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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 June 30, 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,

NY

10036

(I.R.S. Employer Identification No.)

(Registrant’s telephone number, including area code)

(Address of principal executive offices, including zip code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class			Trading Symbol(s)			Name of exchange on which registered
Common Stock, $0.01 par value			MS			New York Stock Exchange
Depositary Shares, each representing 1/1,000th interest in a share of Floating Rate			MS/PA			New York Stock Exchange
Non-Cumulative Preferred Stock, Series A, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate			MS/PE			New York Stock Exchange
Non-Cumulative Preferred Stock, Series E, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate			MS/PF			New York Stock Exchange
Non-Cumulative Preferred Stock, Series F, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate			MS/PI			New York Stock Exchange
Non-Cumulative Preferred Stock, Series I, $0.01 par value
Depositary Shares, each representing 1/1,000th interest in a share of Fixed-to-Floating Rate			MS/PK			New York Stock Exchange
Non-Cumulative Preferred Stock, Series K, $0.01 par value
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)

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 July 30, 2021, there were 1,824,561,070 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

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Table of Contents

QUARTERLY REPORT ON FORM 10-Q

For the quarter ended June 30, 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												7
Institutional Securities												8
Wealth Management												11
Investment Management												14
Supplemental Financial Information												16
Accounting Development Updates												16
Critical Accounting Policies												16
Liquidity and Capital Resources												16
Balance Sheet												16
Regulatory Requirements												20
Quantitative and Qualitative Disclosures about Risk						I			3			26
Market Risk												26
Credit Risk												28
Country and Other Risks												33
Report of Independent Registered Public Accounting Firm												35
Consolidated Financial Statements and Notes						I			1			36
Consolidated Income Statements (Unaudited)												36
Consolidated Comprehensive Income Statements (Unaudited)												36
Consolidated Balance Sheets (Unaudited at June 30, 2021)												37
Consolidated Statements of Changes in Total Equity (Unaudited)												38
Consolidated Cash Flow Statements (Unaudited)												39
Notes to Consolidated Financial Statements (Unaudited)												40
1.			Introduction and Basis of Presentation									40
2.			Significant Accounting Policies									41
3.			Acquisitions									41
4.			Cash and Cash Equivalents									42
5.			Fair Values									42
6.			Fair Value Option									48
7.			Derivative Instruments and Hedging Activities									49
8.			Investment Securities									52
9.			Collateralized Transactions									54
10.			Loans, Lending Commitments and Related Allowance for Credit Losses									56
11.			Other Assets—Equity Method Investments									58
12.			Deposits									58
13.			Borrowings and Other Secured Financings									58
14.			Commitments, Guarantees and Contingencies									59
15.			Variable Interest Entities and Securitization Activities									61
16.			Regulatory Requirements									63
17.			Total Equity									65
18.			Interest Income and Interest Expense									67
19.			Income Taxes									67
20.			Segment, Geographic and Revenue Information									68
Financial Data Supplement (Unaudited)												71
Glossary of Common Terms and Acronyms												72
Other Information						II						73
Legal Proceedings						II			1			73
Risk Factors						II			1A			73
Unregistered Sales of Equity Securities and Use of Proceeds						II			2			73
Controls and Procedures						I			4			73
Exhibits						II			6			73
Signatures												74

			i

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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

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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 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 and project finance. Our Equity and Fixed Income businesses include sales, financing, prime brokerage, market-making, Asia wealth management services and certain business-related investments. Lending activities include originating corporate loans and commercial real estate loans, providing secured lending facilities, and extending securities-based and other financing to customers. Other activities include research.

Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small to medium-sized businesses and institutions covering: financial advisor-led brokerage and investment advisory services; self-directed brokerage services; financial and wealth planning services; workplace services including stock plan administration; annuity and insurance products; securities-based lending, residential real estate loans and other lending products; banking; and retirement plan services.

Investment Management provides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products, which are offered through a variety of investment vehicles, include equity, fixed income, alternatives and solutions, and liquidity and overlay services. Institutional clients include defined benefit/defined contribution plans, foundations, endowments, government entities, sovereign wealth funds, insurance companies, third-party fund sponsors and corporations. Individual clients are generally served through intermediaries, including affiliated and non-affiliated distributors.

Management’s Discussion and Analysis includes certain metrics that we believe to be useful to us, investors, analysts and other stakeholders by providing further transparency about, or an additional means of assessing, our financial condition and operating results. Such metrics, when used, are defined and may be different from or inconsistent with metrics used by other companies.

The results of operations in the past have been, and in the future may continue to be, materially affected by: competition; risk factors; legislative, legal and regulatory developments; and other factors. These factors also may have an adverse impact on our ability to achieve our strategic objectives. Additionally, the discussion of our results of operations herein may contain forward-looking statements. These statements, which reflect management’s beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of the risks and uncertainties that may affect our future results, see “Forward-Looking Statements,” “Business—Competition,” “Business—Supervision and Regulation,” and “Risk Factors” in the 2020 Form 10-K, and “Liquidity and Capital Resources—Regulatory Requirements” herein.

June 2021 Form 10-Q			1

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Table of Contents
Management’s Discussion and Analysis

Executive Summary

Overview of Financial Results

Consolidated Results—Three Months Ended June 30, 2021

•Firm Net revenues were up 8% and Net income applicable to Morgan Stanley was up 10%, with strong contributions from each of our three business segments, and resulting in an annualized ROTCE of 18.6%, or 19.0% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein).

•The Firm expense efficiency ratio was 69%, or 68% excluding the impact of integration-related expenses (see “Selected Non-GAAP Financial Information” herein).

•At June 30, 2021, our standardized Common Equity Tier 1 capital ratio was 16.6%.

•The Firm doubled its quarterly common stock dividend to $0.70 per share and increased its share repurchase authorization of outstanding common stock up to $12 billion over the next 12 months.

•Institutional Securities Net revenues of $7.1 billion reflect strong results as clients remained active across Investment banking and Equity.

•Wealth Management delivered a pre-tax margin of 26.8%, or 27.8% excluding integration-related expenses (see “Selected Non-GAAP Financial Information” herein). Results reflect higher asset management fees, growth in bank lending, as well as net new assets of $71 billion and fee-based flows of $34 billion.

•Investment Management results reflect strong asset management fees on AUM of $1.5 trillion, which includes $13.5 billion of positive long-term net flows across all asset classes.

Net Revenues1

($ 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 Share1

1.Adjusted Diluted EPS for the current quarter and the current year period were $1.89 and $4.11, respectively (see “Selected Non-GAAP Financial Information” herein).

We reported net revenues of $14.8 billion in the quarter ended June 30, 2021 (“current quarter,” or “2Q 2021”), compared with $13.7 billion in the quarter ended June 30, 2020 (“prior year quarter,” or “2Q 2020”). For the current quarter, net income applicable to Morgan Stanley was $3.5 billion, or $1.85 per diluted common share, compared with $3.2 billion or $1.96 per diluted common share, in the prior year quarter.

We reported net revenues of $30.5 billion in the six months ended June 30, 2021 (“current year period,” or “YTD 2021”), compared with $23.4 billion in the period ended June 30, 2020 (“prior year period,” or “YTD 2020”). For the current period, net income applicable to Morgan Stanley was $7.6 billion, or $4.04 per diluted common share, compared with $4.9 billion or $2.96 per diluted common share, in the prior year period.

			2			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

Non-interest Expenses1, 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 $6,423 million in the current quarter increased 6% from the prior year quarter, primarily as a result of increases in the formulaic payout to Wealth Management representatives driven by higher compensable revenues and incremental compensation as a result of the E*TRADE and Eaton Vance acquisitions, partially offset by a decrease in discretionary incentive compensation driven by lower net revenues in the Institutional Securities business segment.

Compensation and benefits expenses of $13,221 million in the current year period increased 28% from the prior year period, primarily as a result of an increase in the formulaic payout to Wealth Management representatives driven by higher compensable revenues, incremental compensation as a result of the E*TRADE and Eaton Vance acquisitions, higher discretionary incentive compensation driven by revenues, and higher expenses related to certain deferred compensation plans linked to investment performance and the Firm’s share price.

•Non-compensation expenses of $3,697 million in the current quarter increased 22% from the prior year quarter,

primarily due to incremental expenses as a result of the E*TRADE and Eaton Vance acquisitions, as well as higher professional services expenses and higher investments in technology.

Non-compensation expenses of $7,372 million in the current year period increased 23% from the prior year period, primarily driven by incremental expenses as a result of the E*TRADE and Eaton Vance acquisitions, higher volume-related expenses, higher investments in technology, as well as higher professional services expenses.

Provision for Credit Losses

The Provision for credit losses on loans and lending commitments in the current quarter was $73 million, primarily driven by one secured lending facility. The Provision for credit losses on loans and lending commitments of $239 million in the prior year quarter was primarily driven by deterioration in the expected macroeconomic environment at that time.

The Provision for credit losses on loans and lending commitments in the current year period was a net release of $25 million, primarily as a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on corporate loans, including by lower-rated borrowers, partially offset by the provision for one secured lending facility in the current quarter. The Provision for credit losses on loans and lending commitments of $646 million in the prior year period was primarily driven by deterioration in the expected macroeconomic environment at that time.

For further information on the Provision for credit losses, see “Credit Risk” herein.

Income Taxes

The Firm’s effective tax rate of 23.1% is lower in the current quarter compared with the prior year quarter primarily due to the remeasurement of reserves and interest related to a foreign tax matter in the prior year quarter.

