Details
Examine and discuss the compositions of the assets and liabilities of Company A during two sample periods 1. Global Financial Crisis 2007- 2010 and 2. Covid-19 2019-2021.
Do not just state the changes please provide an in-depth analysis into why Company A changed its assets and liability composition over the two sample periods and the financial institution management theory behind the changes. And the correlation between the two sample periods. Details
Examine and discuss the compositions of the assets and liabilities of Morgan Stanley during
two sample periods 1. Global Financial Crisis 2007- 2010 and 2. Covid-19 2019-2021.
Make sure you discuss the asset and liability composition. Prior to the GFC in 2007 and prior
to Covid19 pandemic in 2019. And how it changed throughout both sample periods.
Do not just state the changes please provide an in-depth analysis into why Morgan Stanley
changed its assets and liability composition over the two sample periods and the financial
institution management theory behind the changes. And the correlation between the two
sample periods.
Financial Information regards to Morgan Stanley is provided in the Excel spread sheet, with
all the graphs, please include the graphs in your analysis.
Structure
•
•
•
•
•
Introduction (100 words)
Discuss the compositions of the assets and liabilities of Morgan Stanley (300 words)
Analyse how it changed during Global Financial Crisis 2007- 2010 (400 words)
Analyse how it changed during Covid-19 2019-2021 (400 words)
Conclusion (100 words)
MS Data
Cash and cash equivalents
Cash and securities deposited
Interest bearing deposits with banks
Financial Instruments Owned
U.S government and agency securities
Other sovereign government obligations
Corporate and other debt
Corporate equities
Derivative contracts
Investments
Physical commodities
Total financial instruments owned
Securities received as collateral
Collateralized agreements
Securitities purchased under agreements to resell
Securities borrowed
Securities available for sale
Receivables
Consumer loans
Customers
Brokers, dealers and clearing organizations
Other loans
Fees interest and other
Other Investments
Premises, equipment and software costs
Goodwill
Intantigble assets
Other assets
$
$
2007
25,598 $
61,608 $
$
2008
11,276 $
59,088 $
67,378 $
2009
6,988 $
23,712 $
25,003 $
2010
7,341
19,180
40,274
$
$
$
$
$
$
$
$
$
23,887
21,606
147,724
87,377
77,003
14,270
3,096
374,963
82,229
20,251
20,071
88,484
37,174
99,766
10,375
2,204
278,325
5,217
62,215
25,445
90,454
57,968
49,081
9,286
5,329
299,778
13,656
$
$
$
$
$
$
$
$
$
48,446
33,908
88,154
68,416
51,292
9,752
6,778
306,746
16,537
$
$
126,887 $
239,994 $
72,777 $
85,785 $
143,208 $
167,501 $
$
148,253
138,730
29,649
$
$
$
$
$
$
$
$
$
76,352
16,011
11,629
8,320
4,524
4,372
3,024
1,047
8,851
31,294
7,259
6,528
7,034
3,309
5,057
2,243
895
15,347
27,594
5,719
7,259
11,164
3,752
7,067
7,162
5,054
16,845
35,258
9,102
10,576
9,790
5,412
6,154
6,739
4,667
13,290
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total Assets
$
1,045,409 $
658,812 $
771,462 $
807,698
Liabilities
Deposits
Commercial paper and short term borrowings
$
$
34,495 $
31,179 $
42,755 $
10,483 $
62,215 $
2,378 $
63,812
3,256
U.S government and agency securities
other sovereign government obligations
corporate and other debt
corporate equities
derivative contracts
physical commoditites
Total financial intruments sold
$
$
$
$
$
10,156
9,360
9,361
16,547
73,521
20,503
18,244
7,826
22,601
38,209
$
$
$
$
$
27,948
22,250
10,918
19,838
47,802
$
8,221 $
15,627 $
7,592 $
30,899 $
71,604 $
$398
134,341 $
118,945 $
107,383 $
128,756
obligation to return securities received as collateral
Securities sold under agreements to repurchase
