MORGAN STANLEY
For the period ended Sep 30, 2024. Filed Nov 4, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 4, 2024
Extracted filing text, with the paragraph anchors used by the comparison.
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6. Derivative Instruments and Hedging Activities
- Derivative Instruments and Hedging Activities
Fair Values of Derivative Contracts
| Assets at September 30, 2024 | ||||
|---|---|---|---|---|
| $ in millions | Bilateral OTC | Cleared OTC | Exchange-Traded | Total |
| Designated as accounting hedges | ||||
| Interest rate | $3 | $— | $— | $3 |
| Foreign exchange | 44 | 3 | — | 47 |
| Total | 47 | 3 | — | 50 |
| Not designated as accounting hedges | ||||
| Economic hedges of loans | ||||
| Credit | — | 33 | — | 33 |
| Other derivatives | ||||
| Interest rate | 115,855 | 17,372 | 282 | 133,509 |
| Credit | 5,026 | 5,445 | — | 10,471 |
| Foreign exchange | 78,738 | 2,721 | 126 | 81,585 |
| Equity | 32,410 | — | 60,700 | 93,110 |
| Commodity and other | 14,868 | 2 | 2,311 | 17,181 |
| Total | 246,897 | 25,573 | 63,419 | 335,889 |
| Total gross derivatives | $246,944 | $25,576 | $63,419 | $335,939 |
| Amounts offset | ||||
| Counterparty netting | (177,423) | (22,675) | (60,104) | (260,202) |
| Cash collateral netting | (36,738) | (1,772) | — | (38,510) |
| Total in Trading assets | $32,783 | $1,129 | $3,315 | $37,227 |
| Financial instruments collateral | (15,407) | — | — | (15,407) |
| Net amounts | $17,376 | $1,129 | $3,315 | $21,820 |
| Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable | $2,592 | |||
| 52 | September 2024 Form 10-Q |
Table of Contents
Notes to Consolidated Financial Statements(Unaudited)
| Liabilities at September 30, 2024 | ||||
|---|---|---|---|---|
| $ in millions | Bilateral OTC | Cleared OTC | Exchange-Traded | Total |
| Designated as accounting hedges | ||||
| Interest rate | $420 | $— | $— | $420 |
| Foreign exchange | 71 | 35 | — | 106 |
| Total | 491 | 35 | — | 526 |
| Not designated as accounting hedges | ||||
| Economic hedges of loans | ||||
| Credit | 53 | 786 | — | 839 |
| Other derivatives | ||||
| Interest rate | 104,680 | 14,939 | 225 | 119,844 |
| Credit | 5,071 | 5,048 | — | 10,119 |
| Foreign exchange | 76,813 | 2,696 | 293 | 79,802 |
| Equity | 48,782 | — | 59,413 | 108,195 |
| Commodity and other | 12,475 | — | 2,542 | 15,017 |
| Total | 247,874 | 23,469 | 62,473 | 333,816 |
| Total gross derivatives | $248,365 | $23,504 | $62,473 | $334,342 |
| Amounts offset | ||||
| Counterparty netting | (177,423) | (22,675) | (60,104) | (260,202) |
| Cash collateral netting | (40,917) | (604) | — | (41,521) |
| Total in Trading liabilities | $30,025 | $225 | $2,369 | $32,619 |
| Financial instruments collateral | (5,588) | — | (200) | (5,788) |
| Net amounts | $24,437 | $225 | $2,169 | $26,831 |
| Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable | 4,660 | |||
| Assets at December 31, 2023 | ||||
|---|---|---|---|---|
| $ in millions | Bilateral OTC | Cleared OTC | Exchange-Traded | Total |
| Designated as accounting hedges | ||||
| Interest rate | $25 | $— | $— | $25 |
| Foreign exchange | 5 | 5 | — | 10 |
| Total | 30 | 5 | — | 35 |
| Not designated as accounting hedges | ||||
| Economic hedges of loans | ||||
| Credit | 2 | 27 | — | 29 |
| Other derivatives | ||||
| Interest rate | 127,414 | 19,914 | 854 | 148,182 |
| Credit | 5,712 | 4,896 | — | 10,608 |
| Foreign exchange | 90,654 | 2,570 | 16 | 93,240 |
| Equity | 20,338 | — | 37,737 | 58,075 |
| Commodity and other | 13,928 | — | 2,353 | 16,281 |
| Total | 258,048 | 27,407 | 40,960 | 326,415 |
| Total gross derivatives | $258,078 | $27,412 | $40,960 | $326,450 |
| Amounts offset | ||||
| Counterparty netting | (184,553) | (23,851) | (38,510) | (246,914) |