June 2021 Form 10-Q			3

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Table of Contents
Management’s Discussion and Analysis

Business Segment Results

Net Revenues by Segment1, 2

($ in millions)

Net Income Applicable to Morgan Stanley by Segment1

($ in millions)

1.The percentages on the bars in the charts represent the contribution of each business segment to the total of the applicable financial category and may not sum to 100% due to intersegment eliminations. See Note 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 $7,092 million in the current quarter decreased 14% from the prior year quarter, primarily reflecting lower Fixed income revenues as markets normalized compared to the prior year quarter. Net revenues of $15,669 million in the current year period increased 17% from the prior year period, primarily reflecting higher underwriting and Equity business revenues.

•Wealth Management net revenues of $6,095 million in the current quarter increased 30% from the prior year quarter and net revenues of $12,054 million in the current year period increased 38% from the prior year period, both primarily due to higher Asset management revenues and incremental revenues as a result of the E*TRADE acquisition.

•Investment Management net revenues of $1,702 million in the current quarter increased 92% from the prior year

			4			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

quarter and net revenues of $3,016 million in the current year period increased 91% from the prior year period, both primarily due to higher Asset management and related fees, including incremental revenues related to the Eaton Vance acquisition, as well as higher Performance-based income and other revenues.

Net Revenues by Region1, 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.

Americas net revenues in the current quarter increased 9% from the prior year quarter, primarily driven by the Wealth Management business segment. Asia net revenues increased 11% from the prior year quarter, primarily driven by the Equity business within the Institutional Securities business segment.

Americas net revenues in the current year period increased 31% from the prior year period, primarily driven by the Wealth Management business segment and the Investment banking business within the Institutional Securities business segment. EMEA net revenues increased 29% and Asia net revenues increased 26% from the prior year period, both primarily driven by the Equity and Investment banking businesses within the Institutional Securities business segment.

Selected Financial Information and Other Statistical Data

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Consolidated results
Net revenues1			$	14,759		$	13,660		$	30,478		$	23,439
Earnings applicable to Morgan Stanley common shareholders			$	3,408		$	3,047		$	7,390		$	4,637
Earnings per diluted common share			$	1.85		$	1.96		$	4.04		$	2.96
Consolidated financial measures
Expense efficiency ratio1, 2			69		%	66		%	68		%	70		%
Adjusted expense efficiency ratio1,2,4			68		%	66		%	67		%	70		%
ROE3			13.8		%	15.7		%	15.3		%	12.2		%
Adjusted ROE3, 4			14.1		%	15.7		%	15.6		%	12.2		%
ROTCE3, 4			18.6		%	17.8		%	19.8		%	13.9		%
Adjusted ROTCE3, 4			19.0		%	17.8		%	20.1		%	13.9		%
Pre-tax margin1, 5			31		%	32		%	33		%	28		%
Effective tax rate			23.1		%	25.7		%	22.5		%	22.8		%
Pre-tax margin by segment5
Institutional Securities1			35		%	37		%	37		%	29		%
Wealth Management1			27		%	24		%	27		%	25		%
Wealth Management, adjusted1, 4			28		%	24		%	28		%	25		%
Investment Management			25		%	24		%	27		%	23		%
Investment Management, adjusted4			27		%	24		%	28		%	23		%

in millions, except per share and employee data			At June 30, 2021			At December 31, 2020
Liquidity resources6			$	343,776		$	338,623
Loans7			$	166,059		$	150,597
Total assets			$	1,161,805		$	1,115,862
Deposits			$	320,358		$	310,782
Borrowings			$	224,142		$	217,079
Common shares outstanding			1,834			1,810
Common shareholders' equity			$	99,120		$	92,531
Tangible common shareholders’ equity4			$	73,593		$	75,916
Book value per common share8			$	54.04		$	51.13
Tangible book value per common share4, 8			$	40.12		$	41.95
Worldwide employees9 (in thousands)			72			68
Capital Ratios10
Common Equity Tier 1 capital—Standardized			16.6		%	17.4		%
Tier 1 capital—Standardized			18.3		%	19.4		%
Common Equity Tier 1 capital—Advanced			17.7		%	17.7		%
Tier 1 capital—Advanced			19.5		%	19.8		%
Tier 1 leverage			7.5		%	8.4		%
SLR11			5.9		%	7.4		%

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 ACL, 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 June 30, 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 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.

June 2021 Form 10-Q			5

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Table of Contents
Management’s Discussion and Analysis

Coronavirus Disease (“COVID-19”) Pandemic

Since its onset, the COVID-19 pandemic has had a significant impact on global economic conditions and the environment in which we operate our businesses and it may continue to do so in the future. Though many of our employees have been working from home for some time, we are preparing for our employees to return to work in our offices on a more regular basis, and an increasing number of employees are returning to our offices in certain locations. The Firm continues to be fully operational, with the majority of employees in both the Americas and globally working from home during the current quarter. Recognizing that local conditions vary for our offices around the world and that the trajectory of the virus continues to be uncertain, we may adjust our plans for employees returning to our offices as deemed necessary.

Refer to “Risk Factors” and “Forward-Looking Statements” in the 2020 Form 10-K for more information on the potential effects of the ongoing COVID-19 pandemic on our future operating results.

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 June 30,						Six Months Ended June 30,
$ in millions, except per share data			2021			2020			2021			2020
Earnings applicable to Morgan Stanley common shareholders			$	3,408		$	3,047		$	7,390		$	4,637
Impact of adjustments:
Integration-related expenses			90			—			165			—
Related tax benefit			(21)			—			(38)			—
Adjusted earnings applicable to Morgan Stanley common shareholders—non-GAAP1			$	3,477		$	3,047		$	7,517		$	4,637
Earnings per diluted common share			$	1.85		$	1.96		$	4.04		$	2.96
Impact of adjustments			0.04			—			0.07			—
Adjusted earnings per diluted common share—non-GAAP1			$	1.89		$	1.96		$	4.11		$	2.96
Expense efficiency ratio2			69		%	66		%	68		%	70		%
Impact of adjustments			(1)		%	—		%	(1)		%	—		%
Adjusted expense efficiency ratio—non-GAAP1, 2			68		%	66		%	67		%	70		%
Wealth Management Pre-tax margin2			27		%	24		%	27		%	25		%
Impact of adjustments			1		%	—		%	1		%	—		%
Adjusted Wealth Management pre-tax margin—non-GAAP1, 2			28		%	24		%	28		%	25		%
Investment Management Pre-tax margin			25		%	24		%	27		%	23		%
Impact of adjustments			2		%	—		%	1		%	—		%
Adjusted Investment Management pre-tax margin—non-GAAP1			27		%	24		%	28		%	23		%

$ in millions			At June 30, 2021			At December 31, 2020
Tangible equity
Common shareholders' equity			$	99,120		$	92,531
Less: Goodwill and net intangible assets			(25,527)			(16,615)
Tangible common shareholders' equity—non-GAAP			$	73,593		$	75,916

			Average Monthly Balance
			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Tangible equity
Common shareholders' equity			$	98,824		$	77,598		$	96,309		$	75,992
Less: Goodwill and net intangible assets			(25,611)			(9,268)			(21,738)			(9,246)
Tangible common shareholders' equity—non-GAAP			$	73,213		$	68,330		$	74,571		$	66,746

			Three Months Ended June 30,						Six Months Ended June 30,
$ in billions			2021			2020			2021			2020
Average common equity
Unadjusted—GAAP			$	98.8		$	77.6		$	96.3		$	76.0
Adjusted1—Non-GAAP			98.8			77.6			96.4			76.0
ROE3
Unadjusted—GAAP			13.8		%	15.7		%	15.3		%	12.2		%
Adjusted1—Non-GAAP			14.1		%	15.7		%	15.6		%	12.2		%
Average tangible common equity—Non-GAAP
Unadjusted			$	73.2		$	68.3		$	74.6		$	66.7
Adjusted1			73.2			68.3			74.6			66.7
ROTCE3—Non-GAAP
Unadjusted			18.6		%	17.8		%	19.8		%	13.9		%
Adjusted1			19.0		%	17.8		%	20.1		%	13.9		%

			6			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

Non-GAAP Financial Measures by Business Segment

			Three Months Ended June 30,						Six Months Ended June 30,
$ in billions			2021			2020			2021			2020
Average common equity4
Institutional Securities			$	43.5		$	42.8		$	43.5		$	42.8
Wealth Management			28.6			18.2			28.6			18.2
Investment Management			10.7			2.6			7.1			2.6
ROE5
Institutional Securities			17		%	19		%	20		%	13		%
Wealth Management			17		%	18		%	17		%	18		%
Investment Management			13		%	23		%	17		%	18		%
Average tangible common equity4
Institutional Securities			$	42.9		$	42.3		$	42.9		$	42.3
Wealth Management			13.4			10.4			13.4			10.4
Investment Management			1.0			1.7			1.0			1.7
ROTCE5
Institutional Securities			17		%	20		%	20		%	13		%
Wealth Management			37		%	32		%	36		%	32		%
Investment Management			172		%	36		%	117		%	27		%

1.Adjusted amounts exclude the effect of costs related to the integrations of E*TRADE and Eaton Vance, net of tax as appropriate. The pre-tax adjustments in the current quarter were as follows: Wealth Management—Compensation expenses of $9 million and Non-compensation expenses of $51 million; Investment Management—Compensation expenses of $16 million and Non-compensation expenses of $14 million. The pre-tax adjustments in the current year period were as follows: Wealth Management—Compensation expenses of $39 million and Non-compensation expenses of $85 million; Investment Management— Compensation expenses of $19 million and Non-compensation expenses of $22 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: macroeconomic and market conditions, which may be impacted by the future course of COVID-19; 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; capital levels; and mergers and acquisitions.

See “Risk Factors” in the 2020 Form 10-K for further information on market and economic conditions and their potential effects on our future operating results.

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

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 segment net revenues by income statement line item and 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 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 reported within Other revenues in the income statements. This 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 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.