Securities loaned
other secured financings
Payables
customers
Brokers, dealers and clearing organisations
interest and dividends
other liabilities and accrued expenses
long term borrowings
Total Liabilities
$
$
$
$
82,229
162,840
110,423
27,772
$
$
$
$
5,217
102,401
14,821
12,527
$
$
$
$
13,656
159,401
26,246
8,102
$
$
$
$
21,163
147,598
29,094
10,453
$
$
$
$
$
$
203,453
10,454
1,724
24,606
190,624
1,014,140
$
$
$
$
$
$
115,225
3,141
2,584
16,445
163,437
607,981
$
$
$
$
$
$
117,058
5,423
2,597
20,849
193,374
718,682
$
$
$
$
$
$
123,249
3,363
2,572
16,518
192,457
742,291
$
$
$
$
1,100
12
1,902
38,045
$
$
$
$
19,155
12
1,619
38,096
$
$
$
$
9,597
15
8,619
35,056
$
$
$
$
9,597
16
13,521
38,603
Equity
preffered stock
common stock
paid in capital
retained earnings
$
$
$
$
$
employee stock trust
accumulated other comprehensive loss
common stock held in treasury
common stock issued to employee trust
Non controlling interests
Total Equity
$
$
$
$
5,569
199
9,591
5,569
$
31,269 $
Total Liabilities and Equity
$
$
$
$
3,901
125
7,926
3,901
$
$
$
$
$
50,831 $
4,064
560
6,039
4,064
6,092
52,780
$
$
$
$
$
$
3,465
467
4,059
3,465
8,196
65,407
$1,045,409
$658,812
$771,462
$807,698
CONSOLIDATED INCOME STATEMENTS INFORMATION
REVENUES
Investment banking
trading
investments
commisisons and fees
asset management
other
Total non-interest revenues
interest income
interest expense
net interest
NET REVENUE
2007
2008
2009
2010
6,368
3,206
3,262
4,682
6,519
1,208
23,692
60,083
57,302
2,786
28,026
4,057
6,170
3,888
4,443
4,839
3,851
19,472
38,931
36,263
2,668
22,140
5,020
7,722
1,034
4,233
5,884
837
22,662
7,477
6,705
772
23,434
5,122
9,406
1,825
4,947
7,957
1,501
30,758
7,278
6,414
864
31,622
Non-interest expenses
Compensation and benefits
Occupancy and equipment
Brokerage, clearing and exchange fees
Information processing and communications
Marketing and business development
Professional services
16,552
1,130
1,656
1,193
813
2112
11,851
1,324
1,483
1,194
714
1708
14,434
1,542
1,190
1,372
501
1597
16,048
1,570
1,431
1,665
582
1,911
Other
TOTAL NON-INTEREST EXPENSES
1,129
24,585
2,612
20,886
1,815
22,451
2,213
25,420
Income before provision for income taxes
Provision for income taxes
2,563
1,254
16
983
341
6,202
739
Net income (loss)
Net income applicable to non-controlling interests
Net income applicable to Morgan Stanley
Preferred stock dividends
3,209
29
2,976
68
1,778
71
1707
1,406
60
1346
5702
999
4703
1495
907
3594
3.13
2.98
1.45
1.39
0.77
0.77
2.64
2.64
1,001,878,651
1,054,240,169
1,028,180,275
1,073,496,349
1,185,414,871
1,185,414,871
1,361,670,938
1,411,268,971
3,209
1,778
1,406
5,702
112
65
270
16
112
13
40
216
273
221
9
36
20
Comprehensive income (loss)
3,415
net income applicable to noncontrolling itnerests
40
other comprehensive income applicalbe to noncontrolling interests 122
1,740
71
110
1,258
60
8
5,948
999
153
Earning per common share
basic
diluted
Average common shares outstanding
basic
diluted
CONSOLIDATED COMPREHENSIVE INCOME STATEMENT
Net income
Other comprehensive income net of tax:
Foreign currency translation adjustments
Amortization of cash flow hedges
Net unrealized gain on securities
Pension, postretirement and other related adjustments
comprehensive income applicable to Morgan Stanley
3,253
1,779
1,206
Sources
https://www.sec.gov/Archives/edgar/data/895421/000119312508013719/d10k.htm#toc25730_30
2007
https://www.morganstanley.com/about-us-ir/shareholder/10k113008/10k1108.pdf
2008
https://www.morganstanley.com/about-us-ir/shareholder/10k2009/10k2009.pdf
2009
https://www.sec.gov/Archives/edgar/data/895421/000119312511050049/d10k.htm#toc134663_32
2010
4,796
Percentages of Totals
Assets
2007
Cash
Interest Bearing deposits with banks
