MS 10-Q Quarterly Report March 31, 2021

MORGAN STANLEY

10-Ks and 10-Qs

10-Q	Quarter ended Sept. 30, 2025
10-Q	Quarter ended June 30, 2025
10-Q	Quarter ended March 31, 2025
10-K	Fiscal year ended Dec. 31, 2024
10-Q	Quarter ended Sept. 30, 2024
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015
10-Q	Quarter ended June 30, 2015
10-Q	Quarter ended March 31, 2015
10-K	Fiscal year ended Dec. 31, 2014
10-Q	Quarter ended Sept. 30, 2014
10-Q	Quarter ended June 30, 2014
10-Q	Quarter ended March 31, 2014
10-K	Fiscal year ended Dec. 31, 2013
10-Q	Quarter ended Sept. 30, 2013
10-Q	Quarter ended June 30, 2013
10-Q	Quarter ended March 31, 2013
10-K	Fiscal year ended Dec. 31, 2012
10-Q	Quarter ended Sept. 30, 2012
10-Q	Quarter ended June 30, 2012
10-Q	Quarter ended March 31, 2012
10-K	Fiscal year ended Dec. 31, 2011
10-Q	Quarter ended Sept. 30, 2011
10-Q	Quarter ended June 30, 2011
10-Q	Quarter ended March 31, 2011
10-K	Fiscal year ended Dec. 31, 2010
10-Q	Quarter ended Sept. 30, 2010
10-Q	Quarter ended June 30, 2010
10-Q	Quarter ended March 31, 2010
10-K	Fiscal year ended Dec. 31, 2009

PROXIES

DEF 14A	Filed on May 15, 2025
DEF 14A	Filed on April 4, 2025
DEF 14A	Filed on April 5, 2024
DEF 14A	Filed on April 6, 2023
DEF 14A	Filed on April 8, 2022
DEF 14A	Filed on April 1, 2021
DEF 14A	Filed on April 3, 2020
DEF 14A	Filed on April 5, 2019
DEF 14A	Filed on April 6, 2018
DEF 14A	Filed on April 7, 2017
DEF 14A	Filed on April 1, 2016
DEF 14A	Filed on April 1, 2015
DEF 14A	Filed on March 28, 2014
DEF 14A	Filed on March 28, 2013
DEF 14A	Filed on April 5, 2012
DEF 14A	Filed on April 14, 2011
DEF 14A	Filed on April 12, 2010
DEF 14A	Filed on None

ms-20210331


Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

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,

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
Depository Shares, each representing 1/1000th interest in a share of 4.875%	MS/PL	New York Stock Exchange
Non-Cumulative Preferred Stock, Series L, $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)
Morgan Stanley Cushing® MLP High Income Index ETNs due March 21, 2031	MLPY	NYSE Arca, Inc.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2021, there were 1,860,588,915 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.


Table of Contents

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended March 31, 2021


Table of Contents		Part	Item	Page
Financial Information		I		1
Management’s Discussion and Analysis of Financial Condition and Results of Operations		I	2	1
Introduction				1
Executive Summary				2
Business Segments				6
Institutional Securities				7
Wealth Management				9
Investment Management				11
Supplemental Financial Information				13
Accounting Development Updates				13
Critical Accounting Policies				13
Liquidity and Capital Resources				13
Balance Sheet				13
Regulatory Requirements				17
Quantitative and Qualitative Disclosures about Risk		I	3	23
Market Risk				23
Credit Risk				25
Country and Other Risks				30
Report of Independent Registered Public Accounting Firm				32
Consolidated Financial Statements and Notes		I	1	33
Consolidated Income Statements (Unaudited)				33
Consolidated Comprehensive Income Statements (Unaudited)				33
Consolidated Balance Sheets (Unaudited at March 31, 2021)				34
Consolidated Statements of Changes in Total Equity (Unaudited)				35
Consolidated Cash Flow Statements (Unaudited)				36
Notes to Consolidated Financial Statements (Unaudited)				37
1.	Introduction and Basis of Presentation			37
2.	Significant Accounting Policies			38
3.	Acquisitions			38
4.	Cash and Cash Equivalents			39
5.	Fair Values			39
6.	Fair Value Option			45
7.	Derivative Instruments and Hedging Activities			45
8.	Investment Securities			49
9.	Collateralized Transactions			50
10.	Loans, Lending Commitments and Related Allowance for Credit Losses			52
11.	Other Assets—Equity Method Investments			54
12.	Deposits			54
13.	Borrowings and Other Secured Financings			55
14.	Commitments, Guarantees and Contingencies			55
15.	Variable Interest Entities and Securitization Activities			57
16.	Regulatory Requirements			60
17.	Total Equity			62
18.	Interest Income and Interest Expense			63
19.	Income Taxes			63
20.	Segment, Geographic and Revenue Information			64
Financial Data Supplement (Unaudited)				66
Glossary of Common Terms and Acronyms				67
Other Information		II		68
Legal Proceedings		II	1	68
Risk Factors		II	1A	68
Unregistered Sales of Equity Securities and Use of Proceeds		II	2	68
Controls and Procedures		I	4	68
Exhibits		II	6	68
Signatures				69


			i


Table of Contents

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains a website, www.sec.gov , that contains annual, quarterly and current reports, proxy and information statements and other information that issuers file electronically with the SEC. Our electronic SEC filings are available to the public at the SEC’s website.

Our website is www.morganstanley.com . You can access our Investor Relations webpage at www.morganstanley.com/about-us-ir . We make available free of charge, on or through our Investor Relations webpage, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We also make available, through our Investor Relations webpage, via a link to the SEC’s website, statements of beneficial ownership of our equity securities filed by our directors, officers, 10% or greater shareholders and others under Section 16 of the Exchange Act.

You can access information about our corporate governance at www.morganstanley.com/about-us-governance , our sustainability initiatives at www.morganstanley.com/about-us/sustainability-at-morgan-stanley and our commitment to diversity and inclusion at www.morganstanley.com/about-us/diversity . Our webpages include:

• Amended and Restated Certificate of Incorporation;

• Amended and Restated Bylaws;

• Charters for our Audit Committee, Compensation, Management Development and Succession Committee, Nominating and Governance Committee, Operations and Technology Committee, and Risk Committee;

• Corporate Governance Policies;

• Policy Regarding Corporate Political Activities;

• Policy Regarding Shareholder Rights Plan;

• Equity Ownership Commitment;

• Code of Ethics and Business Conduct;

• Code of Conduct;

• Integrity Hotline Information;

• Environmental and Social Policies;

• Sustainability Report;

• Task Force on Climate-related Financial Disclosures Report; and

• Diversity and Inclusion Report.

Our Code of Ethics and Business Conduct applies to all directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer and Deputy Chief Financial Officer. We will post any amendments to the Code of Ethics and Business Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC (“NYSE”) on our website. You can request a copy of these documents, excluding exhibits, at no cost, by contacting Investor Relations, 1585 Broadway, New York, NY 10036 (212-761-4000). The information on our website is not incorporated by reference into this report.


			ii


Table of Contents

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 acquisitions of E*TRADE Financial Corporation (“E*TRADE”) and Eaton Vance Corp. (“Eaton Vance”) prospectively from the acquisition dates, October 2, 2020 and March 1, 2021, respectively. 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 high to ultra-high net worth clients. Investment banking services consist of capital raising and financial advisory services, including services relating to the underwriting of debt, equity and other securities, as well as advice on mergers and acquisitions, restructurings, real estate 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, including through the E*TRADE platform; 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 2020 Form 10-K, and “Liquidity and Capital Resources—Regulatory Requirements” herein.


March 2021 Form 10-Q			1


Table of Contents
Management’s Discussion and Analysis

Executive Summary

Overview of Financial Results

Consolidated Results—Three Months Ended March 31, 2021

• Firm Net revenues were up 61% and Net income applicable to Morgan Stanley was up 143%, with strong contributions from each of our three business segments, and resulting in an annualized ROTCE of 21.1%, or 21.4% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein).

• Institutional Securities Net revenues of $8.6 billion increased 66% reflecting strength across businesses and geographies on continued strong client engagement and higher volumes in a constructive market environment, notwithstanding losses related to a single client event in the quarter.

• Wealth Management delivered pre-tax income of $1.6 billion with a pre-tax profit margin of 26.9%, or 27.9% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein). Results reflect strong levels of client engagement, net new assets of $105 billion and fee-based flows of $37 billion, in addition to growth in bank lending.

• Investment Management results reflect strong asset management fees on AUM of $1.4 trillion due to strong investment performance and positive flows across all asset classes, as well as the impact of the Eaton Vance acquisition.

• The Firm expense efficiency ratio was 66.6%, or 66.1% excluding the impact of integration-related expenses (see “Selected Non-GAAP Financial Information” herein).

• At March 31, 2021, our standardized Common Equity Tier 1 capital ratio was 16.7%.

• The Firm repurchased $2.1 billion of its outstanding common stock.

Strategic Transactions

• On March 1, 2021, we completed the acquisition of Eaton Vance. For further information, see “Business Segments—Investment Management” herein.

Net Revenues 1

($ in millions)

1. Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

Net Income Applicable to Morgan Stanley

($ in millions)

Earnings per Diluted Common Share 1

1. Adjusted Diluted EPS for the current quarter was $2.22 (see “Selected Non-GAAP Financial Information” herein).

We reported net revenues of $15.7 billion in the quarter ended March 31, 2021 (“current quarter,” or “1Q 2021”), compared with $9.8 billion in the quarter ended March 31, 2020 (“prior year quarter,” or “1Q 2020”). For the current quarter, net income applicable to Morgan Stanley was $4.1 billion, or $2.19 per diluted common share, compared with $1.7 billion or $1.01 per diluted common share, in the prior year quarter.


			2			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Non-interest Expenses 1, 2

($ in millions)

1. The percentages on the bars in the chart represent the contribution of compensation and benefits expenses and non-compensation expenses to the total.

2. Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

• Compensation and benefits expenses of $6,798 million in the current quarter increased 59% from the prior year quarter, primarily as a result of increases in discretionary incentive compensation and the formulaic payout to Wealth Management representatives, both driven by higher revenues, higher expenses related to certain deferred compensation plans linked to investment performance and the Firm’s share price, and incremental compensation as a result of the E*TRADE and Eaton Vance acquisitions.

• Non-compensation expenses of $3,675 million in the current quarter increased 25% from the prior year quarter, primarily driven by incremental expenses as a result of the E*TRADE and Eaton Vance acquisitions, in addition to higher volume-related expenses and higher investments in technology.

Provision for Credit Losses

The Provision for credit losses on loans and lending commitments was a net release of $98 million in the current quarter primarily driven by improvements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated borrowers. The Provision for credit losses on loans and lending commitments of $407 million in the prior year quarter was primarily driven by deterioration in the current and expected macroeconomic environment at that time. For further information on the Provision for credit losses, see “Credit Risk” herein.

Income Taxes

The increase in the Firm’s effective tax rate in the current quarter is primarily due to the lower impact of net discrete tax benefits. Net discrete tax benefits in the current quarter of $86 million and $130 million in the prior year quarter were primarily related to the conversion of employee share-based awards.

Business Segment Results

Net Revenues by Segment 1, 2

($ in millions)

Net Income Applicable to Morgan Stanley by Segment 1

($ 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 20 to the financial statements for details of intersegment eliminations.

2. Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

• Institutional Securities net revenues of $8,577 million in the current quarter increased 66% from the prior year quarter, primarily reflecting higher revenues in equity underwriting driven by higher volumes, as well as higher revenues in credit products and equity derivatives. The current quarter included a loss of $644 million related to a credit event for a single client, and $267 million of subsequent trading losses through the end of the quarter related to the same event.

• Wealth Management net revenues of $5,959 million in the current quarter increased 47% primarily due to higher transactional revenues reflecting gains from investments associated with certain employee deferred compensation plans, as well as higher asset management revenues on increased asset levels and positive fee-based flows. Net


March 2021 Form 10-Q			3


Table of Contents
Management’s Discussion and Analysis

interest also increased primarily reflecting incremental revenues as a result of the E*TRADE acquisition.

• Investment Management net revenues of $1,314 million in the current quarter increased 90% from the prior year quarter, due to higher Asset management and related fees driven by higher average AUM and the effect of the Eaton Vance acquisition, and higher Performance-based income and other revenues, driven by higher accrued carried interest.

Net Revenues by Region 1, 2, 3

($ 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 20 to the financial statements in the 2020 Form 10-K.

3. Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

Current quarter revenues in Asia increased 40% and EMEA increased 80%, both driven primarily by the equity and fixed income businesses within the Institutional Securities business segment. Americas revenues increased 62%, primarily driven by the Wealth Management and the Institutional Securities business segments.

Selected Financial Information and Other Statistical Data


	Three Months Ended March 31,
$ in millions	2021			2020
Consolidated results
Net revenues 1	$	15,719		$	9,779
Earnings applicable to Morgan Stanley common shareholders	$	3,982		$	1,590
Earnings per diluted common share	$	2.19		$	1.01
Consolidated financial measures
Expense efficiency ratio 1, 2	66.6		%	73.9		%
Adjusted expense efficiency ratio 1, 2, 4	66.1		%	73.9		%
ROE 3	16.9		%	8.5		%
Adjusted ROE 3, 4	17.1		%	8.5		%
ROTCE 3, 4	21.1		%	9.7		%
Adjusted ROTCE 3, 4	21.4		%	9.7		%
Pre-tax margin 1, 5	34.0		%	21.9		%
Effective tax rate	22.0		%	17.1		%
Pre-tax margin by segment 5
Institutional Securities 1	39.3		%	18.3		%
Wealth Management 1	26.9		%	26.0		%
Wealth Management, adjusted 1, 4	27.9		%	26.0		%
Investment Management	28.2		%	20.7		%
Investment Management, adjusted 4	29.0		%	20.7		%


in millions, except per share and employee data	At March 31, 2021			At December 31, 2020
Liquidity resources 6	$	353,304		$	338,623
Loans 7	$	159,123		$	150,597
Total assets	$	1,158,772		$	1,115,862
Deposits	$	323,138		$	310,782
Borrowings	$	215,826		$	217,079
Common shares outstanding	1,869			1,810
Common shareholders' equity	$	98,509		$	92,531
Tangible common shareholders’ equity 4	$	72,828		$	75,916
Book value per common share 8	$	52.71		$	51.13
Tangible book value per common share 4, 8	$	38.97		$	41.95
Worldwide employees 9 (in thousands)	71			68
Capital Ratios 10
Common Equity Tier 1 capital—Standardized	16.7		%	17.4		%
Common Equity Tier 1 capital—Advanced	17.4		%	17.7		%
Tier 1 capital—Standardized	18.5		%	19.4		%
Tier 1 capital—Advanced	19.2		%	19.8		%
SLR 11	6.7		%	7.4		%
Tier 1 leverage	7.5		%	8.4		%

1. Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

2. The expense efficiency ratio represents total non-interest expenses as a percentage of net revenues.

3. ROE and ROTCE represent earnings applicable to Morgan Stanley common shareholders as a percentage of average common equity and average tangible common equity, respectively.

4. Represents a non-GAAP financial measure. See “Selected Non-GAAP Financial Information” herein.

5. Pre-tax margin represents income before income taxes as a percentage of net revenues.

6. For a discussion of Liquidity resources, see “Liquidity and Capital Resources—Liquidity Risk Management Framework—Liquidity Resources” herein.

7. Amounts include loans held for investment (net of allowance) and loans held for sale but exclude loans at fair value, which are included in Trading assets in the balance sheets (see Note 10 to the financial statements).

8. 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.

9. As of March 31, 2021, the number of employees includes Eaton Vance.

10. For a discussion of our capital ratios, see “Liquidity and Capital Resources—Regulatory Requirements” herein.

11. At March 31, 2021 and at December 31, 2020, our SLR reflects the impact of a Federal Reserve interim final rule that was in effect until March 31, 2021. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments and Other Matters” herein.


			4			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Coronavirus Disease (“COVID-19”) Pandemic

The COVID-19 pandemic and related voluntary and government-imposed social and business restrictions have had, and will likely continue to have, a significant impact on global economic conditions and the environment in which we operate our businesses. The Firm continues to be fully operational, with approximately 90% of employees in the Americas and globally working from home as of March 31, 2021.

Though we are unable to estimate the extent of the impact, the economic or other effects of the ongoing COVID-19 pandemic may have adverse impacts on our future operating results. Refer to “Risk Factors” and “Forward-Looking Statements” in the 2020 Form 10-K for more information.

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.

Reconciliations from U.S. GAAP to Non-GAAP Consolidated Financial Measures


	Three Months Ended March 31,
$ in millions, except per share data		2021			2020
Earnings applicable to Morgan Stanley common shareholders		$	3,982		$	1,590
Impact of adjustments:
Integration-related expenses		75			—
Related tax benefit		(17)			—
Adjusted earnings applicable to Morgan Stanley common shareholders—non-GAAP 1		$	4,040		$	1,590
Earnings per diluted common share		$	2.19		$	1.01
Impact of adjustments		0.03			—
Adjusted earnings per diluted common share—non-GAAP 1		$	2.22		$	1.01
Expense efficiency ratio 2		66.6		%	73.9		%
Impact of adjustments		(0.5)		%	—		%
Adjusted expense efficiency ratio—non-GAAP 1, 2		66.1		%	73.9		%
Wealth Management Pre-tax margin 2		26.9		%	26.0		%
Impact of adjustments		1.0		%	—		%
Adjusted Wealth Management pre-tax margin—non-GAAP 1, 2		27.9		%	26.0		%
Investment Management Pre-tax margin		28.2		%	20.7		%
Impact of adjustments		0.8		%	—		%
Adjusted Investment Management pre-tax margin—non-GAAP 1		29.0		%	20.7		%


$ in millions	At March 31, 2021		At December 31, 2020
Tangible equity
Common shareholders' equity	$	98,509	$	92,531
Less: Goodwill and net intangible assets	(25,681)		(16,615)
Tangible common shareholders' equity—non-GAAP	$	72,828	$	75,916


		Average Monthly Balance
	Three Months Ended March 31,
$ in millions		2021		2020
Tangible equity
Common shareholders' equity		$	94,343	$	74,724
Less: Goodwill and net intangible assets		(18,849)		(9,200)
Tangible common shareholders' equity—non-GAAP		$	75,494	$	65,524


	Three Months Ended March 31,
$ in billions		2021			2020
Average common equity
Unadjusted—GAAP		$	94.3		$	74.7
Adjusted 1 —Non-GAAP		94.4			74.7
ROE 3
Unadjusted—GAAP		16.9		%	8.5		%
Adjusted 1 —Non-GAAP		17.1		%	8.5		%
Average tangible common equity—Non-GAAP
Unadjusted		$	75.5		$	65.5
Adjusted 1		75.5			65.5
ROTCE 3 —Non-GAAP
Unadjusted		21.1		%	9.7		%
Adjusted 1		21.4		%	9.7		%


March 2021 Form 10-Q			5


Table of Contents
Management’s Discussion and Analysis

Non-GAAP Financial Measures by Business Segment


	Three Months Ended March 31,
$ in billions		2021			2020
Average common equity 4
Institutional Securities		$	43.5		$	42.8
Wealth Management		28.5			18.2
Investment Management		4.4			2.6
ROE 5
Institutional Securities		23.0		%	6.3		%
Wealth Management		16.9		%	18.5		%
Investment Management		24.8		%	11.7		%
Average tangible common equity 4
Institutional Securities		$	42.9		$	42.3
Wealth Management		13.4			10.4
Investment Management		1.2			1.7
ROTCE 5
Institutional Securities		23.3		%	6.4		%
Wealth Management		36.0		%	32.3		%
Investment Management		88.2		%	18.1		%

1. Adjusted amounts exclude the effect of costs related to the integration of E*TRADE and Eaton Vance, net of tax as appropriate. The pre-tax adjustments were as follows: Wealth Management – Compensation expenses of $30 million and Non-compensation expenses of $34 million, Investment Management – Compensation expenses of $3 million and Non-compensation expenses of $8 million.

2. Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for more information.

3. 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.

4. 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.

5. 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 Target

In January 2021, we established a 2-year ROTCE Target of 14% to 16%, excluding integration-related expenses.

Our ROTCE Target is a forward-looking statement that was based on a normal market environment and may be materially affected by many factors, including, among other things: mergers and acquisitions; macroeconomic and market conditions; legislative, accounting, tax and regulatory developments; industry trading and investment banking volumes; equity market levels; interest rate environment; outsized legal expenses or penalties; the ability to control expenses; and capital levels.

Given the economic impact of the COVID-19 pandemic, it is uncertain if the ROTCE Target will be met within the originally stated time frame. See “Coronavirus Disease (COVID–19) Pandemic” herein and “Risk Factors” in the 2020 Form 10-K for further information on market and economic conditions and their effects on our financial results.

For further information on non-GAAP measures (ROTCE excluding integration-related expenses), see “Selected Non-GAAP Financial Information” herein.

Business Segments

Substantially all of our operating revenues and operating expenses are directly attributable to our business segments. Certain revenues and expenses have been allocated to each business segment, generally in proportion to its respective net revenues, non-interest expenses or other relevant measures. See Note 20 to the financial statements for information on intersegment transactions.

For an overview of the components of our business segments, net revenues, compensation expense and income taxes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Segments” in the 2020 Form 10-K.

As part of our effort to continually improve the transparency and comparability of our external financial reporting, several updates to our financial presentation were implemented in the first quarter of 2021. Prior period amounts have been reclassified to conform to the current presentation.

Provision for credit losses

The Provision for credit losses for loans and lending commitments is now presented as a separate line in the income statements. Previously, the provision for credit losses for loans was included in Other revenues and the provision for credit losses for lending commitments was included in Other expense.

Other revenues

Gains and losses on economic derivative hedges associated with certain held-for-sale and held-for-investment corporate loans, which were previously reported in Trading revenues, are now reported within Other revenues in the income statements. The new presentation better aligns with the recognition of mark-to-market gains and losses on held-for-sale loans which continue to be reported in Other revenues.

Institutional Securities

Equity—Financing, Equity—Execution services and Fixed income now include certain Investments and Other revenues to the extent directly attributable to those businesses. The remaining Investments and Other revenues not included in those businesses’ results are reported in Other. Other also includes revenues previously reported as Other Sales and Trading.

Investment Management

We have renamed the previously disclosed revenue line Asset management to Asset management and related fees and have combined the remaining revenue lines into a new category named Performance-based income and other.


			6			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Institutional Securities

Income Statement Information


	Three Months Ended March 31,
$ in millions	2021		2020		% Change
Revenues
Advisory	$	480	$	362	33	%
Equity	1,502		336		N/M
Fixed income	631		446		41	%
Total Underwriting	2,133		782		173	%
Total Investment Banking	2,613		1,144		128	%


Equity 1	2,875		2,449		17	%
Fixed Income 1	2,966		2,062		44	%
Other 1	123		(477)		126	%
Net revenues 1	$	8,577	$	5,178	66	%
Provision for credit losses 1	(93)		388		(124)	%
Compensation and benefits	3,114		1,814		72	%
Non-compensation expenses 1	2,185		2,026		8	%
Total non-interest expenses 1	5,299		3,840		38	%
Income before provision for income taxes	3,371		950		N/M
Provision for income taxes	736		151		N/M
Net income	2,635		799		N/M
Net income applicable to noncontrolling interests	34		42		(19)	%
Net income applicable to Morgan Stanley	$	2,601	$	757	N/M

1. Certain prior period amounts have been reclassified to conform to the current presentation. See “Business Segments” herein and Note 1 to the financial statements for additional information.

Investment Banking Revenues

Investment Banking Volumes


	Three Months Ended March 31,
$ in billions		2021		2020
Completed mergers and acquisitions 1		$	225	$	119
Equity and equity-related offerings 2, 3		36		14
Fixed income offerings 2, 4		102		94

Source: Refinitiv data as of April 1, 2021. 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 $2,613 million in the current quarter increased 128% compared with the prior year quarter, primarily reflecting an increase in equity underwriting revenues.

• Advisory revenues increased primarily as a result of higher volumes of completed M&A activity.

• Equity underwriting revenues increased on higher volumes, primarily in initial public offerings, secondary block share trades and follow-on offerings.

• Fixed income underwriting revenues increased primarily in non-investment grade bond issuances on higher volumes, as well as in non-investment grade loans issuances.

See “Investment Banking Volumes” herein.

Equity, Fixed Income and Other Net Revenues

Equity and Fixed Income Net Revenues


	Three Months Ended March 31, 2021
					Net Interest 2		All Other 3
$ in millions	Trading		Fees 1		Net Interest 2		All Other 3		Total
Financing	$	645	$	130	$	182	$	3	$	960
Execution services	1,114		800		(62)		63		1,915
Total Equity	$	1,759	$	930	$	120	$	66	$	2,875
Total Fixed Income	$	2,313	$	81	$	439	$	133	$	2,966


	Three Months Ended March 31, 2020 4
					Net Interest 2		All Other 3
$ in millions	Trading		Fees 1		Net Interest 2		All Other 3		Total
Financing	$	1,034	$	101	$	(37)	$	5	$	1,103
Execution services	579		783		(38)		22		1,346
Total Equity	$	1,613	$	884	$	(75)	$	27	$	2,449
Total Fixed Income	$	1,773	$	102	$	328	$	(141)	$	2,062

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.

4. Certain prior period amounts have been reclassified to conform to the current period presentation. See “Business Segments” herein and Note 1 to the financial statements for additional information.

Equity

Net revenues of $2,875 million in the current quarter increased 17% compared with the prior year quarter, reflecting an increase in execution services, partially offset by a decrease in financing.

• Financing revenues decreased, primarily driven by a loss of $644 million, related to a credit event for a single client, partially offset by higher average client balances and higher client activity.

• Execution services revenues increased, primarily in derivatives due to the impact of market conditions on inventory held to facilitate client activity and higher client activity. Partially offsetting this increase was $267 million of trading losses related to the same credit event.


March 2021 Form 10-Q			7


Table of Contents
Management’s Discussion and Analysis

Fixed Income

Net revenues of $2,966 million in the current quarter increased 44% compared with the prior year quarter, primarily driven by credit products.

• Global macro products revenues decreased in both foreign exchange and rates products primarily due to the effect of tighter bid-offer spreads compared with the prior year quarter, partially offset by the impact of market conditions on inventory held to facilitate client activity.

• Credit products revenues increased primarily due to the impact of market conditions on inventory held to facilitate client activity in securitized products, corporate credit products and municipal securities. In addition, higher client activity in securitized products was partially offset by the effect of tighter bid-offer spreads in corporate credit products compared with the prior year quarter.

• Commodities products and other fixed income revenues increased primarily driven by higher counterparty credit risk management results.

Other Net Revenues

Net revenues of $123 million in the current quarter increased 126% compared with the prior year quarter primarily due to lower mark-to-market losses on corporate loans held for sale, net of related economic hedges, and gains from investments associated with certain employee deferred compensation plans compared with losses in the prior year quarter.

Net Interest

Net interest revenues of $638 million in the current quarter are included within Equity, Fixed Income, and Other, and increased 38% compared with the prior year quarter primarily driven by lower net costs associated with maintaining liquidity as well as higher revenues in corporate lending and secured lending facilities.

Provision for Credit Losses

The Provision for credit losses on loans and lending commitments was a net release of $93 million in the current quarter primarily driven by improvements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated borrowers. The Provision for credit losses on loans and lending commitments of $388 million in the prior year quarter was primarily driven by deterioration in the current and expected macroeconomic environment at that time. For further information on the Provision for credit losses, see “Credit Risk” herein.

Non-interest Expenses

Non-interest expenses of $5,299 million in the current quarter increased 38% compared with the prior year quarter, primarily reflecting a 72% increase in Compensation and benefits expenses.

• Compensation and benefits expenses increased, primarily due to increases in discretionary incentive compensation driven by higher revenues, and higher expenses related to certain deferred compensation plans linked to investment performance.

• Non-compensation expenses increased, primarily reflecting an increase in volume-related expenses and higher investments in technology.

Income Tax Items

Net discrete tax benefits of $52 million and $66 million, were recognized in Provision for income taxes in the current quarter and the prior year quarter, respectively.