June 2021 Form 10-Q			7

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Table of Contents
Management’s Discussion and Analysis

Institutional Securities

Income Statement Information

			Three Months Ended June 30,
$ in millions			2021			2020			% Change
Revenues
Advisory			$	664		$	462		44		%
Equity			1,072			882			22		%
Fixed income			640			707			(9)		%
Total Underwriting			1,712			1,589			8		%
Total Investment banking			2,376			2,051			16		%
Equity1			2,827			2,627			8		%
Fixed income1			1,682			3,041			(45)		%
Other1			207			480			(57)		%
Net revenues			$	7,092		$	8,199		(14)		%
Provision for credit losses1			70			217			(68)		%
Compensation and benefits			2,433			2,952			(18)		%
Non-compensation expenses1			2,091			2,037			3		%
Total non-interest expenses1			4,524			4,989			(9)		%
Income before provision for income taxes			2,498			2,993			(17)		%
Provision for income taxes			574			790			(27)		%
Net income			1,924			2,203			(13)		%
Net income applicable to noncontrolling interests			20			17			18		%
Net income applicable to Morgan Stanley			$	1,904		$	2,186		(13)		%

			Six Months Ended June 30,
$ in millions			2021			2020			% Change
Revenues
Advisory			$	1,144		$	824		39		%
Equity			2,574			1,218			111		%
Fixed income			1,271			1,153			10		%
Total Underwriting			3,845			2,371			62		%
Total Investment banking			4,989			3,195			56		%
Equity1			5,702			5,076			12		%
Fixed income1			4,648			5,103			(9)		%
Other1			330			3			N/M
Net revenues1			$	15,669		$	13,377		17		%
Provision for credit losses1			(23)			605			(104)		%
Compensation and benefits			5,547			4,766			16		%
Non-compensation expenses1			4,276			4,063			5		%
Total non-interest expenses1			9,823			8,829			11		%
Income before provision for income taxes			5,869			3,943			49		%
Provision for income taxes			1,310			941			39		%
Net income			4,559			3,002			52		%
Net income applicable to noncontrolling interests			54			59			(8)		%
Net income applicable to Morgan Stanley			$	4,505		$	2,943		53		%

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

Investment Banking Volumes

			Three Months Ended June 30,						Six Months Ended June 30,
$ in billions			2021			2020			2021			2020
Completed mergers and acquisitions1			$	141		$	433		$	370		$	552
Equity and equity-related offerings2, 3			31			36			68			49
Fixed income offerings2, 4			100			121			204			214

Source: Refinitiv data as of July 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 $2,376 million in the current quarter increased 16% compared with the prior year quarter, primarily reflecting an increase in advisory and equity underwriting revenues.

•Advisory revenues increased primarily due to an increase in the number of completed transactions.

•Equity underwriting revenues increased primarily in initial public offerings on higher volumes, partially offset by lower revenues from convertible issuances and follow-on offerings.

•Fixed income underwriting revenues decreased primarily due to lower investment grade and non-investment grade bond issuances, partially offset by increases in non-investment grade loans and securitized products.

Revenues of $4,989 million in the current year period increased 56% compared with the prior year period, primarily reflecting an increase in equity underwriting revenues.

•Advisory revenues increased primarily due to an increase in the number of completed transactions.

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

•Fixed income underwriting revenues increased primarily due to increased non-investment grade loan and securitized products activity, partially offset by a decrease in investment grade bond issuances.

See “Investment Banking Volumes” herein.

			8			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

Equity, Fixed Income and Other Net Revenues

Equity and Fixed Income Net Revenues

			Three Months Ended June 30, 2021
									Net Interest2			All Other3
$ in millions			Trading			Fees1									Total
Financing			$	1,138		$	121		$	117		$	3		$	1,379
Execution services			818			636			(45)			39			1,448
Total Equity			$	1,956		$	757		$	72		$	42		$	2,827
Total Fixed Income			$	1,148		$	72		$	417		$	45		$	1,682

			Three Months Ended June 30, 20204
									Net Interest2			All Other3
$ in millions			Trading			Fees1									Total
Financing			$	884		$	115		$	94		$	1		$	1,094
Execution services			948			651			(73)			7			1,533
Total Equity			$	1,832		$	766		$	21		$	8		$	2,627
Total Fixed Income			$	2,468		$	67		$	504		$	2		$	3,041

			Six Months Ended June 30, 2021
									Net Interest2			All Other3
$ in millions			Trading			Fees1									Total
Financing			$	1,783		$	251		$	299		$	6		$	2,339
Execution services			1,932			1,436			(107)			102			3,363
Total Equity			$	3,715		$	1,687		$	192		$	108		$	5,702
Total Fixed Income			$	3,461		$	153		$	856		$	178		$	4,648

			Six Months Ended June 30, 20204
									Net Interest2			All Other3
$ in millions			Trading			Fees1									Total
Financing			$	1,919		$	217		$	57		$	4		$	2,197
Execution services			1,527			1,434			(113)			31			2,879
Total Equity			$	3,446		$	1,651		$	(56)		$	35		$	5,076
Total Fixed Income			$	4,241		$	169		$	832		$	(139)		$	5,103

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, Fixed Income and Other Net Revenues—Current Quarter

Equity

Net revenues of $2,827 million in the current quarter increased 8% compared with the prior year quarter, reflecting an increase in financing revenues partially offset by execution services.

•Financing revenues increased, primarily driven by higher average client balances and higher client activity.

•Execution services revenues decreased, primarily due to the impact of market conditions on inventory held to facilitate client activity in derivatives and cash equities, partially offset by higher client activity in derivatives.

Fixed Income

Net revenues of $1,682 million in the current quarter decreased 45% compared with the prior year quarter reflecting lower results across products.

•Global macro products revenues decreased in rates and foreign exchange products primarily due to the effect of tighter bid-offer spreads and lower market volatility compared with the prior year quarter.

•Credit products revenues decreased primarily due to the impact of market conditions on inventory held to facilitate client activity in securitized products compared to particularly strong results in the prior year quarter, as well as the effect of tighter bid-offer spreads and lower client activity in corporate credit products.

•Commodities products and other fixed income revenues decreased, primarily driven by the impact of market conditions on inventory held to facilitate client activity.

Other Net Revenues

Net revenues of $207 million in the current quarter decreased 57% compared with the prior year quarter primarily due to losses, net of related economic hedges, on corporate loans held for sale compared with gains in the prior year quarter.

Net Interest

Net interest revenues of $610 million in the current quarter are included within Equity, Fixed Income, and Other, and increased 7% compared with the prior year quarter primarily driven by lower net costs associated with maintaining liquidity as well as higher revenues from secured lending facilities.

Equity, Fixed Income and Other Net Revenues—Current Year Period

Equity

Net revenues of $5,702 million in the current year period increased 12% compared with the prior year period, primarily reflecting an increase in execution services.

•Financing revenues increased, primarily driven by higher average client balances and higher client activity, partially offset by a credit loss related to a single client in the first quarter of 2021.

•Execution services revenues increased, primarily due to higher client activity and the impact of market conditions on inventory held to facilitate client activity in derivatives, partially offset by trading losses related to the aforementioned credit event.

June 2021 Form 10-Q			9

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Table of Contents
Management’s Discussion and Analysis

Fixed Income

Net revenues of $4,648 million in the current year period decreased 9% compared with the prior year period, primarily driven by global macro products, partially offset by credit products.

•Global macro products revenues decreased in rates and foreign exchange products, primarily due to the effect of tighter bid-offer spreads and lower market volatility compared with the prior year period, 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 across all credit products, partially offset by the effect of tighter bid-offer spreads and lower client activity in corporate credit products compared with the prior year period.

•Commodities products and other fixed income revenues decreased, primarily driven by the impact of market conditions on inventory held to facilitate client activity and lower client activity in Commodities, partially offset by higher counterparty credit risk management results.

Other Net Revenues

Net revenues of $330 million in the current year period increased from the prior year period primarily due to gains from investments associated with certain employee deferred compensation plans compared with losses in the prior year period and lower mark-to-market losses on corporate loans held for sale, net of related economic hedges.

Net Interest

Net interest revenues of $1,248 million in the current year period are included within Equity, Fixed Income, and Other, and increased 21% compared with the prior year period primarily driven by lower net costs associated with maintaining liquidity as well as higher revenues in secured lending facilities and corporate lending.

Provision for Credit Losses

In the current quarter, the Provision for credit losses on loans and lending commitments was $70 million, primarily driven by one secured lending facility. The Provision for credit losses on loans and lending commitments of $217 million in the prior year quarter was primarily driven by deterioration in the expected macroeconomic environment at that time.

In the current year period, the Provision for credit losses on loans and lending commitments was a net release of $23 million, primarily as a result of improvements in the outlook for macroeconomic conditions and the impact of paydowns on corporate loans, including by lower-rated borrowers, partially offset by the provision for one secured lending facility in the current quarter. The Provision for credit losses

on loans and lending commitments of $605 million in the prior year period was primarily driven by deterioration in the 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 $4,524 million in the current quarter decreased 9% compared with the prior year quarter, primarily reflecting an 18% decrease in Compensation and benefits expenses.

•Compensation and benefits expenses decreased in the current quarter, primarily due to a decrease in discretionary incentive compensation driven by lower revenues.

•Non-compensation expenses increased in the current quarter, primarily due to investments in technology, professional services and volume-related expenses, partially offset by a decrease in litigation expenses.

Non-interest expenses of $9,823 million in the current year period increased 11% compared with the prior year period, primarily reflecting a 16% increase in Compensation and benefits expenses.

•Compensation and benefits expenses increased in the current year period, primarily due to higher expenses related to certain deferred compensation plans linked to the Firm’s share price and investment performance, and an increase in discretionary incentive compensation driven by higher revenues.

•Non-compensation expenses increased in the current year period, primarily due to investments in technology, volume-related expenses and professional services, partially offset by a decrease in litigation expenses.