Trading Assets
8.342%
2008
2009
2010
35.868%
10.68%
10.23%
42.25%
3.98%
3.24%
38.86%
3.28%
4.99%
37.98%
Securities
42.960%
24.86%
42.05%
41.25%
Receivables
Other Assets
10.740%
2.090%
7.91%
4.08%
6.71%
5.17%
8.01%
4.49%
Totals
100.00%
100.00%
100.00%
100.00%
Liabilities and Equity
Deposits
3.30%
Commercial paper and short term borrowings 2.98%
Total Financial Instruments sold
12.85%
6.49%
1.59%
18.05%
8.06%
0.31%
13.92%
7.90%
0.40%
15.94%
Securities
36.66%
20.49%
26.88%
25.79%
Payables
Other liabilities and accrued expenses
Long term borrowings
20.63%
2.35%
18.23%
18.36%
2.50%
24.81%
16.21%
2.70%
25.07%
15.99%
2.05%
23.83%
Shareholders Equity
2.99%
7.72%
6.84%
8.10%
Totals
99.99%
100.01%
99.99%
100.00%
Calculated ROE (NI/Total E)
8.80%
2007
10.26%
4.60%
2008
3.50%
Balance Sheet ROE
2.80%
2009
2.66%
9.00%
2010
8.72%
Calculated ROE (ROA * EM)
ROA
EM (TA/TEq)
PM (NI/OI)
AU(OI/TA)
Int Inc / TA
non-int inc/TA
int exp/OI
non-int inc / OI
10.26%
0.31%
33.43
5.42%
5.66%
5.75%
-0.09%
96.81%
-1.51%
3.50%
0.27%
12.96
4.74%
5.69%
5.91%
-0.21%
96.66%
-3.77%
2.66%
0.18%
14.62
18.29%
1.00%
0.97%
0.03%
87.21%
2.74%
8.72%
0.71%
12.35
45.20%
1.56%
0.90%
0.66%
50.84%
42.31%
Interest income
interst expense
net interest
total assets
total equity
60,083
57,302
2,781
1,045,409
31,269
38,931
36,263
2,668
658,812
50,831
7,477
6,705
772
771,462
52,780
7,278
6,414
864
807,698
65,407
operating inc
59,190
37,517
7,688
12,616
net income
3,209
1,778
1,406
5,702
non-interest income (non-interest revenue
-893 – non-interest
-1,414 expenses)
211
5,338
Liabilities and Equity Composition – Morgan Stanley – 2007
Deposits
Commercial paper and short
term borrowings
Total Financial Instruments sold
Securities
Payables
Liabilities and Equity Composition
Liabilities and Equity Composition – Morgan Stanley – 2008
Deposits
Commercial paper and short
term borrowings
Total Financial Instruments sold
Securities
Payables
Liabilities and Equity Composition
es and Equity Composition – Morgan Stanley – 2009
Deposits
Commercial paper and short
term borrowings
Total Financial Instruments sold
Securities
Payables
es and Equity Composition – Morgan Stanley – 2010
Deposits
Commercial paper and short
term borrowings
Total Financial Instruments sold
Securities
Payables
MS Data
Cash and Cash Equivalents
cash and due from banks
interest bearing deposits with banks
restricted cash
Trading assets (fair value)
Investment securities (fair value)
Securities purchases under agreements to resell (fair value)
Securities borrowed
Customer and other receivables
Loans
held for investment
held for sale
Goodwill
Intangible assets
Other assets
TOTAL ASSETS
2019
82,171
4,293
45,366
32,512
297,110
105,725
88,224
106,549
55,646
130,637
118,060
12,577
7,143
2,107
20,117
895,429
2020
105,654
2021
127,725
312,738
182,154
116,234
112,391
97,737
150,597
137,784
12,813
11,635
4,980
21,742
1,115,862
294,869
182,998
119,999
129,713
96,018
188,134
174,302
13,832
16,833
8,360
23,941
1,188,140
Desposits
Trading liabilities (fair value)
Securities sold under agreements to repurchase (fair value)
Securities loaned
Other secured financings (fair value)
Cusotmer and other payables
Other liabilities and accrued expenses
TOTAL LIABILITIES
190,356
133,356
54,200
8,506
14,698
197,834
21,155
192,627
812,732
310,782
157,631
50,587
7,731
15,863
227,437
25,603
217,079
1,012,713
347,574
158,328
62,188
12,299
10,041
228,685
29,300
233,127
1,081,542
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Employee stock trusts
Accumulated other comprehensive income (loss)
Common stock held in treasury
Common stock issued to employee stock trusts
TOTAL SHAREHOLDERS EQUITY
Noncontrolling interests
TOTAL EQUITY
8,520
20
23,935
70,589
2,918
-2,788
-18,727