			8			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Wealth Management

Income Statement Information


	Three Months Ended March 31,
$ in millions	2021		2020		% Change
Revenues
Asset management	$	3,191	$	2,680	19	%
Transactional 1	1,228		399		N/M









Net interest	1,385		896		55	%
Other 1,2	155		81		91	%
Net revenues	5,959		4,056		47	%
Provision for credit losses 2	(5)		19		(126)	%
Compensation and benefits	3,170		2,212		43	%
Non-compensation expenses	1,194		770		55	%
Total non-interest expenses	4,364		2,982		46	%
Income before provision for income taxes	$	1,600	$	1,055	52	%
Provision for income taxes	358		191		87	%
Net income applicable to Morgan Stanley	$	1,242	$	864	44	%

1. Transactional includes investment banking, trading, and commissions and fees revenues. Other includes investments and other revenues. For further information, see Note 20 to the financial statements.

2. Certain prior period amounts have been reclassified to conform to the current presentation. See "Business Segments" herein and Note 1 to the financial statements for additional information.

Acquisition of E*TRADE

The comparisons of current year results to prior periods are impacted by the acquisition of E*TRADE in the fourth quarter of 2020. For additional information on the acquisition of E*TRADE, see Note 3 to the financial statements in the Form 2020 10-K.

Wealth Management Metrics




$ in billions	At March 31, 2021		At December 31, 2020
Total client assets	$	4,231	$	3,999

U.S. Bank Subsidiary loans	$	104.9	$	98.1
Margin and other lending 1	$	26.6	$	23.1
Deposits 2	$	322	$	306
Weighted average cost of deposits 3	0.18%		0.24%


	Three Months Ended March 31,

	2021		2020

Net new assets 4	$	104.9	$	37.1

1. Margin and other lending represents Wealth Management margin lending arrangements, which allow customers to borrow against the value of qualifying securities and Wealth Management other lending which includes non‐purpose securities-based lending on non‐bank entities.

2. Deposits are sourced from Wealth Management clients and other sources of funding on the U.S. Bank Subsidiaries. Deposits include sweep deposit programs, savings and other, and time deposits. Excludes approximately $8 billion and $25 billion of off-balance sheet deposits as of March 31, 2021 and December 31, 2020, respectively.

3. Weighted average cost of deposits represents the annualized weighted average cost of deposits as of March 31, 2021 and December 31, 2020.

4. Net new assets represents client inflows (including dividends and interest) less client outflows (excluding activity from business combinations/divestitures and the impact of fees and commissions).

Advisor-led channel




$ in billions	At March 31, 2021		At December 31, 2020

Advisor-led client assets 1	$	3,349	$	3,167
Fee-based client assets 2	$	1,574	$	1,472

Fee-based client assets as a percentage of advisor-led client assets	47%		46%












	Three Months Ended March 31,
	2021		2020
Fee-based asset flows 3	$	37.2	$	18.4

1. Advisor-led client assets represents client assets in accounts that have a Wealth Management representative assigned.

2. Fee‐based client assets represents 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 includes net new fee-based assets, net account transfers, dividends, interest and client fees, and excludes 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 2020 Form 10-K.

Self-directed channel




$ in billions	At March 31, 2021		At December 31, 2020








Self-directed assets 1	$	882	$	832

Self-directed households (in millions) 2	7.2		6.7

















	Three Months Ended March 31,
	2021	2020
Daily average revenue trades (“DARTs”) (in thousands) 3	1,619	5

1. Self-directed assets represents active accounts which are not advisor led. Active accounts are defined as having $25 or more in assets.

2. Self-directed households represents the total number of households that include at least one account with self-directed assets. Individual households or participants that are engaged in one or more of our Wealth Management channels will be included in each of the respective channel counts.

3. DARTs represent the total self-directed trades in a period divided by the number of trading days during that period.

Workplace channel 1




$ in billions	At March 31, 2021		At December 31, 2020













Workplace unvested assets 2	$	461	$	435
Number of participants (in millions) 3	5.1		4.9

1. The workplace channel includes equity compensation solutions for companies, their executives and employees.

2. Workplace unvested assets represents the market value of public company securities at the end of the period.

3. Workplace participants represents total accounts with vested or unvested assets >0 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 $3,191 million in the current quarter increased 19% compared with the prior year quarter, primarily due to higher fee-based asset levels in the current quarter as a result of market appreciation and positive fee-based flows.

See “Fee-Based Client Assets—Rollforwards” herein.


March 2021 Form 10-Q			9


Table of Contents
Management’s Discussion and Analysis

Transactional Revenues

Transactional revenues of $1,228 million in the current quarter increased substantially compared with the prior year quarter, primarily due to gains from investments associated with certain employee deferred compensation plans, and incremental revenues as a result of the E*TRADE acquisition.

Net Interest

Net interest of $1,385 million increased 55% compared with the prior year quarter, primarily due to incremental Net interest as a result of the E*TRADE acquisition, improved prepayment amortization related to mortgage-backed securities, growth in bank lending and increases in investment portfolio balances driven by higher brokerage sweep deposits. These increases were partially offset by the net effect of lower interest rates.

Other

Other revenues of $155 million in the current quarter increased 91% compared with the prior year quarter, primarily due to incremental revenues as a result of the E*TRADE acquisition.

Non-interest Expenses

Non-interest expenses of $4,364 million in the current quarter increased 46% compared with the prior year quarter, primarily as a result of higher Compensation and benefits expenses and Non-compensation expenses.

• Compensation and benefits expenses increased primarily due to higher expenses related to certain deferred compensation plans linked to investment performance, an increase in the formulaic payout to Wealth Management representatives driven by higher compensable revenues and incremental compensation as a result of the E*TRADE acquisition.

• Non-compensation expenses increased primarily due to incremental operating and other expenses as a result of the E*TRADE acquisition.

Fee-Based Client Assets Rollforwards


$ in billions	At December 31, 2020		Inflows		Outflows		Market Impact		At March 31, 2021
Separately managed 1	$	359	$	13	$	(7)	$	20	$	385
Unified managed	379		27		(14)		13		405
Advisor	177		12		(9)		8		188
Portfolio manager	509		33		(18)		25		549
Subtotal	$	1,424	$	85	$	(48)	$	66	$	1,527
Cash management	48		8		(9)		—		47
Total fee-based client assets	$	1,472	$	93	$	(57)	$	66	$	1,574


$ in billions	At December 31, 2019		Inflows		Outflows		Market Impact		At March 31, 2020
Separately managed 1	$	322	$	12	$	(7)	$	2	$	329
Unified managed	313		16		(13)		(53)		263
Advisor	155		10		(9)		(25)		131
Portfolio manager	435		27		(18)		(65)		379
Subtotal	$	1,225	$	65	$	(47)	$	(141)	$	1,102
Cash management	42		4		(14)		—		32
Total fee-based client assets	$	1,267	$	69	$	(61)	$	(141)	$	1,134

1. Includes non-custody account values reflecting prior quarter-end balances due to a lag in the reporting of asset values by third-party custodians.

Average Fee Rates


	Three Months Ended March 31,
Fee rate in bps		2021	2020
Separately managed		14	14
Unified managed		97	99
Advisor		81	85
Portfolio manager		93	94
Subtotal		73	72
Cash management		5	5
Total fee-based client assets		71	71

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 2020 Form 10-K.


			10			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Investment Management

Income Statement Information


	Three Months Ended March 31,
$ in millions	2021		2020		% Change
Revenues
Asset management and related fees	$	1,103	$	665	66	%
Performance-based income and other 1	211		27		N/M

Net revenues	1,314		692		90	%
Compensation and benefits	514		257		100	%
Non-compensation expenses	430		292		47	%
Total non-interest expenses	944		549		72	%
Income before provision for income taxes	370		143		159	%
Provision for income taxes	81		25		N/M
Net income	289		118		145	%
Net income applicable to noncontrolling interests	14		40		(65)	%
Net income applicable to Morgan Stanley	$	275	$	78	N/M

1. Includes Investments, Trading, Commissions and fees, Net interest, and Other revenues. For further information, see Note 20 to the financial statements.

Acquisition of Eaton Vance

On March 1, 2021, we completed the acquisition of Eaton Vance via the issuance of approximately $5.3 billion of common shares and cash consideration of approximately $3.4 billion. The combination increases the capabilities and scale of our investment management franchise, and positions the Investment Management business segment as a premier asset manager. From the acquisition date onward, the business activities of Eaton Vance have been reported within the Investment Management business segment, the substantial majority of which are within Asset management and related fees. The comparisons of current year results to prior periods are impacted by this acquisition. For additional information on the acquisition of Eaton Vance, see Note 3 to the financial statements.

Net Revenues

Asset Management and related fees

Asset management and related fees of $1,103 million in the current quarter increased 66% compared with the prior year quarter, primarily as a result of higher average AUM, driven by strong investment performance and positive net flows across all asset classes, as well as incremental revenues as a result of the Eaton Vance acquisition.

See “Assets Under Management or Supervision” herein.

Performance-based income and other

Performance-based income and other revenues of $211 million in the current quarter increased compared with the prior year quarter, primarily due to higher accrued carried interest, particularly in real estate funds.

Non-interest Expenses

Non-interest expenses of $944 million in the current quarter increased 72% compared with the prior year quarter as a result of higher Compensation and benefits expenses and higher Non-compensation expenses.

• Compensation and benefits expenses increased in the current quarter primarily due to higher discretionary incentive compensation driven by higher revenues, higher compensation associated with carried interest, and incremental compensation as a result of the Eaton Vance acquisition.

• Non-compensation expenses in the current quarter increased compared with the prior year quarter primarily due to higher fee sharing paid to intermediaries driven by higher average AUM, as well as incremental expenses as a result of the Eaton Vance acquisition.

Assets Under Management or Supervision

Rollforwards


$ in billions	Equity		Fixed income		Alternatives and Solutions		Long-term AUM Subtotal		Liquidity and Overlay Services		Total
December 31, 2020	$	242	$	98	$	153	$	493	$	288	$	781
Inflows	31		13		15		59		459		518
Outflows	(23)		(9)		(10)		(42)		(433)		(475)
Market Impact	4		(2)		10		12		—		12
Acquisition 1	119		103		251		473		116		589
Other	(2)		(2)		(1)		(5)		(1)		(6)
March 31, 2021	$	371	$	201	$	418	$	990	$	429	$	1,419

1. Related to the Eaton Vance acquisition.


$ in billions	Equity		Fixed income		Alternatives and Solutions		Long-term AUM Subtotal		Liquidity and Overlay Services		Total
December 31, 2019	$	138	$	79	$	139	$	356	$	196	$	552
Inflows	14		10		8		32		446		478
Outflows	(12)		(9)		(4)		(25)		(395)		(420)
Market Impact	(18)		(4)		(7)		(29)		1		(28)
Other	(1)		(1)		5		3		(1)		2
March 31, 2020	$	121	$	75	$	141	$	337	$	247	$	584


March 2021 Form 10-Q			11


Table of Contents
Management’s Discussion and Analysis

Average AUM


	Three Months Ended March 31,
$ in billions		2021		2020
Equity		$	288	$	133
Fixed income		131		79
Alternatives and Solutions		242		139
Long-term AUM subtotal		661		351
Liquidity and Overlay Services		339		206
Total AUM		$	1,000	$	557

Average Fee Rates


	Three Months Ended March 31,
Fee rate in bps		2021	2020
Equity		77	77
Fixed income		33	31
Alternatives and Solutions		45	60
Long-term AUM		57	60
Liquidity and Overlay Services		8	17
Total AUM		40	44

While Asset management and related fees arising from the acquisition will be incremental to the Firm’s results, certain Eaton Vance products have lower average fee rates, and are expected to impact the averages in the previous table in future periods compared with the corresponding prior periods. 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 2020 Form 10-K, except for the following updates to the definitions below, which reflect the inclusion of certain Eaton Vance products.

• Alternatives and Solutions —includes products in fund of funds, real estate, infrastructure, private equity and credit strategies, multi-asset portfolios as well as custom separate account portfolios.

• Liquidity and Overlay Services —includes liquidity fund products as well as overlay services, which represent investment strategies that use passive exposure instruments to obtain, offset or substitute specific portfolio exposures, beyond those provided by the underlying holdings of the fund.


			12			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

Supplemental Financial Information

U.S. Bank Subsidiaries

Our U.S. bank subsidiaries, Morgan Stanley Bank N.A. (“MSBNA”), Morgan Stanley Private Bank, National Association (“MSPBNA”), E*TRADE Bank (“ETB”), and E*TRADE Savings Bank (“ETSB”) (collectively, “U.S. Bank Subsidiaries”) accept deposits, provide loans to a variety of customers, including large corporate and institutional clients as well as high net worth individuals, and invest in securities. Lending activity recorded in the U.S. Bank Subsidiaries from the Institutional Securities business segment primarily includes secured lending facilities, commercial and residential real estate loans, and corporate loans. Lending activity recorded 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 10 and 14 to the financial statements.

U.S. Bank Subsidiaries’ Supplemental Financial Information 1


$ in billions	At March 31, 2021		At December 31, 2020
Investment securities portfolio:
Investment securities—AFS	84.8		90.3
Investment securities—HTM	64.6		52.6
Total investment securities	$	149.4	$	142.9
Wealth Management Loans 2
Residential real estate	$	36.8	$	35.2
Securities-based lending and Other 3	68.1		62.9
Total	$	104.9	$	98.1
Institutional Securities Loans 2
Corporate	$	9.5	$	7.9
Secured lending facilities	27.8		27.4
Commercial and Residential real estate	8.9		10.1
Securities-based lending and Other	6.3		5.4
Total	$	52.5	$	50.8
Total Assets	$	357.2	$	346.5
Deposits 4	$	321.6	$	309.7

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—Unsecured Financing” herein.

Accounting Development Updates

The Financial Accounting Standards Board has issued certain accounting updates, which we have either determined are not applicable or are not expected to have a significant impact on our financial statements.

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 2020 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 2020 Form 10-K. As discussed in Note 2 to the financial statements, our acquisition of Eaton Vance on March 1, 2021 included indefinite lived intangible assets. The initial valuation of an intangible asset, including indefinite lived intangible assets, as part of the acquisition method of accounting and the subsequent valuation of intangible assets as part of impairment assessments are subjective and based, in part, on inputs that are unobservable. These inputs include, but are not limited to, forecasted cash flows, revenue growth rates, attrition rates and discount rates.

Liquidity and Capital Resources

Senior management, with oversight by the Asset/Liability Management Committee and the Board of Directors (“Board”), establishes and maintains our liquidity and capital policies. 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 controlling the impact that our business activities have on our balance sheet, liquidity and capital structure. Liquidity and capital matters are reported regularly to the Board and the Risk Committee of the Board.

Balance Sheet

We monitor and evaluate the composition and size of our balance sheet on a regular basis. Our balance sheet management process includes quarterly planning, business-specific thresholds, monitoring of business-specific usage versus key performance metrics and new business impact assessments.

We establish balance sheet thresholds at the consolidated and business segment levels. We monitor balance sheet utilization and review variances resulting from business activity and market fluctuations. On a regular basis, we review current performance versus established thresholds and assess the need to re-allocate our balance sheet based on business unit needs. We also monitor key metrics, including asset and liability size and capital usage.


March 2021 Form 10-Q			13


Table of Contents
Management’s Discussion and Analysis

Total Assets by Business Segment


	At March 31, 2021
$ in millions	IS		WM		IM		Total
Assets
Cash and cash equivalents	$	93,021	$	24,396	$	701	$	118,118
Trading assets at fair value	307,854		310		4,994		313,158
Investment securities	40,888		148,318		—		189,206
Securities purchased under agreements to resell	87,279		27,442		—		114,721
Securities borrowed	100,957		1,192		—		102,149
Customer and other receivables	80,475		33,381		1,187		115,043
Loans 1	54,163		104,933		27		159,123
Other assets 2	13,918		21,702		11,634		47,254
Total assets	$	778,555	$	361,674	$	18,543	$	1,158,772


	At December 31, 2020
$ in millions	IS		WM		IM		Total
Assets
Cash and cash equivalents	$	74,281	$	31,275	$	98	$	105,654
Trading assets at fair value	308,413		280		4,045		312,738
Investment securities	41,630		140,524		—		182,154
Securities purchased under agreements to resell	84,998		31,236		—		116,234
Securities borrowed	110,480		1,911		—		112,391
Customer and other receivables	67,085		29,781		871		97,737
Loans 1	52,449		98,130		18		150,597
Other assets 2	13,986		22,458		1,913		38,357
Total assets	$	753,322	$	355,595	$	6,945	$	1,115,862

IS—Institutional Securities

WM—Wealth Management

IM—Investment Management

1. Amounts include loans held for investment, net of allowance, and loans held for sale but exclude loans at fair value, which are included in Trading assets in the balance sheets (see Note 10 to the financial statements).

2. Other assets primarily includes Goodwill and Intangible assets, premises, equipment and software, ROU assets related to leases, other investments, and deferred tax assets.

A substantial portion of total assets consists of liquid marketable securities and short-term receivables. In the Institutional Securities business segment, these arise from sales and trading activities, and in the Wealth Management business segment, these arise from banking activities, including management of the investment portfolio, comprising Investment securities, Cash and cash equivalents and Securities purchased under agreements to resell. Total assets increased slightly to $1,159 billion at March 31, 2021 from $1,116 billion at December 31, 2020.

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 2020 Form 10-K.

At March 31, 2021 and December 31, 2020, 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. The total amount of Liquidity Resources is actively managed by us 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 tolerance and is subject to change depending on market and Firm-specific events. The Liquidity Resources are primarily held within the Parent Company and its major operating subsidiaries. The Total HQLA values in the tables immediately following are different from Eligible HQLA, which, in accordance with the LCR rule, also takes into account certain regulatory weightings and other operational considerations.

Liquidity Resources by Type of Investment


$ in millions	At March 31, 2021		At December 31, 2020
Cash deposits with central banks	$	59,154	$	49,669
Unencumbered HQLA Securities 1 :
U.S. government obligations	135,008		136,555
U.S. agency and agency mortgage-backed securities	110,659		99,659
Non-U.S. sovereign obligations 2	37,434		39,745
Other investment grade securities	2,015		2,053
Total HQLA 1	$	344,270	$	327,681
Cash deposits with banks (non-HQLA)	9,034		10,942
Total Liquidity Resources	$	353,304	$	338,623

1. HQLA is presented prior to applying weightings and includes all HQLA held in subsidiaries.

2. Primarily composed of unencumbered French, U.K., Japanese, German and Dutch government obligations.

Liquidity Resources by Bank and Non-Bank Legal Entities


	At March 31, 2021		At December 31, 2020		Average Daily Balance Three Months Ended
$ in millions					March 31, 2021
Bank legal entities
U.S.	$	184,993	$	178,033	$	189,008
Non-U.S.	8,889		7,670		7,882
Total Bank legal entities	193,882		185,703		196,890
Non-Bank legal entities
U.S.:
Parent Company	54,854		59,468		57,194
Non-Parent Company	42,299		33,368		40,982
Total U.S.	97,153		92,836		98,176
Non-U.S.	62,269		60,084		58,735
Total Non-Bank legal entities	159,422		152,920		156,911
Total Liquidity Resources	$	353,304	$	338,623	$	353,801


			14			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

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

The Firm, MSBNA and MSPBNA are required to comply with, and subject to a transition period, ETB will be required to comply with, LCR requirements, including a requirement to calculate each entity’s LCR on each business day. The requirements are designed to ensure that banking organizations have sufficient Eligible HQLA to cover net cash outflows arising from significant stress over 30 calendar days, thus promoting the short-term resilience of the liquidity risk profile of banking organizations. In determining Eligible HQLA for LCR purposes, weightings (or asset haircuts) are applied to HQLA, and certain HQLA held in subsidiaries is excluded.

As of March 31, 2021, the Firm, MSBNA and MSPBNA are compliant with the minimum required LCR of 100%.

Liquidity Coverage Ratio


	Average Daily Balance Three Months Ended
$ in millions	March 31, 2021			December 31, 2020
Eligible HQLA 1
Cash deposits with central banks	$	50,815		$	43,596
Securities 2	166,060			162,509
Total Eligible HQLA 1	$	216,875		$	206,105
LCR	125		%	129		%

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.

Net Stable Funding Ratio

The U.S. banking agencies have finalized a rule to implement the NSFR, which requires large banking organizations to maintain sufficiently stable sources of funding over a one-year time horizon, and will apply to us, MSBNA, MSPBNA and ETB. As of March 31, 2021, we estimate we are compliant with the 100% minimum NSFR and that we will be in compliance with the final rule on July 1, 2021, the effective date of the requirements.

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.

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 2020 Form 10-K.

Collateralized Financing Transactions


$ in millions	At March 31, 2021		At December 31, 2020
Securities purchased under agreements to resell and Securities borrowed	$	216,870	$	228,625
Securities sold under agreements to repurchase and Securities loaned	$	63,050	$	58,318
Securities received as collateral 1	$	4,758	$	4,277


	Average Daily Balance Three Months Ended
$ in millions	March 31, 2021		December 31, 2020
Securities purchased under agreements to resell and Securities borrowed	$	214,610	$	195,376
Securities sold under agreements to repurchase and Securities loaned	$	61,152	$	54,528

1. Included within Trading assets in the balance sheets.

See “Total Assets by Business Segment” herein for more details on the assets shown in the previous table and Note 2 to the financial statements in the 2020 Form 10-K and Note 9 to the financial statements for more details 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 sheets, and payables under these financing transactions, primarily to prime brokerage customers, are included in Customer and other payables in the balance sheets. 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 2020 Form 10-K.


March 2021 Form 10-Q			15


Table of Contents
Management’s Discussion and Analysis

Deposits


$ in millions	At March 31, 2021		At December 31, 2020
Savings and demand deposits:
Brokerage sweep deposits 1	$	253,411	$	232,071
Savings and other	45,576		47,150
Total Savings and demand deposits	298,987		279,221
Time deposits	24,151		31,561
Total 2	$	323,138	$	310,782

1. Amounts represent balances swept from client brokerage accounts.

2. Excludes approximately $8 billion and $25 billion of off-balance sheet deposits at unaffiliated financial institutions as of March 31, 2021 and December 31, 2020, respectively. This client cash held by third parties is not reflected in our balance sheets 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. The increase in total deposits in the current quarter was primarily due to the onboarding of approximately $20 billion of E*TRADE Brokerage sweep deposits previously held off-balance sheet at unaffiliated financial institutions.

Borrowings by Remaining Maturity at March 31, 2021 1


$ in millions	Parent Company		Subsidiaries		Total
Original maturities of one year or less	$	1,501	$	6,058	$	7,559
Original maturities greater than one year
2021	$	12,517	$	4,487	$	17,004
2022	11,930		6,440		18,370
2023	17,056		5,880		22,936
2024	18,824		7,472		26,296
2025	11,859		6,940		18,799
Thereafter	81,975		22,887		104,862
Total	$	154,161	$	54,106	$	208,267
Total Borrowings	$	155,662	$	60,164	$	215,826
Maturities over next 12 months 2					$	18,976

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 $216 billion as of March 31, 2021 were relatively unchanged when compared with $217 billion at December 31, 2020.

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 in the ordinary course of business.

For further information on Borrowings, see Note 13 to the financial statements.

Credit Ratings

We rely on external sources to finance a significant portion of our daily operations. The cost and availability of financing generally are impacted by our credit ratings, among other things. In addition, our credit ratings 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. These include regulatory or legislative changes, the macroeconomic environment and perceived levels of support, among other things. See also “Risk Factors— Liquidity Risk” in the 2020 Form 10-K.

Parent Company, MSBNA and MSPBNA Issuer Ratings at April 30, 2021


	Parent Company
	Short-Term Debt	Long-Term Debt	Rating Outlook
DBRS, Inc.	R-1 (middle)	A (high)	Stable
Fitch Ratings, Inc.	F1	A	Stable
Moody’s Investors Service, Inc.	P-1	A1	Stable
Rating and Investment Information, Inc.	a-1	A	Stable
S&P Global Ratings	A-2	BBB+	Stable


	MSBNA
	Short-Term Debt	Long-Term Debt	Rating Outlook
Fitch Ratings, Inc.	F1	A+	Stable
Moody’s Investors Service, Inc.	P-1	Aa3	Stable
S&P Global Ratings	A-1	A+	Stable


	MSPBNA
	Short-Term Debt	Long-Term Debt	Rating Outlook
Moody’s Investors Service, Inc.	P-1	Aa3	Stable
S&P Global Ratings	A-1	A+	Stable

Incremental Collateral or Terminating Payments

In connection with certain OTC derivatives and certain other agreements where we are a liquidity provider to certain financing vehicles associated with the Institutional Securities business segment, we may be required to provide additional collateral, immediately settle any outstanding liability balances with certain counterparties or pledge additional collateral to certain clearing organizations in the event of a future credit rating downgrade irrespective of whether we are in a net asset or net liability position. See Note 7 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


			16			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

would have on our business and results of operations in future periods is inherently uncertain and would depend on a number of interrelated factors, including, among other things, the magnitude of the downgrade, the rating relative to peers, the rating assigned by the relevant agency pre-downgrade, individual client behavior and future mitigating actions we might take. The liquidity impact of additional collateral requirements is included in our Liquidity Stress Tests.

Capital Management

We view capital as an important source of financial strength and actively manage our consolidated capital position based upon, among other things, business opportunities, risks, capital availability and rates of return together with internal capital policies, regulatory requirements and rating agency guidelines. In the future, we may expand or contract our capital base to address the changing needs of our businesses.

Common Stock Repurchases


	Three Months Ended March 31,
in millions, except for per share data		2021		2020
Number of shares		28		29
Average price per share		$	77.47	$	46.01
Total		$	2,135	$	1,347

For additional information on our common stock repurchases, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Action Supervisory Restrictions” herein.

For further information on our common stock repurchases, see Note 17 to the financial statements.

For a description of our capital plan, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Capital Buffer” herein.

Common Stock Dividend Announcement


Announcement date			April 16, 2021
Amount per share			$0.35
Date to be paid			May 14, 2021
Shareholders of record as of			April 30, 2021

For additional information on our common stock dividends, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Action Supervisory Restrictions” herein.

Preferred Stock Dividend Announcement


	Series M and N	All Other Series
Announcement date	February 16, 2021	February 16, 2021
Date paid	March 15, 2021	April 15, 2021
Shareholders of record as of	March 1, 2021	March 31, 2021

For additional information on common and preferred stock, see Note 17 to the financial statements.

Off-Balance Sheet Arrangements and Contractual Obligations

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 2020 Form 10-K.

For information on our commitments, obligations under certain guarantee arrangements and indemnities, see Note 14 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.

Contractual Obligations

For a discussion about our contractual obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations” in the 2020 Form 10-K.

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. Regulatory capital requirements established by the Federal Reserve are largely based on the Basel III capital standards established by the Basel Committee and also implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The OCC establishes similar capital requirements and standards for our U.S. Bank Subsidiaries. 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. For additional information on regulatory capital requirements for our U.S. Bank Subsidiaries, see Note 16 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


March 2021 Form 10-Q			17


Table of Contents
Management’s Discussion and Analysis

the 2020 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. Minimum risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital (which includes Tier 2 capital). Capital standards require certain adjustments to, and deductions from, capital for purposes of determining these ratios.

Risk-Based Regulatory Capital Ratio Requirements


			At March 31, 2021 and December 31, 2020
			Standardized	Advanced
Capital buffers
Capital conservation buffer			—	2.5%
SCB 1			5.7%	N/A
G-SIB capital surcharge 2			3.0%	3.0%
CCyB 3			0%	0%
Capital buffer requirement 4			8.7%	5.5%

			At March 31, 2021 and December 31, 2020
	Regulatory Minimum		Standardized	Advanced
Required ratios 5
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. For additional information on the SCB, see “Capital Plans, Stress Tests and the Stress Capital Buffer” herein and in the 2020 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 2020 Form 10-K.

3. The CCyB can be set up to 2.5%, but is currently set by the U.S. banking agencies at zero.

4. 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.

5. Required ratios represent the regulatory minimum plus the capital buffer requirement.

Our risk-based capital ratios are computed under both (i) the standardized approaches for calculating credit risk and market risk RWA (“Standardized Approach”) and (ii) the applicable advanced approaches for calculating credit risk, market risk and operational risk RWA (“Advanced Approach”). The credit risk RWA calculations between the two approaches differ in that the Standardized Approach requires calculation of RWA using prescribed risk weights, whereas the Advanced Approach utilizes models to calculate exposure amounts and risk weights. At March 31, 2021 and December 31, 2020, the difference between the actual and required ratio was lower under the Standardized Approach.

Leverage-Based Regulatory Capital. Minimum leverage-based capital requirements include a Tier 1 leverage ratio and an SLR. We are required to maintain an SLR of 5%, inclusive of an enhanced SLR capital buffer of at least 2%.

