proceeds from (payments for):
Other secured financings
(1,352)
(1,125)
Deposits
(16,816)
18,347
Issuance of preferred stock, net of issuance costs
994
—
Proceeds from issuance of Borrowings
54,283
73,591
Payments for:
Borrowings
(27,019)
(56,699)
Repurchases of common stock and employee tax withholdings
(9,126)
(9,228)
Cash dividends
(4,023)
(2,857)
Other financing activities
(202)
(197)
Net cash provided by (used for) financing activities
(3,261)
21,832
Effect of exchange rate changes on cash and cash equivalents
(7,837)
(2,654)
Net increase (decrease) in cash and cash equivalents
(16,029)
18,209
Cash and cash equivalents, at beginning of period
127,725
105,654
Cash and cash equivalents, at end of period
$
111,696
$
123,863
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest
$
4,339
$
1,236
Income taxes, net of refunds
2,805
3,303
1.The prior period amounts have been revised to present Purchases, Proceeds from sales and Proceeds from paydowns and maturities separately between AFS securities and HTM securities.
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.
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 nine months ended September 30, 2022 (“current year period”), there were no significant updates to the Firm’s significant accounting policies.
3. Cash and Cash Equivalents
$ in millions
At September 30, 2022
At December 31, 2021
Cash and due from banks
$
6,836
$
8,394
Interest bearing deposits with banks
104,860
119,331
Total Cash and cash equivalents
$
111,696
$
127,725
Restricted cash
$
40,413
$
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
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 September 30, 2022
At December 31, 2021
Corporate
$
—
$
8
Secured lending facilities
7
—
Commercial Real Estate
476
863
Residential Real Estate
1,568
3,911
Securities-based lending and Other loans
5,461
7,845
Total
$
7,512
$
12,627
Unsettled Fair Value of Futures Contracts1
$ in millions
At September 30, 2022
At December 31, 2021
Customer and other receivables (payables), net
$
693
$
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
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Securities sold under agreements to repurchase
Beginning balance
$
514
$
449
$
651
$
444
Realized and unrealized losses (gains)
5
(1)
(3)
5
Issuances
—
—
9
—
Settlements
(11)
—
(22)
—
Net transfers
—
—
(127)
(1)
Ending balance
$
508
$
448
$
508
$
448
Unrealized losses (gains)
$
5
$
(1)
$
—
$
5
Other secured financings
Beginning balance
$
112
$
401
$
403
$
516
Realized and unrealized losses (gains)
(5)
(17)
(11)
(14)
Issuances
13
14
44
421
Settlements
(7)
(3)
(320)
(500)
Net transfers
—
—
(3)
(28)
Ending balance
$
113
$
395
$
113
$
395
Unrealized losses (gains)
$
(5)
$
(17)
$
(11)
$
(13)
Borrowings
Beginning balance
$
2,325
$
1,975
$
2,157
$
4,374
Realized and unrealized losses (gains)
(185)
(87)
(625)
(37)
Issuances
65
197
230
411
Settlements
(65)
(67)
(263)
(347)
Net transfers2
(203)
38
438
(2,345)
Ending balance
$
1,937
$
2,056
$
1,937
$
2,056
Unrealized losses (gains)
$
(185)
$
(86)
$
(629)
$
(8)
Portion of Unrealized losses (gains) recorded in OCI—Change in net DVA
(36)
(4)
(126)
(18)
1.Net transfers in the prior year quarter reflect the transfer of $895 million of equity margin loans from Level 3 to Level 2 as a result of the reduced significance of the margin loan rate input.
2.Net transfers in the prior year period reflect the transfer in the second quarter of the prior year of $2.0 billion of Corporate and Other Debt, $1.0 billion of net Equity derivatives, and $2.2 billion of Borrowings from Level 3 to Level 2 as the unobservable inputs were not significant to the overall fair value measurements.
3.Net transfers in the prior year period reflect the transfer in the first quarter of the prior year 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 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
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.
Notes to Consolidated Financial Statements (Unaudited)
Net Asset Value Measurements
Fund Interests
At September 30, 2022
At December 31, 2021
$ in millions
Carrying
Value
Commitment
Carrying
Value
Commitment
Private equity
$
2,795
$
538
$
2,492
$
615
Real estate
2,316
242
2,064
248
Hedge1
198
2
191
2
Total
$
5,309
$
782
$
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 September 30, 2022
$ in millions
Private Equity
Real Estate
Less than 5 years
$
1,035
$
902
5-10 years
1,196
1,380
Over 10 years
564
34
Total
$
2,795
$
2,316
Nonrecurring Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
At September 30, 2022
Fair Value
$ in millions
Level 2
Level 31
Total
Assets
Loans
$
4,855
$
3,476
$
8,331
Other assets—Other investments
—
5
5
Other assets—ROU assets
5
—
5
Total
$
4,860
$
3,481
$
8,341
Liabilities
Other liabilities and accrued expenses—Lending commitments
$
375
$
144
$
519
Total
$
375
$
144
$
519
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 September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Assets
Loans2
$
(118)
$
(22)
$
(365)
$
(75)
Goodwill
—
—
—
(8)
Intangibles
—
—
—
(3)
Other assets—Other investments3
(2)
(2)
(8)
(55)
Other assets—Premises, equipment and software
(1)
(10)
(3)
(14)
Other assets—ROU assets
(1)
—
(7)
—
Total
$
(122)
$
(34)
$
(383)
$
(155)
Liabilities
Other liabilities and accrued expenses—Lending commitments2
$
(13)
$
(2)
$
(172)
$
34
Total
$
(13)
$
(2)
$
(172)
$
34
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.