-2,918
81,549
1,148
82,597
9,250
20
25,546
78,694
3,043
-1,962
-9,767
-3,043
101,781
1,368
103,149
7,750
20
28,841
89,432
3,955
-3,102
-17,500
-3,955
105,441
1,157
106,598
TOTAL LIABILITIES AND EQUITY
895,429
1,115,862
1,188,140
Borrowings
CONSOLIDATED INCOME STATEMENTS INFORMATION
REVENUES
Investment banking
trading
investments
commisisons and fees
asset management
other
Total non-interest revenues
interest income
interest expense
net interest
NET REVENUE
provision for credit losses
Non-interest expenses
Compensation and benefits
Brokerage, clearing and exchange fees
Information processing and communications
Professional services
Occupancy and equipment
Marketing and business development
Other
TOTAL NON-INTEREST EXPENSES
Income before provision for income taxes
Provision for income taxes
Net income
Net income applicable to non-controlling interests
Net income applicable to Morgan Stanley
Preferred stock dividends
Earnings applicable to Morgan Stanley common shareholders
6,163
11,274
1,540
3,919
13,083
865
36,844
17,098
12,404
4,694
41,538
161
7,674
13,983
986
4,851
14,272
678
42,444
10,162
3,849
6,313
48,757
761
10,994
12,810
1,376
5,521
19,967
1,042
51,710
9,411
1,366
8,045
59,755
4
18,837
2,493
2,194
2,137
1,428
660
2,327
30,076
11,301
2,064
9,237
195
9,042
530
8,512
20,854
2,929
2,465
2,205
1,559
434
3,132
33,578
14,418
3,239
11,179
183
10,996
496
10,500
24,628
3,341
3,119
2,933
1,725
643
3,694
40,083
19,668
4,548
15,120
86
15,034
468
14,566
Earning per common share
basic
diluted
5.26
5.19
6.55
6.46
8.16
8.03
Average common shares outstanding
basic
diluted
1,617
1,640
1,603
1,624
1,785
1,814
9,237
11,179
15,120
3
170
-331
CONSOLIDATED COMPREHENSIVE INCOME STATEMENT
Net income
Other comprehensive incomem net of tax:
Foreign currency translation adjustments
change in net unrealised gains on available-for-sale securities 1,137
pension and other
-66
change in net debt valuation adjustment
-1,639
Total other comprehensive income
-565
coprehensive income
8,672
net income applicable to noncontrolling itnerests
195
other comprehensive income applicalbe to noncontrolling interests -69
comprehensive income applicable to Morgan Stanley
8,546
1,580
146
-1,028
868
12,047
183
42
11,822
-1,542
-53
696
-1,239
13,890
86
-90
13,894
Percentages of Totals
2019
9.18%
2020
9.47%
2021
10.75%
33.18%
33.56%
20.80%
3.28%
28.03%
36.81%
22.25%
3.44%
24.82%
36.42%
23.92%
4.14%
21.26%
27.85%
29.25%
14.89%
8.64%
22.09%
2.36%
21.51%
9.22%
99.99%
14.13%
6.65%
20.38%
2.29%
19.45%
9.24%
100.00%
13.33%
7.11%
19.25%
2.47%
19.62%
8.97%
100.00%
9.11%
9.12%
8.87%
11.70%
13.10%
2019
2020
Cash
Interest Bearing deposits with banks
Trading assets
Securities
Receivables
Other Assets
Deposits
Commercial paper and short term borrowings
Total Financial Instruments sold
Securities
Payables
Other liabilities and accrued expenses
Borrowings
Shareholders Equity
Shareholders Equity
Balance Sheet ROE
Calculated ROE (NI/Total E)
Calculated ROE (ROA * EM)
ROA
EM (TA/TEq)
PM (NI/OI)
AU(OI/TA)
Int Inc / TA
non-int inc/TA
int exp/OI
non-int inc / OI
11.18%
11.18%
1.03%
10.84
38.70%
2.67%
1.91%
0.76%
51.97%
28.36%
10.84%
10.84%
1.00%
10.82
58.75%
1.71%
0.91%
0.79%
20.23%
46.59%
Interest income
interst expense
net interest
total assets
total equity
17,098
12,404
4,694
895,429
82,597
10,162
3,849
6,313
1,115,862
103,149
operating inc
23,866
19,028
net income
9,237
11,179
non-interest income (non-interest 6,768
revenue – non-interest
8,866
expenses)
Asset Composition – Morgan Stanley – 2019
Cash
Interest Bearing deposits with
banks
Trading assets
Securities
Receivables
Other Assets
Liabilities and Equity Composition – Morgan Stanley – 2019
15.00%
2021
14.18%
14.18%
1.27%
11.15
71.87% ***way too high??