As of March 31, 2021 and December 31, 2020, our risk-based and leverage-based capital amounts and ratios, as well as RWA, adjusted average assets and supplementary leverage exposure are calculated excluding the effect of the adoption of CECL based on our election to defer this effect over a five-year transition period which began in 2020. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments” in the 2020 Form 10-K.

Regulatory Capital Ratios


	Standardized					Advanced

$ in millions	Required Ratio 1		At March 31, 2021			Required Ratio 1		At March 31, 2021
Risk-based capital
Common Equity Tier 1 capital			$	76,176				$	76,176
Tier 1 capital			84,059					84,059
Total capital			92,823					92,605
Total RWA			455,071					438,839
Common Equity Tier 1 capital ratio	13.2	%	16.7		%	10.0	%	17.4		%
Tier 1 capital ratio	14.7	%	18.5		%	11.5	%	19.2		%
Total capital ratio	16.7	%	20.4		%	13.5	%	21.1		%

$ in millions			Required Ratio 1					At March 31, 2021
Leverage-based capital
Adjusted average assets 2								$	1,121,413
Tier 1 leverage ratio			4.0		%			7.5		%
Supplementary leverage exposure 3,4								$	1,263,959
SLR 4			5.0		%			6.7		%


			18			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis


	Standardized					Advanced
$ in millions	Required Ratio 1		At December 31, 2020			Required Ratio 1		At December 31, 2020
Risk-based capital
Common Equity Tier 1 capital			$	78,650				$	78,650
Tier 1 capital			88,079					88,079
Total capital			97,213					96,994
Total RWA			453,106					445,151
Common Equity Tier 1 capital ratio	13.2	%	17.4		%	10.0	%	17.7		%
Tier 1 capital ratio	14.7	%	19.4		%	11.5	%	19.8		%
Total capital ratio	16.7	%	21.5		%	13.5	%	21.8		%

$ in millions			Required Ratio 1					At December 31, 2020
Leverage-based capital
Adjusted average assets 2								$	1,053,510
Tier 1 leverage ratio			4.0		%			8.4		%
Supplementary leverage exposure 3,4,								$	1,192,506
SLR 4			5.0		%			7.4		%

1. Required ratios are inclusive of any buffers applicable as of the date presented. Failure to maintain the buffers would result in 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.

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.

4. Based on a Federal Reserve interim final rule that was in effect until March 31, 2021, our SLR and Supplementary leverage exposure as of March 31, 2021 and December 31, 2020 reflect the exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks. As of March 31, 2021 and December 31, 2020, the impact of the interim final rule on our SLR was an increase of 73 bps and 80 bps, respectively. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments and Other Matters” herein and “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments" in the 2020 Form 10-K.

Regulatory Capital


$ in millions	At March 31, 2021		At December 31, 2020		Change
Common Equity Tier 1 capital
Common stock and surplus	$	19,229	$	15,799	$	3,430
Retained earnings	82,287		78,978		3,309
AOCI	(2,754)		(1,962)		(792)
Regulatory adjustments and deductions:
Net goodwill	(16,701)		(11,527)		(5,174)
Net intangible assets	(7,171)		(4,165)		(3,006)
Other adjustments and deductions 1	1,286		1,527		(241)
Total Common Equity Tier 1 capital	$	76,176	$	78,650	$	(2,474)
Additional Tier 1 capital
Preferred stock	$	7,750	$	9,250	$	(1,500)
Noncontrolling interests	589		619		(30)
Additional Tier 1 capital	$	8,339	$	9,869	$	(1,530)
Deduction for investments in covered funds	(456)		(440)		(16)
Total Tier 1 capital	$	84,059	$	88,079	$	(4,020)
Standardized Tier 2 capital
Subordinated debt	$	7,476	$	7,737	$	(261)

Eligible ACL	1,173		1,265		(92)
Other adjustments and deductions	115		132		(17)
Total Standardized Tier 2 capital	$	8,764	$	9,134	$	(370)
Total Standardized capital	$	92,823	$	97,213	$	(4,390)
Advanced Tier 2 capital
Subordinated debt	$	7,476	$	7,737	$	(261)

Eligible credit reserves	955		1,046		(91)
Other adjustments and deductions	115		132		(17)
Total Advanced Tier 2 capital	$	8,546	$	8,915	$	(369)
Total Advanced capital	$	92,605	$	96,994	$	(4,389)

1. Other adjustments and deductions used in the calculation of Common Equity Tier 1 capital primarily includes net after-tax DVA, the credit spread premium over risk-free rate for derivative liabilities, defined benefit pension plan assets, after-tax gain on sale from assets sold into securitizations, investments in our own capital instruments and certain deferred tax assets.


March 2021 Form 10-Q			19


Table of Contents
Management’s Discussion and Analysis

RWA Rollforward


	Three Months Ended March 31, 2021
$ in millions	Standardized		Advanced
Credit risk RWA
Balance at December 31, 2020	$	387,066	$	284,930
Change related to the following items:
Derivatives	(156)		(12,520)
Securities financing transactions	(1,641)		(1,634)

Investment securities	486		594
Commitments, guarantees and loans	(4,409)		233

Equity investments	1,091		1,104
Other credit risk 1	1,889		1,662
Total change in credit risk RWA	$	(2,740)	$	(10,561)
Balance at March 31, 2021	$	384,326	$	274,369
Market risk RWA
Balance at December 31, 2020	$	66,040	$	66,040
Change related to the following items:
Regulatory VaR	3,095		3,095
Regulatory stressed VaR	2,732		2,732
Incremental risk charge	1,481		1,481
Comprehensive risk measure	(225)		(261)
Specific risk	(2,378)		(2,378)


Total change in market risk RWA	$	4,705	$	4,669
Balance at March 31, 2021	$	70,745	$	70,709
Operational risk RWA
Balance at December 31, 2020	N/A		$	94,181
Change in operational risk RWA	N/A		(420)
Balance at March 31, 2021	N/A		$	93,761
Total RWA	$	455,071	$	438,839

Regulatory VaR—VaR for regulatory capital requirements

1. Amounts reflect assets not in a defined category, non-material portfolios of exposures and unsettled transactions, as applicable.

Credit risk RWA decreased in the current quarter under both the Standardized and Advanced Approaches. Under the Standardized Approach, the decrease was driven primarily by loans, partially due to syndications, and Securities financing transactions. Under the Advanced Approach, the decrease was driven by Derivatives as a result of reduced exposure and a reduction in CVA due to lower credit spread volatility and decreased counterparty exposure.

Market risk RWA increased in the current quarter under both the Standardized and Advanced Approaches primarily due to an increase in Regulatory VaR and Stressed VaR mainly as a result of higher equity and interest rate risk.

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 Ratio 1		At March 31, 2021			At December 31, 2020
External TLAC 2					$	216,426		$	216,129
External TLAC as a % of RWA	18.0	%	21.5	%	47.6		%	47.7		%
External TLAC as a % of leverage exposure	7.5	%	9.5	%	17.1		%	18.1		%
Eligible LTD 3					$	122,234		$	120,561
Eligible LTD as a % of RWA	9.0	%	9.0	%	26.9		%	26.6		%
Eligible LTD as a % of leverage exposure	4.5	%	4.5	%	9.7		%	10.1		%

1. Required ratios are inclusive of applicable buffers. The final rule imposes TLAC buffer requirements on top of both the risk-based and leverage exposure-based external TLAC minimum requirements. The risk-based TLAC buffer is equal to the sum of 2.5%, our Method 1 G-SIB surcharge and the CCyB, if any, as a percentage of total RWA. The leverage exposure-based TLAC buffer is equal to 2% of our total leverage exposure. Failure to maintain the buffers would result in 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.

2. External TLAC consists of Common Equity Tier 1 capital and Additional Tier 1 capital (each excluding any noncontrolling minority interests), as well as eligible LTD.

3. Consists of TLAC-eligible LTD reduced by 50% for amounts of unpaid principal due to be paid in more than one year but less than two years from each respective balance sheet date.

We are in compliance with all TLAC requirements as of March 31, 2021 and December 31, 2020. 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—Regulatory Capital Requirements—Total Loss-Absorbing Capacity, Long-Term Debt and Clean Holding Company Requirements” in the 2020 Form 10-K.

Capital Plans, Stress Tests and the Stress Capital Buffer

Pursuant to the Dodd-Frank Act, the Federal Reserve has adopted 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 2021 capital planning and stress test cycle, we submitted our capital plan and company-run stress test results to the Federal Reserve on April 5, 2021. The Federal Reserve is expected to publish summary results of the CCAR and Dodd-Frank Act supervisory stress tests of each large BHC, including us, by June 30, 2021. We are required to disclose a summary of the results of our company-run stress tests within


			20			March 2021 Form 10-Q


Table of Contents
Management’s Discussion and Analysis

15 days of the date the Federal Reserve discloses the results of the supervisory stress tests.

For additional information on our capital planning and stress tests, including the SCB, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Plans, Stress Tests and the Stress Capital Buffer” in the 2020 Form 10-K.

Capital Action Supervisory Restrictions

Under the modified capital action restrictions announced on December 18, 2020 by the Federal Reserve, large BHCs were permitted, in the first quarter of 2021, to take certain capital actions. In particular, a firm was able to, provided that it did not increase the amount of its common stock dividends to be larger than the level paid in the second quarter of 2020, pay common stock dividends and make share repurchases that, in the aggregate, did not exceed an amount equal to the average of the firm’s net income for the four preceding calendar quarters; make share repurchases that equal the amount of share issuances related to expensed employee compensation; and redeem and make scheduled payments on additional Tier 1 and Tier 2 capital instruments.

Consistent with these modifications, on December 18, 2020, our Board of Directors authorized the repurchase of up to $10 billion of outstanding common stock in 2021.

On March 25, 2021, the Federal Reserve announced that its temporary capital action supervisory restrictions will end on June 30, 2021 for all firms whose capital levels are above minimum risk-based requirements in the Federal Reserve’s annual supervisory stress test.

For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Action Supervisory Restrictions” in the 2020 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 Framework 1


	Three Months Ended March 31,
$ in billions		2021		2020
Institutional Securities		$	43.5	$	42.8
Wealth Management 2		28.5		18.2
Investment Management 3		4.4		2.6
Parent		17.9		11.1
Total		$	94.3	$	74.7

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 Wealth Management business segment in 2021 reflect the E*TRADE acquisition on October 2, 2020.

3. 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.

The Firm has made updates to its Required Capital framework for 2021 and continues to evaluate the impact of evolving regulatory requirements, as appropriate. As noted above, common equity attribution to the business segments is based upon usage.

Resolution and Recovery Planning

Pursuant to the Dodd-Frank Act, we are required to periodically submit 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. Our next resolution plan submission will be a targeted resolution plan in July 2021.

As described in our most recent resolution plan, which was submitted on June 28, 2019, 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 or before putting U.S. taxpayers at risk.


March 2021 Form 10-Q			21


Table of Contents
Management’s Discussion and Analysis

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 2020 Form 10-K.

Regulatory Developments and Other Matters

Expiration of the Supplementary Leverage Ratio Interim Final Rule

On March 19, 2021, the Federal Reserve announced that the temporary change to the SLR for bank holding companies, which allowed for the exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks, would expire as scheduled on March 31, 2021, resulting in the elimination of this exclusion beginning in the second quarter of 2021. For a summary of the impact of this interim final rule, see “Regulatory Capital Requirements” herein.

Planned Replacement of London Interbank Offered Rate and Replacement or Reform of Other Interest Rates

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”). On March 5, 2021, ICE Benchmark Administration, which administers LIBOR publication, announced that it will cease the publication of most LIBOR rates as of the end of December 2021, except for the publication until June 30, 2023 of the most widely used U.S. dollar LIBOR tenors, and the U.K. Financial Conduct Authority (“FCA”), which regulates LIBOR publication, announced that it would not compel panel banks to submit to LIBOR beyond those dates.

Subsequently, the International Swaps and Derivatives Association (“ISDA”) confirmed that the FCA's announcement constituted an “Index Cessation Event” as defined in the IBOR Fallbacks Supplement, which amended ISDA's interest rate definitions to include robust fallbacks for derivatives linked to LIBOR and certain other interest rate benchmarks, and the ISDA 2020 IBOR Fallbacks Protocol, which incorporates the fallbacks into legacy non-cleared derivatives entered into between Protocol adherents. The FCA's announcement therefore triggered a fixing of the ISDA fallback spread adjustments for all LIBOR benchmarks, to be effective when the contractual fallbacks are implemented. The Alternative Reference Rates Committee (“ARRC”) also confirmed that the ICE Benchmark Administration and FCA announcements also constituted a “Benchmark Transition Event” with respect to all USD LIBOR settings pursuant to

the ARRC’s fallback recommendations for new issuances or originations of certain cash products.

Separately, the U.S. banking agencies and the FCA have encouraged banks to cease entering into new contracts referencing LIBOR as soon as practicable, and no later than December 31, 2021.

Further, New York State has enacted legislation that would, among other things, replace LIBOR references in certain contracts governed by New York law with a benchmark based on the Secured Overnight Financing Rate, including any spread adjustment, recommended by the Federal Reserve, the Federal Reserve Bank of New York or the ARRC.

We remain a party to a significant number of LIBOR-linked contracts, many of which extend beyond 2021 and, in the case of U.S. dollar LIBOR, June 30, 2023, composed of derivatives, securitizations, floating rate notes, loans and mortgages and we continue to execute on our Firm-wide IBOR transition plan to promote the transition to alternative reference rates in accordance with industry transition timelines, which is overseen by a global steering committee, with senior management oversight. See also “Risk Factors—Risk Management” in the 2020 Form 10-K for a further discussion of risks related to the planned replacement of the IBORs and/or reform of interest rate benchmarks.

For a further discussion of regulatory developments and other matters, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Other Matters,” respectively, in the 2020 Form 10-K.


			22			March 2021 Form 10-Q


Table of Contents

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 2020 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 alternative and other funds. For a further discussion of market risk, see “Quantitative and Qualitative Disclosures about Risk—Market Risk” in the 2020 Form 10-K.

Trading Risks

We are exposed to a wide range of risks related to interest rates and credit spreads, equity prices, foreign exchange rates and commodity prices, and the associated implied volatilities and spreads, related to 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 2020 Form 10-K.

95%/One-Day Management VaR for the Trading Portfolio


	Three Months Ended
	March 31, 2021
$ in millions	Period End		Average		High 2		Low 2
Interest rate and credit spread	$	31	$	33	$	41	$	29
Equity price	30		31		170		19
Foreign exchange rate	11		14		24		8
Commodity price	14		18		27		13
Less: Diversification benefit 1	(36)		(38)		N/A		N/A
Primary Risk Categories	$	50	$	58	$	171	$	44
Credit Portfolio	17		24		31		17
Less: Diversification benefit 1	(15)		(13)		N/A		N/A
Total Management VaR	$	52	$	69	$	175	$	50


	Three Months Ended
	December 31, 2020
$ in millions	Period End		Average		High 2		Low 2
Interest rate and credit spread	$	35	$	32	$	42	$	28
Equity price	23		24		29		18
Foreign exchange rate	14		12		19		8
Commodity price	15		16		20		13
Less: Diversification benefit 1	(32)		(36)		N/A		N/A
Primary Risk Categories	$	55	$	48	$	56	$	39
Credit Portfolio	31		23		31		19
Less: Diversification benefit 1	(10)		(16)		N/A		N/A
Total Management VaR	$	76	$	55	$	76	$	43

1. Diversification benefit equals the difference between the total Management 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.

2. 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.

Average total Management VaR and average Management VaR for the Primary Risk Categories increased in the current quarter from the three months ended December 31, 2020 primarily as a result of increased exposure across trading businesses in support of client activity. During the current quarter, Management VaR peaked at $175 million for one day driven by increased equity exposure resulting from the aforementioned credit event for a single client.

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 relative to realized trading results. There were four loss days in the current quarter, none of which were in excess of the Firm’s VaR.


March 2021 Form 10-Q			23


Table of Contents
Risk Disclosures

Daily 95%/One-Day Total Management VaR for the Current Quarter

($ in millions)

Daily Net Trading Revenues for the Current Quarter

($ in millions)

The previous histogram shows the distribution of daily net trading revenues for the current quarter. Daily net trading revenues include profits and losses from Interest rate and credit spread, Equity price, Foreign exchange rate, Commodity price, and Credit Portfolio positions and intraday trading activities for our trading businesses. Certain items such as fees, commissions, net interest income, and counterparty default risk are excluded from daily net trading revenues and the VaR model. Revenues required for Regulatory VaR backtesting further exclude intraday trading.

Non-Trading Risks

We believe that sensitivity analysis is an appropriate representation of our non-trading risks. The following sensitivity analyses cover substantially all of the non-trading risk in our portfolio.

Credit Spread Risk Sensitivity 1


$ in millions	At March 31, 2021		At December 31, 2020
Derivatives	$	7	$	7
Funding liabilities 2	47		50

1. Amounts represent the potential gain for each 1 bps widening of our credit spread.

2. Relates to Borrowings carried at fair value.

U.S. Bank Subsidiaries’ Net Interest Income Sensitivity Analysis


$ in millions	At March 31, 2021		At December 31, 2020
Basis point change
+100	$	1,671	$	1,540
-100	(560)		(654)

The previous table presents an analysis of selected instantaneous upward and downward parallel interest rate shocks (subject to a floor of zero percent in the downward scenario) on net interest income over the next 12 months for our U.S. Bank Subsidiaries. These shocks are applied to our 12-month forecast for our U.S. Bank Subsidiaries, which incorporates market expectations of interest rates and our forecasted business activity.

We do not manage to any single rate scenario but rather manage net interest income in our U.S. Bank Subsidiaries to optimize across a range of possible outcomes, including non-parallel rate change scenarios. The sensitivity analysis assumes that we take no action in response to these scenarios, assumes there are no changes in other macroeconomic variables normally correlated with changes in interest rates, and includes subjective assumptions regarding customer and market re-pricing behavior and other factors. The lower sensitivity to interest rates in the negative 100 basis point scenario between March 31, 2021 and December 31, 2020 was primarily driven by changes in market rates.

Investments Sensitivity, Including Related Carried Interest


	Loss from 10% Decline
$ in millions	At March 31, 2021		At December 31, 2020
Investments related to Investment Management activities	$	472	$	386
Other investments:
MUMSS	174		184
Other Firm investments	223		210

MUMSS—Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

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 income associated with a 10% decline in investment values and related impact on performance-based


			24			March 2021 Form 10-Q


Table of Contents
Risk Disclosures

fees, as applicable. The change in investments sensitivity related to Investment Management activities between March 31, 2021 and December 31, 2020 was primarily driven by incremental investments acquired in the Eaton Vance transaction and across private equity funds due to increased sensitivity to carried interest.

Asset Management Revenue Sensitivity

Certain asset management revenues in the Wealth Management and Investment Management business segments are derived from management fees, which are based on fee-based client assets in Wealth Management or AUM in Investment Management (together, “client holdings”). The assets underlying client holdings are primarily composed of equity, fixed income and alternative investments, and are sensitive to changes in related markets. The overall level of these revenues depends on multiple factors that include, but are not limited to, the level and duration of a market increase or decline, price volatility, the geographic and industry mix of client assets, and client behavior such as the rate and magnitude of client investments and redemptions. Therefore, overall revenues do not correlate completely with changes in the related markets.

Credit Risk

Credit risk refers to the risk of loss arising when a borrower, counterparty or issuer does not meet its financial obligations to us. We are primarily exposed to credit risk from institutions and individuals through our Institutional Securities and Wealth Management business segments. For a further discussion of our credit risks, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk” in the 2020 Form 10-K.

Loans and Lending Commitments


	At March 31, 2021
$ in millions	HFI		HFS		FVO		Total
Institutional Securities:
Corporate	$	5,185	$	11,824	$	14	$	17,023
Secured lending facilities	25,886		3,025		914		29,825
Commercial and Residential real estate	7,277		541		2,898		10,716
Securities-based lending and Other	1,034		62		7,758		8,854
Total Institutional Securities	39,382		15,452		11,584		66,418
Wealth Management:
Residential real estate	36,843		14		—		36,857
Securities-based lending and Other	68,167		—		—		68,167
Total Wealth Management	105,010		14		—		105,024
Total Investment Management 1	5		22		1,105		1,132
Total loans 2	144,397		15,488		12,689		172,574
ACL	(762)						(762)
Total loans, net of ACL	$	143,635	$	15,488	$	12,689	$	171,812
Lending commitments 3							$	132,717
Total exposure							$	304,529


	At December 31, 2020
$ in millions	HFI		HFS		FVO		Total
Institutional Securities:
Corporate	$	6,046	$	8,580	$	13	$	14,639
Secured lending facilities	25,727		3,296		648		29,671
Commercial and Residential real estate	7,346		859		3,061		11,266
Securities-based lending and Other	1,279		55		7,001		8,335
Total Institutional Securities	40,398		12,790		10,723		63,911
Wealth Management:
Residential real estate	35,268		11		—		35,279
Securities-based lending and Other	62,947		—		—		62,947
Total Wealth Management	98,215		11		—		98,226
Total Investment Management 1	6		12		425		443
Total loans 2	138,619		12,813		11,148		162,580
ACL	(835)						(835)
Total loans, net of ACL	$	137,784	$	12,813	$	11,148	$	161,745
Lending commitments 3							$	127,855
Total exposure							$	289,600

HFI—Held for investment; HFS—Held for sale; FVO—Fair value option

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. At March 31, 2021 and December 31, 2020, loans held at fair value are predominantly the result of the consolidation of CLO vehicles, 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 2020 Form 10-K.

Total loans and lending commitments increased by approximately $15 billion since December 31, 2020, primarily due to growth in event-driven loans and lending commitments within the Institutional Securities business segment, and an increase in Securities-based loans and Residential real estate loans within the Wealth Management business segment.

See Notes 5, 6, 10 and 14 to the financial statements for further information.

Beginning late in the first quarter of 2020 and following in part from the U.S. government’s enactment of the CARES Act, we have received requests from certain clients for modifications of their credit agreements with us, which in some cases include deferral of their loan payments. Initial borrower requests for loan payment deferrals related to Residential real estate loans are granted, while those related to Commercial real estate loans require careful consideration prior to approval. As of March 31, 2021, the outstanding principal balance of loans with approved deferrals of principal


March 2021 Form 10-Q			25


Table of Contents
Risk Disclosures

and interest payments currently in place which are not classified as troubled debt restructurings amounted to approximately $300 million for our Institutional Securities business segment and approximately $200 million for our Wealth Management business segment. Incremental to this population, throughout 2020 and the current quarter, we have provided deferrals of principal and interest on approximately $3.2 billion of loans which have now exited such modification arrangements. The substantial majority of these loans are current as of March 31, 2021.

In addition to these principal and interest deferrals, we are working with clients regarding modifications of certain other terms under their original loan agreements that do not impact contractual loan payments. We have granted such relief to certain borrowers, primarily within Secured lending facilities and Corporate loans. Such modifications include agreements to modify margin calls for Secured lending facilities, typically in return for additional payments that improve LTV ratios. In some cases, we have agreed to temporarily not enforce certain covenants, for example debt or interest coverage ratios, typically in return for other structural enhancements.

Granting loan deferral or modification requests does not necessarily mean that we will incur credit losses, and we do not believe modifications have had a material impact on the risk profile of our loan portfolio. Modifications are considered in our evaluation of overall credit risk. Generally, loans with payment deferrals remain on accrual status, and loans with other modifications remain on current status.

Requests for deferrals and other modifications could continue in future periods given the ongoing uncertain global economic and market conditions. See “Executive Summary—Coronavirus Disease (COVID-19) Pandemic” herein and “Risk Factors” and “Forward Looking Statements” in the 2020 Form 10-K.

For additional information on regulatory guidance which permits certain loan modifications for borrowers impacted by COVID-19 to not be accounted for and reported as TDRs as well as the Firm’s accounting policies for such modifications, see “Liquidity and Capital Resources—Regulatory Requirements—Regulatory Developments” and Note 2 to the financial statements in the 2020 Form 10-K, respectively. For information on HFI loans on nonaccrual status and HFI loans modified and reported as TDRs, see “Status of Loans Held for Investment” herein and Note 10 to the financial statements, and for a discussion of the related accounting policies see Note 2 to the financial statements in the 2020 Form 10-K.

Allowance for Credit Losses—Loans and Lending Commitments


$ in millions
December 31, 2020 1	$	1,231
Gross charge-offs	(10)


Provision for credit losses 2	(98)
Other	(7)
March 31, 2021	$	1,116
ACL—Loans	$	762
ACL—Lending commitments	354

1. At December 31, 2020, the ACL for Loans and Lending commitments was $835 million and $396 million, respectively.

2. In the current quarter, the Provision for credit losses on loans was a release of $58 million and the Provision for credit losses on lending commitments was a release of $40 million.

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 aggregate allowance for loan and commitment losses 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 loans and lending commitments decreased in the current quarter, primarily reflecting a release in the allowance for credit losses within the Institutional Securities business segment. The allowance release was primarily a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated borrowers. The base scenario used in our ACL models as of March 31, 2021 was generated using a combination of industry consensus economic forecasts, forward rates, and internally developed and validated models. Given the nature of our lending portfolio, the most sensitive model input is U.S. gross domestic product. The base scenario, among other things, assumes a continued recovery over the forecast period with U.S. GDP reaching pre-COVID-19 levels by the third quarter of 2021, supported by fiscal stimulus and accommodative monetary policy. See Notes 10 and 14 to the financial statements for further information. See Note 2 to the financial statements in the 2020 Form 10-K for a discussion of the Firm’s ACL methodology under CECL.

Status of Loans Held for Investment


	At March 31, 2021				At December 31, 2020
	IS		WM		IS		WM
Accrual	99.4	%	99.7	%	99.2	%	99.7	%
Nonaccrual 1	0.6	%	0.3	%	0.8	%	0.3	%

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.


			26			March 2021 Form 10-Q


Table of Contents
Risk Disclosures

Institutional Securities Loans and Lending Commitments 1


	At March 31, 2021
	Contractual Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Loans
AA	$	43	$	9	$	85	$	35	$	172
A	680		787		340		241		2,048
BBB	5,673		5,119		2,279		314		13,385
BB	11,381		7,783		4,325		673		24,162
Other NIG	5,557		6,323		3,472		6,931		22,283
Unrated 2	223		122		370		2,982		3,697
Total loans, net of ACL	23,557		20,143		10,871		11,176		65,747
Lending commitments
AAA	—		50		—		—		50
AA	3,852		1,169		1,979		—		7,000
A	5,597		6,877		9,909		432		22,815
BBB	8,493		19,580		16,675		594		45,342
BB	3,282		11,102		7,252		2,543		24,179
Other NIG	1,965		7,250		6,849		3,291		19,355
Unrated 2	—		2		10		1		13
Total lending commitments	23,189		46,030		42,674		6,861		118,754
Total exposure	$	46,746	$	66,173	$	53,545	$	18,037	$	184,501


	At December 31, 2020
	Contractual Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Loans
AA	$	279	$	10	$	—	$	—	$	289
A	759		798		36		391		1,984
BBB	5,043		5,726		2,746		469		13,984
BB	10,963		7,749		5,324		503		24,539
Other NIG	5,214		6,956		4,002		3,269		19,441
Unrated 2	141		142		330		2,322		2,935
Total loans, net of ACL	22,399		21,381		12,438		6,954		63,172
Lending commitments
AAA	—		50		—		—		50
AA	4,047		1,038		2,135		—		7,220
A	6,025		8,359		9,808		425		24,617
BBB	6,783		17,782		15,500		460		40,525
BB	4,357		8,958		7,958		3,103		24,376
Other NIG	664		7,275		6,077		2,652		16,668
Unrated 2	4		—		—		—		4
Total lending commitments	21,880		43,462		41,478		6,640		113,460
Total exposure	$	44,279	$	64,843	$	53,916	$	13,594	$	176,632

NIG–Non-investment grade

1. Counterparty credit ratings are internally determined by the Credit Risk Management Department (“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 “Market Risk” herein.

