- Company Background
Morgan Stanley is a band holding company founded in 1935 that provides financial services worldwide. The Company serves both individual and institutional investors offering securities globally. Morgan Stanley also operates an asset management business and serves investment banking clients. There are three segments Morgan Stanley is currently operating: institutional securities, asset management, and global wealth management (Reuters, 2013).
Morgan Stanley was a pioneer in global expansion to capital markets broadening horizons of strategic transactions. It serves individual, corporate, government, and institutional clients in 40 countries. Morgan Stanley has a number of affiliates and subsidiaries. The Company issues national and international bonds in different currencies (Morgan Stanley, 2013).
The current paper will be related the analysis of the last bonds issue of $2.5 billion in April 2013 and comparison to the previous issues (Bloomberg, 2013). The aim of this paper is to reveal the purposes of issuing bonds based on analysis of the trends in price and yield to maturity of bonds and financial ratios.
00ratios description and analysis arter of 2013. ased significantly by 18.91% and operating cash flow 2. Balance Sheet Analysis
In Appendices 1-2 balance sheets for I and II quarters of 2013 can be seen.
The following financial ratios were chosen for analysis of Morgan Stanley financial position:
Debt ratio, debt-to-equity ratio, interest coverage ratio, capitalization ratio, and cash flow to debt ratio. The financial ratios were calculated using the following formulae:
Debt Ratio = Total Liabilities/Total Assets,
D/E Ratio = Total Liabilities/Shareholders’ Equity,
Capitalization Ratio = Long-Term Debt/Long-Term Debt + Shareholders’ Equity,
Interest Coverage Ratio = Earnings Before Interest and Taxes (EBIT)/Interest Expense,
Cash Flow to Debt Ratio = Operating Cash Flow/Total Debt
(Ross, Westerfield and Jordan, 2012).
For the purposes of calculating financial ratios, the Appendix 3 was created. The following changes can be seen from the analysis of the balance sheets: slight increase was observed in total assets, total liabilities, shareholders’ equity, interest expense, and total debt while EBIT increased significantly by 18.91% and operating cash flow tripled. There was an insignificant decrease in the long-term debt observed for the second quarter of 2013.
In April 2013, Morgan Stanley issued $3.65 billion of bonds. The initial offering included $2.5 billion with 2.125% yield, $700 million of floating-rate yielding 128 basis points more than London interbank offered rate for the three month period, and $450 million of add-ons to existing debt due February 2016 including $150 million of 1.75 yield and $300 million of floating-rate debt (Gangar, 2013).
In the Table 3 there were prices and coupon rates of bond issued by Morgan Stanley listed. It can be seen from the Table 3, the largest issues were observed in the first three quarters of 2012. Morgan Stanley announced issuing similar volumes of bonds during the first two quarters of 2013. There is a trend to increasing price and yield. The lowest rate observed in 2012 (Q1), the highest rate observed in the last quarter of 2012 for European bonds and in 2013 (Q1) for bonds issued in US dollars.
- Purpose of the Offering and Leverage
Usually, companies issue bonds when they need to finance operations. Borrowing from equity holders is cheaper than taking loans from banks. According to Kanterman (2013), financial institutions need capital to meet capital standards set by financial regulators, to raise equity capital, and to grow retained earnings. Under the new capital standards, banks have to lower leverage ratios. Therefore, Morgan Stanley needs $14.1 billion of additional capital that is 28.4% of market capitalization. Besides, Morgan Stanley pursues the strategy of aggressive expansion to foreign capital markets. Capital inflows to foreign markets may cause capital outflow in the national market. The lack of capital inflows into the emerging markets means lost opportunities to make more profits. Thus, the leverage received by issuing bonds may help boost profits of the Company (Morgan Stanley, 2013).