1.77% **too low?
0.79%
0.98%
6.49%
55.27%
9,411
1,366
8,045
1,188,140
106,598
21,038
15,120
11,627
Liabilities and Equity Composition
Asset Composition – Morgan Stanley – 2020
Cash
eposits with
Interest Bearing deposits with
banks
Trading assets
Securities
Receivables
Other Assets
Liabilities and Equity Composition
Deposits
Commercial paper and short term
borrowings
Total Financial Instruments sold
Securities
Payables
Other liabilities and accrued expenses
Borrowings
Shareholders Equity
d Equity Composition – Morgan Stanley – 2020
Deposits
Commercial paper and short term
borrowings
Total Financial Instruments sold
Securities
Payables
Other liabilities and accrued expenses
Borrowings
Shareholders Equity
Asset Composition – Morgan Stanley – 2021
Cash
Interest Bearing deposits with
banks
Trading assets
Securities
Receivables
Other Assets
and Equity Composition – Morgan Stanley – 2021
Deposits
Commercial paper and short term
borrowings
Total Financial Instruments sold
Securities
Payables
Other liabilities and accrued expenses
Borrowings
Shareholders Equity
Assets Composition – Morgan Stanley – 2007
Cash
Interest Bearing deposits with
banks
Trading Assets
Securities
Receivables
Assets Composition – Morgan Stanley – 2008
Cash
Interest Bearing deposits with banks
Trading Assets
Securities
Securities
Receivables
Other Assets
Assets Composition – Morgan Stanley – 2009
Cash
Interest Bearing deposits with banks
Trading Assets
Securities
Receivables
Other Assets
Assets Composition – Morgan Stanley – 2010
Cash
Interest Bearing deposits with banks
Trading Assets
Securities
Receivables
Other Assets
eposits with
osits with banks
Liabilities and Equity Composition – Morgan Stanley – 2007
Deposits
Commercial paper and short term borrowings
Total Financial Instruments sold
Securities
Payables
Other liabilities and accrued expenses
Long term borrowings
Liabilities and Equity Composition – Morgan Stanley – 2008
Deposits
Commercial paper and short term borrowings
Total Financial Instruments sold
Securities
s with banks
Payables
Other liabilities and accrued expenses
Long term borrowings
Liabilities and Equity Composition – Morgan Stanley – 2009
Deposits
Commercial paper and short term borrowings
Total Financial Instruments sold
Securities
Payables
Other liabilities and accrued expenses
Long term borrowings
s with banks
Liabilities and Equity Composition – Morgan Stanley – 2010
Deposits
Commercial paper and short term borrowings
Total Financial Instruments sold
Securities
Payables
Other liabilities and accrued expenses
Long term borrowings
Asset Liability Composition
Student’s Name
Instructor Affiliated
Table of Contents
Introduction ……………………………………………………………………………………………………………………. 3
Composition of Assets and Liabilities ……………………………………………………………………………….. 3
Changes during the Global Financial Crisis 2007-2010 ……………………………………………………….. 4
Asset Composition ………………………………………………………………………………………………………. 4
Liability Composition ………………………………………………………………………………………………….. 7
Changes during Covid-19 2019-2021 ………………………………………………………………………………. 10
Asset Composition …………………………………………………………………………………………………….. 10
Liability Composition ………………………………………………………………………………………………… 11
Conclusion …………………………………………………………………………………………………………………… 14
References ……………………………………………………………………………………………………………………. 16
Introduction
Morgan Stanley, a prominent global financial institution, experienced two significant
periods of economic upheaval: the Global Financial Crisis (GFC) from 2007 to 2010 and the
Covid-19 pandemic from 2019 to 2021. In this analysis, we will delve into the asset and liability
compositions of Morgan Stanley during these specific time frames, meticulously examining the
changes that took place. By examining the pre-crisis and crisis-era asset and liability
compositions, we can acquire invaluable insights into the institution’s strategic management
decisions and the financial theories that influenced these adjustments. In the midst of the Global
Financial Crisis, Morgan Stanley encountered a turbulent market environment and responded by
reassessing its asset and liability mix. This entailed notable transformations in the allocation of
financial instruments, including US government and agency securities, corporate stocks, and
liquid assets.