Notes to Consolidated Financial Statements (Unaudited)
Financial Instruments Not Measured at Fair Value
At September 30, 2022
Carrying Value
Fair Value
$ in millions
Level 1
Level 2
Level 3
Total
Financial assets
Cash and cash equivalents
$
111,696
$
111,696
$
—
$
—
$
111,696
Investment securities—HTM
77,636
27,657
37,721
1,015
66,393
Securities purchased under agreements to resell
111,124
—
108,312
2,680
110,992
Securities borrowed
136,478
—
136,471
—
136,471
Customer and other receivables
83,417
—
79,493
3,558
83,051
Loans1
210,936
—
25,100
178,571
203,671
Other assets
704
—
704
—
704
Financial liabilities
Deposits
$
334,462
$
—
$
334,378
$
—
$
334,378
Securities sold under agreements to repurchase
59,182
—
59,070
—
59,070
Securities loaned
13,097
—
13,096
—
13,096
Other secured financings
3,107
—
3,107
—
3,107
Customer and other payables
229,272
—
229,272
—
229,272
Borrowings
151,635
—
148,105
4
148,109
Commitment Amount
Lending commitments2
$
135,899
$
—
$
2,065
$
880
$
2,945
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.
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 September 30, 2022
At December 31, 2021
Business Unit Responsible for Risk Management
Equity
$
34,226
$
37,046
Interest rates
22,896
28,638
Commodities
9,147
7,837
Credit
1,220
1,347
Foreign exchange
1,299
1,472
Total
$
68,788
$
76,340
Net Revenues from Borrowings under the Fair Value Option
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Trading revenues
$
4,034
$
1,383
$
16,361
$
937
Interest expense
67
77
203
234
Net revenues1
$
3,967
$
1,306
$
16,158
$
703
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
Notes to Consolidated Financial Statements (Unaudited)
$ in millions
At September 30, 2022
At December 31, 2021
Cumulative pre-tax DVA gain (loss) recognized in AOCI
$
1,034
$
(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 September 30, 2022
At December 31, 2021
Loans and other receivables2
$
10,908
$
12,633
Nonaccrual loans2
8,192
9,999
Borrowings3
5,558
(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 September 30, 2022
At December 31, 2021
Nonaccrual loans
$
440
$
989
Nonaccrual loans 90 or more days past due
41
363
6. Derivative Instruments and Hedging Activities
Fair Values of Derivative Contracts
Assets at September 30, 2022
$ in millions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate
$
53
$
1
$
—
$
54
Foreign exchange
332
137
—
469
Total
385
138
—
523
Not designated as accounting hedges
Economic hedges of loans
Credit
2
112
—
114
Other derivatives
Interest rate
158,740
31,664
2,074
192,478
Credit
7,627
3,027
—
10,654
Foreign exchange
163,229
4,476
70
167,775
Equity
25,922
—
35,754
61,676
Commodity and other
33,833
—
13,177
47,010
Total
389,353
39,279
51,075
479,707
Total gross derivatives
$
389,738
$
39,417
$
51,075
$
480,230
Amounts offset
Counterparty netting
(270,565)
(37,449)
(48,859)
(356,873)
Cash collateral netting
(55,266)
(1,841)
—
(57,107)
Total in Trading assets
$
63,907
$
127
$
2,216
$
66,250
Amounts not offset1
Financial instruments collateral
(28,876)
—
—
(28,876)
Net amounts
$
35,031
$
127
$
2,216
$
37,374
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable
$
8,565
Liabilities at September 30, 2022
$ in millions
Bilateral
OTC
Cleared
OTC
Exchange-
Traded
Total
Designated as accounting hedges
Interest rate
$
427
$
1
$
—
$
428
Foreign exchange
56
3
—
59
Total
483
4
—
487
Not designated as accounting hedges
Economic hedges of loans
Credit
8
231
—
239
Other derivatives
Interest rate
147,347
34,480
940
182,767
Credit
7,057
3,135
—
10,192
Foreign exchange
155,524
3,971
75
159,570
Equity
31,341
—
38,464
69,805
Commodity and other
25,455
—
14,108
39,563
Total
366,732
41,817
53,587
462,136
Total gross derivatives
$
367,215
$
41,821
$
53,587
$
462,623
Amounts offset
Counterparty netting
(270,565)
(37,449)
(48,859)
(356,873)
Cash collateral netting
(56,300)
(1,188)
—
(57,488)
Total in Trading liabilities
$
40,350
$
3,184
$
4,728
$
48,262
Amounts not offset1
Financial instruments collateral
(2,927)
—
(2,899)
(5,826)
Net amounts
$
37,423
$
3,184
$
1,829
$
42,436
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable
Notes to Consolidated Financial Statements (Unaudited)
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.
Notes to Consolidated Financial Statements (Unaudited)
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
Nine Months Ended
September 30,
September 30,
$ in millions
2022
2021
2022
2021
Fair value hedges—Recognized in Interest income
Interest rate contracts
$
846
$
107
$
2,037
$
607
Investment Securities—AFS
(836)
(82)
(1,960)
(509)
Fair value hedges—Recognized in Interest expense
Interest rate contracts
$
(5,379)
$
(763)
$
(15,629)
$
(3,633)
Deposits
25
15
143
73
Borrowings
5,372
796
15,499
3,547
Net investment hedges—Foreign exchange contracts
Recognized in OCI
$
662
$
225
$
1,436
$
524
Forward points excluded from hedge effectiveness testing—Recognized in Interest income
18
(19)
(59)
(32)
Fair Value Hedges—Hedged Items
$ in millions
At September 30, 2022
At December 31, 2021
Investment Securities—AFS
Amortized cost basis currently or previously hedged
$
26,017
$
17,902
Basis adjustments included in amortized cost1
$
(1,847)
$
(591)
Deposits
Carrying amountcurrently or previously hedged
$
4,319
$
6,279
Basis adjustments included in carrying amount1
$
(138)
$
5
Borrowings
Carrying amountcurrently or previously hedged
$
135,864
$
122,919
Basis adjustments included in carrying amount—Outstanding hedges
$
(13,052)
$
2,324
Basis adjustments included in carrying amount—Terminated hedges
$
(722)
$
(743)
1.Hedge accounting basis adjustments are primarily related to outstanding hedges.