| Cash collateral netting | (39,493) | (2,730) | — | (42,223) |
| Total in Trading assets | $34,032 | $831 | $2,450 | $37,313 |
| Financial instruments collateral | (15,690) | — | — | (15,690) |
| Net amounts | $18,342 | $831 | $2,450 | $21,623 |
| Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable | $2,641 | |||
| Liabilities at December 31, 2023 | ||||
|---|---|---|---|---|
| $ in millions | Bilateral OTC | Cleared OTC | Exchange-Traded | Total |
| Designated as accounting hedges | ||||
| Interest rate | $467 | $— | $— | $467 |
| Foreign exchange | 414 | 43 | — | 457 |
| Total | 881 | 43 | — | 924 |
| Not designated as accounting hedges | ||||
| Economic hedges of loans | ||||
| Credit | 43 | 702 | — | 745 |
| Other derivatives | ||||
| Interest rate | 120,604 | 17,179 | 590 | 138,373 |
| Credit | 5,920 | 4,427 | — | 10,347 |
| Foreign exchange | 87,104 | 2,694 | 106 | 89,904 |
| Equity | 31,545 | — | 37,349 | 68,894 |
| Commodity and other | 12,237 | — | 2,830 | 15,067 |
| Total | 257,453 | 25,002 | 40,875 | 323,330 |
| Total gross derivatives | $258,334 | $25,045 | $40,875 | $324,254 |
| Amounts offset | ||||
| Counterparty netting | (184,553) | (23,851) | (38,510) | (246,914) |
| Cash collateral netting | (41,082) | (983) | — | (42,065) |
| Total in Trading liabilities | $32,699 | $211 | $2,365 | $35,275 |
| Financial instruments collateral | (6,864) | (8) | (37) | (6,909) |
| Net amounts | $25,835 | $203 | $2,328 | $28,366 |
| Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable | $5,911 | |||
- 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 netting criteria are not met in accordance with applicable offsetting accounting guidance.
See Note 4 for information related to the unsettled fair value of futures contracts not designated as accounting hedges, which are excluded from the previous tables.
Notionals of Derivative Contracts
| Assets at September 30, 2024 | ||||
|---|---|---|---|---|
| $ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total |
| Designated as accounting hedges | ||||
| Interest rate | $— | $129 | $— | $129 |
| Foreign exchange | 11 | 1 | — | 12 |
| Total | 11 | 130 | — | 141 |
| Not designated as accounting hedges | ||||
| Economic hedges of loans | ||||
| Credit | — | 1 | — | 1 |
| Other derivatives | ||||
| Interest rate | 4,226 | 6,682 | 639 | 11,547 |
| Credit | 242 | 195 | — | 437 |
| Foreign exchange | 3,594 | 214 | 11 | 3,819 |
| Equity | 665 | — | 614 | 1,279 |
| Commodity and other | 132 | 3 | 81 | 216 |
| Total | 8,859 | 7,095 | 1,345 | 17,299 |
| Total gross derivatives | $8,870 | $7,225 | $1,345 | $17,440 |
| 53 | September 2024 Form 10-Q |
Table of Contents
Notes to Consolidated Financial Statements(Unaudited)
| Liabilities at September 30, 2024 | ||||
|---|---|---|---|---|
| $ in billions | Bilateral OTC | Cleared OTC | Exchange- Traded | Total |
| Designated as accounting hedges | ||||
| Interest rate | $2 | $177 | $— | $179 |
| Foreign exchange | 5 | 3 | — | 8 |
| Total | 7 | 180 | — | 187 |
| Not designated as accounting hedges | ||||
| Economic hedges of loans | ||||
| Credit | 2 | 22 | — | 24 |
| Other derivatives | ||||
| Interest rate | 4,222 | 6,605 | 533 | 11,360 |
| Credit | 245 | 181 | — | 426 |
| Foreign exchange | 3,836 | 218 | 35 | 4,089 |
| Equity | 714 | — | 992 | 1,706 |
| Commodity and other | 106 | 1 | 94 | 201 |
| Total | 9,125 | 7,027 | 1,654 | 17,806 |
| Total gross derivatives | $9,132 | $7,207 | $1,654 | $17,993 |
| Assets at December 31, 2023 | ||||
|---|---|---|---|---|
| $ in billions | Bilateral OTC | Cleared OTC | Exchange-Traded | Total |
| Designated as accounting hedges | ||||
| Interest rate | $— | $92 | $— | $92 |
| Foreign exchange | 1 | 1 | — | 2 |
| Total | 1 | 93 | — | 94 |