Composition of Assets and Liabilities
To begin our analysis, let’s examine the composition of the assets and liabilities of
Morgan Stanley prior to the GFC in 2007 and prior to the Covid-19 pandemic in 2019. The
provided data includes the percentages of total assets and liabilities for the years 2007, 2008,
2009, and 2010.
Prior to the GFC in 2007, Morgan Stanley’s asset composition primarily consisted of
financial instruments owned (35.868% of total assets), US government and agency securities
(42.96% of total assets), and corporate equities (10.74% of total assets). Other components
included cash and cash equivalents (8.342% of total assets) and physical commodities (0.296%
of total assets).
On the liability side, deposits (3.3% of total liabilities), commercial paper and short-term
borrowings (2.98% of total liabilities), and long-term borrowings (18.23% of total liabilities)
were the key components. Other liabilities and accrued expenses accounted for 2.35% of total
liabilities (Gorton, 2010).
Similarly, prior to the Covid-19 pandemic in 2019, Morgan Stanley’s asset composition
featured financial instruments owned (42.25% of total assets), securities (20.49% of total assets),
and receivables (7.91% of total assets). Cash and cash equivalents accounted for 10.68% of total
assets.
On the liability side, deposits (6.49% of total liabilities), commercial paper and shortterm borrowings (1.59% of total liabilities), and long-term borrowings (24.81% of total
liabilities) were the major components. Other liabilities and accrued expenses accounted for
2.5% of total liabilities.
Changes during the Global Financial Crisis 2007-2010
Asset Composition (Describe in 2-3 sentences for each variable what the bank should do with
the changes of these variables)
a) Trading Assets: The percentage of total assets allocated to financial instruments
owned increased from 35.868% in 2007 to 42.25% in 2008 (Refer Figure 1 and Figure 2). This
shift indicates that Morgan Stanley sought to reposition its investment portfolio and manage risks
associated with market volatility during the crisis.
b) Securities: The percentage of total assets allocated to US government and agency
securities witnessed a decrease from 42.96% in 2007 to 24.86% in 2008 and then increase up to
41.25% 2010, indicating a reduction in the institution’s exposure to securities backed by the
government and associated agencies (Refer Figure 1, Figure 2 and Figure 4). This reduction
signifies the institution’s choice to reallocate its investments and reduce exposure to securities
backed by government entities (Diamond & Dybvig, 1983).
c) Receivables: The proportion of total assets allocated to corporate equities remained
relatively stable, ranging from 10.74% in 2007 to 8.01% in 2010 (Refer Figure 1 and Figure 4).
d) Cash and Cash Equivalents: The percentage of total assets accounted for by cash and
cash equivalents declined from 8.342% in 2007 to 3.98% in 2009. This decrease reflects the
institution’s deployment of cash resources to manage the crisis and address liquidity concerns
(Refer Figure 1 and Figure 3).
Assets Composition – Morgan Stanley – 2007
Cash
2.090%
10.740%
8.342%
Interest Bearing
deposits with banks
Trading Assets
35.868%
42.960%
Securities
Receivables
Other Assets
Figure 1: Asset Composition of Morgan Stanley in 2007
Assets Composition – Morgan Stanley – 2008
7.91%
Cash
4.08%
10.68%
Interest Bearing
deposits with banks
10.23%
Trading Assets
24.86%
Securities
42.25%
Receivables
Other Assets
Figure 2: Asset Composition of Morgan Stanley in 2008
Assets Composition – Morgan Stanley – 2009
6.71%
5.17% 3.98%
3.24%
Cash
Interest Bearing
deposits with banks
Trading Assets
38.86%
42.05%
Securities
Receivables
Other Assets
Figure 3: Asset Composition of Morgan Stanley in 2009
Assets Composition – Morgan Stanley – 2010
4.49% 3.28%
4.99%
8.01%
Cash
Interest Bearing
deposits with banks
Trading Assets
37.98%
41.25%
Securities
Receivables
Other Assets
Figure 4: Asset Composition of Morgan Stanley in 2010
Liability Composition (Describe in 2-3 sentences for each variable what the bank should do
with the changes of these variables)
a) Long-Term Borrowings: The percentage of total liabilities represented by long-term
borrowings increased from 18.23% in 2007 to 25.07% in 2009, indicating Morgan Stanley’s
reliance on long-term borrowing options to secure funds during the crisis (Refer Figure 5 and
Figure 7).