Gains (Losses) on Economic Hedges of Loans
Three Months Ended
Nine Months Ended
September 30,
September 30,
$ in millions
2022
2021
2022
2021
Recognized in Other revenues
Credit contracts1
$
(44)
$
(21)
$
160
$
(170)
1.Amounts related to hedges of certain held-for-investment and held-for-sale loans.
Net Derivative Liabilities and Collateral Posted
$ in millions
At September 30, 2022
At December 31, 2021
Net derivative liabilities with credit risk-related contingent features
$
23,750
$
20,548
Collateral posted
14,427
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.
Incremental Collateral and Termination Payments upon Potential Future Ratings Downgrade
$ in millions
At September 30, 2022
One-notch downgrade
$
779
Two-notch downgrade
491
Bilateral downgrade agreements included in the amounts above1
$
1,215
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
Notes to Consolidated Financial Statements (Unaudited)
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 September 30, 2022
$ in billions
< 1
1-3
3-5
Over 5
Total
Single-name CDS
Investment grade
$
11
$
28
$
27
$
13
$
79
Non-investment grade
5
12
16
5
38
Total
$
16
$
40
$
43
$
18
$
117
Index and basket CDS
Investment grade
$
2
$
11
$
70
$
44
$
127
Non-investment grade
8
17
39
20
84
Total
$
10
$
28
$
109
$
64
$
211
Total CDS sold
$
26
$
68
$
152
$
82
$
328
Other credit contracts
—
—
—
—
—
Total credit protection sold
$
26
$
68
$
152
$
82
$
328
CDS protection sold with identical protection purchased
$
273
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 September 30, 2022
At December 31, 2021
Single-name CDS
Investment grade
$
145
$
1,428
Non-investment grade
(1,886)
(370)
Total
$
(1,741)
$
1,058
Index and basket CDS
Investment grade
$
(194)
$
1,393
Non-investment grade
(4,125)
(650)
Total
$
(4,319)
$
743
Total CDS sold
$
(6,060)
$
1,801
Other credit contracts
(2)
(3)
Total credit protection sold
$
(6,062)
$
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 September 30, 2022
At December 31, 2021
Single name
$
139
$
126
Index and basket
184
204
Tranched index and basket
26
18
Total
$
349
$
348
Fair Value Asset (Liability)
$ in millions
At September 30, 2022
At December 31, 2021
Single name
$
1,970
$
(1,338)
Index and basket
3,986
(563)
Tranched index and basket
441
(451)
Total
$
6,397
$
(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.
Notes to Consolidated Financial Statements (Unaudited)
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 September 30, 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
$
46,061
$
1,923
$
31,459
$
296
12 months or longer
6,673
581
—
—
Total
52,734
2,504
31,459
296
U.S. agency securities
Less than 12 months
15,301
1,602
12,283
219
12 months or longer
5,708
1,277
1,167
22
Total
21,009
2,879
13,450
241
Agency CMBS
Less than 12 months
5,373
437
2,872
89
12 months or longer
104
12
10
—
Total
5,477
449
2,882
89
State and municipal securities
Less than 12 months
1,536
88
21
2
12 months or longer
46
2
7
—
Total
1,582
90
28
2
FFELP student loan ABS
Less than 12 months
807
19
320
1
12 months or longer
348
11
591
10
Total
1,155
30
911
11
Total AFS securities in an unrealized loss position
Less than 12 months
69,078
4,069
46,955
607
12 months or longer
12,879
1,883
1,775
32
Total
$
81,957
$
5,952
$
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 September 30, 2022 and December 31, 2021, the securities in an unrealized loss position are predominantly investment grade.
The HTM securities net carrying amounts at September 30, 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 September 30, 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.
Notes to Consolidated Financial Statements (Unaudited)
At September 30, 2022
$ in millions
Amortized Cost1
Fair Value
Annualized Average Yield2
HTM securities
U.S. Treasury securities:
Due within 1 year
3,429
3,397
1.9
%
After 1 year through 5 years
20,732
19,573
1.8
%
After 5 years through 10 years
3,867
3,515
2.4
%
After 10 years
1,561
1,172
2.3
%
Total
29,589
27,657
U.S. agency securities:
After 5 years through 10 years
399
362
2.1
%
After 10 years
44,546
35,577
1.8
%
Total
44,945
35,939
Agency CMBS:
Due within 1 year
60
59
1.0
%
After 1 year through 5 years
1,528
1,418
1.3
%
After 5 years through 10 years
226
192
1.5
%
After 10 years
140
113
1.5
%
Total
1,954
1,782
Non-agency CMBS:
Due within 1 year
173
172
4.0
%
After 1 year through 5 years
206
191
3.9
%
After 5 years through 10 years
718
607
3.7
%
After 10 years
51
45
3.7
%
Total
1,148
1,015
Total HTM securities
77,636
66,393
1.9
%
Total investment securities
167,194
150,026
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 September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Gross realized gains
$
13
$
17
$
163
$
236
Gross realized (losses)
(4)
—
(92)
(27)
Total1
$
9
$
17
$
71
$
209
1.Realized gains and losses are recognized in Other revenues in the income statement.