| Not designated as accounting hedges | ||||
| Economic hedges of loans | ||||
| Credit | — | 1 | — | 1 |
| Other derivatives | ||||
| Interest rate | 4,153 | 8,357 | 560 | 13,070 |
| Credit | 214 | 176 | — | 390 |
| Foreign exchange | 3,378 | 165 | 7 | 3,550 |
| Equity | 528 | — | 440 | 968 |
| Commodity and other | 142 | — | 65 | 207 |
| Total | 8,415 | 8,699 | 1,072 | 18,186 |
| Total gross derivatives | $8,416 | $8,792 | $1,072 | $18,280 |
| Liabilities at December 31, 2023 | ||||
|---|---|---|---|---|
| $ in billions | Bilateral OTC | Cleared OTC | Exchange-Traded | Total |
| Designated as accounting hedges | ||||
| Interest rate | $3 | $183 | $— | $186 |
| Foreign exchange | 14 | 3 | — | 17 |
| Total | 17 | 186 | — | 203 |
| Not designated as accounting hedges | ||||
| Economic hedges of loans | ||||
| Credit | 2 | 22 | — | 24 |
| Other derivatives | ||||
| Interest rate | 4,631 | 8,197 | 455 | 13,283 |
| Credit | 229 | 155 | — | 384 |
| Foreign exchange | 3,496 | 167 | 33 | 3,696 |
| Equity | 587 | — | 712 | 1,299 |
| Commodity and other | 101 | — | 79 | 180 |
| Total | 9,046 | 8,541 | 1,279 | 18,866 |
| Total gross derivatives | $9,063 | $8,727 | $1,279 | $19,069 |
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 6 to the financial statements in the 2023 Form 10-K.
Gains (Losses) on Accounting Hedges
| Three Months Ended · Nine Months Ended | ||||
|---|---|---|---|---|
| September 30, | September 30, | |||
| $ in millions | 2024 | 2023 | 2024 | 2023 |
| Fair value hedges—Recognized in Interest income | ||||
| Interest rate contracts | $(1,277) | $259 | $(686) | $457 |
| Investment Securities—AFS | 1,302 | (239) | 755 | (423) |
| Fair value hedges—Recognized in Interest expense | ||||
| Interest rate contracts | $5,777 | $(2,742) | $3,627 | $(2,806) |
| Deposits | (227) | (15) | (235) | (31) |
| Borrowings | (5,561) | 2,781 | (3,403) | 2,856 |
| Net investment hedges—Foreign exchange contracts | ||||
| Recognized in OCI | $(533) | $375 | $122 | $381 |
| Forward points excluded from hedge effectiveness testing—Recognized in Interest income | 50 | 60 | 140 | 166 |
| Cash flow hedges—Interest rate contracts1 | ||||
| Recognized in OCI | $34 | $(12) | $(26) | $(30) |
| Less: Realized gains (losses) (pre-tax) reclassified from AOCI to interest income | (11) | (6) | (34) | (9) |
| Net change in cash flow hedges included within AOCI | 45 | (6) | 8 | (21) |
- For the three months ended September 30, 2024, there were no forecasted transactions that failed to occur. The net gains (losses) associated with cash flow hedges expected to be reclassified from AOCI within 12 months as of September 30, 2024, is approximately $(5) million. The maximum length of time over which forecasted cash flows are hedged is 18 months.
Fair Value Hedges—Hedged Items
| $ in millions | AtSeptember 30,2024 | AtDecember 31,2023 |
|---|---|---|
| Investment Securities—AFS | ||
| Amortized cost basis currently or previously hedged | $55,000 | $47,179 |
| Basis adjustments included in amortized cost1 | $220 | $(732) |
| Deposits | ||
| Carrying amount currently or previously hedged | $22,816 | $10,569 |
| Basis adjustments included in carrying amount1 | $204 | $(31) |
| Borrowings | ||
| Carrying amount currently or previously hedged | $175,810 | $158,659 |
| Basis adjustments included in carrying amount—Outstanding hedges | $(5,826) | $(9,219) |
| Basis adjustments included in carrying amount—Terminated hedges | $(654) | $(671) |
- 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 | 2024 | 2023 | 2024 | 2023 |
| Recognized in Other revenues | ||||
| Credit contracts1 | $(101) | $(104) | $(248) | $(330) |
- Amounts related to hedges of certain held-for-investment and held-for-sale loans.