The most known leverage tool is debt-to-equity ratio. Debt-to-equity ratio can be seen in the Table 1. It made up 11.06 and 11.14 for the first and the second quarters of 2013 respectively meaning that debt increased after issuing bonds in April, 2013. The leverage became higher as a result of debt issuing that means that Morgan Stanley is using more leverage, but has a weaker equity position. In general, large companies, like Morgan Stanley, can use the liability component of the balance sheet structure to achieve higher leverage without any risks. This ratio provides a deeper insight on the Company business than debt ratio. Debt ratio increased by 0.01 looks less onerous than debt-to-equity increased by 0.08 meaning that creditors have more money than equity holders. There indicators are typical for the large companies having prime credit credentials (Ross, Westerfield and Jordan, 2012).
- Credit Rating Analysis
According to (Morgan Stanley, 2013) annual report, bonds’ were given the following ratings: AAA, AA, A, and BBB as of June, 30, 2013. The bonds by Moody’s and S&P bond credit rating services. However, the new issues of securities (issued in the second quarter of 2013) are expected to have lower credit rating rated on the level of Baa1 by Moody’s investors’ services (Bloomberg, 2013). Credit rating of the bonds issued by Morgan Stanley can be seen in the Table 4 below.
>1 year 1-3 years 3-5 years <5 years Cross-Mat. Net Exp. Net Exp.
Post-Cash Col. Post-Col.
(dollars in millions)
AAA . . . . . . . . . . . . $428$597$1,429$ 4,653$(4,570).$2,537$2,106
AA . . . . . . . . . . . . . $3,311$1,846$1,976$9,579$(10,337)$6,375..$4,417
A . . . . . . . . . . . . . . . $10,049$9,456$11,120..$23,417..$(43,619)$10,423$8,858
BBB . . . . . . . . . . . . .$3,216.$3,665$3,176$15,686..$(18,035)$7,708..$6,040
Non-invest. grade. . .$2,270..$2,823$1,298$3,241.$(4,931)..$4,701.$2,988
Total . . . . . . . . . . . . $19,274$18,387..$18,999..$56,576..$(81,492)$31,744..$24,409
Moody’s applies the following analytical principles when establishing rating for bonds: long-term perspective, predictability and stability of cash flows resulted from securities, and analysis of risk factors typical for securities issued. Long-term focus means analysis of fundamental factors driving the issuer of bonds to its ability to meet debt payments in the long-term period. The analysis is based on consideration of economic condition, changes in strategic management, or regulations. Another emphasis is made on stability of cash flow in the case of economic downturn or other hardships (Moody’s Investors’ Service, 2013).
Standard & Poor’s analyses creditworthiness before external support and external support available for entity. The assessment of securities includes analysis of ability to generate cash flow and potential variability of cash flows. Obligors are examined based on analysis of quantitative and qualitative factors. Analysis of creditworthiness of financial institutions is based on management of assets and liabilities, asset quality, capital adequacy, and reserves for losses. Institutions having speculative-grade ratings of BB+ and lower are scrutinized closely with regard to ability to maintain liquidity and generate cash flows. Economic environment analysis usually includes wealth, demographics, and growth perspectives. Analysis of financial state encompasses external liquidity, budget reserves, and budget performance. Industry analysis is based on consideration of volatility, nature of competition, technological changes, and growth potential. Analysis of the factors specific for a financial institution includes competitive position, strategic management, operational effectiveness, risk management, financial policy, and risk tolerance (Standard & Poor’s, 2011).
Interestingly, Morgan Stanley published higher credit rating of its securities while Bloomberg announced lower rating of the new issue. I think that the recent financial statements do not justify the rating because one of the biggest issues of bond was not taken into account.
- Rate of Return Calculation
I assumed that I have invested $10,000 in the last issue with 2.125% yield with issue price of 69.58 per one bond, years to maturity – 5, par value equals $1,000.
Aiming to calculate yield to maturity, the following formula is used:
YTM = (C + (F-P/n))/((F+P)/2),
where YTM – yield to maturity, C – coupon (interest) payment, F- face value, P –price, n – years to maturity (Ross, Westerfield and Jordan, 2012).
Thus, in this case yield to maturity will take the following value:
YTM = (21.25 + ($1,000 – 69.58)/(($1,000+69.58)/2) = 0.3877.