Income Tax Items

The effective tax rate of 23.0% is lower in the current quarter compared with the prior year quarter primarily due to the remeasurement of reserves and interest related to a foreign tax matter in the prior year quarter.

			10			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

Wealth Management

Income Statement Information

			Three Months Ended June 30,
$ in millions			2021			2020			% Change
Revenues
Asset management			$	3,447		$	2,507		37		%
Transactional1			1,172			1,075			9		%
Net interest			1,255			1,030			22		%
Other1,2			221			92			140		%
Net revenues			6,095			4,704			30		%
Provision for credit losses2			3			22			(86)		%
Compensation and benefits			3,275			2,729			20		%
Non-compensation expenses			1,181			811			46		%
Total non-interest expenses			4,456			3,540			26		%
Income before provision for income taxes			$	1,636		$	1,142		43		%
Provision for income taxes			372			289			29		%
Net income applicable to Morgan Stanley			$	1,264		$	853		48		%

			Six Months Ended June 30,
$ in millions			2021			2020			% Change
Revenues
Asset management			$	6,638		$	5,187		28		%
Transactional1			2,400			1,474			63		%
Net interest			2,640			1,926			37		%
Other1,2			376			173			117		%
Net revenues			12,054			8,760			38		%
Provision for credit losses2			(2)			41			(105)		%
Compensation and benefits			6,445			4,941			30		%
Non-compensation expenses			2,375			1,581			50		%
Total non-interest expenses			8,820			6,522			35		%
Income before provision for income taxes			$	3,236		$	2,197		47		%
Provision for income taxes			730			480			52		%
Net income applicable to Morgan Stanley			$	2,506		$	1,717		46		%

1.Transactional includes Investment banking, Trading, and Commissions and fees revenues. Other includes Investments and Other revenues.

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 June 30, 2021			At December 31, 2020
Total client assets			$	4,546		$	3,999
U.S. Bank Subsidiary loans			$	115		$	98
Margin and other lending1			$	27		$	23
Deposits2			$	319		$	306
Weighted average cost of deposits3			0.16%			0.24%

			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021			2020
Net new assets4			$	71.2		$	20.4		$	176.1		$	57.5

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

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 June 30, 2021 and December 31, 2020, respectively.

3.Weighted average cost of deposits represents the annualized weighted average.

4.Net new assets represent client inflows, including dividends and interest, less client outflows, and exclude activity from business combinations/divestitures and the impact of fees and commissions.

Advisor-led channel

$ in billions			At June 30, 2021			At December 31, 2020
Advisor-led client assets1			$	3,553		$	3,167
Fee-based client assets2			$	1,680		$	1,472
Fee-based client assets as a percentage of advisor-led client assets			47%			46%

			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021			2020
Fee-based asset flows3			$	33.7		$	11.1		$	70.9		$	29.5

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

2.Fee‐based client assets represent the amount of assets in client accounts where the basis of payment for services is a fee calculated on those assets.

3.Fee-based asset flows include net new fee-based assets, net account transfers, dividends, interest and client fees, and exclude institutional cash management related activity. For a description of the Inflows and Outflows included in Fee-based asset flows, see Fee-based client assets in the 2020 Form 10-K.

Self-directed channel

$ in billions			At June 30, 2021			At December 31, 2020
Self-directed assets1			$	993		$	832
Self-directed households (in millions)2			7.4			6.7

			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021			2020
Daily average revenue trades (“DARTs”) (in thousands)3			1,042			6			1,324			6

1.Self-directed assets represent active accounts which are not advisor led. Active accounts are defined as having at least $25 in assets.

2.Self-directed households represent the total number of households that include at least one account with self-directed assets. Individual households or participants that are engaged in one or more of our Wealth Management channels 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.

June 2021 Form 10-Q			11

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Table of Contents
Management’s Discussion and Analysis

Workplace channel1

$ in billions			At June 30, 2021			At December 31, 2020
Workplace unvested assets2			$	480		$	435
Number of participants (in millions)3			5.2			4.9

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

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

3.Workplace participants represent total accounts with vested and/or unvested assets in the workplace channel. Individuals with accounts in multiple plans are counted as participants in each plan.

Net Revenues

Asset Management

Asset management revenues of $3,447 million in the current quarter and $6,638 million in the current year period increased 37% and 28% from the prior year quarter and the prior year period, respectively, primarily due to higher fee-based asset levels in the current year periods as a result of market appreciation and positive fee-based flows.

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

Transactional Revenues

Transactional revenues of $1,172 million in the current quarter increased 9% compared with the prior year quarter, primarily due to incremental revenues as a result of the E*TRADE acquisition and higher revenues from structured product and closed-end fund issuances, partially offset by lower gains from investments associated with certain employee deferred compensation plans.

In the current year period, Transactional revenues increased 63% to $2,400 million compared with the prior year period, primarily due to incremental revenues as a result of the E*TRADE acquisition, gains from investments associated with certain employee deferred compensation plans, and higher revenues from structured product and closed-end fund issuances.

Net Interest

Net interest of $1,255 million increased 22% compared with the prior year quarter, primarily due to incremental net interest as a result of the E*TRADE acquisition and continued growth in bank lending, partially offset by the net effect of lower interest rates and an increase in prepayment amortization related to mortgage-backed securities.

In the current year period, Net interest increased 37% to $2,640 million compared with the prior year period, primarily due to incremental net interest as a result of the E*TRADE acquisition, continued growth in bank lending, and a decrease in prepayment amortization related to mortgage-backed securities. These increases were partially offset by the net effect of lower interest rates.

Other

Other revenues of $221 million in the current quarter and $376 million in the current year period increased 140% and 117% from the prior year quarter and the prior year period, respectively, primarily due to incremental revenues as a result of the E*TRADE acquisition and higher realized gains from the AFS securities portfolio.

Non-interest Expenses

Non-interest expenses of $4,456 million in the current quarter increased 26% compared with the prior year quarter, as a result of both higher Compensation and benefits expenses and Non-compensation expenses.

•Compensation and benefits expenses increased primarily due to 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, partially offset by lower expenses related to certain deferred compensation plans linked to investment performance.

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

In the current year period, Non-interest expenses increased 35% to $8,820 million compared with the prior year period, as a result of both higher Compensation and benefits expenses and Non-compensation expenses.

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

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

			12			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

Fee-Based Client Assets Rollforwards

$ in billions			At March 31, 2021			Inflows			Outflows			Market Impact			At June 30, 2021
Separately managed1			$	385		$	13		$	(4)		$	13		$	407
Unified managed			405			25			(14)			20			436
Advisor			188			10			(8)			11			201
Portfolio manager			549			29			(17)			29			590
Subtotal			$	1,527		$	77		$	(43)		$	73		$	1,634
Cash management			47			8			(9)			—			46
Total fee-based client assets			$	1,574		$	85		$	(52)		$	73		$	1,680

$ in billions			At March 31, 2020			Inflows			Outflows			Market Impact			At June 30, 2020
Separately managed1			$	329		$	7		$	(4)		$	(19)		$	313
Unified managed			263			13			(10)			39			305
Advisor			131			8			(8)			18			149
Portfolio manager			379			20			(15)			47			431
Subtotal			$	1,102		$	48		$	(37)		$	85		$	1,198
Cash management			32			10			(4)			—			38
Total fee-based client assets			$	1,134		$	58		$	(41)		$	85		$	1,236

$ in billions			At December 31, 2020			Inflows			Outflows			Market Impact			At June 30, 2021
Separately managed1			$	359		$	26		$	(11)		$	33		$	407
Unified managed			379			51			(27)			33			436
Advisor			177			22			(17)			19			201
Portfolio manager			509			59			(32)			54			590
Subtotal			$	1,424		$	158		$	(87)		$	139		$	1,634
Cash management			48			15			(17)			—			46
Total fee-based client assets			$	1,472		$	173		$	(104)		$	139		$	1,680

$ in billions			At December 31, 2019			Inflows			Outflows			Market Impact			At June 30, 2020
Separately managed1			$	322		$	19		$	(10)		$	(18)		$	313
Unified managed			313			29			(22)			(15)			305
Advisor			155			16			(15)			(7)			149
Portfolio manager			435			44			(31)			(17)			431
Subtotal			$	1,225		$	108		$	(78)		$	(57)		$	1,198
Cash management			42			9			(13)			—			38
Total fee-based client assets			$	1,267		$	117		$	(91)		$	(57)		$	1,236

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 June 30,						Six Months Ended June 30,
Fee rate in bps			2021			2020			2021			2020
Separately managed			14			14			14			14
Unified managed			95			99			96			99
Advisor			82			86			82			85
Portfolio manager			93			94			93			94
Subtotal			72			72			73			72
Cash management			5			6			5			5
Total fee-based client assets			71			70			71			70

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.

June 2021 Form 10-Q			13

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Table of Contents
Management’s Discussion and Analysis

Investment Management

Income Statement Information

			Three Months Ended June 30,
$ in millions			2021			2020			% Change
Revenues
Asset management and related fees			$	1,418		$	684		107		%
Performance-based income and other1			284			202			41		%
Net revenues			1,702			886			92		%
Compensation and benefits			715			354			102		%
Non-compensation expenses			557			316			76		%
Total non-interest expenses			1,272			670			90		%
Income before provision for income taxes			430			216			99		%
Provision for income taxes			108			39			177		%
Net income			322			177			82		%
Net income (loss) applicable to noncontrolling interests			(19)			23			(183)		%
Net income applicable to Morgan Stanley			$	341		$	154		121		%

			Six Months Ended June 30,
$ in millions			2021			2020			% Change
Revenues
Asset management and related fees			$	2,521		$	1,349		87		%
Performance-based income and other1			495			229			116		%
Net revenues			3,016			1,578			91		%
Compensation and benefits			1,229			611			101		%
Non-compensation expenses			987			608			62		%
Total non-interest expenses			2,216			1,219			82		%
Income before provision for income taxes			800			359			123		%
Provision for income taxes			189			64			195		%
Net income			611			295			107		%
Net income (loss) applicable to noncontrolling interests			(5)			63			(108)		%
Net income applicable to Morgan Stanley			$	616		$	232		166		%

1.Includes Investments, Trading, Commissions and fees, Net interest, and Other revenues.