8. Collateralized Transactions
Offsetting of Certain Collateralized Transactions
At September 30, 2022
$ in millions
Gross Amounts
Amounts Offset
Balance Sheet Net Amounts
Amounts Not Offset1
Net Amounts
Assets
Securities purchased under agreements to resell
$
207,180
$
(96,056)
$
111,124
$
(106,215)
$
4,909
Securities borrowed
148,654
(12,176)
136,478
(130,579)
5,899
Liabilities
Securities sold under agreements to repurchase
$
156,189
$
(96,056)
$
60,133
$
(55,748)
$
4,385
Securities loaned
25,273
(12,176)
13,097
(12,664)
433
Net amounts for which master netting agreements are not in place or may not be legally enforceable
Securities purchased under agreements to resell
$
2,773
Securities borrowed
820
Securities sold under agreements to repurchase
3,162
Securities loaned
262
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 September 30, 2022
$ in millions
Overnight and Open
Less than 30 Days
30-90 Days
Over 90 Days
Total
Securities sold under agreements to repurchase
$
53,042
$
50,868
$
12,508
$
39,771
$
156,189
Securities loaned
15,249
—
1,398
8,626
25,273
Total included in the offsetting disclosure
$
68,291
$
50,868
$
13,906
$
48,397
$
181,462
Trading liabilities— Obligation to return securities received as collateral
Notes to Consolidated Financial Statements (Unaudited)
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 September 30, 2022
At December 31, 2021
Securities sold under agreements to repurchase
U.S. Treasury and agency securities
$
51,436
$
30,790
Other sovereign government obligations
74,401
73,063
Corporate equities
19,128
25,881
Other
11,224
9,941
Total
$
156,189
$
139,675
Securities loaned
Other sovereign government obligations
$
1,045
$
748
Corporate equities
23,688
20,656
Other
540
577
Total
$
25,273
$
21,981
Total included in the offsetting disclosure
$
181,462
$
161,656
Trading liabilities—Obligation to return securities received as collateral
Corporate equities
$
22,355
$
30,048
Other
18
56
Total
$
22,373
$
30,104
Total
$
203,835
$
191,760
Carrying Value of Assets Loaned or Pledged without Counterparty Right to Sell or Repledge
$ in millions
At September 30, 2022
At December 31, 2021
Trading assets
$
32,461
$
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 September 30, 2022
At December 31, 2021
Collateral received with right to sell or repledge
$
630,129
$
672,104
Collateral that was sold or repledged1
489,010
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.
Securities Segregated for Regulatory Purposes
$ in millions
At September 30, 2022
At December 31, 2021
Segregated securities1
$
36,579
$
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 September 30, 2022
At December 31, 2021
Margin and other lending
$
43,415
$
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.
Notes to Consolidated Financial Statements (Unaudited)
9. Loans, Lending Commitments and Related Allowance for Credit Losses
Loans by Type
At September 30, 2022
$ in millions
HFI Loans
HFS Loans
Total Loans
Corporate
$
6,858
$
7,640
$
14,498
Secured lending facilities
34,788
3,707
38,495
Commercial real estate
8,191
1,750
9,941
Residential real estate
52,904
5
52,909
Securities-based lending and Other loans
95,591
251
95,842
Total loans
198,332
13,353
211,685
ACL
(749)
(749)
Total loans, net
$
197,583
$
13,353
$
210,936
Loans to non-U.S. borrowers, net
$
24,624
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 September 30, 2022
At December 31, 2021
$ in millions
Fixed Rate
Floating or Adjustable Rate
Fixed Rate
Floating or Adjustable Rate
Corporate
$
—
$
14,498
$
—
$
13,674
Secured lending facilities
—
38,495
—
35,350
Commercial real estate
205
9,735
343
8,661
Residential real estate
24,105
28,805
18,966
25,292
Securities-based lending and Other loans
24,141
71,701
22,832
63,670
Total loans, before ACL
$
48,451
$
163,234
$
42,141
$
146,647
See 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
Notes to Consolidated Financial Statements (Unaudited)
At September 30, 2022
Securities-based Lending1
Other2
$ in millions
IG
NIG
Total
Revolving
$
78,639
$
5,695
$
1,375
$
85,709
2022
1,409
1,379
108
2,896
2021
714
541
144
1,399
2020
—
529
548
1,077
2019
18
912
625
1,555
2018
202
301
243
746
Prior
16
1,562
631
2,209
Total
$
80,998
$
10,919
$
3,674
$
95,591
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 September 30, 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 September 30, 2022
At December 31, 2021
Corporate
$
44
$
—
Residential real estate
141
209
Total
$
185
$
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 September 30, 2022
At December 31, 2021
Corporate
$
60
$
34
Secured lending facilities
99
375
Commercial real estate
130
195
Residential real estate
120
138
Securities-based lending and Other loans
4
151
Total1
$
413
$
893
Nonaccrual loans without an ACL
$
108
$
356
1.Includes all loans held for investment that are 90 days or more past due as of September 30, 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 September 30, 2022
At December 31, 2021
Loans, before ACL
$
27
$
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.
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)
—
(21)
(31)
Recoveries
6
—
—
1
—
7
Net (charge-offs) recoveries
6
(3)
(7)
1
(21)
(24)
Provision (release)
46
(2)
35
26
32
137
Other
(6)
(2)
(10)
—
—
(18)
September 30, 2022
$
211
$
156
$
224
$
87
$
71
$
749
Percent of loans to total loans1
3
%
18
%
4
%
27
%
48
%
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
(19)
(67)
(21)
—
—
(107)
Provision (release)
(91)
47
4
(2)
5
(37)
Other
(2)
(3)
(1)
1
(2)
(7)
September 30, 2021
$
197
$
175
$
193
$
58
$
61
$
684
Percent of loans to total loans1
3
%
17
%
4
%
26
%
50
%
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
Notes to Consolidated Financial Statements (Unaudited)
Provision for Credit Losses
Three Months Ended September 30,
$ in millions
2022
2021
Loans
$
6
$
5
Lending commitments
29
19
The aggregate allowance for credit losses for loans and lending commitments increased in the current year period, reflecting the Provision for credit losses due to portfolio growth and deterioration in macroeconomic outlook. The base scenario used in our ACL models as of September 30, 2022 was generated using a combination of consensus economic forecasts, forward rates, and internally developed and validated models, and assumes slower economic 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 September 30, 2022
At December 31, 2021
ACL to total loans1
0.4
%
0.4
%
Nonaccrual loans to total loans2
0.2
%
0.5
%
ACL to nonaccrual loans3
181.4
%
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 September 30, 2022
At December 31, 2021
Currently employed by the Firm1
$
3,967
$
3,613
No longer employed by the Firm2
98
113
Employee loans
$
4,065
$
3,726
ACL
(141)
(153)
Employee loans, net of ACL
$
3,924
$
3,573
Remaining repayment term, weighted average in years
5.8
5.7
1.These loans are predominantly current as of September 30, 2022 and December 31, 2021.