Institutional Securities Loans and Lending Commitments by Industry


$ in millions	At March 31, 2021		At December 31, 2020
Industry
Financials	$	52,174	$	44,358
Real estate	25,515		25,484
Industrials	17,310		15,861
Healthcare	13,656		12,650
Communications services	13,411		12,600
Information technology	11,502		11,358
Utilities	10,111		9,504
Consumer discretionary	9,982		11,177
Energy	9,380		10,064
Consumer staples	7,963		9,088
Materials	5,759		6,084
Insurance	4,410		3,889
Other	3,328		4,515
Total exposure	$	184,501	$	176,632

Sectors Currently in Focus due to COVID-19

The continuing effect on economic activity of COVID-19 and related governmental actions have impacted borrowers in many sectors and industries. While we are carefully monitoring all of our Institutional Securities business segment exposures, certain sectors are more sensitive to the current economic environment and are continuing to receive heightened focus. The sectors currently in focus are: air travel, retail, upstream energy, lodging and leisure, and healthcare services and systems. As of March 31, 2021, exposures to these sectors are included across the Industrials, Financials, Real estate, Consumer discretionary, Energy and Healthcare industries in the previous table, and in aggregate represent less than 10% of total Institutional Securities business segment lending exposure. Further, as of March 31, 2021, approximately 90% of these exposures are either investment grade and/or secured by collateral. The future developments of COVID-19 and related government actions and their effect on the economic environment remain uncertain; therefore, the sectors impacted and the extent of the impacts may change over time. Refer to “Risk Factors” in the 2020 Form 10-K.

Institutional Securities Lending Activities

The Institutional Securities business segment lending activities include Corporate, Secured lending facilities, Commercial real estate and Securities-based lending and Other. 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 2020 Form 10-K.


March 2021 Form 10-Q			27


Table of Contents
Risk Disclosures

Institutional Securities Event-Driven Loans and Lending Commitments


	At March 31, 2021
	Contractual Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Loans, net of ACL	$	1,985	$	602	$	428	$	5,991	$	9,006
Lending commitments	4,238		5,502		2,380		4,596		16,716
Total exposure	$	6,223	$	6,104	$	2,808	$	10,587	$	25,722


	At December 31, 2020
	Contractual Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Loans, net of ACL	$	1,241	$	907	$	873	$	2,090	$	5,111
Lending commitments	2,810		4,649		2,678		4,650		14,787
Total exposure	$	4,051	$	5,556	$	3,551	$	6,740	$	19,898

Event-driven loans and lending commitments are associated with a particular event or transaction, such as to support client merger, acquisition, recapitalization or project finance activities. Balances may fluctuate as such lending is related to transactions that vary in timing and size from period to period.

Institutional Securities Loans and Lending Commitments Held for Investment


	At March 31, 2021
$ in millions	Loans		Lending Commitments		Total
Corporate	$	5,185	$	71,893	$	77,078
Secured lending facilities	25,886		9,085		34,971
Commercial real estate	7,277		276		7,553
Other	1,034		866		1,900
Total, before ACL	$	39,382	$	82,120	$	121,502
ACL	$	(671)	$	(350)	$	(1,021)


	At December 31, 2020
$ in millions		Loans		Lending Commitments		Total
Corporate		$	6,046	$	69,488	$	75,534
Secured lending facilities		25,727		8,312		34,039
Commercial real estate		7,346		334		7,680
Other		1,279		1,135		2,414
Total, before ACL		$	40,398	$	79,269	$	119,667
ACL		$	(739)	$	(391)	$	(1,130)

Institutional Securities Allowance for Credit Losses—Loans and Lending Commitments


$ in millions	Corporate		Secured lending facilities		Commercial real estate		Other		Total
At December 31, 2020
ACL—Loans	$	309	$	198	$	211	$	21	$	739
ACL—Lending commitments	323		38		11		19		391
Total	$	632	$	236	$	222	$	40	$	1,130
Gross charge-offs	(1)		—		(9)		—		(10)


Provision for credit losses 1	(89)		(7)		3		—		(93)
Other	(3)		(1)		(2)		—		(6)
Total at March 31, 2021	$	539	$	228	$	214	$	40	$	1,021
ACL—Loans	$	250	$	193	$	206	$	22	$	671
ACL—Lending commitments	289		35		8		18		350

1. In the current quarter, the provision for credit losses on loans was a release of $53 million and the Provision for credit losses on lending commitments was a release of $40 million.

Institutional Securities HFI Loans—Ratios of Allowance for Credit Losses to Balance Before Allowance


	At March 31, 2021		At December 31, 2020
Corporate	4.8	%	5.1	%
Secured lending facilities	0.7	%	0.8	%
Commercial real estate	2.8	%	2.9	%
Other	2.1	%	1.7	%
Total Institutional Securities loans	1.7	%	1.8	%

Wealth Management Loans and Lending Commitments


	At March 31, 2021
	Contractual Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Securities-based lending and Other	$	59,264	$	5,371	$	1,876	$	1,620	$	68,131
Residential real estate	7		1		3		36,791		36,802
Total loans, net of ACL	$	59,271	$	5,372	$	1,879	$	38,411	$	104,933
Lending commitments	11,294		2,281		131		257		13,963
Total exposure	$	70,565	$	7,653	$	2,010	$	38,668	$	118,896


	At December 31, 2020
	Contractual Years to Maturity
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Securities-based lending and Other	$	54,483	$	4,587	$	2,167	$	1,672	$	62,909
Residential real estate	9		1		1		35,210		35,221
Total loans, net of ACL	$	54,492	$	4,588	$	2,168	$	36,882	$	98,130
Lending commitments	11,666		2,356		120		253		14,395
Total exposure	$	66,158	$	6,944	$	2,288	$	37,135	$	112,525

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


			28			March 2021 Form 10-Q


Table of Contents
Risk Disclosures

“Quantitative and Qualitative Disclosures about Risk—Credit Risk” in the 2020 Form 10-K.

Wealth Management Allowance for Credit Losses—Loans and Lending Commitments


$ in millions
December 31, 2020 1	$	101
Gross charge-offs	—
Provision for credit losses 2	(5)
Other	(1)
March 31, 2021	$	95
ACL—Loans	$	91
ACL—Lending commitments	4

1. At December 31, 2020, the ACL for Loans and Lending commitments was $96 million and $5 million, respectively.

2. In the current quarter, the Provision for credit losses on loans was a release of $5 million.

At March 31, 2021, more than 75% of Wealth Management residential real estate loans were to borrowers with “Exceptional” or “Very Good” FICO scores ( i.e., exceeding 740). Additionally, Wealth Management’s securities-based lending portfolio remains well-collateralized and subject to daily client margining, which includes requiring customers to deposit additional collateral, or reduce debt positions, when necessary.

Customer and Other Receivables

Margin Loans and Other lending


$ in millions	At March 31, 2021		At December 31, 2020
Institutional Securities	$	55,935	$	51,570
Wealth Management	26,609		23,144
Total	$	82,544	$	74,714

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.

Margin lending activities generally have lower credit risk due to the value of collateral held and their short-term nature. Amounts may fluctuate from period to period as overall client balances change as a result of market levels, client positioning and leverage.

Employee Loans

For information on employee loans and related ACL, see Note 10 to the financial statements.

Derivatives

Fair Value of OTC Derivative Assets


	Counterparty Credit Rating 1
$ in millions	AAA		AA		A		BBB		NIG		Total
At March 31, 2021
Less than 1 year	$	1,346	$	15,620	$	45,783	$	23,734	$	12,533	$	99,016
1-3 years	591		4,755		15,600		12,197		7,535		40,678
3-5 years	703		4,907		10,115		8,153		3,695		27,573
Over 5 years	4,151		26,657		68,658		49,759		11,487		160,712
Total, gross	$	6,791	$	51,939	$	140,156	$	93,843	$	35,250	$	327,979
Counterparty netting	(3,245)		(40,745)		(109,294)		(71,170)		(19,149)		(243,603)
Cash and securities collateral	(2,879)		(8,735)		(24,958)		(16,801)		(7,961)		(61,334)
Total, net	$	667	$	2,459	$	5,904	$	5,872	$	8,140	$	23,042


	Counterparty Credit Rating 1
$ in millions	AAA		AA		A		BBB		NIG		Total
At December 31, 2020
Less than 1 year	$	1,179	$	16,166	$	52,164	$	26,088	$	12,175	$	107,772
1-3 years	572		5,225		17,560		13,750		8,134		45,241
3-5 years	359		4,326		11,328		8,363		4,488		28,864
Over 5 years	4,545		32,049		84,845		63,084		13,680		198,203
Total, gross	$	6,655	$	57,766	$	165,897	$	111,285	$	38,477	$	380,080
Counterparty netting	(3,269)		(44,306)		(134,310)		(84,171)		(22,227)		(288,283)
Cash and securities collateral	(3,124)		(10,973)		(26,712)		(20,708)		(8,979)		(70,496)
Total, net	$	262	$	2,487	$	4,875	$	6,406	$	7,271	$	21,301


$ in millions	At March 31, 2021		At December 31, 2020
Industry
Financials	$	8,404	$	6,195
Utilities	4,082		3,954
Consumer discretionary	2,350		1,866
Energy	1,007		965
Healthcare	961		1,494
Industrials	906		1,291
Information technology	894		1,104
Regional governments	845		806
Sovereign governments	708		650
Insurance	554		518
Not-for-profit organizations	538		701
Real estate	474		378
Communications services	473		529
Materials	363		430
Consumer staples	332		339
Other	151		81
Total	$	23,042	$	21,301

1. Counterparty credit ratings are determined internally by CRM.

We are exposed to credit risk as a dealer in OTC derivatives. Credit risk with respect to derivative instruments arises from the possibility that a counterparty may fail to perform according to the terms of the contract. For more information on derivatives, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk—Derivatives” in the 2020 Form 10-K and Note 7 to the financial statements.


March 2021 Form 10-Q			29


Table of Contents
Risk Disclosures

Country Risk

Country risk exposure is the risk that events in, or that affect, a foreign country (any country other than the U.S.) might adversely affect us. We actively manage country risk exposure through a comprehensive risk management framework that combines credit and market fundamentals and allows us to effectively identify, monitor and limit country risk. For a further discussion of our country risk exposure see, “Quantitative and Qualitative Disclosures about Risk—Country and Other Risks” in the 2020 Form 10-K.

Our sovereign exposures consist of financial contracts and obligations entered into with sovereign and local governments. Our non-sovereign exposures consist of financial contracts and obligations entered into primarily with corporations and financial institutions.

Index credit derivatives are included in the following country risk exposure table. Each reference entity within an index is allocated to that reference entity’s country of risk. Index exposures are allocated to the underlying reference entities in proportion to the notional weighting of each reference entity in the index, adjusted for any fair value receivable or payable for that reference entity. Where credit risk crosses multiple jurisdictions, for example, a CDS purchased from an issuer in a specific country that references bonds issued by an entity in a different country, the fair value of the CDS is reflected in the Net Counterparty Exposure row based on the country of the CDS issuer. Further, the notional amount of the CDS adjusted for the fair value of the receivable or payable is reflected in the Net Inventory row based on the country of the underlying reference entity.

Top 10 Non-U.S. Country Exposures at March 31, 2021


$ in millions	United Kingdom		Japan		France		Germany		Spain
Sovereign
Net inventory 1	$	51	$	6,101	$	1,531	$	(3,354)	$	(563)
Net counterparty exposure 2	16		66		24		73		15


Exposure before hedges	67		6,167		1,555		(3,281)		(548)
Hedges 3	(310)		(91)		(6)		(287)		—
Net exposure	$	(243)	$	6,076	$	1,549	$	(3,568)	$	(548)

Non-sovereign
Net inventory 1	$	894	$	508	$	(526)	$	(215)	$	(117)
Net counterparty exposure 2	11,563		5,277		3,066		2,942		273
Loans	3,620		382		681		1,890		3,577
Lending commitments	5,452		181		4,368		4,355		922
Exposure before hedges	21,529		6,348		7,589		8,972		4,655
Hedges 3	(1,653)		(173)		(752)		(1,055)		(151)
Net exposure	$	19,876	$	6,175	$	6,837	$	7,917	$	4,504
Total net exposure	$	19,633	$	12,251	$	8,386	$	4,349	$	3,956


$ in millions	Brazil		Canada		China		Australia		India
Sovereign
Net inventory 1	$	2,962	$	(348)	$	87	$	445	$	1,734
Net counterparty exposure 2	—		88		145		32		—


Exposure before hedges	2,962		(260)		232		477		1,734
Hedges 3	(12)		—		(82)		—		—
Net exposure	$	2,950	$	(260)	$	150	$	477	$	1,734

Non-sovereign
Net inventory 1	$	75	$	493	$	1,412	$	302	$	638
Net counterparty exposure 2	429		2,079		740		720		754
Loans	208		164		636		405		214
Lending commitments	166		1,366		821		1,617		—
Exposure before hedges	878		4,102		3,609		3,044		1,606
Hedges 3	(24)		(74)		(187)		(174)		—
Net exposure	$	854	$	4,028	$	3,422	$	2,870	$	1,606
Total net exposure	$	3,804	$	3,768	$	3,572	$	3,347	$	3,340

1. Net inventory represents exposure to both long and short single-name and index positions ( i.e ., bonds and equities at fair value and CDS based on a notional amount assuming zero recovery adjusted for the fair value of any receivable or payable).

2. Net counterparty exposure ( e.g ., repurchase transactions, securities lending and OTC derivatives) is net of the benefit of collateral received and also is net by counterparty when legally enforceable master netting agreements are in place. For more information, see “Additional Information—Top 10 Non-U.S. Country Exposures” herein.

3. Amounts represent net CDS hedges (purchased and sold) on net counterparty exposure and lending executed by trading desks responsible for hedging counterparty and lending credit risk exposures. Amounts are based on the CDS notional amount assuming zero recovery adjusted for any fair value receivable or payable. For further description of the contractual terms for purchased credit protection and whether they may limit the effectiveness of our hedges, see “Quantitative and Qualitative Disclosures about Risk—Credit Risk—Derivatives” in the 2020 Form 10-K.

Additional Information—Top 10 Non-U.S. Country Exposures

Collateral Held against Net Counterparty Exposure 1


$ in millions		At March 31, 2021
Country of Risk	Collateral 2
Germany	Spain and Italy	$	11,670
United Kingdom	U.K., U.S. and Italy	8,559
Other	Japan, U.S. and France	17,757

1. The benefit of collateral received is reflected in the Top 10 Non-U.S. Country Exposures at March 31, 2021.

2. Primarily consists of cash, as well as government obligations of the countries listed.

Country Risk Exposures Related to the U.K.

At March 31, 2021, our country risk exposures in the U.K. included net exposures of $19,633 million (as shown in the Top 10 Non-U.S. Country Exposures table) and overnight deposits of $6,599 million. The $19,876 million of exposures to non-sovereigns were diversified across both names and sectors and include $7,144 million to U.K.-focused counterparties that generate more than one-third of their revenues in the U.K., $4,321 million to geographically diversified counterparties, and $7,573 million to exchanges and clearinghouses.


			30			March 2021 Form 10-Q


Table of Contents
Risk Disclosures

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. , fraud, theft, legal and compliance risks, cyber attacks or damage to physical assets). We may incur operational risk across the full scope of our business activities, including revenue-generating activities ( e.g. , sales and trading) 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 2020 Form 10-K. In addition, for further information on market and economic conditions and their effects on risk in general, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—Coronavirus Disease (COVID-19) Pandemic” herein and “Risk Factors” in the 2020 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 2020 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 2020 Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” herein. In addition, for further information on market and economic conditions and their effects on risk in general, see “Risk Factors” in the 2020 Form 10-K.

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, 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 2020 Form 10-K.


March 2021 Form 10-Q			31


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Morgan Stanley:

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheet of Morgan Stanley and subsidiaries (the “Firm”) as of March 31, 2021, and the related condensed consolidated income statements, comprehensive income statements, cash flow statements and statements of changes in total equity for the three-month periods ended March 31, 2021 and 2020, 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, 2020, 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 26, 2021, 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, 2020 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Firm’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Firm in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.


/s/ Deloitte & Touche LLP
New York, New York
May 3, 2021


			32			March 2021 Form 10-Q


Table of Contents
Consolidated Income Statements (Unaudited)


	Three Months Ended March 31,
in millions, except per share data		2021		2020
Revenues
Investment banking		$	2,840	$	1,271
Trading		4,225		2,801
Investments		318		38
Commissions and fees		1,626		1,360
Asset management		4,398		3,417
Other		284		( 464 )
Total non-interest revenues		13,691		8,423
Interest income		2,437		3,503
Interest expense		409		2,147
Net interest		2,028		1,356
Net revenues		15,719		9,779
Provision for credit losses		( 98 )		407
Non-interest expenses
Compensation and benefits		6,798		4,283
Brokerage, clearing and exchange fees		910		740
Information processing and communications		733		563
Professional services		624		449
Occupancy and equipment		405		365
Marketing and business development		146		132
Other		857		694
Total non-interest expenses		10,473		7,226
Income before provision for income taxes		5,344		2,146
Provision for income taxes		1,176		366


Net income		$	4,168	$	1,780
Net income applicable to noncontrolling interests		48		82
Net income applicable to Morgan Stanley		$	4,120	$	1,698
Preferred stock dividends		138		108
Earnings applicable to Morgan Stanley common shareholders		$	3,982	$	1,590
Earnings per common share
Basic		$	2.22	$	1.02
Diluted		$	2.19	$	1.01
Average common shares outstanding
Basic		1,795		1,555
Diluted		1,818		1,573

Consolidated Comprehensive Income Statements

(Unaudited)


	Three Months Ended March 31,
$ in millions		2021		2020
Net income		$	4,168	$	1,780
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		( 219 )		( 132 )
Change in net unrealized gains (losses) on available-for-sale securities		( 776 )		1,325
Pension and other		5		25
Change in net debt valuation adjustment		137		3,803
Total other comprehensive income (loss)		$	( 853 )	$	5,021
Comprehensive income		$	3,315	$	6,801
Net income applicable to noncontrolling interests		48		82
Other comprehensive income (loss) applicable to noncontrolling interests		( 61 )		138
Comprehensive income applicable to Morgan Stanley		$	3,328	$	6,581


See Notes to Consolidated Financial Statements			33			March 2021 Form 10-Q


Table of Contents
Consolidated Balance Sheets


$ in millions, except share data	(Unaudited) At March 31, 2021		At December 31, 2020
Assets
Cash and cash equivalents	$	118,118	$	105,654
Trading assets at fair value ( $ 111,342 and $ 132,578 were pledged to various parties)	313,158		312,738
Investment securities (includes $ 105,288 and $ 110,383 at fair value)	189,206		182,154
Securities purchased under agreements to resell (includes $ 9 and $ 15 at fair value)	114,721		116,234
Securities borrowed	102,149		112,391
Customer and other receivables	115,043		97,737
Loans:
Held for investment (net of allowance of $ 762 and $ 835 )	143,635		137,784
Held for sale	15,488		12,813
Goodwill	16,836		11,635
Intangible assets (net of accumulated amortization of $ 3,358 and $ 3,265 )	8,846		4,980
Other assets	21,572		21,742
Total assets	$	1,158,772	$	1,115,862
Liabilities
Deposits (includes $ 3,069 and $ 3,521 at fair value)	$	323,138	$	310,782
Trading liabilities at fair value	185,667		157,631
Securities sold under agreements to repurchase (includes $ 1,089 and $ 1,115 at fair value)	54,624		50,587
Securities loaned	8,426		7,731
Other secured financings (includes $ 5,001 and $ 11,701 at fair value)	9,413		15,863
Customer and other payables	230,121		227,437
Other liabilities and accrued expenses	23,969		25,603
Borrowings (includes $ 74,022 and $ 73,701 at fair value)	215,826		217,079
Total liabilities	1,051,184		1,012,713
Commitments and contingent liabilities (see Note 14)
Equity
Morgan Stanley shareholders’ equity:
Preferred stock	7,750		9,250
Common stock, $ 0.01 par value:
Shares authorized: 3,500,000,000 ; Shares issued: 2,038,893,979 ; Shares outstanding: 1,868,925,320 and 1,809,624,144	20		20
Additional paid-in capital	27,406		25,546
Retained earnings	82,034		78,694
Employee stock trusts	3,861		3,043
Accumulated other comprehensive income (loss)	( 2,754 )		( 1,962 )
Common stock held in treasury at cost, $ 0.01 par value ( 169,968,659 and 229,269,835 shares)	( 8,197 )		( 9,767 )
Common stock issued to employee stock trusts	( 3,861 )		( 3,043 )
Total Morgan Stanley shareholders’ equity	106,259		101,781
Noncontrolling interests	1,329		1,368
Total equity	107,588		103,149
Total liabilities and equity	$	1,158,772	$	1,115,862


March 2021 Form 10-Q			34			See Notes to Consolidated Financial Statements


Table of Contents
Consolidated Statements of Changes in Total Equity (Unaudited)


	Three Months Ended March 31,
$ in millions		2021		2020
Preferred Stock
Beginning balance		$	9,250	$	8,520
Redemption of Series J preferred stock		( 1,500 )		—
Ending balance		7,750		8,520
Common Stock
Beginning and ending balance		20		20
Additional Paid-in Capital
Beginning balance		25,546		23,935
Share-based award activity		( 332 )		( 507 )
Issuance of common stock for the acquisition of Eaton Vance		2,185		—

Other net increases (decreases)		7		—
Ending balance		27,406		23,428
Retained Earnings
Beginning balance		78,694		70,589
Cumulative adjustment related to the adoption of financial instruments-credit losses accounting update 1		—		( 100 )
Net income applicable to Morgan Stanley		4,120		1,698
Preferred stock dividends 2		( 138 )		( 108 )
Common stock dividends 2		( 635 )		( 561 )

Other net increases (decreases)		( 7 )		—
Ending balance		82,034		71,518
Employee Stock Trusts
Beginning balance		3,043		2,918
Share-based award activity		818		170
Ending balance		3,861		3,088
Accumulated Other Comprehensive Income (Loss)
Beginning balance		( 1,962 )		( 2,788 )
Net change in Accumulated other comprehensive income (loss)		( 792 )		4,883
Ending balance		( 2,754 )		2,095
Common Stock Held in Treasury at Cost
Beginning balance		( 9,767 )		( 18,727 )
Share-based award activity		1,020		788
Repurchases of common stock and employee tax withholdings		( 2,582 )		( 1,782 )
Issuance of common stock for the acquisition of Eaton Vance		3,132		—
Ending balance		( 8,197 )		( 19,721 )
Common Stock Issued to Employee Stock Trusts
Beginning balance		( 3,043 )		( 2,918 )
Share-based award activity		( 818 )		( 170 )
Ending balance		( 3,861 )		( 3,088 )
Noncontrolling Interests
Beginning balance		1,368		1,148
Net income applicable to noncontrolling interests		48		82
Net change in Accumulated other comprehensive income (loss) applicable to noncontrolling interests		( 61 )		138
Other net increases (decreases)		( 26 )		—
Ending balance		1,329		1,368
Total Equity		$	107,588	$	87,228

1. See Notes 2 and 18 in the 2020 Form 10-K for further information regarding cumulative adjustments for accounting changes.

2. See Note 17 for information regarding dividends per share for each class of stock.


See Notes to Consolidated Financial Statements			35			March 2021 Form 10-Q


Table of Contents
Consolidated Cash Flow Statements (Unaudited)


	Three Months Ended March 31,
$ in millions	2021		2020
Cash flows from operating activities
Net income	$	4,168	$	1,780
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Stock-based compensation expense	518		154
Depreciation and amortization	887		824
Provision for credit losses	( 98 )		407
Other operating adjustments	( 95 )		1,044
Changes in assets and liabilities:
Trading assets, net of Trading liabilities	20,463		35,079
Securities borrowed	10,242		34,249
Securities loaned	695		3,125
Customer and other receivables and other assets	( 18,721 )		( 23,619 )
Customer and other payables and other liabilities	3,270		( 4,247 )
Securities purchased under agreements to resell	1,513		( 16,576 )
Securities sold under agreements to repurchase	4,037		( 8,384 )
Net cash provided by (used for) operating activities	26,879		23,836
Cash flows from investing activities
Proceeds from (payments for):
Other assets—Premises, equipment and software, net	( 525 )		( 354 )
Changes in loans, net	( 6,474 )		( 13,243 )
Investment securities:
Purchases	( 32,333 )		( 12,924 )
Proceeds from sales	6,825		3,128
Proceeds from paydowns and maturities	12,638		2,378
Cash paid as part of the Eaton Vance acquisition, net of cash acquired	( 2,648 )		—
Other investing activities	( 44 )		( 93 )
Net cash provided by (used for) investing activities	( 22,561 )		( 21,108 )
Cash flows from financing activities
Net proceeds from (payments for):
Other secured financings	( 3,798 )		259
Deposits	12,391		44,694
Proceeds from issuance of Borrowings	24,112		20,601
Payments for:
Borrowings	( 19,774 )		( 14,967 )
Repurchases of common stock and employee tax withholdings	( 2,582 )		( 1,782 )
Cash dividends	( 755 )		( 688 )
Other financing activities	( 30 )		( 163 )
Net cash provided by (used for) financing activities	9,564		47,954
Effect of exchange rate changes on cash and cash equivalents	( 1,418 )		( 1,344 )
Net increase (decrease) in cash and cash equivalents	12,464		49,338
Cash and cash equivalents, at beginning of period	105,654		82,171
Cash and cash equivalents, at end of period	$	118,118	$	131,509
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	586	$	2,123
Income taxes, net of refunds	339		342


March 2021 Form 10-Q			36			See Notes to Consolidated Financial Statements


Table of Contents
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. 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:

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 financial statements reflect the effects of the following reclassifications to prior period amounts. The Provision for credit losses for loans and lending commitments is now presented as a separate line in the income statements. Previously, the provision for credit losses for loans was included in Other revenues, and the provision for credit losses for lending commitments was included in Other expenses. In addition, economic hedges of certain held-for-sale and held-for-investment loans, which were previously reported in Trading revenues, are now reported in Other revenues.

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 2020 Form 10-K. Certain footnote disclosures included in the 2020 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 15). 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


			37			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

presented as Net income applicable to noncontrolling interests in the income statements. 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 sheets.

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 2020 Form 10-K.

2. Significant Accounting Policies

For a detailed discussion about the Firm’s significant accounting policies and for further information on accounting updates adopted in the prior year, see Note 2 to the financial statements in the 2020 Form 10-K.

During the three months ended March 31, 2021 (“current quarter”), there were no significant updates to the Firm’s significant accounting policies, other than as described below and in Note 1 to the financial statements.

The Firm’s acquisition of Eaton Vance Corp. (“Eaton Vance”) on March 1, 2021 added indefinite lived intangible assets to the Firm’s balance sheet. Indefinite lived intangibles are not amortized but are tested for impairment on an annual basis and on an interim basis when certain events or circumstances exist. For both the annual and interim tests, the Firm has the option to either (i) perform a quantitative impairment test or (ii) first perform a qualitative assessment to determine whether it is more likely than not that the asset is impaired, in which case if it is the quantitative test would be performed .

3 . Acquisitions

Acquisition of Eaton Vance

On March 1, 2021, the Firm completed the acquisition of 100 % of Eaton Vance in a stock and cash transaction, which increases the scale and breadth of the Investment Management business segment. Total consideration for the transaction was approximately $ 8.7 billion, which consists of the $ 5.3 billion fair value of 69 million common shares issued from Common stock held in treasury and cash of approximately $ 3.4 billion.

Upon acquisition, the assets and liabilities of Eaton Vance were adjusted to their respective fair values as of the closing date of the transaction, including the identifiable intangible assets acquired. In addition, the excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill. The fair value estimates used in valuing certain acquired assets and liabilities are based, in part, on inputs that are unobservable. For intangible assets, these include, but are not limited to forecasted future cash flows, revenue growth rates, attrition rates and discount rates.

Preliminary Eaton Vance Purchase Price Allocation 1


$ in millions	At March 1, 2021
Assets
Cash and cash equivalents	$	691
Trading assets at fair value:
Loans and lending commitments	445
Investments	299
Corporate and other debt	52
Customer and other receivables	331
Goodwill	5,270
Intangible assets	3,956
Other assets	836
Total assets	$	11,880
Liabilities
Other secured financings	$	399
Other liabilities and accrued expenses	2,147
Borrowings	678
Total liabilities	$	3,224

1. Due to the limited time since the date of the acquisition, the purchase price allocation remains preliminary.

Acquired Intangible Assets


$ in millions	Weighted average life (years)	At March 1, 2021
Non-amortizable
Management contracts	indefinite	$	2,120
Amortizable
Customer relationships	16	1,455
Tradenames	23	221
Management contracts	16	160
Total acquired Intangible assets		$	3,956

Eaton Vance Net revenues of approximately $ 174 million and Net income of approximately $ 31 million are included in the Firm’s consolidated results for the period from March 1, 2021 to March 31, 2021.

Morgan Stanley and Eaton Vance Proforma Combined Financial Information


	Three Months Ended March 31,
$ in millions	2021		2020
Net revenues	$	16,015	$	10,165
Net income	4,268		1,409

The proforma financial information presented in the previous table was computed by combining the historical financial information of the Firm and Eaton Vance along with the effects of the acquisition method of accounting for business combinations as though the companies were combined on January 1, 2020.