It means that each $1,000 of investment will bring $38.77 at maturity. Thus, total return for investment of $10,000 will make up $387.7 at maturity. According to Bloomberg (2013), the three months yield made up -2.47%. Thus, if I decide to sell Morgan Stanley’s bonds, I would not obtain benefit or sell with discount. Thus, my total return will be negative and will make up $2.47 for each $1,000. Thus, total loss will make up $24.70 if I decide to sell the bonds at a current market price.
For the calculations of bonds’ duration Macaulay duration formula is used. This duration is defined as a sum of the cash flows and divided by the total price of the bonds.
Macaulay Duration is usually calculated using the following formula:
n
Macaulay Duration = (Ʃ t*C/(1+i)^t + n*M/(1+i)^n)/P
t=1
where n - number of cash flows, t - time to maturity, C - cash flow, i - required yield, M - maturity (par) value, P - bond price.
6. Rate of Return Calculation
I assumed that I have invested $10,000 in the last issue with 2.125% yield with issue price of 69.58 per one bond, years to maturity – 5, par value equals $1,000.
Aiming to calculate yield to maturity, the following formula is used:
YTM = (C + (F-P/n))/((F+P)/2),
where YTM – yield to maturity, C – coupon (interest) payment, F- face value, P –price, n – years to maturity.
Thus, in this case yield to maturity will take the following value:
YTM = (21.25 + ($1,000 – 69.58)/(($1,000+69.58)/2) = 0.3877.
It means that each $1,000 of investment will bring $38.77 at maturity. Thus, total return for investment of $10,000 will make up $387.7 at maturity. According to Bloomberg (2013), the three months yield made up -2.47%. Thus, if I decide to sell Morgan Stanley’s bonds, I would not obtain benefit or sell with discount. Thus, my total return will be negative and will make up $2.47 for each $1,000. Thus, total loss will make up $24.70 if I decide to sell the bonds at a current market price.
For the calculations of bonds’ duration Macaulay duration formula is used. This duration is defined as a sum of the cash flows and divided by the total price of the bonds.
Macaulay Duration is usually calculated using the following formula:
n
Macaulay Duration = (Ʃ t*C/(1+i)^t + n*M/(1+i)^n)/P
t=1
where n – number of cash flows, t – time to maturity, C – cash flow, I – required yield, M – maturity (par) value, P – bond price (Ross, Westerfield and Jordan, 2012).
Macaulay Duration = ((1*21.25/(1+0.02125) + (2*21.25/(1+0.02125)^2 +(3*21.25/(1+0.02125)^3 +(4*21.25/(1+0.02125)^4 + (5*21.25/(1+0.02125)^5)/21.25*(1-(1+0.02125)^-5/0.02125) + 1000/(1+0.02125)^5 = 0.295 years.
In this case the duration is not equal to the bonds’ maturity because they are not zero-coupon bonds. If the bonds are zero-coupon, then their duration will be equal to Macaulay duration.
Convexity calculation accounts for the inaccuracies of the linear duration line. The calculation of convexity involves Taylor series. Convexity shows changes in bonds’ yield in response to changes in price.
Convexity = C x CY^2 x 100,
where C – duration, CY – change in yield (Ross, Westerfield and Jordan, 2012).
On the assumption that yield will increase in 150 bps, convexity will take the following value:
Convexity = 0.295 x 0.015^2 x 100 = 0.0066.
Convexity helps understand the changes in price that were not explain by duration, like in this case. The duration may not reflect these changes because the yield curve has convex nature when the large changes in bond price occur.
- Comparison of Previous and Succeeding Indicators
Morgan Stanley’s the most current EPS 0.65 as of September 6, 2013. Pre-offering EPS in the second quarter of 2013 made up 0.61 (Bloomberg, 2013). Thus, EPS increased by 0.04 meaning that Morgan Stanley generated more profit to the owners thus making bonds more valuable.