2.These loans are predominantly past due for a period of 90 days or more as of September 30, 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 September 30, 2022
At December 31, 2021
Investments
$
1,881
$
2,214
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Income (loss)
$
21
$
24
$
44
$
51
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.
Japanese Securities Joint Venture
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Income (loss) from investment in MUMSS
$
17
$
29
$
35
$
113
For more information on MUMSS and other relationships with MUFG, see Note 12 to the financial statements in the 2021 Form 10-K.
Notes to Consolidated Financial Statements (Unaudited)
12. Borrowings and Other Secured Financings
Borrowings
$ in millions
At September 30, 2022
At December 31, 2021
Original maturities of one year or less
$
4,062
$
5,764
Original maturities greater than one year
Senior
$
202,251
$
213,776
Subordinated
14,110
13,587
Total
$
216,361
$
227,363
Total borrowings
$
220,423
$
233,127
Weighted average stated maturity, in years1
6.7
7.7
1.Only includes borrowings with original maturities greater than one year.
Other Secured Financings
$ in millions
At September 30, 2022
At December 31, 2021
Original maturities:
One year or less
$
295
$
4,573
Greater than one year
7,406
5,468
Total
$
7,701
$
10,041
Transfers of assets accounted for as secured financings
$
931
$
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 September 30, 2022
$ in millions
Less than 1
1-3
3-5
Over 5
Total
Lending:
Corporate
$
11,654
$
29,955
$
54,877
$
6,105
$
102,591
Secured lending facilities
6,297
6,007
1,814
775
14,893
Commercial and Residential real estate
103
339
18
296
756
Securities-based lending and Other
12,415
5,012
548
390
18,365
Forward-starting secured financing receivables
62,091
—
—
—
62,091
Central counterparty
300
—
—
4,909
5,209
Underwriting
2,350
—
—
—
2,350
Investment activities
1,479
169
65
351
2,064
Letters of credit and other financial guarantees
168
—
—
2
170
Total
$
96,857
$
41,482
$
57,322
$
12,828
$
208,489
Lending commitments participated to third parties
$
7,877
Forward-starting secured financing receivables settled within three business days
$
45,666
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.
Guarantees
At September 30, 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
$
1,168,376
$
917,531
$
351,872
$
759,598
$
(107,603)
Standby letters of credit and other financial guarantees issued2
1,641
826
1,310
2,672
6
Market value guarantees
5
2
—
—
—
Liquidity facilities
3,712
—
—
—
(6)
Whole loan sales guarantees
—
9
78
23,079
—
Securitization representations and warranties3
—
—
—
80,236
(3)
General partner guarantees
361
10
32
157
(88)
Client clearing guarantees
159
—
—
—
—
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 $0.7 billion of notional and collateral/recourse, due to the nature of the Firm’s obligations under these arrangements. As of September 30, 2022, the carrying amount of standby letters of credit and other financial guarantees issued includes an allowance for credit losses of $74 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
Notes to Consolidated Financial Statements (Unaudited)
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, as well as being subject to regulatory investigations arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions or regulatory investigations include claims for substantial penalties, compensatory and/or punitive damages or claims for indeterminate amounts of penalties or damages. In some cases, the entities that would otherwise be the primary defendants in such legal actions are bankrupt or are in financial distress. These actions and investigations 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.
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Legal expenses
$
41
$
50
$
387
$
99
The Firm’s legal expenses can, and may in the future, fluctuate from period to period, given the current environment regarding government investigations and private litigation affecting global financial services firms, including the Firm.
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 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 $122 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
Notes to Consolidated Financial Statements (Unaudited)
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 September 30, 2022
At December 31, 2021
$ in millions
VIE Assets
VIE Liabilities
VIE Assets
VIE Liabilities
MABS1
$
1,006
$
471
$
1,177
$
409
Investment vehicles2
885
508
717
294
Operating entities
502
33
508
39
Other
844
584
510
286
Total
$
3,237
$
1,596
$
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 September 30, 2022
At December 31, 2021
Assets
Cash and cash equivalents
$
368
$
341
Trading assets at fair value
2,074
1,965
Investment securities
244
37
Securities purchased under agreements to resell
200
200
Customer and other receivables
30
31
Intangible assets
76
85
Other assets
245
253
Total
$
3,237
$
2,912
Liabilities
Other secured financings
$
1,420
$
767
Other liabilities and accrued expenses
176
261
Total
$
1,596
$
1,028
Noncontrolling interests
$
103
$
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.
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
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 September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
New transactions1
$
5,332
$
12,103
$
19,809
$
43,303
Retained interests
500
2,396
3,553
7,960
Sales of corporate loans to CLO SPEs1, 2
37
144
53
217
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 September 30, 2022
At December 31, 2021
Gross cash proceeds from sale of assets1
$
50,718
$
67,930
Fair value
Assets sold
$
48,474
$
68,992
Derivative assets recognized in the balance sheet
160
1,195
Derivative liabilities recognized in the balance sheet
2,405
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 September 30, 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.