The proforma information does not reflect the potential benefits of cost and funding synergies, opportunities to earn additional revenues, or other factors, and therefore does not represent what the actual Net revenues and Net income would have been had the companies actually been combined as of this date.


March 2021 Form 10-Q			38


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

4. Cash and Cash Equivalents

Cash and cash equivalents consist of Cash and due from banks and Interest bearing deposits with banks. Cash equivalents are highly liquid investments with remaining maturities of three months or less from the acquisition date that are readily convertible to cash and are not held for trading purposes.


$ in millions	At March 31, 2021		At December 31, 2020
Cash and due from banks	$	11,163	$	9,792
Interest bearing deposits with banks	106,955		95,862
Total Cash and cash equivalents	$	118,118	$	105,654
Restricted cash	$	42,920	$	38,202

Cash and cash equivalents also include Restricted cash such as cash segregated in compliance with federal or other regulations, including minimum reserve requirements set by the Federal Reserve Bank and other central banks, and the Firm’s initial margin deposited with clearing organizations.

5. Fair Values

Recurring Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis


	At March 31, 2021
$ in millions	Level 1		Level 2		Level 3		Netting 1		Total
Assets at fair value
Trading assets:
U.S. Treasury and agency securities	$	53,200	$	22,956	$	12	$	—	$	76,168
Other sovereign government obligations	32,927		5,929		17		—		38,873
State and municipal securities	—		1,366		—		—		1,366
MABS	—		1,164		374		—		1,538
Loans and lending commitments 2	—		7,644		5,045		—		12,689
Corporate and other debt	—		25,672		3,319		—		28,991
Corporate equities 3	104,223		327		114		—		104,664
Derivative and other contracts:
Interest rate	7,453		182,012		1,242		—		190,707
Credit	—		8,853		601		—		9,454
Foreign exchange	7		82,822		191		—		83,020
Equity	999		65,637		1,279		—		67,915
Commodity and other	2,130		11,438		3,035		—		16,603
Netting 1	( 7,947 )		( 265,732 )		( 1,136 )		( 52,034 )		( 326,849 )
Total derivative and other contracts	2,642		85,030		5,212		( 52,034 )		40,850
Investments 4	729		416		924		—		2,069
Physical commodities	—		2,133		—		—		2,133
Total trading assets 4	193,721		152,637		15,017		( 52,034 )		309,341
Investment securities—AFS	50,392		54,769		127		—		105,288
Securities purchased under agreements to resell	—		9		—		—		9
Total assets at fair value	$	244,113	$	207,415	$	15,144	$	( 52,034 )	$	414,638


	At March 31, 2021
$ in millions	Level 1		Level 2		Level 3		Netting 1		Total
Liabilities at fair value
Deposits	$	—	$	2,892	$	177	$	—	$	3,069
Trading liabilities:
U.S. Treasury and agency securities	13,357		5		—		—		13,362
Other sovereign government obligations	27,322		1,758		—		—		29,080
Corporate and other debt	—		11,377		13		—		11,390
Corporate equities 3	91,623		377		49		—		92,049
Derivative and other contracts:
Interest rate	7,527		168,151		551		—		176,229
Credit	—		9,441		683		—		10,124
Foreign exchange	13		78,749		301		—		79,063
Equity	1,038		80,269		3,396		—		84,703
Commodity and other	1,989		11,118		1,091		—		14,198
Netting 1	( 7,947 )		( 265,732 )		( 1,136 )		( 49,716 )		( 324,531 )
Total derivative and other contracts	2,620		81,996		4,886		( 49,716 )		39,786
Total trading liabilities	134,922		95,513		4,948		( 49,716 )		185,667
Securities sold under agreements to repurchase	—		648		441		—		1,089
Other secured financings	—		4,446		555		—		5,001
Borrowings	13		69,747		4,262		—		74,022
Total liabilities at fair value	$	134,935	$	173,246	$	10,383	$	( 49,716 )	$	268,848


	At December 31, 2020
$ in millions	Level 1		Level 2		Level 3		Netting 1		Total
Assets at fair value
Trading assets:
U.S. Treasury and agency securities	$	43,084	$	31,524	$	9	$	—	$	74,617
Other sovereign government obligations	26,174		5,048		268		—		31,490
State and municipal securities	—		1,135		—		—		1,135
MABS	—		1,070		322		—		1,392
Loans and lending commitments 2	—		5,389		5,759		—		11,148
Corporate and other debt	—		30,093		3,435		—		33,528
Corporate equities 3	111,575		1,142		86		—		112,803
Derivative and other contracts:
Interest rate	4,458		227,818		1,210		—		233,486
Credit	—		6,840		701		—		7,541
Foreign exchange	29		93,770		260		—		94,059
Equity	1,132		65,943		1,369		—		68,444
Commodity and other	1,818		10,108		2,723		—		14,649
Netting 1	( 5,488 )		( 310,534 )		( 1,351 )		( 62,956 )		( 380,329 )
Total derivative and other contracts	1,949		93,945		4,912		( 62,956 )		37,850
Investments 4	624		234		828		—		1,686
Physical commodities	—		3,260		—		—		3,260
Total trading assets 4	183,406		172,840		15,619		( 62,956 )		308,909
Investment securities—AFS	46,354		61,225		2,804		—		110,383
Securities purchased under agreements to resell	—		12		3		—		15
Total assets at fair value	$	229,760	$	234,077	$	18,426	$	( 62,956 )	$	419,307


			39			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)


	At December 31, 2020
$ in millions	Level 1		Level 2		Level 3		Netting 1		Total
Liabilities at fair value
Deposits	$	—	$	3,395	$	126	$	—	$	3,521
Trading liabilities:
U.S. Treasury and agency securities	10,204		1		—		—		10,205
Other sovereign government obligations	24,209		1,738		16		—		25,963
Corporate and other debt	—		8,468		—		—		8,468
Corporate equities 3	67,822		172		63		—		68,057
Derivative and other contracts:
Interest rate	4,789		213,321		528		—		218,638
Credit	—		7,500		652		—		8,152
Foreign exchange	11		94,698		199		—		94,908
Equity	1,245		81,683		3,600		—		86,528
Commodity and other	1,758		9,418		1,014		—		12,190
Netting 1	( 5,488 )		( 310,534 )		( 1,351 )		( 58,105 )		( 375,478 )
Total derivative and other contracts	2,315		96,086		4,642		( 58,105 )		44,938
Total trading liabilities	104,550		106,465		4,721		( 58,105 )		157,631
Securities sold under agreements to repurchase	—		671		444		—		1,115
Other secured financings	—		11,185		516		—		11,701
Borrowings	—		69,327		4,374		—		73,701
Total liabilities at fair value	$	104,550	$	191,043	$	10,181	$	( 58,105 )	$	247,669

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 7.

2. For a further breakdown by type, see the following Detail of Loans and Lending Commitments at Fair Value table.

3. For trading purposes, the Firm holds or sells short equity securities issued by entities in diverse industries and of varying sizes.

4. Amounts exclude certain investments that are measured based on NAV per share, which are not classified in the fair value hierarchy. For additional disclosure about such investments, see “Net Asset Value Measurements” herein.

Detail of Loans and Lending Commitments at Fair Value


$ in millions	At March 31, 2021		At December 31, 2020
Corporate	$	14	$	13
Secured lending facilities	914		648
Commercial Real Estate	347		916
Residential Real Estate	2,551		2,145
Securities-based lending and Other loans	8,863		7,426
Total	$	12,689	$	11,148

Unsettled Fair Value of Futures Contracts 1


$ in millions	At March 31, 2021		At December 31, 2020
Customer and other receivables, net	$	689	$	434

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 2020 Form 10-K. During the current quarter, there were no significant revisions made to the Firm’s valuation techniques.

Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis


	Three Months Ended March 31,
$ in millions	2021		2020
U.S. Treasury and agency securities
Beginning balance	$	9	$	22
Realized and unrealized gains (losses)	—		5
Purchases	12		85
Sales	( 9 )		( 21 )

Net transfers	—		8
Ending balance	$	12	$	99
Unrealized gains (losses)	$	—	$	5
Other sovereign government obligations
Beginning balance	$	268	$	5
Realized and unrealized gains (losses)	—		1
Purchases	15		10
Sales	( 256 )		—

Net transfers	( 10 )		1
Ending balance	$	17	$	17
Unrealized gains (losses)	$	—	$	1
State and municipal securities
Beginning balance	$	—	$	1





Ending balance	$	—	$	1
Unrealized gains (losses)	$	—	$	—
MABS
Beginning balance	$	322	$	438
Realized and unrealized gains (losses)	51		( 89 )
Purchases	144		158
Sales	( 103 )		( 140 )

Net transfers	( 40 )		116
Ending balance	$	374	$	483
Unrealized gains (losses)	$	( 2 )	$	( 92 )
Loans and lending commitments
Beginning balance	$	5,759	$	5,073
Realized and unrealized gains (losses)	( 26 )		( 102 )
Purchases and originations	1,833		1,952
Sales	( 2,060 )		( 529 )
Settlements	( 388 )		( 1,387 )
Net transfers 1	( 73 )		973
Ending balance	$	5,045	$	5,980
Unrealized gains (losses)	$	( 32 )	$	( 101 )


March 2021 Form 10-Q			40


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)


	Three Months Ended March 31,
$ in millions	2021		2020
Corporate and other debt
Beginning balance	$	3,435	$	1,396
Realized and unrealized gains (losses)	( 51 )		( 92 )
Purchases and originations	867		585
Sales	( 749 )		( 177 )
Settlements	( 255 )		—
Net transfers	72		( 4 )
Ending balance	$	3,319	$	1,708
Unrealized gains (losses)	$	2	$	( 90 )
Corporate equities
Beginning balance	$	86	$	97
Realized and unrealized gains (losses)	16		( 60 )
Purchases	25		22
Sales	( 46 )		( 40 )

Net transfers	33		127
Ending balance	$	114	$	146
Unrealized gains (losses)	$	18	$	( 54 )
Investments
Beginning balance	$	828	$	858
Realized and unrealized gains (losses)	6		( 63 )
Purchases	64		15
Sales	( 15 )		( 8 )

Net transfers	41		( 77 )
Ending balance	$	924	$	725
Unrealized gains (losses)	$	( 6 )	$	( 64 )
Investment securities —AFS
Beginning balance	$	2,804	$	—
Realized and unrealized gains (losses)	( 4 )		—

Sales	( 192 )		—

Net transfers 2	( 2,481 )		—
Ending balance	$	127	$	—
Unrealized gains (losses)	$	( 5 )	$	—
Securities purchased under agreements to resell
Beginning balance	$	3	$	—




Net transfers	( 3 )		—
Ending balance	$	—	$	—
Unrealized gains (losses)	$	—	$	—
Net derivatives: Interest rate
Beginning balance	$	682	$	777
Realized and unrealized gains (losses)	( 413 )		156
Purchases	31		61
Issuances	( 17 )		( 7 )
Settlements	83		( 42 )
Net transfers	325		( 72 )
Ending balance	$	691	$	873
Unrealized gains (losses)	$	( 403 )	$	111
Net derivatives: Credit
Beginning balance	$	49	$	124
Realized and unrealized gains (losses)	( 4 )		131
Purchases	19		26
Issuances	( 8 )		( 21 )
Settlements	( 72 )		( 24 )
Net transfers	( 66 )		( 38 )
Ending balance	$	( 82 )	$	198
Unrealized gains (losses)	$	( 13 )	$	123


	Three Months Ended March 31,
$ in millions	2021		2020
Net derivatives: Foreign exchange
Beginning balance	$	61	$	( 31 )
Realized and unrealized gains (losses)	( 236 )		( 62 )
Purchases	2		3
Issuances	( 4 )		( 8 )
Settlements	26		( 8 )
Net transfers	41		( 44 )
Ending balance	$	( 110 )	$	( 150 )
Unrealized gains (losses)	$	( 206 )	$	( 164 )
Net derivatives: Equity
Beginning balance	$	( 2,231 )	$	( 1,684 )
Realized and unrealized gains (losses)	63		635
Purchases	77		97
Issuances	( 297 )		( 144 )
Settlements	65		( 167 )
Net transfers	206		( 113 )
Ending balance	$	( 2,117 )	$	( 1,376 )
Unrealized gains (losses)	$	12	$	566
Net derivatives: Commodity and other
Beginning balance	$	1,709	$	1,612
Realized and unrealized gains (losses)	331		75
Purchases	7		3
Issuances	( 1 )		( 3 )
Settlements	( 131 )		157
Net transfers	29		5
Ending balance	$	1,944	$	1,849
Unrealized gains (losses)	$	215	$	22
Deposits
Beginning balance	$	126	$	179
Realized and unrealized losses (gains)	( 4 )		( 6 )

Issuances	11		12
Settlements	( 2 )		( 5 )
Net transfers	46		( 63 )
Ending balance	$	177	$	117
Unrealized losses (gains)	$	( 4 )	$	( 6 )
Nonderivative trading liabilities
Beginning balance	$	79	$	37
Realized and unrealized losses (gains)	( 9 )		( 43 )
Purchases	( 20 )		( 82 )
Sales	13		52

Net transfers	( 1 )		100
Ending balance	$	62	$	64
Unrealized losses (gains)	$	( 9 )	$	( 43 )
Securities sold under agreements to repurchase
Beginning balance	$	444	$	—
Realized and unrealized losses (gains)	( 2 )		—




Net transfers	( 1 )		—
Ending balance	$	441	$	—
Unrealized losses (gains)	$	( 2 )	$	—
Other secured financings
Beginning balance	$	516	$	109
Realized and unrealized losses (gains)	( 5 )		( 12 )

Issuances	370		2
Settlements	( 322 )		( 115 )
Net transfers	( 4 )		405
Ending balance	$	555	$	389
Unrealized losses (gains)	$	( 5 )	$	( 12 )


			41			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)


	Three Months Ended March 31,
$ in millions	2021		2020
Borrowings
Beginning balance	$	4,374	$	4,088
Realized and unrealized losses (gains)	( 118 )		( 897 )

Issuances	231		701
Settlements	( 316 )		( 234 )
Net transfers	91		340
Ending balance	$	4,262	$	3,998
Unrealized losses (gains)	$	( 116 )	$	( 895 )
Portion of Unrealized losses (gains) recorded in OCI—Change in net DVA	( 29 )		( 398 )

1. Net transfers in the prior year quarter included the transfer of $ 857 million of equity margin loans from Level 2 to Level 3 as the significance of the margin loan rate input increased as a result of reduced liquidity.

2. Net transfers in the current quarter reflect the transfer of certain 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 statements.

Additionally, in the previous tables, consolidations of VIEs are included in Purchases, and deconsolidations of VIEs are included in Settlements.

Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements

Valuation Techniques and Unobservable Inputs


	Balance / Range (Average 1 )
$ in millions, except inputs	At March 31, 2021		At December 31, 2020
Assets at Fair Value on a Recurring Basis



Other sovereign government obligations	$	17	$	268
Comparable pricing:
Bond price	N/M		106 points



MABS	$	374	$	322
Comparable pricing:
Bond price	0 to 80 points ( 51 points)		0 to 80 points ( 50 points)
Loans and lending commitments	$	5,045	$	5,759
Margin loan model:



Margin loan rate	1 % to 5 % ( 3 %)		1 % to 5 % ( 3 %)
Comparable pricing:
Loan price	75 to 102 points ( 98 points)		75 to 102 points ( 93 points)


	Balance / Range (Average 1 )
$ in millions, except inputs	At March 31, 2021		At December 31, 2020
Corporate and other debt	$	3,319	$	3,435
Comparable pricing:
Bond price	13 to 133 points ( 100 points)		10 to 133 points ( 101 points)
Discounted cash flow:
Recovery rate	40 % to 62 % ( 46 % / 40 %)		40 % to 62 % ( 46 % / 40 %)

Option model:
Equity volatility	18 % to 21 % ( 18 %)		18 % to 21 % ( 19 %)
Corporate equities	$	114	$	86
Comparable pricing:
Equity price	100 %		100 %
Investments	$	924	$	828
Discounted cash flow:
WACC	8 % to 17 % ( 15 %)		8 % to 18 % ( 15 %)
Exit multiple	8 to 17 times ( 12 times)		7 to 17 times ( 12 times)
Market approach:
EBITDA multiple	8 to 38 times ( 11 times)		8 to 32 times ( 11 times)
Comparable pricing:
Equity price	45 % to 100 % ( 99 %)		45 % to 100 % ( 99 %)
Investment securities —AFS	$	127	$	2,804
Comparable pricing:
Bond price	102 to 107 points ( 104 points)		97 to 107 points ( 101 points)
Net derivative and other contracts:
Interest rate	$	691	$	682
Option model:
IR volatility skew	23 % to 111 % ( 61 % / 60 %)		0 % to 349 % ( 62 % / 59 %)
IR curve correlation	74 % to 98 % ( 84 % / 85 %)		54 % to 99 % ( 87 % / 89 %)
Bond volatility	3 % to 24 % ( 12 % / 8 %)		6 % to 24 % ( 13 % / 13 %)
Inflation volatility	25 % to 66 % ( 45 % / 43 %)		25 % to 66 % ( 45 % / 43 %)
IR curve	1 %		1 %
Credit	$	( 82 )	$	49
Credit default swap model:
Cash-synthetic basis	7 points		7 points
Bond price	0 to 85 points ( 45 points)		0 to 85 points ( 47 points)
Credit spread	14 to 439 bps ( 68 bps)		20 to 435 bps ( 74 bps)
Funding spread	21 to 134 bps ( 61 bps)		65 to 118 bps ( 86 bps)
Correlation model:
Credit correlation	29 % to 47 % ( 35 %)		27 % to 44 % ( 32 %)
Foreign exchange 2	$	( 110 )	$	61
Option model:
IR - FX correlation	54 % to 58 % ( 55 % 55 %)		55 % to 59 % ( 56 % / 56 %)
IR volatility skew	23 % to 111 % ( 61 % / 60 %)		0 % to 349 % ( 62 % / 59 %)
IR curve	5 % to 7 % ( 6 % / 7 %)		6 % to 8 % ( 7 % / 8 %)
Foreign exchange volatility skew	- 7 % to - 3 % (- 5 % / - 5 %)		- 22 % to 28 % ( 3 % / 1 %)
Contingency probability	90 % to 95 % ( 94 % / 95 %)		50 % to 95 % ( 83 % / 93 %)
Equity 2	$	( 2,117 )	$	( 2,231 )
Option model:
Equity volatility	15 % to 93 % ( 39 %)		16 % to 97 % ( 43 %)
Equity volatility skew	- 3 % to 0 % (- 1 %)		- 3 % to 0 % (- 1 %)
Equity correlation	35 % to 92 % ( 65 %)		24 % to 96 % ( 74 %)
FX correlation	- 79 % to 60 % (- 22 %)		- 79 % to 60 % (- 16 %)
IR correlation	18 % to 40 % ( 20 %)		- 13 % to 47 % ( 21 % / 20 %)


March 2021 Form 10-Q			42


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)


	Balance / Range (Average 1 )
$ in millions, except inputs	At March 31, 2021		At December 31, 2020
Commodity and other	$	1,944	$	1,709
Option model:
Forward power price	$- 2 to $ 226 ($ 29 ) per MWh		$- 1 to $ 157 ($ 28 ) per MWh
Commodity volatility	8 % to 76 % ( 18 %)		8 % to 183 % ( 19 %)
Cross-commodity correlation	43 % to 99 % ( 93 %)		43 % to 99 % ( 92 %)
Liabilities Measured at Fair Value on a Recurring Basis
Deposits	$	177	$	126
Option model:
Equity volatility	7 % to 23 % ( 8 %)		7 % to 22 % ( 8 %)
Credit spreads	496 to 521 bps ( 508 )		N/A
Nonderivative trading liabilities —Corporate equities	$	49	$	63
Comparable pricing:
Equity price	100 %		100 %
Securities sold under agreements to repurchase	$	441	$	444
Discounted cash flow:
Funding spread	114 to 133 bps ( 129 bps)		107 to 127 bps ( 115 bps)
Other secured financings	$	555	$	516
Discounted cash flow:
Funding spread	98 bps ( 98 bps)		111 bps ( 111 bps)
Comparable pricing:
Loan price	30 to 101 points ( 83 points)		30 to 101 points ( 56 points)



Borrowings	$	4,262	$	4,374
Option model:
Equity volatility	7 % to 53 % ( 22 %)		6 % to 66 % ( 23 %)
Equity volatility skew	- 5 % to 0 % ( 0 %)		- 2 % to 0 % ( 0 %)
Equity correlation	40 % to 98 % ( 80 %)		37 % to 95 % ( 78 %)
Equity - FX correlation	- 72 % to 5 % (- 36 %)		- 72 % to 13 % (- 24 %)

IR FX Correlation	- 28 % to 7 % (- 5 % / - 5 %)		- 28 % to 6 % (- 6 % / - 6 %)
Nonrecurring Fair Value Measurement
Loans	$	1,149	$	3,134
Corporate loan model:
Credit spread	114 to 433 bps ( 257 bps)		36 to 636 bps ( 336 bps)
Comparable pricing:
Loan price	47 to 88 bps ( 66 bps)		N/M
Warehouse model:
Credit spread	163 to 336 bps ( 288 bps)		200 to 413 bps ( 368 bps)
Comparable pricing:
Bond Price	N/A		88 to 99 bps ( 94 bps)

Points—Percentage of par

IR—Interest rate

FX—Foreign exchange

1. A single amount is disclosed for range and average when there is no significant difference between the minimum, maximum and average. Amounts represent weighted averages except where simple averages and the median of the inputs are more relevant.

2. Includes derivative contracts with multiple risks (i.e., hybrid products).

The previous tables provide 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 2020 Form 10-K. During the current quarter, there were no significant revisions made to the descriptions of the Firm’s significant unobservable inputs.

Net Asset Value Measurements

Fund Interests


	At March 31, 2021				At December 31, 2020
$ in millions	Carrying Value		Commitment		Carrying Value		Commitment
Private equity	$	2,286	$	630	$	2,367	$	644
Real estate	1,467		212		1,403		136
Hedge 1	64		—		59		—
Total	$	3,817	$	842	$	3,829	$	780

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 fees 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 2020 Form 10-K.

See Note 14 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received. See Note 20 for information regarding unrealized carried interest at risk of reversal.

Nonredeemable Funds by Contractual Maturity


	Carrying Value at March 31, 2021
$ in millions	Private Equity		Real Estate
Less than 5 years	$	1,340	$	413
5-10 years	795		395
Over 10 years	151		659
Total	$	2,286	$	1,467


			43			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Nonrecurring Fair Value Measurements

Carrying and Fair Values


	At March 31, 2021
	Fair Value
$ in millions	Level 2		Level 3 1		Total
Assets
Loans	$	3,765	$	1,149	$	4,914

Intangibles	—		36		36
Other assets—Other investments	—		82		82

Total	$	3,765	$	1,267	$	5,032
Liabilities
Other liabilities and accrued expenses—Lending commitments	$	150	$	66	$	216
Total	$	150	$	66	$	216


	At December 31, 2020
	Fair Value
$ in millions	Level 2		Level 3 1		Total
Assets
Loans	$	2,566	$	3,134	$	5,700
Other assets—Other investments	$	—	$	16	$	16
Other assets—ROU assets	21		—		21
Total	$	2,587	$	3,150	$	5,737
Liabilities
Other liabilities and accrued expenses—Lending commitments	$	193	$	72	$	265
Total	$	193	$	72	$	265

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 Fair Value Remeasurements 1


	Three Months Ended March 31,
$ in millions	2021		2020
Assets
Loans 2	$	( 13 )	$	( 713 )
Goodwill	( 8 )		—
Intangibles	( 2 )		—
Other assets—Other investments 3	( 51 )		—
Other assets—Premises, equipment and software 4	( 2 )		( 3 )
Total	$	( 76 )	$	( 716 )
Liabilities
Other liabilities and accrued expenses—Lending commitments 2	$	4	$	( 316 )
Total	$	4	$	( 316 )

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 were 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.

4. Losses related to Other assets—Premises, equipment and software generally include impairments as well as write-offs related to the disposal of certain assets.

Financial Instruments Not Measured at Fair Value


	At March 31, 2021
	Carrying Value		Fair Value
$ in millions			Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	118,118	$	118,118	$	—	$	—	$	118,118
Investment securities—HTM	83,918		30,799		52,381		919		84,099
Securities purchased under agreements to resell	114,712		—		113,033		1,693		114,726
Securities borrowed	102,149		—		102,149		—		102,149
Customer and other receivables 1	108,440		—		105,315		3,033		108,348
Loans 2	159,123		—		26,419		133,977		160,396
Other assets	486		—		486		—		486
Financial liabilities
Deposits	$	320,069	$	—	$	320,419	$	—	$	320,419
Securities sold under agreements to repurchase	53,535		—		53,577		—		53,577
Securities loaned	8,426		—		8,428		—		8,428
Other secured financings	4,412		—		4,413		—		4,413
Customer and other payables 1	227,239		—		227,239		—		227,239
Borrowings	141,804		—		147,824		5		147,829
	Commitment Amount
Lending commitments 3	$	129,629	$	—	$	683	$	340	$	1,023


	At December 31, 2020
	Carrying Value		Fair Value
$ in millions			Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	105,654	$	105,654	$	—	$	—	$	105,654
Investment securities—HTM	71,771		31,239		42,281		900		74,420
Securities purchased under agreements to resell	116,219		—		114,046		2,173		116,219
Securities borrowed	112,391		—		112,392		—		112,392
Customer and other receivables 1	92,907		—		89,832		3,041		92,873
Loans 2	150,597		—		16,635		135,277		151,912
Other assets	485		—		485		—		485
Financial liabilities
Deposits	$	307,261	$	—	$	307,807	$	—	$	307,807
Securities sold under agreements to repurchase	49,472		—		49,315		195		49,510
Securities loaned	7,731		—		7,731		—		7,731
Other secured financings	4,162		—		4,162		—		4,162
Customer and other payables 1	224,951		—		224,951		—		224,951
Borrowings	143,378		—		150,824		5		150,829
	Commitment Amount
Lending commitments 3	$	125,498	$	—	$	709	$	395	$	1,104

1. Accrued interest and dividend receivables and payables have been excluded. Carrying value approximates fair value for these receivables and payables.

2. Amounts include loans measured at fair value on a nonrecurring basis.

3. Represents Lending commitments accounted for as Held for Investment and Held for Sale. For a further discussion on lending commitments, see Note 14.


March 2021 Form 10-Q			44


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

The previous tables exclude certain financial instruments such as equity method investments and all non-financial assets and liabilities such as the value of the long-term relationships with the Firm’s deposit customers.

6. Fair Value Option

The Firm has elected the fair value option for certain eligible instruments that are risk managed on a fair value basis to mitigate income statement volatility caused by measurement basis differences between the elected instruments and their associated risk management transactions or to eliminate complexities of applying certain accounting models.

Borrowings Measured at Fair Value on a Recurring Basis


$ in millions	At March 31, 2021		At December 31, 2020
Business Unit Responsible for Risk Management
Equity	$	36,687	$	33,952
Interest rates	28,719		31,222
Commodities	4,948		5,078
Credit	1,235		1,344
Foreign exchange	2,433		2,105
Total	$	74,022	$	73,701

Net Revenues from Borrowings under the Fair Value Option


	Three Months Ended March 31,
$ in millions	2021		2020
Trading revenues	$	2,485	$	3,447
Interest expense	73		83
Net revenues 1	$	2,412	$	3,364

1. Amounts do not reflect any gains or losses from related economic hedges.

Gains (losses) from changes in fair value are recorded in Trading revenues and are mainly attributable to movements in the reference price or index, interest rates or foreign exchange rates.

Gains (Losses) Due to Changes in Instrument-Specific Credit Risk


	Three Months Ended March 31,
	2021				2020
$ in millions	Trading Revenues		OCI		Trading Revenues		OCI
Loans and other debt 1	$	158	$	—	$	( 281 )	$	—
Lending commitments	—		—		2		—
Deposits	—		( 1 )		—		72
Borrowings	( 17 )		185		( 5 )		4,948


$ in millions	At March 31, 2021		At December 31, 2020
Cumulative pre-tax DVA gain (loss) recognized in AOCI	$	( 3,173 )	$	( 3,357 )

1. Loans and other debt instrument-specific credit gains (losses) were determined by excluding the non-credit components of gains and losses.