Total equity in the pre-offering period (March, 2013) made up $66,072. After issuing bonds total equity made up $66,114 (Morgan Stanley, 2013). Thus, increase in equity of $42 million occurred after issuing bonds. Stockholders’ equity is a measure of the value of the business to the owners. Increase in shareholders’ equity means that more value was generated for the debt holders.
Weighted Average Cost of Capital can be calculated by using the following formula:
WACC = E/V*Re + D/V*Rd*(1-Tc),
where Re – cost of equity, Rd – cost of debt, E – market value of the company’s equity,
D – market value of the company’s debt, V – sum of E and D, E/V – equity share in total debt, D/V – debt share in total debt, Tc – corporate tax rate (Ross, Westerfield and Jordan, 2012).
In the Table 5 data for WACC calculation can be seen.
The first conclusion is that increase in EPS is an evidence of increased value for debt holders. It means that the profits generated by Morgan Stanley as a result of debt increase, made profits for the debt holders of the Company (Ross, Westerfield and Jordan, 2012).
The second conclusion is that increase in equity that occur after issuing debt in the second quarter of 2013 led to increased value for debt holders. It means that the Company can manage its assets and liabilities effectively and generate value for the debt holders.
The third conclusion is that debt financing is more preferable than issuing stock or applying for the bank loans because of it low cost. By issuing bonds the Company aims to save on interest paid to the stockholders or to the financial institutions. WACC calculated for the Company had shown that the average cost of capital made 8.1% that is quite low value for this type of company.
- Project-Related Comments
I can estimate the project as one that brought learning value for me. I had a chance to apply theoretical concepts in practice and to make calculations related bond evaluations by my own efforts. It was quite complicated and I think that I need more explanations regarding details of bond yield to maturity, duration and convexity, and WACC. These concepts were very difficult for me to understand and I experienced some difficulties when calculating this values. Thus, the first characteristic of this project was its complexity. However, I got a lot of additional information that appeared to be of great value for me.
Also, I learned how to use and adjust formulae and when each formula can be applied. I had an idea of how to seek for the information I need and I learned how to interpret financial ratios. Besides, I got to know how to derive needed data from the balance sheets and income statements of companies. In addition, I learned how to derive data from finance-related sites like Bloomberg, Forbes, and Reuters. In general, this project helped me to enter to a new level of understanding bonds’ evaluation process. However, I consider I have to improve my knowledge on continuous basis.
Appendices
Appendix 1 Morgan Stanley Balance Sheet as of March 31, 2013 (Morgan Stanley, 2013)
MORGAN STANLEY
Condensed Consolidated Statements of Financial Condition
(dollars in millions, except share data)
(unaudited)
March 31, 2013 December 31, 2012
Assets
Cash and due from banks ($584 and $526 at March 31, 2013 and December 31, 2012,
respectively, related to consolidated variable interest entities generally
not available to the Company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . $17,773 ...$20,878
Interest bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,129..26,026
Cash depositedwith clearing organizations or segregated under federal and other
regulations or requirements . . . . . . . . . . . . . . . . . ..31,313.30,970
Trading assets, at fair value (approximately $138,143 and $147,348 were pledged to various
parties at March 31, 2013 and December 31, 2012, respectively; $3,343 and $3,490
related to consolidated variable interest entities, generally not available
Securities available for sale, at fair value . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,45439,869
Securities received as collateral, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,971..4,278
Federal funds sold and securities purchased under agreements to resell (includes $873
and $621 at fair value at March 31, 2013
and December 31, 2012, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 140,415134,412
Securities borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,727121,701
Customer and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 62,271..64,288
Loans (net of allowances of $129 and $106 at March 31, 2013 and December 31, 2012,
respectively) . . . . . . . . . . . . . . . . .. 30,615..29,046
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,940.4,999
Premises, equipment and software costs (net of accumulated depreciation of $5,750
and $5,525 at March 31, 2013 and
December 31, 2012, respectively) ($222 and $224 at March 31, 2013 and December 31, 2012,