Notes to Consolidated Financial Statements (Unaudited)
Capital Buffer Requirements
At September 30, 2022 andDecember 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 September 30, 2022 andDecember 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 September 30, 2022
At December 31, 2021
Risk-based capital
Common Equity Tier 1 capital
$
67,933
$
75,742
Tier 1 capital
76,428
83,348
Total capital
86,139
93,166
Total RWA
457,911
471,921
Common Equity Tier 1 capital ratio
13.2
%
14.8
%
16.0
%
Tier 1 capital ratio
14.7
%
16.7
%
17.7
%
Total capital ratio
16.7
%
18.8
%
19.7
%
$ in millions
Required
Ratio1
At September 30, 2022
At December 31, 2021
Leverage-based capital
Adjusted average assets2
$
1,154,411
$
1,169,939
Tier 1 leverage ratio
4.0
%
6.6
%
7.1
%
Supplementary leverage exposure3
$
1,406,345
$
1,476,962
SLR
5.0
%
5.4
%
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 September 30, 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 calculated excluding the effect of the adoption of CECL based
Notes to Consolidated Financial Statements (Unaudited)
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 September 30, 2022
At December 31, 2021
$ in millions
Amount
Ratio
Amount
Ratio
Risk-based capital
Common Equity Tier 1 capital
6.5
%
7.0
%
$
18,758
19.5
%
$
18,960
20.5
%
Tier 1 capital
8.0
%
8.5
%
18,758
19.5
%
18,960
20.5
%
Total capital
10.0
%
10.5
%
19,335
20.1
%
19,544
21.1
%
Leverage-based capital
Tier 1 leverage
5.0
%
4.0
%
$
18,758
9.6
%
$
18,960
10.2
%
SLR
6.0
%
3.0
%
18,758
7.6
%
18,960
8.1
%
MSPBNA’s Regulatory Capital
Well-Capitalized Requirement
Required Ratio1
At September 30, 20222
At December 31, 2021
$ in millions
Amount
Ratio
Amount
Ratio
Risk-based capital
Common Equity Tier 1 capital
6.5
%
7.0
%
$
16,134
29.0
%
$
10,293
24.3
%
Tier 1 capital
8.0
%
8.5
%
16,134
29.0
%
10,293
24.3
%
Total capital
10.0
%
10.5
%
16,261
29.2
%
10,368
24.5
%
Leverage-based capital
Tier 1 leverage
5.0
%
4.0
%
$
16,134
8.1
%
$
10,293
6.9
%
SLR
6.0
%
3.0
%
16,134
7.9
%
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 September 30, 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 the OCC.
Other Regulatory Capital Requirements
MS&Co. Regulatory Capital
$ in millions
At September 30, 2022
At December 31, 2021
Net capital
$
14,886
$
18,383
Excess net capital
10,405
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 September 30, 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 September 30, 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 September 30, 2022
Liquidation
Preference
per Share
At September 30, 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
P
40,000
25,000
1,000
—
Total
$
8,750
$
7,750
Shares authorized
30,000,000
1.Series C preferred stock is held by MUFG.
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
Notes to Consolidated Financial Statements (Unaudited)
accordance with regulatory capital requirements (see Note 15).
On August 2, 2022, the Firm issued 40 million depositary shares of Series P Preferred Stock, for an aggregate price of $1.0 billion. Each depositary share represents a 1/1000th interest in a share of 6.500% Non-Cumulative Preferred Stock, Series P, $0.01 par value (“Series P Preferred Stock”). The Series P Preferred Stock is redeemable at the Firm’s option, (i) in whole or in part, from time to time, on any dividend payment date on or after October 15, 2027 or (ii) in whole but not in part at any time within 90 days following a regulatory capital treatment event (as described in the terms of this series), in each case at a redemption price of $25,000 per share (equivalent to $25 per depositary share). The Series P Preferred Stock also has a preference over the Firm’s common stock upon liquidation and qualifies as Tier 1 capital.
Share Repurchases
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Repurchases of common stock under the Firm’s Share Repurchase Authorization
$
2,555
$
3,557
$
8,165
$
8,631
On June 27, 2022, the Firm announced that its Board of Directors approved a new multi-year repurchase authorization of up to $20 billion of outstanding common stock, without a set expiration date, beginning in the third quarter of 2022, which will be exercised 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 September 30,
Nine Months Ended September 30,
in millions
2022
2021
2022
2021
Weighted average common shares outstanding, basic
1,674
1,781
1,704
1,797
Effect of dilutive RSUs and PSUs
23
31
21
27
Weighted average common shares outstanding and common stock equivalents, diluted
1,697
1,812
1,725
1,824
Weighted average antidilutive common stock equivalents (excluded from the computation of diluted EPS)
1
—
5
—
Dividends
$ in millions, except per
share data
Three Months Ended September 30, 2022
Three Months Ended September 30, 2021
Per Share1
Total
Per Share1
Total
Preferred stock series
A
$
261
$
11
$
256
$
11
C
25
13
25
13
E
445
15
445
15
F
430
15
430
15
H2
—
—
239
12
I
398
16
398
16
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
—
—
P
330
13
—
—
Total Preferred stock
$
138
$
123
Common stock
$
0.775
$
1,329
$
0.700
$
1,276
$ in millions, except per
share data
Nine Months Ended September 30, 2022
Nine Months Ended September 30, 2021
Per Share1
Total
Per Share1
Total
Preferred stock series
A
$
756
$
33
$
758
$
33
C
75
39
75
39
E
1,336
45
1,336
45
F
1,289
44
1,289
44
H2
—
—
719
37
I
1,195
48
1,195
48
J3
—
—
253
15
K
1,097
45
1,097
45
L
914
18
914
18
M4
59
24
59
24
N5
5,300
16
5,300
16
O6
797
41
—
—
P
330
13
—
—
Total Preferred stock
$
366
$
364
Common stock
$
2.175
$
3,802
$
1.400
$
2,562
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.