Difference Between Contractual Principal and Fair Value 1


$ in millions	At March 31, 2021		At December 31, 2020
Loans and other debt 2	$	13,124	$	14,042
Nonaccrual loans 2	10,890		11,551
Borrowings 3	( 1,853 )		( 3,773 )

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 debt relates to distressed debt positions purchased at amounts well below par.

3. Excludes borrowings where the repayment of the initial principal amount fluctuates based on changes in a reference price or index.

The previous tables exclude non-recourse debt from consolidated VIEs, liabilities related to transfers of financial assets treated as collateralized financings, pledged commodities and other liabilities that have specified assets attributable to them.

Fair Value Loans on Nonaccrual Status


$ in millions	At March 31, 2021		At December 31, 2020
Nonaccrual loans	$	1,158	$	1,407
Nonaccrual loans 90 or more days past due	$	192	$	239

7. Derivative Instruments and Hedging Activities

Fair Values of Derivative Contracts


	Assets at March 31, 2021
$ in millions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	449	$	24	$	—	$	473
Foreign exchange	314		10		—		324
Total	763		34		—		797
Not designated as accounting hedges
Economic loan hedges
Credit	1		25		—		26
Other derivatives
Interest rate	180,315		9,460		459		190,234
Credit	5,572		3,856		—		9,428
Foreign exchange	81,019		1,615		62		82,696
Equity	32,417		—		35,498		67,915
Commodity and other	12,902		—		3,701		16,603
Total	312,226		14,956		39,720		366,902
Total gross derivatives	$	312,989	$	14,990	$	39,720	$	367,699
Amounts offset
Counterparty netting	( 230,463 )		( 13,140 )		( 36,466 )		( 280,069 )
Cash collateral netting	( 45,005 )		( 1,774 )		( 1 )		( 46,780 )
Total in Trading assets	$	37,521	$	76	$	3,253	$	40,850
Amounts not offset 1
Financial instruments collateral	( 14,142 )		—		—		( 14,142 )
Other cash collateral	( 413 )		—		—		( 413 )
Net amounts	$	22,966	$	76	$	3,253	$	26,295
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable							$	5,039


			45			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)


	Liabilities at March 31, 2021
$ in millions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	—	$	6	$	—	$	6
Foreign exchange	3		40		—		43
Total	3		46		—		49
Not designated as accounting hedges
Economic loan hedges
Credit	20		242		—		262
Other derivatives
Interest rate	166,601		8,935		687		176,223
Credit	5,553		4,309		—		9,862
Foreign exchange	77,495		1,483		42		79,020
Equity	47,147		—		37,556		84,703
Commodity and other	10,563		—		3,635		14,198
Total	307,379		14,969		41,920		364,268
Total gross derivatives	$	307,382	$	15,015	$	41,920	$	364,317
Amounts offset
Counterparty netting	( 230,463 )		( 13,140 )		( 36,466 )		( 280,069 )
Cash collateral netting	( 43,611 )		( 851 )		—		( 44,462 )
Total in Trading liabilities	$	33,308	$	1,024	$	5,454	$	39,786
Amounts not offset 1
Financial instruments collateral	( 6,818 )		—		( 2,113 )		( 8,931 )
Other cash collateral	( 25 )		( 5 )		—		( 30 )
Net amounts	$	26,465	$	1,019	$	3,341	$	30,825
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable							7,637


	Assets at December 31, 2020
$ in millions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	946	$	2	$	—	$	948
Foreign exchange	5		2		—		7
Total	951		4		—		955
Not designated as accounting hedges
Economic loan hedges
Credit 1	2		51		—		53
Other derivatives
Interest rate	221,895		10,343		300		232,538
Credit 1	5,341		2,147		—		7,488
Foreign exchange	92,334		1,639		79		94,052
Equity	34,278		—		34,166		68,444
Commodity and other	11,095		—		3,554		14,649
Total	364,945		14,180		38,099		417,224
Total gross derivatives	$	365,896	$	14,184	$	38,099	$	418,179
Amounts offset
Counterparty netting	( 276,682 )		( 11,601 )		( 35,260 )		( 323,543 )
Cash collateral netting	( 54,921 )		( 1,865 )		—		( 56,786 )
Total in Trading assets	$	34,293	$	718	$	2,839	$	37,850
Amounts not offset 2
Financial instruments collateral	( 13,319 )		—		—		( 13,319 )
Other cash collateral	( 391 )		—		—		( 391 )
Net amounts	$	20,583	$	718	$	2,839	$	24,140
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable							$	3,743


	Liabilities at December 31, 2020
$ in millions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	—	$	19	$	—	$	19
Foreign exchange	291		99		—		390
Total	291		118		—		409
Not designated as accounting hedges
Economic loan hedges
Credit 1	18		177		—		195
Other derivatives
Interest rate	210,015		7,965		639		218,619
Credit 1	5,275		2,682		—		7,957
Foreign exchange	92,975		1,500		43		94,518
Equity	49,943		—		36,585		86,528
Commodity and other	8,831		—		3,359		12,190
Total	367,057		12,324		40,626		420,007
Total gross derivatives	$	367,348	$	12,442	$	40,626	$	420,416
Amounts offset
Counterparty netting	( 276,682 )		( 11,601 )		( 35,260 )		( 323,543 )
Cash collateral netting	( 51,112 )		( 823 )		—		( 51,935 )
Total in Trading liabilities	$	39,554	$	18	$	5,366	$	44,938
Amounts not offset 2
Financial instruments collateral	( 10,598 )		—		( 1,520 )		( 12,118 )
Other cash collateral	( 62 )		( 3 )		—		( 65 )
Net amounts	$	28,894	$	15	$	3,846	$	32,755
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable							$	6,746

1. Certain prior period amounts have been reclassified to conform to the current presentation.

2. 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 5 for information related to the unsettled fair value of futures contracts not designated as accounting hedges, which are excluded from the previous tables.

Notionals of Derivative Contracts


	Assets at March 31, 2021
$ in billions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	4	$	117	$	—	$	121
Foreign exchange	12		1		—		13
Total	16		118		—		134
Not designated as accounting hedges
Economic loan hedges
Credit	—		—		—		—
Other derivatives
Interest rate	4,292		7,562		606		12,460
Credit	198		134		—		332
Foreign exchange	3,479		101		7		3,587
Equity	453		—		402		855
Commodity and other	119		—		74		193
Total	8,541		7,797		1,089		17,427
Total gross derivatives	$	8,557	$	7,915	$	1,089	$	17,561


March 2021 Form 10-Q			46


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)


	Liabilities at March 31, 2021
$ in billions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	—	$	86	$	—	$	86
Foreign exchange	1		2		—		3
Total	1		88		—		89
Not designated as accounting hedges
Economic loan hedges
Credit	1		7		—		8
Other derivatives
Interest rate	4,361		7,366		625		12,352
Credit	200		136		—		336
Foreign exchange	3,544		98		10		3,652
Equity	527		—		664		1,191
Commodity and other	102		—		78		180
Total	8,735		7,607		1,377		17,719
Total gross derivatives	$	8,736	$	7,695	$	1,377	$	17,808


	Assets at December 31, 2020
$ in billions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	6	$	123	$	—	$	129
Foreign exchange	2		—		—		2
Total	8		123		—		131
Not designated as accounting hedges
Economic loan hedges
Credit 1	—		1		—		1
Other derivatives
Interest rate	3,847		6,946		409		11,202
Credit 1	140		87		—		227
Foreign exchange	3,046		103		10		3,159
Equity	444		—		367		811
Commodity and other	107		—		68		175
Total	7,584		7,137		854		15,575
Total gross derivatives	$	7,592	$	7,260	$	854	$	15,706


	Liabilities at December 31, 2020
$ in billions	Bilateral OTC		Cleared OTC		Exchange- Traded		Total
Designated as accounting hedges
Interest rate	$	—	$	80	$	—	$	80
Foreign exchange	11		3		—		14
Total	11		83		—		94
Not designated as accounting hedges
Economic loan hedges
Credit 1	1		5		—		6
Other derivatives
Interest rate	4,000		6,915		511		11,426
Credit 1	142		93		—		235
Foreign exchange	3,180		102		11		3,293
Equity	474		—		591		1,065
Commodity and other	93		—		68		161
Total	7,890		7,115		1,181		16,186
Total gross derivatives	$	7,901	$	7,198	$	1,181	$	16,280

1. Certain prior period amounts have been reclassified to conform to the current presentation.

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 2020 Form 10-K.

Gains (Losses) on Accounting Hedges


	Three Months Ended
	March 31,
$ in millions		2021		2020
Fair value hedges—Recognized in Interest income
Interest rate contracts		$	831	$	( 64 )
Investment Securities—AFS		( 772 )		65
Fair value hedges—Recognized in Interest expense
Interest rate contracts		$	( 4,108 )	$	6,667
Deposits		36		( 261 )
Borrowings		4,021		( 6,432 )
Net investment hedges—Foreign exchange contracts
Recognized in OCI		$	405	$	410
Forward points excluded from hedge effectiveness testing—Recognized in Interest income		1		33

Fair Value Hedges—Hedged Items


$ in millions	At March 31, 2021		At December 31, 2020
Investment Securities—AFS
Amortized cost basis currently or previously hedged	$	20,960	$	16,288
Basis adjustments included in amortized cost 1	$	( 767 )	$	( 39 )
Deposits
Carrying amount currently or previously hedged	$	8,808	$	15,059
Basis adjustments included in carrying amount 1	$	57	$	93
Borrowings
Carrying amount currently or previously hedged	$	109,974	$	114,349
Basis adjustments included in carrying amount — Outstanding hedges	$	2,523	$	6,575
Basis adjustments included in carrying amount — Terminated hedges	$	( 764 )	$	( 756 )

1. Hedge accounting basis adjustments are primarily related to outstanding hedges.

Economic Loan Hedges


	Three Months Ended
	March 31,
$ in millions		2021		2020
Recognized in Other Revenues
Credit contracts 1		$	( 105 )	$	255

1. Amounts related to hedges of certain held-for-investment and held-for-sale loans,

Net Derivative Liabilities and Collateral Posted


$ in millions	At March 31, 2021		At December 31, 2020
Net derivative liabilities with credit risk-related contingent features	$	26,188	$	30,421
Collateral posted	13,954		23,842


			47			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

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 March 31, 2021
One-notch downgrade	$	231
Two-notch downgrade	242
Bilateral downgrade agreements included in the amounts above 1	$	336

1. Amount represents arrangements between the Firm and other parties where upon the downgrade of one party, the downgraded party must deliver collateral to the other party. These bilateral downgrade arrangements are used by the Firm to manage the risk of counterparty downgrades.

The additional collateral or termination payments that may be called in the event of a future credit rating downgrade vary by contract and can be based on ratings by either or both of Moody’s Investors Service, Inc. and S&P Global Ratings. The previous table shows the future potential collateral amounts and termination payments that could be called or required by counterparties or exchange and clearing organizations in the event of one-notch or two-notch downgrade scenarios based on the relevant contractual downgrade triggers.

Maximum Potential Payout/Notional of Credit Protection Sold 1


	Years to Maturity at March 31, 2021
$ in billions	< 1		1-3		3-5		Over 5		Total
Single-name CDS
Investment grade	$	10	$	20	$	32	$	14	$	76
Non-investment grade	7		10		17		6		40
Total	$	17	$	30	$	49	$	20	$	116
Index and basket CDS
Investment grade	$	2	$	6	$	86	$	45	$	139
Non-investment grade	6		7		38		21		72
Total	$	8	$	13	$	124	$	66	$	211
Total CDS sold	$	25	$	43	$	173	$	86	$	327
Other credit contracts	—		—		—		—		—
Total credit protection sold	$	25	$	43	$	173	$	86	$	327
CDS protection sold with identical protection purchased									$	282


	Years to Maturity at December 31, 2020
$ in billions	< 1		1-3		3-5		Over 5		Total
Single-name CDS
Investment grade	$	9	$	19	$	32	$	9	$	69
Non-investment grade	7		10		17		2		36
Total	$	16	$	29	$	49	$	11	$	105
Index and basket CDS
Investment grade	$	2	$	5	$	39	$	14	$	60
Non-investment grade	6		9		29		14		58
Total	$	8	$	14	$	68	$	28	$	118
Total CDS sold	$	24	$	43	$	117	$	39	$	223
Other credit contracts	—		—		—		—		—
Total credit protection sold	$	24	$	43	$	117	$	39	$	223
CDS protection sold with identical protection purchased									$	196

Fair Value Asset (Liability) of Credit Protection Sold 1


$ in millions	At March 31, 2021		At December 31, 2020
Single-name CDS
Investment grade	$	1,447	$	1,230
Non-investment grade	( 319 )		( 22 )
Total	$	1,128	$	1,208
Index and basket CDS
Investment grade	$	1,617	$	843
Non-investment grade	( 407 )		( 824 )
Total	$	1,210	$	19
Total CDS sold	$	2,338	$	1,227
Other credit contracts	( 3 )		( 4 )
Total credit protection sold	$	2,335	$	1,223

1. Investment grade/non-investment grade determination is based on the internal credit rating of the reference obligation. Internal credit ratings serve as the Credit Risk Management Department’s assessment of credit risk and the basis for a comprehensive credit limits framework used to control credit risk. The Firm uses quantitative models and judgment to estimate the various risk parameters related to each obligor.

Protection Purchased with CDS


	Notional
$ in billions	At March 31, 2021		At December 31, 2020
Single name	$	126	$	116
Index and basket	208		116
Tranched index and basket	15		14
Total	$	349	$	246


	Fair Value Asset (Liability)
$ in millions	At March 31, 2021		At December 31, 2020
Single name	$	( 1,460 )	$	( 1,452 )
Index and basket	( 1,187 )		( 57 )
Tranched index and basket	( 361 )		( 329 )
Total	$	( 3,008 )	$	( 1,838 )

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 contracts, see Note 7 to the financial statements in the 2020 Form 10-K.


March 2021 Form 10-Q			48


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

8. Investment Securities

AFS and HTM Securities


	At March 31, 2021
$ in millions	Amortized Cost 1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
AFS securities

U.S. Treasury securities	$	49,661	$	751	$	40	$	50,372
U.S. agency securities 2	32,563		473		210		32,826


Agency CMBS	17,621		370		92		17,899

Corporate bonds	1,651		33		1		1,683
State and municipal securities	178		33		—		211
FFELP student loan ABS 3	1,966		12		11		1,967
Other ABS	330		—		—		330

Total AFS securities	103,970		1,672		354		105,288
HTM securities

U.S. Treasury securities	29,687		1,181		69		30,799
U.S. agency securities 2	50,798		322		1,237		49,883


Agency CMBS	2,540		—		42		2,498
Non-agency CMBS	893		31		5		919
Total HTM securities	83,918		1,534		1,353		84,099
Total investment securities	$	187,888	$	3,206	$	1,707	$	189,387


	At December 31, 2020
$ in millions	Amortized Cost 1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
AFS securities

U.S. Treasury securities	$	45,345	$	1,010	$	—	$	46,355
U.S. agency securities 2	37,389		762		25		38,126


Agency CMBS	19,982		465		9		20,438

Corporate bonds	1,694		42		—		1,736
State and municipal securities	1,461		103		1		1,563
FFELP student loan ABS 3	1,735		7		26		1,716
Other ABS	449		—		—		449

Total AFS securities	108,055		2,389		61		110,383
HTM securities

U.S. Treasury securities	29,346		1,893		—		31,239
U.S. agency securities 2	38,951		704		8		39,647


Agency CMBS	2,632		4		2		2,634
Non-agency CMBS	842		58		—		900

Total HTM securities	71,771		2,659		10		74,420
Total investment securities	$	179,826	$	5,048	$	71	$	184,803

1. Amounts are net of any ACL.

2. U.S. agency securities consist mainly of agency-issued debt, agency mortgage pass-through pool securities and CMOs.

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.

Investment Securities in an Unrealized Loss Position


	At March 31, 2021				At December 31, 2020
$ in millions	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses

U.S. Treasury securities
Less than 12 months	$	12,312	$	40	$	151	$	—

Total	12,312		40		151		—
U.S. agency securities
Less than 12 months	10,657		208		5,808		22
12 months or longer	994		2		1,168		3
Total	11,651		210		6,976		25





Agency CMBS
Less than 12 months	3,924		92		2,779		9
12 months or longer	45		—		46		—
Total	3,969		92		2,825		9




Corporate bonds
Less than 12 months	52		1		—		—
12 months or longer	10		—		31		—
Total	62		1		31		—
State and municipal securities
Less than 12 months	14		—		86		—
12 months or longer	—		—		36		1
Total	14		—		122		1
FFELP student loan ABS
Less than 12 months	243		—		—		—
12 months or longer	889		11		1,077		26
Total	1,132		11		1,077		26








Total AFS securities in an unrealized loss position
Less than 12 months	27,202		341		8,824		31
12 months or longer	1,938		13		2,358		30
Total	$	29,140	$	354	$	11,182	$	61

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 2020 Form 10-K. Additionally, the Firm does not intend to sell the securities and is not likely to be required to sell the securities prior to recovery of the amortized cost basis. Furthermore, the securities have not experienced credit losses as they are predominantly investment grade and the Firm expects to recover the amortized cost basis.

The HTM securities net carrying amounts at March 31, 2021 and December 31, 2020 reflect ACL of $ 24 million and $ 26 million, respectively, related to Non-agency CMBS. See Note 2 in the 2020 Form 10-K for a description of the ACL methodology used beginning in 2020 following the Firm’s adoption of CECL. As of March 31, 2021, and December 31, 2020, Non-Agency CMBS HTM securities were predominantly on accrual status and investment grade.

See Note 15 for additional information on securities issued by VIEs, including U.S. agency mortgage-backed securities, non-agency CMBS, FFELP student loan ABS and other ABS.


			49			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Investment Securities by Contractual Maturity


	At March 31, 2021
$ in millions	Amortized Cost 1		Fair Value		Annualized Average Yield
AFS securities

U.S. Treasury securities:
Due within 1 year	$	12,458	$	12,530	1.2	%
After 1 year through 5 years	24,474		25,043		1.4	%
After 5 years through 10 years	12,729		12,799		1.0	%

Total	49,661		50,372
U.S. agency securities:
Due within 1 year	3		3		1.5	%
After 1 year through 5 years	142		146		1.5	%
After 5 years through 10 years	1,314		1,347		1.8	%
After 10 years	31,104		31,330		1.6	%
Total	32,563		32,826


Agency CMBS:
Due within 1 year	65		65		2.0	%
After 1 year through 5 years	948		964		1.3	%
After 5 years through 10 years	12,812		13,123		1.5	%
After 10 years	3,796		3,747		1.2	%
Total	17,621		17,899






Corporate bonds:
Due within 1 year	397		400		2.4	%
After 1 year through 5 years	1,147		1,174		2.7	%
After 5 years through 10 years	97		99		2.2	%
After 10 years	10		10		1.6	%
Total	1,651		1,683
State and municipal securities:
Due within 1 year	3		3		1.8	%
After 1 year through 5 years	16		17		2.2	%
After 5 years through 10 years	24		33		2.4	%
After 10 Years	135		158		4.4	%
Total	178		211
FFELP student loan ABS:
Due within 1 year	33		32		0.8	%
After 1 year through 5 years	73		72		0.8	%
After 5 years through 10 years	216		212		0.8	%
After 10 years	1,644		1,651		1.1	%
Total	1,966		1,967
Other ABS:

After 1 year through 5 years	330		330		0.4	%


Total	330		330

Total AFS securities	103,970		105,288		1.4	%

HTM securities

U.S. Treasury securities:
Due within 1 year	3,148		3,184		2.0	%
After 1 year through 5 years	18,837		19,494		1.7	%
After 5 years through 10 years	6,322		6,740		2.3	%
After 10 years	1,380		1,381		2.2	%
Total	29,687		30,799
U.S. agency securities:


After 5 years through 10 years	601		620		2.0	%
After 10 years	50,197		49,263		1.7	%
Total	50,798		49,883


	At March 31, 2021
$ in millions	Amortized Cost 1		Fair Value		Annualized Average Yield
Agency CMBS:
Due within 1 year	21		21		2.4	%
After 1 year through 5 years	1,060		1,056		1.4	%
After 5 years through 10 years	1,216		1,191		1.2	%
After 10 years	243		230		1.5	%
Total	2,540		2,498
Non-agency CMBS:
Due within 1 year	153		153		4.5	%
After 1 year through 5 years	51		52		2.7	%
After 5 years through 10 years	633		656		3.7	%
After 10 years	56		58		4.0	%
Total	893		919

Total HTM securities	83,918		84,099		1.8	%
Total investment securities	$	187,888	$	189,387	1.6	%

1. Amounts are net of any ACL.

Gross Realized Gains (Losses) on Sales of AFS Securities


	Three Months Ended March 31,
$ in millions	2021		2020
Gross realized gains	$	145	$	49
Gross realized (losses)	( 11 )		( 8 )
Total 1	$	134	$	41

1. Realized gains and losses are recognized in Other revenues in the income statements.

9. Collateralized Transactions

Offsetting of Certain Collateralized Transactions


	At March 31, 2021
$ in millions	Gross Amounts		Amounts Offset		Balance Sheet Net Amounts		Amounts Not Offset 1		Net Amounts
Assets
Securities purchased under agreements to resell	$	215,594	$	( 100,873 )	$	114,721	$	( 111,166 )	$	3,555
Securities borrowed	113,488		( 11,339 )		102,149		( 98,254 )		3,895
Liabilities
Securities sold under agreements to repurchase	$	155,497	$	( 100,873 )	$	54,624	$	( 45,364 )	$	9,260
Securities loaned	19,765		( 11,339 )		8,426		( 8,187 )		239
Net amounts for which master netting agreements are not in place or may not be legally enforceable
Securities purchased under agreements to resell									$	3,203
Securities borrowed									591
Securities sold under agreements to repurchase									8,198
Securities loaned									159


March 2021 Form 10-Q			50


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)


	At December 31, 2020
$ in millions	Gross Amounts		Amounts Offset		Balance Sheet Net Amounts		Amounts Not Offset 1		Net Amounts
Assets
Securities purchased under agreements to resell	$	264,140	$	( 147,906 )	$	116,234	$	( 114,108 )	$	2,126
Securities borrowed	124,921		( 12,530 )		112,391		( 107,434 )		4,957
Liabilities
Securities sold under agreements to repurchase	$	198,493	$	( 147,906 )	$	50,587	$	( 43,960 )	$	6,627
Securities loaned	20,261		( 12,530 )		7,731		( 7,430 )		301
Net amounts for which master netting agreements are not in place or may not be legally enforceable
Securities purchased under agreements to resell									$	1,870
Securities borrowed									596
Securities sold under agreements to repurchase									6,282
Securities loaned									128

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 2020 Form 10-K. For information related to offsetting of derivatives, see Note 7.

Gross Secured Financing Balances by Remaining Contractual Maturity


	At March 31, 2021
$ in millions	Overnight and Open		Less than 30 Days		30-90 Days		Over 90 Days		Total
Securities sold under agreements to repurchase	$	52,398	$	49,603	$	14,078	$	39,418	$	155,497
Securities loaned	13,850		—		59		5,856		19,765
Total included in the offsetting disclosure	$	66,248	$	49,603	$	14,137	$	45,274	$	175,262
Trading liabilities— Obligation to return securities received as collateral	18,877		—		—		—		18,877
Total	$	85,125	$	49,603	$	14,137	$	45,274	$	194,139


	At December 31, 2020
$ in millions	Overnight and Open		Less than 30 Days		30-90 Days		Over 90 Days		Total
Securities sold under agreements to repurchase	$	84,349	$	60,853	$	26,221	$	27,070	$	198,493
Securities loaned	15,267		247		—		4,747		20,261
Total included in the offsetting disclosure	$	99,616	$	61,100	$	26,221	$	31,817	$	218,754
Trading liabilities— Obligation to return securities received as collateral	16,389		—		—		—		16,389
Total	$	116,005	$	61,100	$	26,221	$	31,817	$	235,143

Gross Secured Financing Balances by Class of Collateral Pledged


$ in millions	At March 31, 2021		At December 31, 2020
Securities sold under agreements to repurchase
U.S. Treasury and agency securities	$	50,124	$	94,662
Other sovereign government obligations	71,250		71,140
Corporate equities	22,618		24,692
Other	11,505		7,999
Total	$	155,497	$	198,493
Securities loaned
Other sovereign government obligations	$	2,642	$	3,430
Corporate equities	17,027		16,536
Other	96		295
Total	$	19,765	$	20,261
Total included in the offsetting disclosure	$	175,262	$	218,754
Trading liabilities—Obligation to return securities received as collateral
Corporate equities	$	18,859	$	16,365
Other	18		24
Total	$	18,877	$	16,389
Total	$	194,139	$	235,143

Carrying Value of Assets Loaned or Pledged without Counterparty Right to Sell or Repledge


$ in millions	At March 31, 2021		At December 31, 2020
Trading assets	$	36,872	$	30,954

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 sheets.

Fair Value of Collateral Received with Right to Sell or Repledge


$ in millions	At March 31, 2021		At December 31, 2020
Collateral received with right to sell or repledge	$	705,299	$	724,818
Collateral that was sold or repledged 1	535,192		523,648

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 for delivery to counterparties to cover short positions.


			51			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Securities Segregated for Regulatory Purposes


$ in millions	At March 31, 2021		At December 31, 2020
Segregated securities 1	$	31,143	$	34,106

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 sheets.

Customer Margin and Other Lending


$ in millions	At March 31, 2021		At December 31, 2020
Margin and other lending	$	82,544	$	74,714

The Firm provides margin lending arrangements that allow customers to borrow against the value of qualifying securities. Receivables under margin lending arrangements are included within Customer and other receivables in the balance sheets. Under these agreements and transactions, 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 2020 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 13.

10. Loans, Lending Commitments and Related Allowance for Credit Losses

Loans by Type


	At March 31, 2021
$ in millions	Loans Held for Investment		Loans Held for Sale		Total Loans
Corporate	$	5,185	$	11,824	$	17,009
Secured lending facilities	25,886		3,025		28,911
Commercial real estate	7,277		504		7,781
Residential real estate	36,843		51		36,894
Securities-based lending and Other loans	69,206		84		69,290
Total loans	144,397		15,488		159,885
ACL	( 762 )				( 762 )
Total loans, net	$	143,635	$	15,488	$	159,123
Fixed rate loans, net					$	35,153
Floating or adjustable rate loans, net					123,970
Loans to non-U.S. borrowers, net					22,518


	At December 31, 2020
$ in millions	Loans Held for Investment		Loans Held for Sale		Total Loans
Corporate	$	6,046	$	8,580	$	14,626
Secured lending facilities	25,727		3,296		29,023
Commercial real estate	7,346		822		8,168
Residential real estate	35,268		48		35,316
Securities-based lending and Other loans	64,232		67		64,299
Total loans	138,619		12,813		151,432
ACL	( 835 )				( 835 )
Total loans, net	$	137,784	$	12,813	$	150,597
Fixed rate loans, net					$	32,796
Floating or adjustable rate loans, net					117,801
Loans to non-U.S. borrowers, net					21,081

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 2020 Form 10-K.

Note 5 for further information regarding Loans and lending commitments held at fair value. See Note 14 for details of current commitments to lend in the future.