respectively, related to
consolidated variable interest entities, generally not available to the Company) . . . . . . . . . . . . . . . . . . . 5,9285,946
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,6336,650
Intangible assets (net of accumulated amortization of $1,336 and $1,250 at March 31,2013
and December 31, 2012, respectively)
(includes $8 and $7 at fair value at March 31, 2013 and December 31, 2012, respectively) . . . . . . . . 3,6943,783
Other assets ($577 and $593 at March 31, 2013 and December 31, 2012, respectively,
related to consolidated variable interest
entities, generally not available to the Company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,284..10,511
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . $801,383..$780,960
Liabilities
Deposits (includes $1,442 and $1,485 at fair value at March 31, 2013 and December 31, 2012,
respectively) . . . . . . . . . . . . . . 80,623..$ 83,266
Commercial paper and other short-term borrowings (includes $1,262 and $725 at fair value at
March 31, 2013 and
December 31, 2012, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,475.2,138
Trading liabilities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,472.120,122
Obligation to return securities received as collateral, at fair value . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 23,51018,226
Securities sold under agreements to repurchase (includes $565 and $363 at fair value
at March 31, 2013 and December 31, 2012,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,270122,674
Securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,351..36,849
Other secured financings (includes $9,624 and $9,466 at fair value at March 31, 2013
and December 31, 2012, respectively)
($739 and $976 at March 31, 2013 and December 31, 2012, respectively, related to
consolidated variable entities and are nonrecourse
Customer and other payables . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 137,127.127,722
Other liabilities and accrued expenses ($116 and $117 at March 31, 2013 and December 31, 2012,
respectively related to consolidated variable interest entities and are non-recourse to the Company) . .13,622..14,928
Long-term borrowings (includes $42,510 and $44,044 at fair value at March 31, 2013 and
Continuation of Appendix 1
December 31, 2012, respectively) . . . .165,142.169,571
.730,886.711,223
Commitments and contingent liabilities (see Note 12)
Redeemable noncontrolling interests (see Notes 3 and 14) . . . . . . .. . . . . . . . . . . . . . . . . . . . . . 4,4254,309
Equity
Morgan Stanley shareholders’ equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 1,508.1,508
Common stock, $0.01 par value:
Shares authorized: 3,500,000,000 at March 31, 2013 and December 31, 2012;
Shares issued: 2,038,893,979 at December 31, 2012 and March 31,2013;
Shares outstanding: 1,960,582,868 at March 31, 2013 and 1,974,042,123 at December 31, 2012 . . . . . . . 2020
Additional Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,661.23,426
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 40,750.39,912
Employee stock trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,872..2,932
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (694)(516)
Common stock held in treasury, at cost, $0.01 par value; 78,311,111 shares at March 31, 2013
and 64,851,856 shares
at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,541).(2,241)
Common stock issued to employee trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,872).(2,932)
Total Morgan Stanley shareholders’ equity . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,704.62,109
Nonredeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,3683,319
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,072.65,428
Total liabilities, redeemable noncontrolling interests and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $801,383.$780,960
Appendix 2 Morgan Stanley Balance Sheet as of June 30, 2013 (Morgan Stanley, 2013)
MORGAN STANLEY
Condensed Consolidated Statements of Financial Condition
(dollars in millions, except share data)
(unaudited)
June 30, 2013 December 31, 2012
Assets
Cash and due from banks ($380 and $526 at June 30, 2013
and December 31, 2012, respectively, related to consolidated
variable interest entities generally not available to the Company) . . . . . . . $ 16,295 $ 20,878
Interest bearing deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,904..26,026
Cash deposited with clearing organizations or segregated under
federal and other regulations or requirements . . . . . . . . . . . 35,363.30,970
Trading assets, at fair value (approximately $145,191 and $147,348
were pledged to various parties at June 30, 2013 and
December 31, 2012, respectively; $3,128 and $3,505 related
available to the Company at June 30, 2013 and December 31,
2012, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,038..267,603
Securities available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,858.39,869