Acquisition of Eaton Vance

The comparisons of current year results to prior periods are impacted by the acquisition of Eaton Vance in the first quarter of 2021. 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 $1,418 million in the current quarter and $2,521 million in the current year period increased 107% and 87% from the prior year quarter and prior year period, respectively, primarily due to incremental revenues as a result of the Eaton Vance acquisition, and higher average AUM driven by strong investment performance and positive net flows.

See “Assets Under Management or Supervision” herein.

Performance-based income and other

Performance-based income and other revenues of $284 million in the current quarter and $495 million in the current year period increased 41% and 116% from the prior year quarter and prior year period, respectively, primarily due to higher accrued carried interest across strategies, partially offset by the reversal of accrued carried interest and investment losses in an Asia private equity fund.

Non-interest Expenses

Non-interest expenses of $1,272 million in the current quarter increased 90% from the prior year quarter and Non-interest expenses of $2,216 million in the current year period increased 82% from the prior year period, both as a result of higher Compensation and benefits expenses and Non-compensation expenses.

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

•Non-compensation expenses increased primarily due to incremental expenses as a result of the Eaton Vance acquisition and higher fee sharing paid to intermediaries on higher average AUM.

			14			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

Assets Under Management or Supervision

Rollforwards

$ in billions			Equity			Fixed income			Alternatives and Solutions			Long-term AUM Subtotal			Liquidity and Overlay Services			Total
March 31, 2021			$	371		$	201		$	418		$	990		$	429		$	1,419
Inflows			24			19			29			72			454			526
Outflows			(21)			(15)			(20)			(56)			(419)			(475)
Market Impact			31			3			19			53			4			57
Other			(1)			(1)			(1)			(3)			—			(3)
June 30, 2021			$	404		$	207		$	445		$	1,056		$	468		$	1,524

$ in billions			Equity			Fixed income			Alternatives and Solutions			Long-term AUM Subtotal			Liquidity and Overlay Services			Total
March 31, 2020			$	121		$	75		$	141		$	337		$	247		$	584
Inflows			18			11			7			36			409			445
Outflows			(9)			(6)			(4)			(19)			(388)			(407)
Market Impact			37			4			2			43			—			43
Other			1			—			(1)			—			—			—
June 30, 2020			$	168		$	84		$	145		$	397		$	268		$	665

$ 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			55			32			44			131			913			1,044
Outflows			(44)			(24)			(30)			(98)			(852)			(950)
Market Impact			35			1			29			65			4			69
Acquired1			119			103			251			473			116			589
Other			(3)			(3)			(2)			(8)			(1)			(9)
June 30, 2021			$	404		$	207		$	445		$	1,056		$	468		$	1,524

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			32			21			15			68			855			923
Outflows			(21)			(15)			(8)			(44)			(783)			(827)
Market Impact			19			—			(5)			14			1			15
Other			—			(1)			4			3			(1)			2
June 30, 2020			$	168		$	84		$	145		$	397		$	268		$	665

Average AUM

			Three Months Ended June 30,						Six Months Ended June 30,
$ in billions			2021			2020			2021			2020
Equity			$	389		$	146		$	329		$	142
Fixed income			205			80			159			80
Alternatives and Solutions			434			143			314			141
Long-term AUM subtotal			1028			369			802			363
Liquidity and Overlay Services			449			266			384			235
Total AUM			$	1,477		$	635		$	1,186		$	598

Average Fee Rates

			Three Months Ended June 30,						Six Months Ended June 30,
Fee rate in bps			2021			2020			2021			2020
Equity			72			76			77			75
Fixed income			38			29			38			30
Alternatives and Solutions			33			58			40			59
Long-term AUM			49			59			55			59
Liquidity and Overlay Services			5			16			6			16
Total AUM			35			41			39			42

While Asset management and related fees arising from the acquisition are incremental to our revenues, certain Eaton Vance products may have higher or lower average fee rates than similar products prior to the acquisition, with the overall impact yielding a lower average fee rate.

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, 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.

June 2021 Form 10-Q			15

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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 to ultra-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 and Commercial real estate 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 Information1

$ in billions			At June 30, 2021			At December 31, 2020
Investment securities portfolio:
Investment securities—AFS			$	73.4		$	90.3
Investment securities—HTM			62.8			52.6
Total investment securities			$	136.2		$	142.9
Wealth Management Loans2
Residential real estate			$	38.9		$	35.2
Securities-based lending and Other3			75.8			62.9
Total, net of ACL			$	114.7		$	98.1
Institutional Securities Loans2
Corporate			$	5.5		$	7.9
Secured lending facilities			30.5			27.4
Commercial and Residential real estate			9.8			10.1
Securities-based lending and Other			7.1			5.4
Total, net of ACL			$	52.9		$	50.8
Total Assets			$	357.5		$	346.5
Deposits4			$	318.7		$	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.

			16			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

Total Assets by Business Segment

			At June 30, 2021
$ in millions			IS			WM			IM			Total
Assets
Cash and cash equivalents			$	88,778		$	37,124		$	578		$	126,480
Trading assets at fair value			314,961			1,180			5,004			321,145
Investment securities			40,310			135,032			—			175,342
Securities purchased under agreements to resell			79,414			16,516			—			95,930
Securities borrowed			125,358			1,345			—			126,703
Customer and other receivables			66,965			32,714			1,242			100,921
Loans1			51,329			114,708			22			166,059
Other assets2			15,142			22,517			11,566			49,225
Total assets			$	782,257		$	361,136		$	18,412		$	1,161,805

			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
Loans1			52,449			98,130			18			150,597
Other assets2			13,986			22,458			1,913			38,357
Total assets			$	753,322		$	355,595		$	6,945		$	1,115,862

1.Amounts include loans held for investment, net of ACL, and loans held for sale but exclude loans at fair value, which are included in Trading assets in the balance 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 market-making, financing and prime brokerage activities, and in the Wealth Management business segment, these arise from banking activities, including management of the investment portfolio, comprising Investment securities, Cash and cash equivalents and Securities purchased under agreements to resell. Total assets increased slightly to $1,162 billion at June 30, 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 June 30, 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 June 30, 2021			At December 31, 2020
Cash deposits with central banks			$	67,662		$	49,669
Unencumbered HQLA Securities1:
U.S. government obligations			127,603			136,555
U.S. agency and agency mortgage-backed securities			109,294			99,659
Non-U.S. sovereign obligations2			29,204			39,745
Other investment grade securities			793			2,053
Total HQLA1			$	334,556		$	327,681
Cash deposits with banks (non-HQLA)			9,220			10,942
Total Liquidity Resources			$	343,776		$	338,623

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

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

Liquidity Resources by Bank and Non-Bank Legal Entities

			At June 30, 2021			At December 31, 2020			Average Daily Balance Three Months Ended
$ in millions									June 30, 2021
Bank legal entities
U.S.			$	172,944		$	178,033		$	176,625
Non-U.S.			9,845			7,670			8,473
Total Bank legal entities			182,789			185,703			185,098
Non-Bank legal entities
U.S.:
Parent Company			67,997			59,468			63,911
Non-Parent Company			41,037			33,368			43,511
Total U.S.			109,034			92,836			107,422
Non-U.S.			51,953			60,084			59,394
Total Non-Bank legal entities			160,987			152,920			166,816
Total Liquidity Resources			$	343,776		$	338,623		$	351,914

June 2021 Form 10-Q			17

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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 maintain a minimum LCR of 100% and ETB is subject to this requirement beginning in July 2021. The LCR 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 June 30, 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			June 30, 2021			March 31, 2021
Eligible HQLA1
Cash deposits with central banks			$	56,430		$	50,815
Securities2			171,729			166,060
Total Eligible HQLA1			$	228,159		$	216,875
LCR			126		%	125		%

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 applies to the Firm, MSBNA, MSPBNA and ETB. The Firm and each of these individual entities are compliant with the 100% minimum NSFR as of 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 June 30, 2021			At December 31, 2020
Securities purchased under agreements to resell and Securities borrowed			$	222,633		$	228,625
Securities sold under agreements to repurchase and Securities loaned			$	67,219		$	58,318
Securities received as collateral1			$	7,166		$	4,277

			Average Daily Balance Three Months Ended
$ in millions			June 30, 2021			December 31, 2020
Securities purchased under agreements to resell and Securities borrowed			$	225,988		$	195,376
Securities sold under agreements to repurchase and Securities loaned			$	67,568		$	54,528

1.Included within Trading assets in the balance sheets.

See “Total Assets by Business Segment” herein for additional information on the assets shown in the previous table and Note 2 to the financial statements in the 2020 Form 10-K and Note 9 to the financial statements for additional information on collateralized financing transactions.

In addition to the collateralized financing transactions shown in the previous table, we engage in financing transactions collateralized by customer-owned securities, which are segregated in accordance with regulatory requirements. Receivables under these financing transactions, primarily margin loans, are included in Customer and other receivables in the balance 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.

			18			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

Deposits

$ in millions			At June 30, 2021			At December 31, 2020
Savings and demand deposits:
Brokerage sweep deposits1			$	256,730		$	232,071
Savings and other			42,951			47,150
Total Savings and demand deposits			299,681			279,221
Time deposits			20,677			31,561
Total2			$	320,358		$	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 June 30, 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 year period was primarily due to the onboarding in the first quarter of 2021 of approximately $20 billion of E*TRADE Brokerage sweep deposits previously held off-balance sheet at unaffiliated financial institutions, partially offset by maturities of time deposits.