Loans Held for Investment before Allowance by Origination Year


	At March 31, 2021						At December 31, 2020
	Corporate
$ in millions	IG		NIG		Total		IG		NIG		Total
Revolving	$	1,432	$	2,721	$	4,153	$	1,138	$	3,231	$	4,369
2021	—		21		21
2020	184		25		209		585		80		665
2019	11		191		202		204		202		406
2018	195		—		195		195		—		195
2017	—		63		63		—		64		64
Prior	242		100		342		247		100		347
Total	$	2,064	$	3,121	$	5,185	$	2,369	$	3,677	$	6,046


	At March 31, 2021						At December 31, 2020
	Secured lending facilities
$ in millions	IG		NIG		Total		IG		NIG		Total
Revolving	$	5,356	$	14,141	$	19,497	$	4,711	$	14,510	$	19,221
2021	—		366		366
2020	123		216		339		162		253		415
2019	258		1,762		2,020		260		1,904		2,164
2018	587		1,335		1,922		614		1,432		2,046
2017	245		461		706		245		581		826
Prior	—		1,036		1,036		—		1,055		1,055
Total	$	6,569	$	19,317	$	25,886	$	5,992	$	19,735	$	25,727


	At March 31, 2021						At December 31, 2020
	Commercial real estate
$ in millions	IG		NIG		Total		IG		NIG		Total

2021	$	—	$	198	$	198
2020	135		969		1,104		$	95	$	943	$	1,038
2019	1,151		1,629		2,780		1,074		1,848		2,922
2018	704		780		1,484		746		774		1,520
2017	366		354		720		412		387		799
Prior	100		891		991		100		967		1,067
Total	$	2,456	$	4,821	$	7,277	$	2,427	$	4,919	$	7,346


March 2021 Form 10-Q			52


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)


	At March 31, 2021
	Residential real estate
	by FICO Scores						by LTV Ratio				Total
$ in millions	≥ 740		680-739		≤ 679		≤ 80%		> 80%
Revolving	$	73	$	32	$	5	$	110	$	—	$	110
2021	2,544		487		42		2,879		194		3,073
2020	8,790		1,806		145		10,170		571		10,741
2019	5,385		1,218		161		6,344		420		6,764
2018	2,208		573		73		2,624		230		2,854
2017	2,596		656		83		3,101		234		3,335
Prior	7,244		2,343		379		9,046		920		9,966
Total	$	28,840	$	7,115	$	888	$	34,274	$	2,569	$	36,843


	At December 31, 2020
	Residential real estate
	by FICO Scores						by LTV Ratio				Total
$ in millions	≥ 740		680-739		≤ 679		≤ 80%		> 80%
Revolving	$	85	$	32	$	5	$	122	$	—	$	122
2020	8,948		1,824		149		10,338		583		10,921
2019	5,592		1,265		168		6,584		441		7,025
2018	2,320		604		75		2,756		243		2,999
2017	2,721		690		89		3,251		249		3,500
2016	3,324		884		118		4,035		291		4,326
Prior	4,465		1,626		284		5,684		691		6,375
Total	$	27,455	$	6,925	$	888	$	32,770	$	2,498	$	35,268


	At March 31, 2021
	Securities-based lending 1		Other 2
$ in millions			Investment Grade		Non-Investment Grade		Total
Revolving	$	56,025	$	5,609	$	601	$	62,235
2021	—		53		19		72
2020	38		794		547		1,379
2019	17		1,141		637		1,795
2018	232		364		439		1,035
2017	—		645		135		780
Prior	16		1,570		324		1,910
Total	$	56,328	$	10,176	$	2,702	$	69,206


	December 31, 2020
	Securities-based lending 1		Other 2
$ in millions			Investment Grade		Non-Investment Grade		Total
Revolving	$	51,667	$	4,816	$	555	$	57,038
2020	—		1,073		590		1,663
2019	18		1,156		623		1,797
2018	232		407		403		1,042
2017	—		654		122		776
2016	—		566		111		677
Prior	16		1,066		157		1,239
Total	$	51,933	$	9,738	$	2,561	$	64,232

1. Securities-based loans are subject to collateral maintenance provisions, and at March 31, 2021 and December 31, 2020, 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 2020 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 Allowance 1



$ in millions	At March 31, 2021		At December 31, 2020



Residential real estate	$	240	$	332
Securities-based lending and Other loans	—		31
Total	$	240	$	363

1. The majority of the amounts are past due for a period of less than 90 days as of March 31, 2021 and December 31, 2020.

Nonaccrual Loans Held for Investment before Allowance


$ in millions	At March 31, 2021		At December 31, 2020
Corporate	$	149	$	164

Commercial real estate	84		152
Residential real estate	108		97
Securities-based lending and Other loans	164		178
Total 1	$	505	$	591
Nonaccrual loans without an ACL	$	99	$	90

1. Includes all HFI loans that are 90 days or more past due as of March 31, 2021 and December 31, 2020.

See Note 2 to the financial statements in the 2020 Form 10-K for a description of the ACL calculated under the CECL methodology, including credit quality indicators, used for HFI loans.

Troubled Debt Restructurings


$ in millions	At March 31, 2021		At December 31, 2020
Loans, before ACL	$	72	$	167
Lending commitments	—		27
ACL on Loans and Lending commitments	20		36

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 2020 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—Loans


$ in millions	Corporate		Secured lending facilities		CRE		Residential real estate		SBL and Other		Total
December 31, 2020	$	309	$	198	$	211	$	59	$	58	$	835
Gross charge-offs	( 1 )		—		( 9 )		—		—		( 10 )


Provision for credit losses	( 56 )		( 3 )		5		( 5 )		1		( 58 )
Other	( 2 )		( 2 )		( 1 )		—		—		( 5 )
March 31, 2021	$	250	$	193	$	206	$	54	$	59	$	762


$ in millions	Corporate		Secured lending facilities		CRE		Residential real estate		SBL and Other		Total
December 31, 2019	$	115	$	101	$	75	$	25	$	33	$	349
Effect of CECL adoption	( 2 )		( 42 )		34		21		( 2 )		9
Gross charge-offs	( 32 )		—		—		—		—		( 32 )


Provision for credit losses	177		29		66		1		19		292
Other	—		—		( 1 )		—		—		( 1 )
March 31, 2020	$	258	$	88	$	174	$	47	$	50	$	617


			53			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Allowance for Credit Losses Rollforward—Lending Commitments


$ in millions	Corporate		Secured lending facilities		CRE		Residential real estate		SBL and Other		Total
December 31, 2020	$	323	$	38	$	11	$	1	$	23	$	396
Provision for credit losses	( 33 )		( 4 )		( 2 )		—		( 1 )		( 40 )
Other	( 1 )		1		( 1 )		—		( 1 )		( 2 )
March 31, 2021	$	289	$	35	$	8	$	1	$	21	$	354


$ in millions	Corporate		Secured lending facilities		CRE		Residential real estate		SBL and Other		Total
December 31, 2019	$	201	$	27	$	7	$	—	$	6	$	241
Effect of CECL adoption	( 41 )		( 11 )		1		2		( 1 )		( 50 )
Provision for credit losses	91		16		5		—		3		115
Other	( 2 )		—		—		—		—		( 2 )
March 31, 2020	$	249	$	32	$	13	$	2	$	8	$	304

CRE—Commercial real estate

SBL—Securities-based lending

The aggregate allowance for loans and lending commitments decreased in the current quarter, primarily reflecting a release in the allowance for credit losses within the Institutional Securities business segment. The allowance release was primarily a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on Corporate loans, including by lower-rated borrowers.The base scenario used in our ACL models as of March 31, 2021 was generated using a combination of industry consensus economic forecasts, forward rates, and internally developed and validated models. Given the nature of our lending portfolio, the most sensitive model input is U.S. gross domestic product. The base scenario, among other things, assumes a continued recovery over the forecast period with U.S. GDP reaching pre-COVID-19 levels by the third quarter of 2021, supported by fiscal stimulus and accommodative monetary policy. 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 2020 Form 10-K.

Employee Loans


$ in millions	At March 31, 2021		At December 31, 2020
Currently employed by the Firm 1	$	3,152	$	3,100
No longer employed by the Firm 2	142		$	140
Employee loans	$	3,294	$	3,240
ACL 3	( 168 )		( 165 )
Employee loans, net of ACL	$	3,126	$	3,075
Remaining repayment term, weighted average in years	5.4		5.3

1. These loans were predominantly current as of March 31, 2021 and December 31, 2020.

2. These loans were predominantly past due for a period of 90 days or more as of March 31, 2021 and December 31, 2020.

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 sheets. The ACL as of March 31, 2021 and December 31, 2020 was calculated under the CECL methodology. The related provision is recorded in Compensation and benefits expense in the income statements. See Note 2 to the financial statements in the 2020 Form 10-K for a description of the CECL allowance methodology, including credit quality indicators, for employee loans.

11. Other Assets—Equity Method Investments

Equity Method Investments


$ in millions	At March 31, 2021		At December 31, 2020
Investments	$	2,264	$	2,410


	Three Months Ended March 31,
$ in millions		2021		2020
Income (loss)		$	( 24 )	$	29

Equity method investments, other than investments in certain fund interests, are summarized above and are included in Other assets in the balance sheets with related income or loss included in Other revenues in the income statements. See “Net Asset Value Measurements—Fund Interests” in Note 5 for the carrying value of certain of the Firm’s fund interests, which are comprised of general and limited partnership interests, as well as any related carried interest.

Japanese Securities Joint Venture


	Three Months Ended March 31,
$ in millions		2021		2020
Income from investment in MUMSS		$	32	$	32

For more information on Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (“MUMSS”) and other relationships with Mitsubishi UFJ Financial Group, Inc., see Note 12 to the financial statements in the 2020 Form 10-K.

12. Deposits

Deposits


$ in millions	At March 31, 2021		At December 31, 2020
Savings and demand deposits	$	298,987	$	279,221
Time deposits	24,151		31,561
Total	$	323,138	$	310,782
Deposits subject to FDIC insurance	$	243,214	$	234,211
Time deposits that equal or exceed the FDIC insurance limit	$	16	$	16


March 2021 Form 10-Q			54


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Time Deposit Maturities


$ in millions	At March 31, 2021
2021	$	10,697
2022	5,263
2023	4,088
2024	2,813
2025	770
Thereafter	520
Total	$	24,151

13 . Borrowings and Other Secured Financings

Borrowings


$ in millions	At March 31, 2021		At December 31, 2020
Original maturities of one year or less	$	7,559	$	3,691
Original maturities greater than one year
Senior	$	197,474	$	202,305
Subordinated	10,793		11,083
Total	$	208,267	$	213,388
Total borrowings	$	215,826	$	217,079
Weighted average stated maturity, in years 1	7.4		7.3

1. Only includes borrowings with original maturities greater than one year.

Other Secured Financings


$ in millions	At March 31, 2021		At December 31, 2020
Original maturities:
One year or less	$	4,613	$	10,453
Greater than one year	4,800		5,410
Total	$	9,413	$	15,863
Transfers of assets accounted for as secured financings	$	1,398	$	1,529

Other secured financings include the liabilities related to certain ELNs, transfers of financial assets that are accounted for as financings rather than sales, pledged commodities, consolidated VIEs where the Firm is deemed to be the primary beneficiary and other secured borrowings. These liabilities are generally payable from the cash flows of the related assets accounted for as Trading assets. See Note 15 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 sheets.

14. Commitments, Guarantees and Contingencies

Commitments


	Years to Maturity at March 31, 2021
$ in millions	Less than 1		1-3		3-5		Over 5		Total
Lending:
Corporate	$	16,895	$	38,987	$	40,975	$	6,091	$	102,948
Secured lending facilities	5,806		5,967		1,552		269		13,594
Commercial and Residential real estate	435		129		19		247		830
Securities-based lending and Other	11,348		3,229		259		509		15,345
Forward-starting secured financing receivables	73,016		—		—		—		73,016
Central counterparty	300		—		—		6,404		6,704
Underwriting	234		—		—		—		234
Investment activities	811		267		62		337		1,477
Letters of credit and other financial guarantees	30		—		—		3		33
Total	$	108,875	$	48,579	$	42,867	$	13,860	$	214,181
Lending commitments participated to third parties									$	8,703
Forward-starting secured financing receivables settled within three business days									$	61,198

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 2020 Form 10-K.

Guarantees


	At March 31, 2021
	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 derivatives 1	$	1,455,210	$	934,991	$	361,616	$	796,992	$	( 54,255 )
Standby letters of credit and other financial guarantees issued 2	1,368		1,189		681		3,648		70
Market value guarantees	82		23		—		—		—
Liquidity facilities	4,116		—		—		—		5
Whole loan sales guarantees	—		—		52		23,125		—
Securitization representations and warranties 3	—		—		—		68,451		( 42 )
General partner guarantees	231		136		32		124		( 59 )
Client clearing guarantees	51		—		—		—		—

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 7

2. These amounts include certain issued standby letters of credit participated to third parties, totaling $ 0.5 billion of notional and collateral/recourse, due to the nature of the Firm’s obligations under these arrangements. As of March 31, 2021, the carrying amount of standby letters of credit and other financial guarantees issued includes an allowance for credit losses of $ 73 million.

3. Primarily related to residential mortgage securitizations.


			55			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

The Firm has obligations under certain guarantee arrangements, including contracts and indemnification agreements, that contingently require the Firm to make payments to the guaranteed party based on changes in an underlying measure (such as an interest or foreign exchange rate, security or commodity price, an index, or the occurrence or non-occurrence of a specified event) related to an asset, liability or equity security of a guaranteed party. Also included as guarantees are contracts that contingently require the Firm to make payments to the guaranteed party based on another entity’s failure to perform under an agreement, as well as indirect guarantees of the indebtedness of others.

For more information on the nature of the obligations and related business activities for our guarantees, see Note 15 to the financial statements in the 2020 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 2020 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 matters described in the following paragraphs, in the normal course of business, the Firm has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases

are bankrupt or are in financial distress. These actions have included, but are not limited to, 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.

The Firm contests liability and/or the amount of damages as appropriate in each pending matter. Where available information indicates that it is probable a liability had been incurred at the date of the financial statements and the Firm can reasonably estimate the amount of that loss, the Firm accrues the estimated loss by a charge to income.

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 by addressing 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 matters referred to in the following paragraphs.

On September 23, 2014, Financial Guaranty Insurance Company (“FGIC”) filed a complaint against the Firm in the Supreme Court of the State of New York County (“Supreme Court of NY”) styled Financial Guaranty Insurance Company v. Morgan Stanley ABS Capital I Inc. et al . relating to the Morgan Stanley ABS Capital I Inc. Trust 2007-NC4. The complaint asserts claims for breach of contract and fraudulent inducement and alleges, among other things, that the loans in the trust breached various representations and


March 2021 Form 10-Q			56


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

warranties and defendants made untrue statements and material omissions to induce FGIC to issue a financial guaranty policy on certain classes of certificates that had an original balance of approximately $ 876 million. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, compensatory, consequential and punitive damages, attorneys’ fees, interest and costs. On January 23, 2017, the court denied the Firm’s motion to dismiss the complaint. On September 13, 2018, the Appellate Division, First Department (“First Department”) affirmed in part and reversed in part the lower court’s order denying the Firm’s motion to dismiss the complaint. On December 20, 2018, the First Department denied plaintiff’s motion for leave to appeal to the New York Court of Appeals (“Court of Appeals”) or, in the alternative, for re-argument. Based on currently available information, the Firm believes that it could incur a loss in this action of up to approximately $ 277 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands from a certificate holder and FGIC that the Firm did not repurchase, plus pre- and post- judgment interest, fees and costs, as well as claim payments that FGIC has made and will make in the future. In addition, plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.

On January 23, 2015, Deutsche Bank National Trust Company, in its capacity as trustee, filed a complaint against the Firm styled Deutsche Bank National Trust Company solely in its capacity as Trustee of the Morgan Stanley ABS Capital I Inc. Trust 2007-NC4 v. Morgan Stanley Mortgage Capital Holdings LLC as Successor-by-Merger to Morgan Stanley Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc. , pending in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $ 1.05 billion, breached various representations and warranties. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, compensatory, consequential, rescissory, equitable and punitive damages, attorneys’ fees, costs and other related expenses, and interest. On December 11, 2015, the court granted in part and denied in part the Firm’s motion to dismiss the complaint. On October 19, 2018, the court granted the Firm’s motion for leave to amend its answer and to stay the case pending resolution of Deutsche Bank National Trust Company’s appeal to the Court of Appeals in another case, styled Deutsche Bank National Trust Company v. Barclays Bank PLC , regarding the applicable statute of limitations. On January 17, 2019, the First Department reversed the trial court’s order to the extent that it had granted in part the Firm’s motion to dismiss the complaint. On June 4, 2019, the First Department granted the Firm’s motion for leave to appeal its January 17, 2019 decision to the Court of Appeals. On March 19, 2020, the Firm filed a motion for partial summary judgment. Based on currently available information, the Firm believes that it could incur a loss in this

action of up to approximately $ 277 million, the total original unpaid balance of the mortgage loans for which the Firm received repurchase demands from a certificate holder and a monoline insurer that the Firm did not repurchase, plus pre- and post-judgment interest, fees and costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.

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 $ 145 million) plus accrued interest of withholding tax credits against the Firm’s corporation tax liabilities for the tax years 2007 to 2013. The Dutch Authority alleges that the Firm was not entitled to receive the withholding tax credits on the basis, inter alia, that a Firm subsidiary did not hold legal title to certain securities subject to withholding tax on the relevant dates. The Dutch Authority has also alleged that the Firm failed to provide certain information to the Dutch Authority and 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 in matters re-styled Case number 15/3637 and Case number 15/4353 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 Tax Authority each responded to this opinion.

15. Variable Interest Entities and Securitization Activities

Consolidated VIE Assets and Liabilities by Type of Activity


	At March 31, 2021				At December 31, 2020
$ in millions	VIE Assets		VIE Liabilities		VIE Assets		VIE Liabilities
OSF 1	$	1,324	$	1,107	$	551	$	350
MABS 2	921		615		590		17
Other 3	1,151		151		977		47
Total	$	3,396	$	1,873	$	2,118	$	414

OSF—Other structured financings

1. OSF primarily includes assets and liabilities as a result of the consolidation of CLO vehicles.

2. 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.

3. Other primarily includes operating entities, investment funds and structured transactions.


			57			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Consolidated VIE Assets and Liabilities by Balance Sheet Caption


$ in millions	At March 31, 2021		At December 31, 2020
Assets
Cash and cash equivalents	$	425	$	269


Trading assets at fair value	2,582		1,445
Customer and other receivables	18		23

Intangible assets	95		98
Other assets	276		283
Total	$	3,396	$	2,118
Liabilities
Other secured financings	$	1,716	$	366
Other liabilities and accrued expenses	157		48
Total	$	1,873	$	414
Noncontrolling interests	$	178	$	196

Consolidated VIE assets and liabilities are presented in the previous tables after intercompany eliminations. Generally, most assets owned by consolidated VIEs cannot be removed unilaterally by the Firm and are not available to the Firm while the related liabilities issued by consolidated VIEs are non-recourse to the Firm. However, in certain consolidated VIEs, the Firm either has the unilateral right to remove assets or provides additional recourse through derivatives such as total return swaps, guarantees or other forms of involvement.

In general, the Firm’s exposure to loss in consolidated VIEs is limited to losses that would be absorbed on the VIE net assets recognized in its financial statements, net of amounts absorbed by third-party variable interest holders.

Non-consolidated VIEs


	At March 31, 2021
$ in millions	MABS 1		CDO		MTOB		OSF		Other 2
VIE assets (UPB)	$	169,015	$	2,068	$	6,163	$	1,994	$	48,464
Maximum exposure to loss 3
Debt and equity interests	$	24,265	$	205	$	8	$	1,172	$	10,963
Derivative and other contracts	—		—		4,116		—		5,480
Commitments, guarantees and other	868		—		—		—		1,599
Total	$	25,133	$	205	$	4,124	$	1,172	$	18,042
Carrying value of variable interests—Assets
Debt and equity interests	$	24,265	$	205	$	8	$	1,172	$	10,963
Derivative and other contracts	—		—		6		—		1,152
Total	$	24,265	$	205	$	14	$	1,172	$	12,115
Additional VIE assets owned 4									$	19,743
Carrying value of variable interests—Liabilities

Derivative and other contracts	$	—	$	—	$	—	$	—	$	314


	At December 31, 2020
$ in millions	MABS 1		CDO		MTOB		OSF		Other 2
VIE assets (UPB)	$	184,153	$	3,527	$	6,524	$	2,161	$	48,241
Maximum exposure to loss 3
Debt and equity interests	$	26,247	$	257	$	—	$	1,187	$	11,008
Derivative and other contracts	—		—		4,425		—		5,639
Commitments, guarantees and other	929		—		—		—		749
Total	$	27,176	$	257	$	4,425	$	1,187	$	17,396
Carrying value of variable interests – Assets
Debt and equity interests	$	26,247	$	257	$	—	$	1,187	$	11,008
Derivative and other contracts	—		—		5		—		851
Total	$	26,247	$	257	$	5	$	1,187	$	11,859
Additional VIE assets owned 4									$	20,019
Carrying value of variable interests—Liabilities
Derivative and other contracts	$	—	$	—	$	—	$	—	$	222

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 5). 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 8).

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.


March 2021 Form 10-Q			58


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Detail of Mortgage- and Asset-Backed Securitization Assets


	At March 31, 2021				At December 31, 2020
$ in millions	UPB		Debt and Equity Interests		UPB		Debt and Equity Interests
Residential mortgages	$	16,722	$	2,696	$	17,775	$	3,175
Commercial mortgages	58,889		3,905		62,093		4,131
U.S. agency collateralized mortgage obligations	87,031		15,727		99,182		17,224
Other consumer or commercial loans	6,373		1,937		5,103		1,717
Total	$	169,015	$	24,265	$	184,153	$	26,247

Transferred Assets with Continuing Involvement


	At March 31, 2021
$ in millions	RML		CML		U.S. Agency CMO		CLN and Other 1
SPE assets (UPB) 2	$	8,673	$	72,001	$	26,257	$	12,496
Retained interests
Investment grade	$	68	$	895	$	585	$	—
Non-investment grade	18		216		—		82
Total	$	86	$	1,111	$	585	$	82
Interests purchased in the secondary market
Investment grade	$	—	$	121	$	132	$	—
Non-investment grade	76		46		—		—
Total	$	76	$	167	$	132	$	—
Derivative assets	$	—	$	—	$	—	$	392
Derivative liabilities	—		—		—		283


	At December 31, 2020
$ in millions	RML		CML		U.S. Agency CMO		CLN and Other 1
SPE assets (UPB) 2	$	7,515	$	84,674	$	21,061	$	12,978
Retained interests
Investment grade	$	49	$	822	$	615	$	—
Non-investment grade	16		195		—		114
Total	$	65	$	1,017	$	615	$	114
Interests purchased in the secondary market
Investment grade	$	—	$	96	$	116	$	—
Non-investment grade	43		80		—		21
Total	$	43	$	176	$	116	$	21
Derivative assets	$	—	$	—	$	—	$	400
Derivative liabilities	—		—		—		436


	Fair Value At March 31, 2021
$ in millions	Level 2		Level 3		Total
Retained interests
Investment grade	$	654	$	—	$	654
Non-investment grade	9		62		71
Total	$	663	$	62	$	725
Interests purchased in the secondary market
Investment grade	$	243	$	10	$	253
Non-investment grade	101		21		122
Total	$	344	$	31	$	375
Derivative assets	$	391	$	1	$	392
Derivative liabilities	234		49		283


	Fair Value at December 31, 2020
$ in millions	Level 2		Level 3		Total
Retained interests
Investment grade	$	663	$	—	$	663
Non-investment grade	6		63		69
Total	$	669	$	63	$	732
Interests purchased in the secondary market
Investment grade	$	196	$	16	$	212
Non-investment grade	62		82		144
Total	$	258	$	98	$	356
Derivative assets	$	388	$	12	$	400
Derivative liabilities	435		1		436

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 statements. 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 sheets with changes in fair value recognized in the income statements. 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 2020 Form 10-K and Note 5 herein. Further, as permitted by applicable guidance, certain transfers of assets where the Firm’s only continuing involvement is a derivative are only reported in the following Assets Sold with Retained Exposure table.

Proceeds from New Securitization Transactions and Sales of Loans


	Three Months Ended March 31,
$ in millions		2021		2020
New transactions 1		$	14,790	$	8,471
Retained interests		2,579		4,088
Sales of corporate loans to CLO SPEs 1, 2		—		66

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 14).


			59			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Assets Sold with Retained Exposure


$ in millions	At March 31, 2021		At December 31, 2020
Gross cash proceeds from sale of assets 1	$	57,512	$	45,051
Fair value
Assets sold	$	58,117	$	46,609
Derivative assets recognized in the balance sheets	1,008		1,592
Derivative liabilities recognized in the balance sheets	411		64

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 2020 Form 10-K.

16. 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 2020 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.

Minimum risk-based capital ratio requirements apply to Common Equity Tier 1 capital, Tier 1 capital and Total capital (which includes Tier 2 capital). Capital standards require certain adjustments to, and deductions from, capital for purposes of determining these ratios. At March 31, 2021 and December 31, 2020, the difference between the actual and required ratio was lower under the Standardized Approach.

In 2020, the U.S. banking agencies adopted a final rule, consistent with an interim final rule that was effective March 31, 2020, altering, for purposes of the regulatory capital rules, the required adoption time period for CECL. As of March 31, 2021 and December 31, 2020, the risk-based and leverage-based capital amounts and ratios, as well as RWA, adjusted average assets and supplementary leverage exposure are 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 in accordance with the final rule.

Risk-Based Regulatory Capital Ratio Requirements


			At March 31, 2021 and December 31, 2020
			Standardized	Advanced
Capital buffers
Capital conservation buffer			—	2.5 %
SCB			5.7 %	N/A
G-SIB capital surcharge			3.0 %	3.0 %
CCyB 1			0 %	0 %
Capital buffer requirement 2			8.7 %	5.5 %

			At March 31, 2021 and December 31, 2020
	Regulatory Minimum		Standardized	Advanced
Required ratios 3
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. The CCyB can be set up to 2.5 %, but is currently set by the U.S. banking agencies at zero .

2. 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.

3. Required ratios represent the regulatory minimum plus the capital buffer requirement.

The Firm’s Regulatory Capital and Capital Ratios


	At March 31, 2021

$ in millions	Required Ratio 1		Amount			Ratio
Risk-based capital
Common Equity Tier 1 capital	13.2	%	$	76,176		16.7		%
Tier 1 capital	14.7	%	84,059			18.5		%
Total capital	16.7	%	92,823			20.4		%
Total RWA			455,071




$ in millions			Required Ratio 1			At March 31, 2021
Leverage-based capital
Adjusted average assets 2						$	1,121,413
Tier 1 leverage ratio			4.0		%	7.5		%
Supplementary leverage exposure 3,4						$	1,263,959
SLR 4			5.0		%	6.7		%


March 2021 Form 10-Q			60


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)


	At December 31, 2020
$ in millions	Required Ratio 1		Amount			Ratio
Risk-based capital
Common Equity Tier 1 capital	13.2	%	$	78,650		17.4		%
Tier 1 capital	14.7	%	88,079			19.4		%
Total capital	16.7	%	97,213			21.5		%
Total RWA			453,106




$ in millions			Required Ratio 1			At December 31, 2020
Leverage-based capital
Adjusted average assets 2						$	1,053,510
Tier 1 leverage ratio			4.0		%	8.4		%
Supplementary leverage exposure 3,4						$	1,192,506
SLR 4			5.0		%	7.4		%

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 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.

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.

4. Based on a Federal Reserve interim final rule that was in effect until March 31, 2021, the Firm’s SLR and Supplementary leverage exposure as of March 31, 2021 and December 31, 2020 reflect the exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks.

Certain U.S. Bank Subsidiaries’ Regulatory Capital and Capital Ratios

The OCC establishes capital requirements for the Firm’s U.S. bank subsidiaries, which as of March 31, 2021 and December 31, 2020 include, among others, Morgan Stanley Bank, N.A. (“MSBNA”) and Morgan Stanley Private Bank, National Association (“MSPBNA”), and evaluates their compliance with such capital requirements. Regulatory capital requirements for MSBNA and MSPBNA are calculated in a similar manner to the Firm’s regulatory capital requirements, although G-SIB capital surcharge and SCB requirements do not apply to the U.S. bank subsidiaries.

The OCC’s regulatory capital framework includes Prompt Corrective Action (“PCA”) standards, including “well-capitalized” PCA standards that are based on specified regulatory capital ratio minimums. For the Firm to remain an FHC, its U.S. bank subsidiaries must remain well-capitalized in accordance with the OCC’s PCA standards. In addition, failure by the U.S. bank subsidiaries to meet minimum capital requirements may result in certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on the U.S. bank subsidiaries’ and the Firm’s financial statements.

At March 31, 2021 and December 31, 2020, MSBNA and MSPBNA risk-based capital ratios are based on the

Standardized Approach rules. At March 31, 2021 and December 31, 2020, the risk-based and leverage-based capital amounts and ratios are calculated excluding the effect of the adoption of CECL based on MSBNA’s and MSPBNA’s election to defer this effect over a five-year transition period.