Notes to Consolidated Financial Statements (Unaudited)
17. Interest Income and Interest Expense
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Interest income
Investment securities
$
743
$
643
$
2,261
$
2,100
Loans
1,910
1,063
4,469
3,091
Securities purchased under agreements to resell1,2
664
(36)
870
(147)
Securities borrowed1,3
385
(246)
97
(752)
Trading assets, net of Trading liabilities
635
525
1,722
1,521
Customer receivables and Other4
1,764
402
2,944
1,187
Total interest income
$
6,101
$
2,351
$
12,363
$
7,000
Interest expense
Deposits
$
476
$
102
$
684
$
330
Borrowings
1,370
597
2,990
2,030
Securities sold under agreements to repurchase1,5
501
19
725
82
Securities loaned1,6
135
112
340
279
Customer payables and Other7
1,109
(542)
616
(1,677)
Total interest expense
$
3,591
$
288
$
5,355
$
1,044
Net interest
$
2,510
$
2,063
$
7,008
$
5,956
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 September 30, 2022
At December 31, 2021
Customer and other receivables
$
3,242
$
1,800
Customer and other payables
3,401
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
Notes to Consolidated Financial Statements (Unaudited)
Nine Months Ended September 30, 2022
$ in millions
IS
WM
IM
I/E
Total
Investment banking
$
3,983
$
354
$
—
$
(56)
$
4,281
Trading
11,511
(681)
38
43
10,911
Investments
(69)
45
(46)
—
(70)
Commissions and fees1
2,110
1,869
—
(210)
3,769
Asset management1,2
442
10,525
3,961
(153)
14,775
Other
(131)
388
(2)
(10)
245
Total non-interest revenues
17,846
12,500
3,951
(386)
33,911
Interest income
6,797
6,208
34
(676)
12,363
Interest expense
5,050
917
71
(683)
5,355
Net interest
1,747
5,291
(37)
7
7,008
Net revenues
$
19,593
$
17,791
$
3,914
$
(379)
$
40,919
Provision for credit losses
$
150
$
43
$
—
$
—
$
193
Compensation and benefits
6,602
9,191
1,645
—
17,438
Non-compensation expenses
6,874
3,814
1,676
(371)
11,993
Total non-interest expenses
$
13,476
$
13,005
$
3,321
$
(371)
$
29,431
Income before provision for income taxes
$
5,967
$
4,743
$
593
$
(8)
$
11,295
Provision for income taxes
1,235
1,028
121
(2)
2,382
Net income
4,732
3,715
472
(6)
8,913
Net income applicable to noncontrolling interests
146
—
(26)
—
120
Net income applicable to Morgan Stanley
$
4,586
$
3,715
$
498
$
(6)
$
8,793
Nine Months Ended September 30, 2021
$ in millions
IS
WM
IM
I/E
Total
Investment banking
$
7,838
$
640
$
—
$
(65)
$
8,413
Trading
10,048
323
(18)
63
10,416
Investments
199
24
521
—
744
Commissions and fees1
2,216
2,269
1
(272)
4,214
Asset management1,2
432
10,266
3,991
(117)
14,572
Other
467
479
(23)
(7)
916
Total non-interest revenues
21,200
14,001
4,472
(398)
39,275
Interest income
2,791
4,316
26
(133)
7,000
Interest expense
827
328
29
(140)
1,044
Net interest
1,964
3,988
(3)
7
5,956
Net revenues
$
23,164
$
17,989
$
4,469
$
(391)
$
45,231
Provision for credit losses
$
1
$
(2)
$
—
$
—
$
(1)
Compensation and benefits
7,795
9,604
1,742
—
19,141
Non-compensation expenses
6,526
3,621
1,557
(397)
11,307
Total non-interest expenses
$
14,321
$
13,225
$
3,299
$
(397)
$
30,448
Income before provision for income taxes
$
8,842
$
4,766
$
1,170
$
6
$
14,784
Provision for income taxes
2,023
1,103
253
1
3,380
Net income
6,819
3,663
917
5
11,404
Net income applicable to noncontrolling interests
85
—
(19)
—
66
Net income applicable to Morgan Stanley
$
6,734
$
3,663
$
936
$
5
$
11,338
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.
Detail of Investment Banking Revenues
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Institutional Securities Advisory
$
693
$
1,272
$
2,235
$
2,416
Institutional Securities Underwriting
584
1,577
1,748
5,422
Firm Investment banking revenues from contracts with customers
89
%
91
%
89
%
91
%
Trading Revenues by Product Type
Three Months Ended September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Interest rate
$
1,070
$
(32)
$
1,930
$
844
Foreign exchange
31
253
1,154
841
Equity1
1,872
1,903
5,869
5,631
Commodity and other
279
538
1,288
2,079
Credit
79
199
670
1,021
Total
$
3,331
$
2,861
$
10,911
$
10,416
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.
Net cumulative unrealized performance-based fees at risk of reversing
$
837
$
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
Notes to Consolidated Financial Statements (Unaudited)
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 September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Transaction taxes
$
215
$
262
$
701
$
717
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 September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Americas
$
10,094
$
11,255
$
30,220
$
33,331
EMEA
1,392
1,752
5,381
6,004
Asia
1,500
1,746
5,318
5,896
Total
$
12,986
$
14,753
$
40,919
$
45,231
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 September 30,
Nine Months Ended September 30,
$ in millions
2022
2021
2022
2021
Non-interest revenues
$
788
$
1,308
$
2,036
$
1,862
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 September 30, 2022
At December 31, 2021
Customer and other receivables
$
2,483
$
3,591
Receivables from contracts with customers, which are included within Customer and other receivables in the balance 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 September 30, 2022
At December 31, 2021
Institutional Securities
$
786,384
$
792,135
Wealth Management
356,467
378,438
Investment Management
17,178
17,567
Total1
$
1,160,029
$
1,188,140
1. Parent assets have been fully allocated to the business segments.
Average Balances and Interest Rates and Net Interest Income
Three Months Ended September 30,
2022
2021
$ in millions
Average
Daily
Balance
Interest
Annualized
Average
Rate
Average
Daily
Balance
Interest
Annualized
Average
Rate
Interest earning assets
Investment securities1
$
164,889
$
743
1.8
%
$
179,626
$
643
1.4
%
Loans1
209,551
1,910
3.6
%
170,656
1,063
2.5
%
Securities purchased under agreements to resell2,3:
U.S.
56,111
513
3.6
%
50,479
19
0.1
%
Non-U.S.
61,118
151
1.0
%
51,850
(55)
(0.4)
%
Securities borrowed2,4:
U.S.
126,061
373
1.2
%
103,643
(196)
(0.8)
%
Non-U.S.
17,966
12
0.3
%
19,416
(50)
(1.0)
%
Trading assets, net of Trading liabilities5:
U.S.
74,651
535
2.8
%
77,576
411
2.1
%
Non-U.S.
12,976
100
3.1
%
22,880
114
2.0
%
Customer receivables and Other6:
U.S.
105,345
1,378
5.2
%
137,525
358
1.0
%
Non-U.S.