Borrowings by Remaining Maturity at June 30, 20211

$ in millions			Parent Company			Subsidiaries			Total
Original maturities of one year or less			$	—		$	5,538		$	5,538
Original maturities greater than one year
2021			$	7,320		$	2,600		$	9,920
2022			11,181			6,853			18,034
2023			17,043			5,484			22,527
2024			20,839			8,194			29,033
2025			14,839			6,802			21,641
Thereafter			91,456			25,993			117,449
Total			$	162,678		$	55,926		$	218,604
Total Borrowings			$	162,678		$	61,464		$	224,142
Maturities over next 12 months2									$	16,891

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 $224 billion as of June 30, 2021 increased slightly 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. Our credit ratings are one of the factors in the cost and availability of financing and can have an impact on certain trading revenues, particularly in those businesses where longer-term counterparty performance is a key consideration, such as certain OTC derivative transactions. When determining credit ratings, rating agencies consider both company-specific and industry-wide factors. 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 July 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+			Positive

			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

On May 24, 2021, S&P Global Ratings revised the Parent Company outlook from stable to positive.

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.

June 2021 Form 10-Q			19

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Table of Contents
Management’s Discussion and Analysis

While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact it would have on our business and results of operations in future periods is inherently uncertain and would depend on a number of interrelated factors, including, among other things, the magnitude of the downgrade, the rating relative to peers, the rating assigned by the relevant agency 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 June 30,						Six Months Ended June 30,
in millions, except for per share data			2021			2020			2021			2020
Number of shares			34			—			62			29
Average price per share			$	86.21		$	—		$	82.31		$	46.01
Total			$	2,939		$	—		$	5,074		$	1,347

For additional information on our common stock repurchases, see “Liquidity and Capital Resources—Regulatory Requirements—Capital Action Supervisory Restrictions” herein and 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			July 15, 2021
Amount per share			$0.70
Date to be paid			August 13, 2021
Shareholders of record as of			July 30, 2021

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

For additional information on our common stock and information on our 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 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

			20			June 2021 Form 10-Q

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Table of Contents
Management’s Discussion and Analysis

capital). Capital standards require certain adjustments to, and deductions from, capital for purposes of determining these ratios.

Risk-Based Regulatory Capital Ratio Requirements

						At June 30, 2021 and December 31, 2020
						Standardized			Advanced
Capital buffers
Capital conservation buffer						—			2.5%
SCB1						5.7%			N/A
G-SIB capital surcharge2						3.0%			3.0%
CCyB3						0%			0%
Capital buffer requirement4						8.7%			5.5%
						At June 30, 2021 and December 31, 2020
			Regulatory Minimum			Standardized			Advanced
Required ratios5
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 June 30, 2021 and December 31, 2020, the differences between the actual and required ratios were 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 June 30, 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 on January 1, 2020. For further information, see “Liquidity and Capital Resources—

Regulatory Requirements—Regulatory Developments” in the 2020 Form 10-K.

Regulatory Capital Ratios

$ in millions						Required Ratio1			At June 30, 2021			At December 31, 2020
Risk-based capital— Standardized
Common Equity Tier 1 capital									$	76,815		$	78,650
Tier 1 capital									84,612			88,079
Total capital									92,782			97,213
Total RWA									462,808			453,106
Common Equity Tier 1 capital ratio						13.2		%	16.6		%	17.4		%
Tier 1 capital ratio						14.7		%	18.3		%	19.4		%
Total capital ratio						16.7		%	20.0		%	21.5		%

$ in millions						Required Ratio1			At June 30, 2021			At December 31, 2020
Risk-based capital— Advanced
Common Equity Tier 1 capital									$	76,815		$	78,650
Tier 1 capital									84,612			88,079
Total capital									92,550			96,994
Total RWA									434,741			445,151
Common Equity Tier 1 capital ratio						10.0		%	17.7		%	17.7		%
Tier 1 capital ratio						11.5		%	19.5		%	19.8		%
Total capital ratio						13.5		%	21.3		%	21.8		%
$ in millions						Required Ratio1			At June 30, 2021			At December 31, 2020
Leverage-based capital
Adjusted average assets2									$	1,135,262		$	1,053,510
Tier 1 leverage ratio						4.0		%	7.5		%	8.4		%
Supplementary leverage exposure3,4									$	1,439,971		$	1,192,506
SLR4						5.0		%	5.9		%	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.Our SLR and Supplementary leverage exposure as of December 31, 2020 reflect the exclusion of U.S. Treasury securities and deposits at Federal Reserve Banks based on a Federal Reserve interim final rule that was in effect until March 31, 2021. As of December 31, 2020, the impact of the interim final rule on our SLR was an increase of 80 bps. 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.

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Management’s Discussion and Analysis

Regulatory Capital

$ in millions			At June 30, 2021						At December 31, 2020			Change
Common Equity Tier 1 capital
Common stock and surplus			$	16,852					$	15,799		$	1,053
Retained earnings			85,043						78,978			6,065
AOCI			(2,523)						(1,962)			(561)
Regulatory adjustments and deductions:
Net goodwill			(16,693)						(11,527)			(5,166)
Net intangible assets			(7,032)						(4,165)			(2,867)
Other adjustments and deductions1			1,168						1,527			(359)
Total Common Equity Tier 1 capital			$	76,815					$	78,650		$	(1,835)
Additional Tier 1 capital
Preferred stock			$	7,750					$	9,250		$	(1,500)
Noncontrolling interests			561						619			(58)
Additional Tier 1 capital			$	8,311					$	9,869		$	(1,558)
Deduction for investments in covered funds			(514)						(440)			(74)
Total Tier 1 capital			$	84,612					$	88,079		$	(3,467)
Standardized Tier 2 capital
Subordinated debt			$	7,107					$	7,737		$	(630)
Eligible ACL			1,168						1,265			(97)
Other adjustments and deductions			(105)						132			(237)
Total Standardized Tier 2 capital			$	8,170					$	9,134		$	(964)
Total Standardized capital			$	92,782					$	97,213		$	(4,431)
Advanced Tier 2 capital
Subordinated debt			$	7,107					$	7,737		$	(630)
Eligible credit reserves			936						1,046			(110)
Other adjustments and deductions			(105)						132			(237)
Total Advanced Tier 2 capital			$	7,938					$	8,915		$	(977)
Total Advanced capital			$	92,550					$	96,994		$	(4,444)

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.

RWA Rollforward

			Six Months Ended June 30, 2021
$ in millions			Standardized			Advanced
Credit risk RWA
Balance at December 31, 2020			$	387,066		$	284,930
Change related to the following items:
Derivatives			3,182			(18,766)
Securities financing transactions			4,750			350
Investment securities			(2,422)			(257)
Commitments, guarantees and loans			415			5,862
Equity investments			1,696			1,754
Other credit risk1			4,992			4,444
Total change in credit risk RWA			$	12,613		$	(6,613)
Balance at June 30, 2021			$	399,679		$	278,317
Market risk RWA
Balance at December 31, 2020			$	66,040		$	66,040
Change related to the following items:
Regulatory VaR			(6,687)			(6,687)
Regulatory stressed VaR			768			768
Incremental risk charge			(720)			(720)
Comprehensive risk measure			(303)			(343)
Specific risk			4,031			4,031
Total change in market risk RWA			$	(2,911)		$	(2,951)
Balance at June 30, 2021			$	63,129		$	63,089
Operational risk RWA
Balance at December 31, 2020			N/A			$	94,181
Change in operational risk RWA			N/A			(846)
Balance at June 30, 2021			N/A			$	93,335
Total RWA			$	462,808		$	434,741

Regulatory VaR—VaR for regulatory capital requirements

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

Credit risk RWA in the current year period increased under the Standardized Approach, while it decreased under the Advanced Approach. Under the Standardized Approach, the increase was primarily from Securities financing transactions and Derivatives driven by increased exposure. Under the Advanced Approach, the decrease was primarily driven by a reduction in CVA due to lower credit spread volatility, partially offset by increased exposure in event lending within Institutional Securities business segment.

Market risk RWA decreased in the current year period under both the Standardized and Advanced Approaches primarily due to a decrease in Regulatory VaR mainly as a result of reduced volatility as the peak COVID-19 market stress in 2020 is no longer included in VaR. This was partially offset by an increase in non-securitization charges due to increased exposure.

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

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through the conversion of eligible LTD to equity or otherwise by imposing losses on eligible LTD or other forms of TLAC where an SPOE resolution strategy is used.

Required and Actual TLAC and Eligible LTD Ratios

									Actual Amount/Ratio
$ in millions			Regulatory Minimum			Required Ratio1			At June 30, 2021						At December 31, 2020
External TLAC2									$	225,830					$	216,129
External TLAC as a % of RWA			18.0		%	21.5		%	49.0		%				47.7		%
External TLAC as a % of leverage exposure			7.5		%	9.5		%	15.7		%				18.1		%
Eligible LTD3									$	131,951					$	120,561
Eligible LTD as a % of RWA			9.0		%	9.0		%	28.5		%				26.6		%
Eligible LTD as a % of leverage exposure			4.5		%	4.5		%	9.2		%				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 June 30, 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. On June 24, 2021, the Federal Reserve published summary results of its supervisory stress tests of each large BHC, and following the

publication of the supervisory stress test results, we announced that our SCB will remain at 5.7% from October 1, 2021 through September 30, 2022. Together with other features of the regulatory capital framework, this SCB results in an aggregate Standardized Approach Common Equity Tier 1 required ratio of 13.2%. Generally, our SCB is determined annually based on the results of the supervisory stress test.

We also disclosed a summary of the results of our company-run stress tests on our Investor Relations website, and announced that our Board of Directors authorized the increase of our quarterly common stock dividend to $0.70 per share from $0.35 per share beginning with the common stock dividend announced on July 15, 2021, and authorized the repurchase of up to $12 billion of outstanding common stock from July 1, 2021 through June 30, 2022, from time to time as conditions warrant, which supersedes the previous common stock repurchase authorization.