| September 2024 Form 10-Q | 54 |
|---|
Table of Contents
Notes to Consolidated Financial Statements(Unaudited)
Net Derivative Liabilities and Collateral Posted
| $ in millions | AtSeptember 30,2024 | AtDecember 31,2023 |
|---|---|---|
| Net derivative liabilities with credit risk-related contingent features | $23,138 | $21,957 |
| Collateral posted | 16,361 | 16,389 |
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 | AtSeptember 30,2024 |
|---|---|
| One-notch downgrade | $213 |
| Two-notch downgrade | 458 |
| Bilateral downgrade agreements included in the amounts above1 | $543 |
- 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 Moody’s Investors Service, Inc., S&P Global Ratings and/or other rating agencies. The previous table shows the future potential collateral amounts and termination payments that could be called or required by counterparties or exchange and clearing organizations in the event of one-notch or two-notch downgrade scenarios based on the relevant contractual downgrade triggers.
Maximum Potential Payout/Notional of Credit Protection Sold 1
| Years to Maturity at September 30, 2024 | |||||||
|---|---|---|---|---|---|---|---|
| $ in billions | < 1 | 1-3 | 3-5 | Over 5 | Total | ||
| Single-name CDS | |||||||
| Investment grade | $18 | $29 | $41 | $15 | $103 | ||
| Non-investment grade | 7 | 16 | 17 | 3 | 43 | ||
| Total | $25 | $45 | $58 | $18 | $146 | ||
| Index and basket CDS | |||||||
| Investment grade | $5 | $11 | $11 | $1 | $28 | ||
| Non-investment grade | 9 | 23 | 156 | 66 | 254 | ||
| Total | $14 | $34 | $167 | $67 | $282 | ||
| Total CDS sold | $39 | $79 | $225 | $85 | $428 | ||
| Other credit contracts | — | — | — | 3 | 3 | ||
| Total credit protection sold | $39 | $79 | $225 | $88 | $431 | ||
| CDS protection sold with identical protection purchased | $373 | ||||||
| Years to Maturity at December 31, 2023 | |||||||
|---|---|---|---|---|---|---|---|
| $ in billions | < 1 | 1-3 | 3-5 | Over 5 | Total | ||
| Single-name CDS | |||||||
| Investment grade | $19 | $29 | $39 | $10 | $97 | ||
| Non-investment grade | 7 | 14 | 17 | 1 | 39 | ||
| Total | $26 | $43 | $56 | $11 | $136 | ||
| Index and basket CDS | |||||||
| Investment grade | $8 | $19 | $85 | $4 | $116 | ||
| Non-investment grade | 8 | 14 | 95 | 17 | 134 | ||
| Total | $16 | $33 | $180 | $21 | $250 | ||
| Total CDS sold | $42 | $76 | $236 | $32 | $386 | ||
| Other credit contracts | — | — | — | 3 | 3 | ||
| Total credit protection sold | $42 | $76 | $236 | $35 | $389 | ||
| CDS protection sold with identical protection purchased | $330 | ||||||
Fair Value Asset (Liability) of Credit Protection Sold 1
| $ in millions | AtSeptember 30,2024 | AtDecember 31,2023 |
|---|---|---|
| Single-name CDS | ||
| Investment grade | $2,122 | $1,904 |
| Non-investment grade | 670 | 399 |
| Total | $2,792 | $2,303 |
| Index and basket CDS | ||
| Investment grade | $993 | $1,929 |
| Non-investment grade | 1,416 | 45 |
| Total | $2,409 | $1,974 |
| Total CDS sold | $5,201 | $4,277 |
| Other credit contracts | 133 | 314 |
| Total credit protection sold | $5,334 | $4,591 |
- 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 | AtSeptember 30,2024 | AtDecember 31,2023 |
| Single name | $173 | $166 |
| Index and basket | 252 | 213 |
| Tranched index and basket | 31 | 30 |
| Total | $456 | $409 |
| Fair Value Asset (Liability) | ||
|---|---|---|
| $ in millions | AtSeptember 30,2024 | AtDecember 31,2023 |
| Single name | $(3,222) | $(2,799) |
| Index and basket | (1,559) | (1,208) |
| Tranched index and basket | (1,008) | (1,012) |
| Total | $(5,789) | $(5,019) |
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
| 55 | September 2024 Form 10-Q |
Table of Contents
Notes to Consolidated Financial Statements(Unaudited)
information on credit derivatives and other credit contracts, see Note 6 to the financial statements in the 2023 Form 10-K.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.