Securities received as collateral, at fair value . . . . . .. . . . . . . . . . . . . . . . . . 14,749.14,278
Federal funds sold and securities purchased under agreements
and December 31, 2012, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,494134,412
Securities borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,114...121,701
Customer and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,47364,288
Loans (net of allowances of $125 and $106 at June 30, 2013 and
December 31, 2012, respectively) . . . . . . . . . . . . . . . . . . . . . 34,57129,046
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,869..4,999
Premises, equipment and software costs (net of accumulated depreciation
of $5,987 and $5,525 at June 30, 2013 and
December 31, 2012, respectively) ($215 and $224 at June 30, 2013 and
December 31, 2012, respectively, related to
consolidated variable interest entities, generally not available to the Company)..5,9665,946
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,6006,650
Intangible assets (net of accumulated amortization of $1,420 and $1,250
at June 30, 2013 and December 31, 2012,
respectively) (includes $9 and $7 at fair value at June 30, 2013
and December 31, 2012, respectively) . . . . . . . . . . . . . . . . 3,6023,783
Other assets ($547 and $593 at June 30, 2013 and December 31, 2012,
respectively, related to consolidated variable interest
entities, generally not available to the Company) . . . . . . . . . . . . . . . . . . . . . . . . 10,795..10,511
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $802,691.$780,960
Liabilities
Deposits (includes $1,425 and $1,485 at fair value at June 30, 2013
and December 31, 2012, respectively) . . . . . . . . . . . . . . . $ 81,514.$ 83,266
Commercial paper and other short-term borrowings (includes $1,590
and $725 at fair value at June 30, 2013 and
December 31, 2012, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,366.2,138
Trading liabilities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,085120,122
Obligation to return securities received as collateral, at fair value . . . . . . . . . . . . 19,15418,226
Securities sold under agreements to repurchase (includes $552 and $363
at fair value at June 30, 2013 and
December 31, 2012, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,582122,674
Securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,135..36,849
Other secured financings (includes $6,452 and $9,466 at fair value
at June 30, 2013 and December 31, 2012, respectively)
($610 and $976 at June 30, 2013 and December 31, 2012, respectively,
related to consolidated variable entities and are
non-recourse to the Company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,671.15,727
Customer and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,555..127,722
Other liabilities and accrued expenses ($117 at both June 30, 2013 and
December 31, 2012, related to consolidated variable
interest entities and are non-recourse to the Company) . . . . . . . . . . . . . . . . . . . . 15,417.14,928
Long-term borrowings (includes $40,819 and $44,044 at fair value
Continuation of Appendix 2
at June 30, 2013 and December 31, 2012, respectively) . .161,098.169,571
..736,577. 711,223
Commitments and contingent liabilities (see Note 12)
Redeemable noncontrolling interests (see Notes 3 and 14) . . . . . . . . . . . . . . . . . —..4,309
Equity
Morgan Stanley shareholders’ equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,5081,508
Common stock, $0.01 par value:
Shares authorized: 3,500,000,000 at June 30, 2013 and December 31, 2012;
Shares issued: 2,038,893,979 at June 30, 2013 and 2,038,893,979
at December 31, 2012;
Shares outstanding: 1,959,326,270 at June 30, 2013 and 1,974,042,123
at December 31, 2012 . . . . . . . . . . . .20.20
Additional Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,933.23,426
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,455..39,912
Employee stock trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,8212,932
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,169)(516)
Common stock held in treasury, at cost, $0.01 par value; 79,567,709 shares
at June 30, 2013 and 64,851,856 shares
at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,566)..(2,241)
Common stock issued to employee trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,821)..(2,932)
Total Morgan Stanley shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,181..62,109
Nonredeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,933.3,319
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,11465,428
Appendix 3 Changes in Balance Sheet Before and After Bonds Issuance
References
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Kanterman. (2013). Morgan Stanley needs to boost capital 28%, JP Morgan 7.5% (JPM, MS). Retrieved from http://www.benzinga.com/analyst-ratings/analyst-color/13/07/3746912/morgan-stanley-needs-to-boost-capital-28-jp-morgan-7-5-j
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