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 previously by the Federal Reserve, in the first two quarters of 2021 large BHCs were permitted to pay common stock dividends, provided they did not increase the amount of common stock dividends to be larger than the level paid in the second quarter of 2020, 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.

The Federal Reserve subsequently announced that the restrictions described above would 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. Based on the results of the 2021 supervisory stress tests, the temporary capital action supervisory restrictions previously applicable to us ended on June 30, 2021. As of July 1, 2021, the Firm is permitted, in its discretion, to adjust its capital distributions without seeking prior approval from the Federal Reserve, provided that it remains in compliance with all applicable regulatory capital requirements, including the SCB.

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.

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Management’s Discussion and Analysis

Attribution of Average Common Equity According to the Required Capital Framework

Our required capital (“Required Capital”) estimation is based on the Required Capital framework, an internal capital adequacy measure. Common equity attribution to the business segments is based on capital usage calculated under the Required Capital framework, as well as each business segment’s relative contribution to our total Required Capital.

The Required Capital framework is a risk-based and leverage-based capital measure, which is compared with our regulatory capital to ensure that we maintain an amount of going concern capital after absorbing potential losses from stress events, where applicable, at a point in time. The amount of capital allocated to the business segments is generally set at the beginning of each year and remains fixed throughout the year until the next annual reset unless a significant business change occurs (e.g., acquisition or disposition). We define the difference between our total average common equity and the sum of the average common equity amounts allocated to our business segments as Parent common equity. We generally hold Parent common equity for prospective regulatory requirements, organic growth, potential future acquisitions and other capital needs.

Average Common Equity Attribution under the Required Capital Framework1

			Three Months Ended June 30,						Six Months Ended June 30,
$ in billions			2021			2020			2021			2020
Institutional Securities			$	43.5		$	42.8		$	43.5		$	42.8
Wealth Management2			28.6			18.2			28.6			18.2
Investment Management3			10.7			2.6			7.1			2.6
Parent			16.0			14.0			17.1			12.4
Total			$	98.8		$	77.6		$	96.3		$	76.0

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.

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. We submitted our 2021 targeted resolution plan on June 30, 2021.

As described in our most recent resolution plan, our preferred resolution strategy is an SPOE strategy. In line with our SPOE strategy, the Parent Company has transferred, and has agreed to transfer on an ongoing basis, certain assets to its wholly owned, direct subsidiary Morgan Stanley Holdings LLC (the “Funding IHC”). In addition, the Parent Company

has entered into an amended and restated support agreement with its material entities (including the Funding IHC) and certain other subsidiaries. In the event of a resolution scenario, the Parent Company would be obligated to contribute all of its Contributable Assets to our material entities and/or the Funding IHC. The Funding IHC would be obligated to provide capital and liquidity, as applicable, to our material entities. The combined implication of the SPOE resolution strategy and the requirement to maintain certain levels of TLAC is that losses in resolution would be imposed on the holders of eligible long-term debt and other forms of eligible TLAC issued by the Parent Company before any losses are imposed on creditors of our material entities and without requiring taxpayer or government financial support.

For more information about resolution and recovery planning requirements and our activities in these areas, including the implications of such activities in a resolution scenario, see “Business—Supervision and Regulation—Financial Holding Company—Resolution and Recovery Planning,” “Risk Factors—Legal, Regulatory and Compliance Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements—Resolution and Recovery Planning” in the 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. As a result, this exclusion was eliminated 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

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Management’s Discussion and Analysis

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 U.S. dollar 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 is intended to minimize legal and economic uncertainty following U.S. dollar LIBOR’s cessation by replacing 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 against our Firm-wide IBOR transition plan to promote the transition to alternative reference rates in accordance with industry transition timelines. Our IBOR transition plan is overseen by a global steering committee, with senior management oversight. Firm entities engaged in derivative activities have adhered to the ISDA 2020 IBOR Fallbacks Protocol. As noted above, the Protocol is designed to facilitate the transition of covered derivatives contracts to alternative reference rates. The New York State legislation also provides safeguards that help facilitate the transition to alternative reference rates for certain U.S. dollar LIBOR contracts, although additional regulatory clarity may be needed in some instances.

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.

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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
			June 30, 2021
$ in millions			Period End			Average			High2			Low2
Interest rate and credit spread			$	29		$	31		$	39		$	28
Equity price			21			24			32			19
Foreign exchange rate			8			8			15			5
Commodity price			10			11			16			8
Less: Diversification benefit1			(28)			(29)			N/A			N/A
Primary Risk Categories			$	40		$	45		$	58		$	37
Credit Portfolio			12			13			17			11
Less: Diversification benefit1			(9)			(10)			N/A			N/A
Total Management VaR			$	43		$	48		$	60		$	41

			Three Months Ended
			March 31, 2021
$ in millions			Period End			Average			High2			Low2
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 benefit1			(36)			(38)			N/A			N/A
Primary Risk Categories			$	50		$	58		$	171		$	44
Credit Portfolio			17			24			31			17
Less: Diversification benefit1			(15)			(13)			N/A			N/A
Total Management VaR			$	52		$	69		$	175		$	50

1.Diversification benefit equals the difference between the total VaR and the sum of the component VaRs. This benefit arises because the simulated one-day losses for each of the components occur on different days; similar diversification benefits also are taken into account within each component.

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 decreased in the current quarter from the three months ended March 31, 2021 primarily as a result of reduced volatility as the peak COVID-19 market stress in 2020 is no longer included in VaR. Additionally, the high for the current quarter was reduced from the peak day in the three months ended March 31, 2021, as increased equity exposure in the first quarter of 2021 resulted 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 was one loss day in the current quarter, which did not exceed the Firm’s VaR.

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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 Sensitivity1

$ in millions			At June 30, 2021			At March 31, 2021
Derivatives			$	7		$	7
Borrowings carried at fair value			48			47

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

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

$ in millions			At June 30, 2021			At March 31, 2021
Basis point change
+100			$	1,463		$	1,671
-100			(498)			(560)

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 change in sensitivity to interest rates between June 30, 2021 and March 31, 2021 was primarily driven by the effects of changes in the mix of our assets and liabilities and lower market rates.

Investments Sensitivity, Including Related Carried Interest

			Loss from 10% Decline
$ in millions			At June 30, 2021			At March 31, 2021
Investments related to Investment Management activities			$	477		$	472
Other investments:
MUMSS			172			174
Other Firm investments			232			223

We have exposure to public and private companies through direct investments, as well as through funds that invest in these assets. These investments are predominantly equity positions with long investment horizons, a portion of which is for business facilitation purposes. The market risk related to these investments is measured by estimating the potential reduction in net revenues associated with a 10% decline in investment values and related impact on performance-based income, as applicable.

June 2021 Form 10-Q			27

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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 June 30, 2021
$ in millions			HFI			HFS			FVO			Total
Institutional Securities:
Corporate			$	4,724		$	7,098		$	13		$	11,835
Secured lending facilities			28,217			3,951			666			32,834
Commercial and Residential real estate			6,707			620			4,270			11,597
Securities-based lending and Other			586			5			9,353			9,944
Total Institutional Securities			40,234			11,674			14,302			66,210
Wealth Management:
Residential real estate			38,917			10			—			38,927
Securities-based lending and Other			75,877			12			—			75,889
Total Wealth Management			114,794			22			—			114,816
Total Investment Management1			5			17			843			865
Total loans2			155,033			11,713			15,145			181,891
ACL			(687)									(687)
Total loans, net of ACL			$	154,346		$	11,713		$	15,145		$	181,204
Lending commitments3												$	139,257
Total exposure												$	320,461

			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 Management1			6			12			425			443
Total loans2			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 commitments3												$	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 June 30, 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 $31 billion since December 31, 2020, primarily due to growth in Securities-based loans and Residential real estate loans within the Wealth Management business segment, as well as increases in Secured lending facilities and event-driven lending commitments within the Institutional Securities 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 granted requests from certain clients for modifications of their credit agreements with us, which in some cases include deferral of their loan payments. In addition to these principal and interest deferrals, we continue to work with certain clients regarding modifications of other terms under their original loan agreements that do not impact contractual loan payments. We do not believe these

			28			June 2021 Form 10-Q

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Risk Disclosures

modifications have had a material impact on the risk profile of our loan portfolio.

Requests for deferrals and other modifications could continue in future periods. 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
ACL—Loans			$	835
ACL—Lending Commitments			396
Total at December 31, 2020			1,231
Gross charge-offs			(102)
Provision for credit losses			(25)
Other			(5)
Total at June 30, 2021			$	1,099
ACL—Loans			$	687
ACL—Lending commitments			412

Provision for Credit Losses by Business Segment

			Three Months Ended June 30, 2021									Six Months Ended June 30, 2021
$ in millions			IS			WM			Total			IS			WM			Total
Loans			$	12		$	4		$	16		$	(41)		$	(1)		$	(42)
Lending commitments			58			(1)			57			18			(1)			17
Total			$	70		$	3		$	73		$	(23)		$	(2)		$	(25)

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 year period, primarily reflecting charge-offs and 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, partially offset by the provision for one Secured lending facility. The base scenario used in our ACL models as of June 30, 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 continued growth over the forecast period with U.S. GDP reaching a year-over-year growth rate of approximately 6% by the fourth 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 June 30, 2021						At December 31, 2020
			IS			WM			IS			WM
Accrual			98.8		%	99.3		%	99.2		%	99.7		%
Nonaccrual1			1.2		%	0.7		%	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.