76,056
386
2.0
%
73,130
44
0.2
%
Total
$
904,724
$
6,101
2.7
%
$
886,781
$
2,351
1.1
%
Interest bearing liabilities
Deposits1
$
337,288
$
476
0.6
%
$
325,520
$
102
0.1
%
Borrowings1,7
229,821
1,370
2.4
%
227,880
597
1.0
%
Securities sold under agreements to repurchase2,8,10:
U.S.
19,344
324
6.6
%
29,956
38
0.5
%
Non-U.S.
40,110
177
1.8
%
29,027
(19)
(0.3)
%
Securities loaned2,9,10:
U.S.
7,103
20
1.1
%
4,799
14
1.2
%
Non-U.S.
6,930
115
6.6
%
6,192
98
6.3
%
Customer payables and Other11:
U.S.
145,061
738
2.0
%
129,298
(431)
(1.3)
%
Non-U.S.
72,328
371
2.0
%
76,248
(111)
(0.6)
%
Total
$
857,985
$
3,591
1.7
%
$
828,920
$
288
0.1
%
Net interest income and net interest rate spread
$
2,510
1.0
%
$
2,063
1.0
%
Nine Months Ended September 30,
2022
2021
$ in millions
Average
Daily
Balance
Interest
Annualized
Average
Rate
Average
Daily
Balance
Interest
Annualized
Average
Rate
Interest earning assets
Investment securities1
$
169,926
$
2,261
1.8
%
$
182,804
$
2,100
1.5
%
Loans1
201,655
4,469
3.0
%
161,422
3,091
2.6
%
Securities purchased under agreements to resell2,3:
U.S.
56,451
719
1.7
%
55,248
64
0.2
%
Non-U.S.
62,273
151
0.3
%
53,813
(211)
(0.5)
%
Securities borrowed2,4:
U.S.
124,628
167
0.2
%
95,737
(610)
(0.9)
%
Non-U.S.
19,819
(70)
(0.5)
%
17,247
(142)
(1.1)
%
Trading assets, net of Trading liabilities5:
U.S.
74,993
1,418
2.5
%
76,456
1,230
2.2
%
Non-U.S.
14,668
304
2.8
%
19,103
291
2.0
%
Customer receivables and Other6:
U.S.
116,515
2,396
2.7
%
135,596
1,035
1.0
%
Non-U.S.
76,649
548
1.0
%
74,527
152
0.3
%
Total
$
917,577
$
12,363
1.8
%
$
871,953
$
7,000
1.1
%
Interest bearing liabilities
Deposits1
$
340,166
$
684
0.3
%
$
322,304
$
330
0.1
%
Borrowings1,7
228,589
2,990
1.7
%
221,875
2,030
1.2
%
Securities sold under agreements to repurchase2,8,10:
U.S.
20,957
487
3.1
%
30,559
122
0.5
%
Non-U.S.
39,694
238
0.8
%
25,722
(40)
(0.2)
%
Securities loaned2,9,10:
U.S.
6,354
21
0.4
%
4,776
7
0.2
%
Non-U.S.
7,308
319
5.8
%
5,195
272
7.0
%
Customer payables and Other11:
U.S.
144,691
311
0.3
%
129,883
(1,349)
(1.4)
%
Non-U.S.
75,510
305
0.5
%
73,415
(328)
(0.6)
%
Total
$
863,269
$
5,355
0.8
%
$
813,729
$
1,044
0.2
%
Net interest income and net interest rate spread
$
7,008
1.0
%
$
5,956
0.9
%
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.
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 and the Firm’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (the “First Quarter Form 10-Q”) and the quarterly period ended June 30, 2022 (the “Second Quarter Form 10-Q”). See also the disclosures set forth under “Legal Proceedings” in the 2021 Form 10-K, the First Quarter Form 10-Q, and the Second Quarter Form 10-Q.
Residential Mortgage and Credit Crisis Matters
On October 4, 2022, the parties in Deutsche Bank National Trust Company, as Trustee for the Morgan Stanley ABS Capital I Inc. Trust, Series 2007-NC1 v. Morgan Stanley ABS Capital I, Inc. reached an agreement in principle to settle the litigation.
On October 4, 2022, the parties in Deutsche Bank National Trust Company, solely in its capacity as Trustee for Morgan Stanley ABS Capital I Inc. Trust, Series 2007-NC3 v. Morgan Stanley Mortgage Capital Holdings LLC, as Successor-by-Merger to Morgan Stanley Mortgage Capital Inc. reached an agreement in principle to settle the litigation.
Record Keeping Matter
On September 27, 2022, the Firm’s settlements with the SEC and the CFTC to resolve record-keeping related investigations by those agencies relating to business communications on unapproved messaging platforms became effective.
European Matter
The Firm is engaging with the UK Competition and Markets Authority in connection with its investigation of suspected anti-competitive arrangements in the financial services sector, specifically regarding the Firm's activities concerning certain liquid fixed income products between 2009 and 2012.
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 Authorization2,3
Dollar Value of Remaining Authorized Repurchase
July
7,024,977
$
81.08
6,966,721
$
19,435
August
14,511,783
$
87.32
13,954,929
$
18,215
September
8,881,353
$
86.91
8,860,100
$
17,445
Three Months Ended September 30, 2022
30,418,113
$
85.76
29,781,750
1.Includes 636,363 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 September 30, 2022.
2.Share purchases under publicly announced authorizations 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 approved the repurchase of the Firm’s outstanding common stock under a share repurchase authorization (the “Share Repurchase Authorization”) from time to time as conditions warrant and subject to limitations on distributions from the Federal Reserve. The Share Repurchase Authorization is for capital management purposes and considers, among other things, business segment capital needs, as well as equity-based compensation and benefit plan requirements. The Share Repurchase Authorization has no set expiration or termination date.
On June 27, 2022, the Firm announced that its Board of Directors approved a new multi-year repurchase authorization of up to $20 billion of outstanding common stock, without a set expiration date, beginning in the third quarter of 2022, which will be exercised 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.”
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