b) Deposits: The proportion of total liabilities attributed to deposits experienced an
increase from 3.3% in 2007 to 6.49% in 2008 (Refer Figure 5 and Figure 6).
c) Commercial Paper and Short-Term Borrowings: The proportion of total liabilities
accounted for by other liabilities and accrued expenses ranged from 2.35% in 2007 to 2.05% in
2010, showing a slightly decrease trend (Refer Figure 5 and Figure 8).
d) Other Liabilities and Accrued Expenses: The proportion of total liabilities
accounted for by other liabilities and accrued expenses ranged from 2.35% in 2007 to 2.05% in
2010, showing a slightly decrease trend (Refer Figure 5 and Figure 8).
Liabilities and Equity Composition – Morgan Stanley 2007
Deposits
Commercial paper and
short term borrowings
Total Financial
Instruments sold
Securities
Payables
Other liabilities and
accrued expenses
Long term borrowings
Shareholders Equity
Figure 5: Liability Composition of Morgan Stanley in 2007
Liabilities and Equity Composition – Morgan Stanley – 2008
Deposits
Commercial paper and
short term borrowings
Total Financial
Instruments sold
Securities
Payables
Other liabilities and
accrued expenses
Long term borrowings
Figure 6: Liability Composition of Morgan Stanley in 2008
Liabilities and Equity Composition – Morgan Stanley – 2009
Deposits
Commercial paper and
short term borrowings
Total Financial
Instruments sold
Securities
Payables
Other liabilities and
accrued expenses
Long term borrowings
Shareholders Equity
Figure 7: Liability Composition of Morgan Stanley in 2009
Liabilities and Equity Composition – Morgan Stanley – 2010
Deposits
Commercial paper and
short term borrowings
Total Financial
Instruments sold
Securities
Payables
Other liabilities and
accrued expenses
Long term borrowings
Shareholders Equity
Figure 8: Liability Composition of Morgan Stanley in 2010
Changes during Covid-19 2019-2021
Asset Composition (Describe in 2-3 sentences for each variable what the bank should do with
the changes of these variables)
a) Financial Instruments Owned: The percentage of total assets allocated to financial
instruments owned decreased from 14.89% in 2019 to 14.13% in 2020 (Refer Figure 9 and
Figure 10). This decline indicates the institution’s strategic decision to reduce its exposure to
certain financial instruments in response to market volatility and risk management considerations
during the pandemic.
b) Securities: The proportion of total assets represented by securities slightly increased,
ranging from 33.56% in 2019 to 36.81% in 2020 (Refer Figure 9 and Figure 10).
c) Receivables: The percentage of total assets accounted for by receivables experienced a
slight increase from 20.80% in 2019 to 23.92% in 2021 (Refer Figure 9 and Figure 11).
d) Cash and Cash Equivalents: The proportion of total assets attributed to cash and
cash slightly increased from 9.18% in 2019 to 10.75% in 2021 (Refer Figure 9 and Figure 11).
This suggests the institution’s focus on maintaining liquidity in response to the economic
uncertainties brought about by the pandemic (Calomiris & Kahn, 1991).
Asset Composition – Morgan Stanley – 2019
Cash
Interest Bearing
deposits with banks
Trading assets
Securities
Receivables
Other Assets
Figure 9: Asset Composition of Morgan Stanley in 2019
Asset Composition – Morgan Stanley – 2020
Cash
Interest Bearing
deposits with banks
Trading assets
Securities
Receivables
Other Assets
Figure 10: Asset Composition of Morgan Stanley in 2020
Asset Composition – Morgan Stanley – 2021
Cash
Interest Bearing
deposits with banks
Trading assets
Securities
Receivables
Other Assets
Figure 11: Asset Composition of Morgan Stanley in 2021
Liability Composition
a) Long-Term Borrowings: Morgan Stanley’s long-term borrowings decreased from
21.51% in 2019 to 19.62% in 2021 (Refer Figure 12 and Figure 14). This means that the
company’s reliance on long-term debt to finance its operations decreased over this period. There
are a number of possible reasons for this decrease. The decrease in Morgan Stanley’s long-term
borrowings is a positive sign for the company. It indicates that the company is becoming more
financially independent and that it is better able to manage its debt load. This could make it a
more attractive investment for shareholders and creditors alike.
b) Deposits: The increase in the proportion of total liabilities represented by deposits
from 21.26% in 2019 to 27.85% in 2020 is a positive sign for Morgan Stanley (Refer Figure12
and Figure 13). This shift may reflect changes in customer behavior and deposit preferences
during the Covid-19 pandemic. It indicates that the company is becoming more reliant on
customer deposits to finance its operations. This is a more stable source of funding than debt, and
it is also less expensive. Here are some of the benefits of using deposits to finance operations:
•
Deposits are a more stable source of funding than debt. This is because deposits are not
subject to the same volatility as interest rates.