MSBNA’s Regulatory Capital


					At March 31, 2021				At December 31, 2020
$ in millions	Well-Capitalized Requirement		Required Ratio 1		Amount		Ratio		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	7.0	%	$	17,530	19.5	%	$	17,238	18.7	%
Tier 1 capital	8.0	%	8.5	%	17,530		19.5	%	17,238		18.7	%
Total capital	10.0	%	10.5	%	18,138		20.2	%	17,882		19.4	%
Leverage-based capital
Tier 1 leverage	5.0	%	4.0	%	$	17,530	10.0	%	$	17,238	10.1	%
SLR	6.0	%	3.0	%	17,530		7.9	%	17,238		8.0	%

MSPBNA’s Regulatory Capital


					At March 31, 2021				At December 31, 2020
$ in millions	Well-Capitalized Requirement		Required Ratio 1		Amount		Ratio		Amount		Ratio
Risk-based capital
Common Equity Tier 1 capital	6.5	%	7.0	%	$	8,471	22.8	%	$	8,213	21.3	%
Tier 1 capital	8.0	%	8.5	%	8,471		22.8	%	8,213		21.3	%
Total capital	10.0	%	10.5	%	8,542		23.0	%	8,287		21.5	%




Leverage-based capital
Tier 1 leverage	5.0	%	4.0	%	$	8,471	6.8	%	$	8,213	7.2	%
SLR	6.0	%	3.0	%	8,471		6.5	%	8,213		6.9	%

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.

U.S. Broker-Dealer Regulatory Capital Requirements

MS&Co. Regulatory Capital


$ in millions	At March 31, 2021		At December 31, 2020
Net capital	$	15,982	$	12,869
Excess net capital	12,167		9,034

MS&Co. is a registered U.S. broker-dealer and registered futures commission merchant and, accordingly, is subject to the minimum net capital requirements of the SEC and the CFTC. MS&Co. has consistently operated with capital in excess of its regulatory capital requirements.

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. In addition, MS&Co. must notify the SEC if its tentative net capital falls below certain levels. At March 31, 2021 and December 31, 2020, MS&Co. exceeded its net capital requirement and had tentative net capital in excess of the minimum and notification requirements.


			61			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Other Regulated Subsidiaries

MSSB, a registered U.S. broker-dealer and introducing broker for the futures business, is subject to the minimum net capital requirements of the SEC. MSIP, a London-based broker-dealer subsidiary, is subject to the capital requirements of the PRA, and the Morgan Stanley Europe Holdings SE Group (“MSEHSE Group”) is subject to the capital requirements of the European Central Bank, BaFin and the German Central Bank. MSSB, MSIP and the MSEHSE Group, including MSESE, a Germany-based broker-dealer, have consistently operated with capital in excess of their respective regulatory capital requirements. Additionally, E*TRADE Bank and E*TRADE Savings Bank are subject to the capital requirements of the OCC, and E*TRADE Securities LLC is subject to the minimum net capital requirements of the SEC; each of these entities has consistently operated with capital in excess of their respective regulatory capital requirements.

Certain other U.S. and non-U.S. subsidiaries of the Firm are subject to various securities, commodities and banking regulations, and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. These subsidiaries have also consistently operated with capital in excess of their local capital adequacy requirements.

17. Total Equity

Preferred Stock


	Shares Outstanding			Carrying Value
$ in millions, except per share data	At March 31, 2021	Liquidation Preference per Share		At March 31, 2021		At December 31, 2020
Series
A	44,000	$	25,000	$	1,100	$	1,100
C 1	519,882	1,000		408		408
E	34,500	25,000		862		862
F	34,000	25,000		850		850
H	52,000	25,000		1,300		1,300
I	40,000	25,000		1,000		1,000
J	—	—		—		1,500
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
Total				$	7,750	$	9,250
Shares authorized						30,000,000

1. Series C preferred stock is held by MUFG .

For a description of Series A through Series N preferred stock issuances, see Note 18 to the financial statements in the 2020 Form 10-K. The preferred stock has a preference over the common stock upon liquidation. The Firm’s preferred stock qualifies as and is included in Tier 1 capital in accordance with regulatory capital requirements (see Note 16).

On March 15, 2021, the Firm announced the redemption in whole of its outstanding Series J preferred stock. On notice of

redemption, the amount due to holders of Series J Preferred Stock was reclassified to Borrowings, and on April 15, 2021 the redemption settled at the carrying value of $ 1.5 billion.

Share Repurchases


	Three Months Ended March 31,
$ in millions		2021		2020
Repurchases of common stock under the Firm's Share Repurchase Program		$	2,135	$	1,347

Beginning late in the first quarter of 2020, the Firm suspended its share repurchase program. On December 18, 2020 the Federal Reserve published summary results of the second round of supervisory stress tests for each large BHC, including the Firm, and permitted the resumption of share repurchases in the first quarter of 2021. The Firm’s Board of Directors authorized the repurchase of up to $ 10 billion of outstanding common stock in 2021, from time to time as conditions warrant and subject to limitations on distributions from the Federal Reserve. For more information on share repurchases, see Note 18 to the financial statements in the 2020 Form 10-K.

Common Shares Outstanding for Basic and Diluted EPS


	Three Months Ended March 31,
in millions	2021	2020
Weighted average common shares outstanding, basic	1,795	1,555
Effect of dilutive Stock options, RSUs and PSUs	23	18
Weighted average common shares outstanding and common stock equivalents, diluted	1,818	1,573
Weighted average antidilutive common stock equivalents (excluded from the computation of diluted EPS)	1	12

Dividends


$ in millions, except per share data	Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
	Per Share 1		Total		Per Share 1		Total
Preferred Stock Series
A	$	250	$	11	$	253	$	11
C	25		13		25		13
E	445		15		445		15
F	430		14		430		14
H	241		13		344		18
I	398		16		398		16
J 2	253		15		—		—
K	366		15		366		15
L	305		6		305		6
M 3	29		12		—		—
N 4	2,650		8		—		—
Total Preferred stock			$	138			$	108
Common stock	$	0.35	$	635	$	0.35	$	561

1. Common and Preferred Stock dividends are payable quarterly, unless otherwise noted.

2. Series J was payable semiannually until July 15, 2020, after which it was payable quarterly until the redemption notice.

3. Series M will be payable semiannually beginning on March 15, 2021 until September 15, 2026, and thereafter will be payable quarterly.

4. Series N will be payable semiannually beginning on March 15, 2021 until March 15, 2023, and thereafter will be payable quarterly.


March 2021 Form 10-Q			62


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Accumulated Other Comprehensive Income (Loss) 1


$ in millions	CTA		AFS Securities		Pension and Other		DVA		Total






December 31, 2020	$	( 795 )	$	1,787	$	( 498 )	$	( 2,456 )	$	( 1,962 )
OCI during the period	( 141 )		( 776 )		5		120		( 792 )
March 31, 2021	$	( 936 )	$	1,011	$	( 493 )	$	( 2,336 )	$	( 2,754 )
December 31, 2019	$	( 897 )	$	207	$	( 644 )	$	( 1,454 )	$	( 2,788 )
OCI during the period	( 141 )		1,325		25		3,674		4,883
March 31, 2020	$	( 1,038 )	$	1,532	$	( 619 )	$	2,220	$	2,095

CTA—Cumulative foreign currency translation adjustments

1. Amounts are net of tax and noncontrolling interests.

Components of Period Changes in OCI


	Three Months Ended March 31, 2021
$ in millions	Pre-tax Gain (Loss)		Income Tax Benefit (Provision)		After-tax Gain (Loss)		Non- controlling Interests		Net
CTA
OCI activity	$	( 104 )	$	( 115 )	$	( 219 )	$	( 78 )	$	( 141 )
Reclassified to earnings	—		—		—		—		—
Net OCI	$	( 104 )	$	( 115 )	$	( 219 )	$	( 78 )	$	( 141 )
Change in net unrealized gains (losses) on AFS securities
OCI activity	$	( 876 )	$	203	$	( 673 )	$	—	$	( 673 )
Reclassified to earnings	( 134 )		31		( 103 )		—		( 103 )
Net OCI	$	( 1,010 )	$	234	$	( 776 )	$	—	$	( 776 )
Pension and other
OCI activity	$	—	$	—	$	—	$	—	$	—
Reclassified to earnings	7		( 2 )		5		—		5
Net OCI	$	7	$	( 2 )	$	5	$	—	$	5
Change in net DVA
OCI activity	$	167	$	( 43 )	$	124	$	17	$	107
Reclassified to earnings	17		( 4 )		13		—		13
Net OCI	$	184	$	( 47 )	$	137	$	17	$	120


	Three Months Ended March 31, 2020
$ in millions	Pre-tax Gain (Loss)		Income Tax Benefit (Provision)		After-tax Gain (Loss)		Non- controlling Interests		Net
CTA
OCI activity	$	( 20 )	$	( 112 )	$	( 132 )	$	9	$	( 141 )
Reclassified to earnings	—		—		—		—		—
Net OCI	$	( 20 )	$	( 112 )	$	( 132 )	$	9	$	( 141 )
Change in net unrealized gains (losses) on AFS securities
OCI activity	$	1,773	$	( 416 )	$	1,357	$	—	$	1,357
Reclassified to earnings	( 41 )		9		( 32 )		—		( 32 )
Net OCI	$	1,732	$	( 407 )	$	1,325	$	—	$	1,325
Pension and other
OCI activity	$	25	$	( 4 )	$	21	$	—	$	21
Reclassified to earnings	5		( 1 )		4		—		4
Net OCI	$	30	$	( 5 )	$	25	$	—	$	25
Change in net DVA
OCI activity	$	5,015	$	( 1,216 )	$	3,799	$	129	$	3,670
Reclassified to earnings	5		( 1 )		4		—		4
Net OCI	$	5,020	$	( 1,217 )	$	3,803	$	129	$	3,674

18. Interest Income and Interest Expense


	Three Months Ended March 31,
$ in millions		2021		2020
Interest income
Investment securities		$	849	$	445
Loans		988		1,154
Securities purchased under agreements to resell and Securities borrowed 1		( 296 )		398
Trading assets, net of Trading liabilities		510		749
Customer receivables and Other 2		386		757
Total interest income		$	2,437	$	3,503

Interest expense
Deposits		$	120	$	406
Borrowings		714		997
Securities sold under agreements to repurchase and Securities loaned 3		114		509
Customer payables and Other 4		( 539 )		235
Total interest expense		$	409	$	2,147
Net interest		$	2,028	$	1,356

1. Includes fees paid on Securities borrowed.

2. Includes interest from Cash and cash equivalents.

3. Includes fees received on Securities loaned.

4. Includes fees received from Equity Financing customers for stock loan transactions entered into to cover customers’ short positions.

Interest income and Interest expense are classified in the income statements based on the nature of the instrument and related market conventions. When included as a component of the instrument’s fair value, interest is included within Trading revenues or Investments revenues. Otherwise, it is included within Interest income or Interest expense.

Accrued Interest


$ in millions	At March 31, 2021		At December 31, 2020
Customer and other receivables	$	2,195	$	1,652
Customer and other payables	2,329		2,119

19. Income Taxes

The Firm is under continuous 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.


			63			March 2021 Form 10-Q


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

20. Segment, Geographic and Revenue Information

Selected Financial Information by Business Segment


	Three Months Ended March 31, 2021
$ in millions	IS		WM		IM		I/E		Total
Investment banking	$	2,613	$	251	$	—	$	( 24 )	$	2,840
Trading	4,073		126		3		23		4,225
Investments	86		2		230		—		318
Commissions and fees 1	870		851		—		( 95 )		1,626
Asset management 1,2	139		3,191		1,103		( 35 )		4,398
Other	158		153		( 24 )		( 3 )		284
Total non-interest revenues	7,939		4,574		1,312		( 134 )		13,691
Interest income	970		1,486		8		( 27 )		2,437
Interest expense	332		101		6		( 30 )		409
Net interest	638		1,385		2		3		2,028
Net revenues	$	8,577	$	5,959	$	1,314	$	( 131 )	$	15,719
Provision for credit losses	$	( 93 )	$	( 5 )	$	—	$	—	$	( 98 )
Compensation and benefits	3,114		3,170		514		—		6,798
Non-compensation expenses	2,185		1,194		430		( 134 )		3,675
Total non-interest expenses	$	5,299	$	4,364	$	944	$	( 134 )	$	10,473
Income before provision for income taxes	$	3,371	$	1,600	$	370	$	3	$	5,344
Provision for income taxes	736		358		81		1		1,176


Net income	2,635		1,242		289		2		4,168
Net income applicable to noncontrolling interests	34		—		14		—		48
Net income applicable to Morgan Stanley	$	2,601	$	1,242	$	275	$	2	$	4,120


	Three Months Ended March 31, 2020
$ in millions	IS		WM		IM		I/E		Total
Investment banking	$	1,144	$	158	$	—	$	( 31 )	$	1,271
Trading 3	3,161		( 347 )		( 37 )		24		2,801
Investments	( 25 )		—		63		—		38
Commissions and fees 1	874		588		—		( 102 )		1,360
Asset management 1,2	113		2,680		665		( 41 )		3,417
Other 3	( 551 )		81		7		( 1 )		( 464 )
Total non-interest revenues	4,716		3,160		698		( 151 )		8,423
Interest income	2,423		1,193		8		( 121 )		3,503
Interest expense	1,961		297		14		( 125 )		2,147
Net interest	462		896		( 6 )		4		1,356
Net revenues 3	$	5,178	$	4,056	$	692	$	( 147 )	$	9,779
Provision for credit losses 3	$	388	$	19	$	—	$	—	$	407
Compensation and benefits	1,814		2,212		257		—		4,283
Non-compensation expenses 3	2,026		770		292		( 145 )		2,943
Total non-interest expenses 3	$	3,840	$	2,982	$	549	$	( 145 )	$	7,226
Income before provision for income taxes	$	950	$	1,055	$	143	$	( 2 )	$	2,146
Provision for income taxes	151		191		25		( 1 )		366


Net income	799		864		118		( 1 )		1,780
Net income applicable to noncontrolling interests	42		—		40		—		82
Net income applicable to Morgan Stanley	$	757	$	864	$	78	$	( 1 )	$	1,698

I/E–Intersegment Eliminations

1. Substantially all revenues are from contracts with customers.

2. Includes certain fees which may relate to services performed in prior periods.

3. Certain prior period amounts have been reclassified to conform to the current presentation. See Note 1 for additional information.

For a discussion about the Firm’s business segments, see Note 23 to the financial statements in the 2020 Form 10-K.

Detail of Investment Banking Revenues


	Three Months Ended March 31,
$ in millions		2021			2020
Institutional Securities Advisory		$	480		$	362
Institutional Securities Underwriting		2,133			782
Firm Investment banking revenues from contracts with customers		92		%	89		%

Trading Revenues by Product Type 1


	Three Months Ended March 31,
$ in millions		2021		2020
Interest rate		$	859	$	1,074
Foreign exchange		274		338
Equity security and index 2		1,695		1,072
Commodity and other		861		11
Credit		536		306
Total		$	4,225	$	2,801

1. Certain prior period amounts have been reclassified to conform to the current presentation. See Note 1 for additional information.

2. Dividend income is included within equity security and index 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 statements. The Firm generally utilizes financial instruments across a variety of product types in connection with its market-making and related risk management strategies. The trading revenues presented in the table are not representative of the manner in which the Firm manages its business activities and are prepared in a manner similar to the presentation of trading revenues for regulatory reporting purposes.

Investment Management Investments Revenues—Net Cumulative Unrealized Carried Interest


$ in millions	At March 31, 2021		At December 31, 2020
Net cumulative unrealized performance-based income at risk of reversing	$	708	$	735

The Firm’s portion of net cumulative performance-based income 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 14 for information regarding general partner guarantees, which include potential obligations to return performance fee distributions previously received.


March 2021 Form 10-Q			64


Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Investment Management Asset Management Revenues—Reduction of Fees Due to Fee Waivers


	Three Months Ended March 31,
$ in millions		2021		2020
Fee waivers		$	94	$	11

The Firm waives a portion of its fees in the Investment Management business segment from certain registered money market funds that comply with the requirements of Rule 2a-7 of the Investment Company Act of 1940.

Certain Other Fee Waivers

Separately, the Firm’s employees, including its senior officers, may participate on the same terms and conditions as other investors in certain funds that the Firm sponsors, primarily for client investment, and the Firm may waive or lower applicable fees and charges for its employees.

Other Expenses — Transaction Taxes


	Three Months Ended March 31,
$ in millions	2021		2020
Transaction taxes	$	238	$	184

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 1


	Three Months Ended March 31,
$ in millions		2021		2020
Americas		$	11,191	$	6,888
EMEA		2,159		1,197
Asia		2,369		1,694
Total		$	15,719	$	9,779

1. Certain prior period amounts have been reclassified to conform to the current presentation. See Note 1 for additional information.

For a discussion about the Firm’s geographic net revenues, see Note 23 to the financial statements in the 2020 Form 10-K.

Revenues Recognized from Prior Services


	Three Months Ended March 31,
$ in millions		2021		2020
Non-interest revenues		$	541	$	614

The previous table includes revenues from contracts with customers recognized where some or all services were performed in prior periods. For the three months ended March

31, 2021 these revenues primarily include investment banking advisory fees, and for the three months ended March 31, 2020, these revenues primarily include investment banking advisory fees and distribution fees.

Receivables from Contracts with Customers


$ in millions	At March 31, 2021		At December 31, 2020
Customer and other receivables	$	4,101	$	3,200

Receivables from contracts with customers, which are included within Customer and other receivables in the balance sheets, arise when the Firm has both recorded revenues and has the right per the contract to bill the customer.

Assets by Business Segment


$ in millions	At March 31, 2021		At December 31, 2020
Institutional Securities	$	778,555	$	753,322
Wealth Management	361,674		355,595
Investment Management	18,543		6,945
Total 1	$	1,158,772	$	1,115,862

1. Parent assets have been fully allocated to the business segments.


			65			March 2021 Form 10-Q


Table of Contents
Financial Data Supplement (Unaudited)

Average Balances and Interest Rates and Net Interest Income


	Three Months Ended March 31,
	2021						2020
$ in millions	Average Daily Balance		Interest		Annualized Average Rate		Average Daily Balance		Interest		Annualized Average Rate
Interest earning assets
Investment securities 1	$	187,294	$	849	1.8	%	$	110,277	$	445	1.6	%
Loans 1	151,636		988		2.6	%	134,441		1,154		3.5	%
Securities purchased under agreements to resell and Securities borrowed 2 :
U.S.	147,276		(169)		(0.5)	%	121,106		378		1.3	%
Non-U.S.	67,334		(127)		(0.8)	%	56,865		20		0.1	%
Trading assets, net of Trading liabilities 3 :
U.S.	72,416		410		2.3	%	78,771		626		3.2	%
Non-U.S.	17,946		100		2.3	%	22,903		123		2.2	%
Customer receivables and Other 4 :
U.S.	137,859		337		1.0	%	68,772		555		3.2	%
Non-U.S.	75,177		49		0.3	%	60,787		202		1.3	%
Total	$	856,938	$	2,437	1.2	%	$	653,922	$	3,503	2.2	%
Interest bearing liabilities
Deposits 1	$	320,257	$	120	0.2	%	$	199,574	$	406	0.8	%
Borrowings 1, 5	215,688		714		1.3	%	192,061		997		2.1	%
Securities sold under agreements to repurchase and Securities loaned 6 :
U.S.	34,089		44		0.5	%	31,461		328		4.2	%
Non-U.S.	27,063		70		1.0	%	29,682		181		2.5	%
Customer payables and Other 7 :
U.S.	129,438		(437)		(1.4)	%	128,744		109		0.3	%
Non-U.S.	68,782		(102)		(0.6)	%	63,914		126		0.8	%
Total	$	795,317	$	409	0.2	%	$	645,436	$	2,147	1.3	%
Net interest income and net interest rate spread			$	2,028	1.0	%			$	1,356	0.9	%

1. Amounts include primarily U.S. balances.

2. Includes fees paid on Securities borrowed.

3. Excludes non-interest earning assets and non-interest bearing liabilities, such as equity securities.

4. Includes Cash and cash equivalents.

5. Includes borrowings carried at fair value, whose interest expense is considered part of fair value and therefore is recorded within Trading revenues.

6. Includes fees received on Securities loaned. 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 sheets and (b) net average on-balance sheet balances, which exclude certain securities-for-securities transactions.

7. Includes fees received from Equity Financing customers for stock loan transactions entered into to cover customers’ short positions.


March 2021 Form 10-Q			66


Table of Contents
Glossary of Common Terms and Acronyms


2020 Form 10-K			Annual report on Form 10-K for year ended December 31, 2020 filed with the SEC
ABS			Asset-backed securities
ACL			Allowance for credit losses
AFS			Available-for-sale
AML			Anti-money laundering
AOCI			Accumulated other comprehensive income (loss)

AUM			Assets under management or supervision

Balance sheets			Consolidated balance sheets

BHC			Bank holding company

bps			Basis points; one basis point equals 1/100th of 1%

Cash flow statements			Consolidated cash flow statements

CCAR			Comprehensive Capital Analysis and Review

CCyB			Countercyclical capital buffer

CDO			Collateralized debt obligation(s), including Collateralized loan obligation(s)

CDS			Credit default swaps

CECL			Current Expected Credit Losses, as calculated under the Financial Instruments—Credit Losses accounting update

CFTC			U.S. Commodity Futures Trading Commission

CLN			Credit-linked note(s)

CLO			Collateralized loan obligation(s)

CMBS			Commercial mortgage-backed securities

CMO			Collateralized mortgage obligation(s)

CVA			Credit valuation adjustment

DVA			Debt valuation adjustment

EBITDA			Earnings before interest, taxes, depreciation and amortization

ELN			Equity-linked note(s)

EMEA			Europe, Middle East and Africa

EPS			Earnings per common share

E.U.			European Union

FDIC			Federal Deposit Insurance Corporation

FFELP			Federal Family Education Loan Program

FFIEC			Federal Financial Institutions Examination Council

FHC			Financial Holding Company

FICC			Fixed Income Clearing Corporation

FICO			Fair Isaac Corporation

Financial statements			Consolidated financial statements

FVA			Funding valuation adjustment

G-SIB			Global systemically important banks

HELOC			Home Equity Line of Credit

HQLA			High-quality liquid assets

HTM			Held-to-maturity

I/E			Intersegment eliminations

IHC			Intermediate holding company

IM			Investment Management

Income statements			Consolidated income statements

IRS			Internal Revenue Service


IS			Institutional Securities

LCR			Liquidity coverage ratio, as adopted by the U.S. banking agencies

LIBOR			London Interbank Offered Rate

LTV			Loan-to-value

M&A			Merger, acquisition and restructuring transaction

MSBNA			Morgan Stanley Bank, N.A.

MS&Co.			Morgan Stanley & Co. LLC

MSIP			Morgan Stanley & Co. International plc

MSMS			Morgan Stanley MUFG Securities Co., Ltd.

MSPBNA			Morgan Stanley Private Bank, National Association

MSSB			Morgan Stanley Smith Barney LLC

MUFG			Mitsubishi UFJ Financial Group, Inc.

MUMSS			Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

MWh			Megawatt hour

N/A			Not Applicable

N/M			Not Meaningful

NAV			Net asset value

Non-GAAP			Non-generally accepted accounting principles

NSFR			Net stable funding ratio, as adopted by the U.S. banking agencies

OCC			Office of the Comptroller of the Currency

OCI			Other comprehensive income (loss)

OIS			Overnight index swap

OTC			Over-the-counter

PRA			Prudential Regulation Authority

PSU			Performance-based stock unit

RMBS			Residential mortgage-backed securities

ROE			Return on average common equity

ROTCE			Return on average tangible common equity

ROU			Right-of-use

RSU			Restricted stock unit

RWA			Risk-weighted assets

SCB			Stress capital buffer

SEC			U.S. Securities and Exchange Commission

SLR			Supplementary leverage ratio

SOFR			Secured Overnight Financing Rate

S&P			Standard & Poor’s

SPE			Special purpose entity

SPOE			Single point of entry

TDR			Troubled debt restructuring

TLAC			Total loss-absorbing capacity

U.K.			United Kingdom

UPB			Unpaid principal balance

U.S.			United States of America

U.S. GAAP			Accounting principles generally accepted in the United States of America

VaR			Value-at-Risk

VIE			Variable interest entity

WACC			Implied weighted average cost of capital

WM			Wealth Management


			67			March 2021 Form 10-Q


Table of Contents

Other Information

None.

Legal Proceedings

The following developments have occurred since previously reporting certain matters in the Firm’s 2020 Form 10-K. See also the disclosures set forth under “Legal Proceedings” in the 2020 Form 10-K.

Residential Mortgage and Credit Crisis Related Matter

On March 22, 2021, the parties in China Development Industrial Bank v. Morgan Stanley & Co. Incorporated entered into a settlement agreement. On April 16, 2021, the court entered a stipulation of voluntary discontinuance, with prejudice.

European Matter

On January 29, 2021, the Advocate General of the Dutch High Court in matters re-styled Case number 15/3637 and Case number 15/4353 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 Tax Authority each responded to this opinion.

Risk Factors

For a discussion of the risk factors affecting the Firm, see “Risk Factors” in Part I, Item 1A of the 2020 Form 10-K.

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Three Months Ended March 31, 2021


$ in millions, except per share data	Total Number of Shares Purchased 1	Average Price Paid per Share		Total Shares Purchased as Part of Share Repurchase Program 2,3	Dollar Value of Remaining Authorized Repurchase
January	18,296,995	$	74.00	12,800,000	$	9,057
February	2,358,797	$	71.57	1,600,000	$	8,947
March	13,231,966	$	82.18	13,161,366	$	7,865
Total	33,887,758	$	77.03	27,561,366

1. Includes 6,326,392 shares acquired by the Firm in satisfaction of the tax withholding obligations on stock-based awards granted under the Firm’s stock-based compensation plans during the three months ended March 31, 2021.

2. Share purchases under publicly announced programs are made pursuant to open-market purchases, Rule 10b5-1 plans or privately negotiated transactions (including with employee benefit plans) as market conditions warrant and at prices the Firm deems appropriate and may be suspended at any time. On April 18, 2018, the Firm entered into a sales plan with Mitsubishi UFJ Financial Group, Inc. (“MUFG”). For further information on the sales plan, see Note 18 to the financial statements in the 2020 Form 10-K.

3. The Firm’s Board of Directors has authorized the repurchase of the Firm’s outstanding common stock under a share repurchase program (the “Share Repurchase Program”) from time to time as conditions warrant and subject to limitations on distributions from the Federal Reserve. The Share Repurchase Program is a program for capital management purposes that considers, among other things, business segment capital needs, as well as equity-based compensation and benefit plan requirements. The Share Repurchase Program has no set expiration or termination date.

On December 18, 2020, our Board of Directors authorized the repurchase of up to $10 billion of outstanding common stock in 2021, from time to time as conditions warrant and subject to limitations on distributions from the Federal Reserve. For further information, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Plans, Stress Tests and the Stress Capital Buffer.”

Controls and Procedures

Under the supervision and with the participation of the Firm’s management, including the Chief Executive Officer and Chief Financial Officer, the Firm conducted an evaluation of the effectiveness of the Firm’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Firm’s disclosure controls and procedures were effective as of the end of the period covered by this report.

No change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.

Exhibits


Exhibit No.			Description
3.1			Amended and Restated Certificate of Incorporation of Morgan Stanley, as amended to date.
15			Letter of awareness from Deloitte & Touche LLP, dated May 3 , 202 1 , concerning unaudited interim financial information.
31.1			Rule 13a-14(a) Certification of Chief Executive Officer.
31.2			Rule 13a-14(a) Certification of Chief Financial Officer.
32.1			Section 1350 Certification of Chief Executive Officer.
32.2			Section 1350 Certification of Chief Financial Officer.
101			Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline eXtensible Business Reporting Language (“Inline XBRL”).
104			Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).


March 2021 Form 10-Q			68


Table of Contents

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/ J ONATHAN P RUZAN
			Jonathan Pruzan Executive Vice President and Chief Financial Officer

By:			/s/ R AJA J. A KRAM
			Raja J. Akram Deputy Chief Financial Officer, Chief Accounting Officer and Controller

Date: May 3, 2021


			69			March 2021 Form 10-Q

TABLE OF CONTENTS

Exhibits

3.1 Amended and Restated Certificate of Incorporation of Morgan Stanley, as amended to date. 15 Letter of awareness from Deloitte& Touche LLP, datedMay3, 2021, concerning unaudited interim financial information. 31.1 Rule 13a-14(a) Certification of Chief Executive Officer. 31.2 Rule 13a-14(a) Certification of Chief Financial Officer. 32.1 Section1350 Certification of Chief Executive Officer. 32.2 Section1350 Certification of Chief Financial Officer.

Supplier name	Ticker
Canaan Inc.	CAN
Fidelity National Information Services, Inc.	FIS
Oracle Corporation	ORCL
salesforce.com, inc.	CRM
Cisco Systems, Inc.	CSCO
International Business Machines Corporation	IBM
Adobe Inc.	ADBE
Fiserv, Inc.	FISV

MS 10-Q Quarter ended March 31, 2021

Exhibits