•
Deposits are also a less expensive source of funding than debt. This is because banks
typically pay lower interest rates on deposits than they do on debt (Brunnermeier &
Pedersen, 2009).
•
Using deposits to finance operations can help a company improve its credit rating. This is
because a higher proportion of deposits in a company’s capital structure indicates that the
company is less reliant on debt.
c) Other Liabilities and Accrued Expenses: The proportion of total liabilities
accounted for by other liabilities and accrued expenses remained relatively stable, ranging from
2.36% in 2019 to 2.47% in 2021 (Refer Figure 12 and Figure 14). These liabilities typically
encompass various obligations, such as trade payables, accrued expenses, and other liabilities not
separately categorized. The stability in the percentage of other liabilities and accrued expenses
suggests that their magnitude remained relatively constant during the analyzed period (Acharya
et al., 2010). It indicates that Morgan Stanley effectively managed these obligations and
maintained consistency in its liability structure despite the disruptive economic conditions
caused by the pandemic.
d) Securities Sold Under Agreements to Repurchase: The proportion of total liabilities
assigned to securities slightly decrease from 8.64% in 2019 to 7.11% in 2021 (Refer Figure 12
and Figure 14). This means that Morgan Stanley is using a smaller proportion of its liabilities to
finance its investments in securities. the decrease in the proportion of total liabilities assigned to
securities is a positive sign for Morgan Stanley. It indicates that the company is becoming more
financially independent and that it is better able to manage its debt load. This could make it a
more attractive investment for shareholders and creditors alike (Acharya et al., 2010).
Liabilities and Equity Composition – Morgan Stanley
2019
Deposits
Commercial paper and
short term borrowings
Total Financial Instruments
sold
Securities
Payables
Other liabilities and accrued
expenses
Borrowings
Figure 12: Liability Composition of Morgan Stanley in 2019
Liabilities and Equity Composition – Morgan Stanley – 2020
Deposits
Commercial paper and
short term borrowings
Total Financial Instruments
sold
Securities
Payables
Other liabilities and
accrued expenses
Borrowings
Figure 13: Liability Composition of Morgan Stanley in 2020
Liabilities and Equity Composition – Morgan Stanley – 2021
Deposits
Commercial paper and short
term borrowings
Total Financial Instruments
sold
Securities
Payables
Other liabilities and accrued
expenses
Borrowings
Shareholders Equity
Figure 14: Liability Composition of Morgan Stanley in 2021
Conclusion
In conclusion, the analysis of Morgan Stanley’s asset and liability composition during the
Global Financial Crisis (2007-2010) and the Covid-19 pandemic (2019-2021) sheds light on the
institution’s strategic management decisions and their response to economic challenges.
Throughout these periods, Morgan Stanley implemented changes to its asset and liability mix,
reflecting its proactive approach to navigating turbulent market conditions. During the Global
Financial Crisis, the institution adjusted its portfolio by increasing its holdings of financial
instruments while reducing cash and cash equivalents. This strategic shift aimed to optimize
returns and mitigate risks during a time of market volatility. On the other hand, the Covid-19
pandemic prompted a different set of adjustments, with Morgan Stanley increasing its cash
holdings and reducing the proportion of financial instruments owned. These actions likely aimed
to enhance liquidity and ensure stability amidst the economic uncertainties brought about by the
pandemic.
References
Acharya, V. V., Engle, R. F., & Richardson, M. (2010). Capital shortfalls and systemic risk.
Journal of Financial Intermediation, 19(1), 4–21.
Brunnermeier, M. K., & Pedersen, L. H. (2009). Systemic risk and macroprudential regulation.
Review of Financial Studies, 22(9), 3795-3863.
Calomiris, C. W., & Kahn, R. A. (1991). The efficiency of markets for financial intermediaries
and the role of government guarantees. The American Economic Review, 81(4), 865-888.
Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity creation.
Journal of Political Economy, 91(3), 401-419.
Gorton, G. (2010). Slapped by the invisible hand: The Panic of 2007 and the new financial order.
Oxford University Press.
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