Institutional Securities Loans and Lending Commitments1

			At June 30, 2021
			Contractual Years to Maturity
$ in millions			Less than 1			1-3			3-5			Over 5			Total
Loans
AA			$	38		$	9		$	—		$	69		$	116
A			824			707			408			370			2,309
BBB			6,297			5,113			2,287			578			14,275
BB			11,581			9,095			4,234			1,285			26,195
Other NIG			5,370			6,134			4,161			3,223			18,888
Unrated2			194			587			485			2,582			3,848
Total loans, net of ACL			24,304			21,645			11,575			8,107			65,631
Lending commitments
AAA			—			50			—			—			50
AA			3,173			1,118			2,240			—			6,531
A			4,822			6,600			10,180			584			22,186
BBB			10,168			19,803			18,561			659			49,191
BB			3,017			12,323			7,837			152			23,329
Other NIG			1,649			6,663			8,292			6,915			23,519
Unrated2			—			14			66			2			82
Total lending commitments			22,829			46,571			47,176			8,312			124,888
Total exposure			$	47,133		$	68,216		$	58,751		$	16,419		$	190,519

June 2021 Form 10-Q			29

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			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
Unrated2			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
Unrated2			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 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 June 30, 2021			At December 31, 2020
Industry
Financials			$	50,318		$	44,358
Real estate			30,622			25,484
Healthcare			17,471			12,650
Industrials			17,069			15,861
Communications services			12,481			12,600
Information technology			11,704			11,358
Consumer discretionary			10,626			11,177
Utilities			10,355			9,504
Energy			8,603			10,064
Consumer staples			8,464			9,088
Materials			5,808			6,084
Insurance			4,583			3,889
Other			2,415			4,515
Total exposure			$	190,519		$	176,632

Sectors Currently in Focus due to COVID-19

The economic effects of COVID-19 have impacted borrowers in many sectors and industries, though certain sectors remain more sensitive to the current economic environment and are continuing to receive heightened focus. The sectors currently in focus are: air travel, retail, lodging and leisure, upstream energy, and healthcare services and systems. As of June 30, 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 approximately 10% of total Institutional Securities business segment lending exposure. Further, as of

June 30, 2021, approximately 90% of these exposures are either investment grade and/or secured by collateral. The future developments of COVID-19 and its effect on the economic environment remain uncertain; therefore, the sectors impacted 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. As of June 30, 2021, 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.

Institutional Securities Event-Driven Loans and Lending Commitments

			At June 30, 2021
			Contractual Years to Maturity
$ in millions			Less than 1			1-3			3-5			Over 5			Total
Loans, net of ACL			$	1,415		$	382		$	498		$	2,217		$	4,512
Lending commitments			4,865			6,254			3,359			6,844			21,322
Total exposure			$	6,280		$	6,636		$	3,857		$	9,061		$	25,834

			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.

			30			June 2021 Form 10-Q

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Institutional Securities Loans and Lending Commitments Held for Investment

			At June 30, 2021
$ in millions			Loans			Lending Commitments			Total
Corporate			$	4,724		$	72,175		$	76,899
Secured lending facilities			28,217			11,387			39,604
Commercial real estate			6,707			308			7,015
Other			586			661			1,247
Total, before ACL			$	40,234		$	84,531		$	124,765
ACL			$	(579)		$	(397)		$	(976)

						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
ACL—Loans			$	309		$	198		$	211		$	21		$	739
ACL—Lending commitments			323			38			11			19			391
Total at December 31, 2020			$	632		$	236		$	222		$	40		$	1,130
Gross charge-offs			(14)			(67)			(21)			—			(102)
Provision for credit losses			(77)			49			5			—			(23)
Other1			(2)			(1)			(2)			(24)			(29)
Total at June 30, 2021			$	539		$	217		$	204		$	16		$	976
ACL—Loans			$	199		$	177		$	194		$	9		$	579
ACL—Lending commitments			340			40			10			7			397

1.Other primarily reflects the allowance for credit losses associated with the Community Development Fund loans portfolio that was transferred to the Wealth Management business segment from the Institutional Securities business segment in the second quarter of 2021.

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

			At June 30, 2021			At December 31, 2020
Corporate			4.2		%	5.1		%
Secured lending facilities			0.6		%	0.8		%
Commercial real estate			2.9		%	2.9		%
Other			1.5		%	1.7		%
Total Institutional Securities loans			1.4		%	1.8		%

Wealth Management Loans and Lending Commitments

			At June 30, 2021
			Contractual Years to Maturity
$ in millions			Less than 1			1-3			3-5			Over 5			Total
Securities-based lending and Other			$	65,156		$	6,641		$	2,236		$	1,804		$	75,837
Residential real estate			7			—			6			38,858			38,871
Total loans, net of ACL			$	65,163		$	6,641		$	2,242		$	40,662		$	114,708
Lending commitments			11,104			2,771			170			324			14,369
Total exposure			$	76,267		$	9,412		$	2,412		$	40,986		$	129,077

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

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Wealth Management Allowance for Credit Losses—Loans and Lending Commitments

$ in millions
ACL—Loans			$	96
ACL—Lending commitments			5
Total at December 31, 2020			101
Provision for credit losses			(2)
Other1			24
Total at June 30, 2021			$	123
ACL—Loans			$	108
ACL—Lending commitments			15

1.Other primarily reflects the allowance for credit losses associated with the Community Development Fund loans portfolio that was transferred to the Wealth Management business segment from the Institutional Securities business segment in the second quarter of 2021.

At June 30, 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 June 30, 2021			At December 31, 2020
Institutional Securities			$	46,020		$	51,570
Wealth Management			26,922			23,144
Total			$	72,942		$	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 Rating1
$ in millions			AAA			AA			A			BBB			NIG			Total
At June 30, 2021
Less than 1 year			$	1,344		$	12,729		$	36,065		$	20,945		$	11,900		$	82,983
1-3 years			633			4,916			14,962			12,941			8,197			41,649
3-5 years			471			4,702			8,440			8,095			3,690			25,398
Over 5 years			4,237			26,890			66,977			48,258			10,438			156,800
Total, gross			$	6,685		$	49,237		$	126,444		$	90,239		$	34,225		$	306,830
Counterparty netting			(3,141)			(36,880)			(98,646)			(66,879)			(16,635)			(222,181)
Cash and securities collateral			(3,064)			(8,779)			(22,973)			(17,233)			(8,166)			(60,215)
Total, net			$	480		$	3,578		$	4,825		$	6,127		$	9,424		$	24,434

			Counterparty Credit Rating1
$ 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 June 30, 2021			At December 31, 2020
Industry
Financials			$	7,613		$	6,195
Utilities			4,750			3,954
Consumer discretionary			2,314			1,866
Energy			2,040			965
Healthcare			1,011			1,494
Industrials			953			1,291
Information technology			929			1,104
Regional governments			843			806
Not-for-profit organizations			661			701
Real estate			600			378
Communications services			496			529
Insurance			451			518
Sovereign governments			373			650
Materials			329			430
Consumer staples			291			339
Other			780			81
Total			$	24,434		$	21,301

1.Counterparty credit ratings are determined internally by the CRM.

We are exposed to credit risk as a dealer in OTC derivatives. Credit risk with respect to derivative instruments arises from the possibility that a counterparty may fail to perform according to the terms of the contract. 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.

			32			June 2021 Form 10-Q

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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.

Top 10 Non-U.S. Country Exposures at June 30, 2021

$ in millions			United Kingdom			Japan			Germany			France			Spain
Sovereign
Net inventory1			$	(43)		$	5,101		$	54		$	(471)		$	(197)
Net counterparty exposure2			1			45			85			6			29
Exposure before hedges			(42)			5,146			139			(465)			(168)
Hedges3			(310)			(79)			(287)			(6)			—
Net exposure			$	(352)		$	5,067		$	(148)		$	(471)		$	(168)
Non-sovereign
Net inventory1			$	1,084		$	615		$	7		$	(338)		$	72
Net counterparty exposure2			11,117			4,257			2,788			3,068			391
Loans			3,648			381			1,725			513			3,351
Lending commitments			6,165			180			5,979			6,118			1,313
Exposure before hedges			22,014			5,433			10,499			9,361			5,127
Hedges3			(1,388)			(162)			(1,015)			(734)			(266)
Net exposure			$	20,626		$	5,271		$	9,484		$	8,627		$	4,861
Total net exposure			$	20,274		$	10,338		$	9,336		$	8,156		$	4,693

$ in millions			China			India			Australia			Canada			Brazil
Sovereign
Net inventory1			$	(89)		$	1,178		$	570		$	(447)		$	2,115
Net counterparty exposure2			102			2			45			21			—
Exposure before hedges			13			1,180			615			(426)			2,115
Hedges3			(82)			—			—			—			(12)
Net exposure			$	(69)		$	1,180		$	615		$	(426)		$	2,103
Non-sovereign
Net inventory1			$	1,548		$	850		$	228		$	228		$	233
Net counterparty exposure2			780			891			1,061			1,713			320
Loans			744			235			489			141			188
Lending commitments			1,489			—			905			1,483			183
Exposure before hedges			4,561			1,976			2,683			3,565			924
Hedges3			(131)			—			(185)			(85)			(25)
Net exposure			$	4,430		$	1,976		$	2,498		$	3,480		$	899
Total net exposure			$	4,361		$	3,156		$	3,113		$	3,054		$	3,002

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 Exposure1

$ in millions						At June 30, 2021
Country of Risk			Collateral2
Germany			Italy, Croatia and Spain			$	11,765
United Kingdom			U.K., U.S. and Spain			10,434
Other			Japan, Italy, and France			17,737

1.The benefit of collateral received is reflected in the Top 10 Non-U.S. Country Exposures at June 30, 2021.

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

Country Risk Exposures Related to the U.K.

At June 30, 2021, our country risk exposures in the U.K. included net exposures of $20,274 million (as shown in the Top 10 Non-U.S. Country Exposures table) and overnight deposits of $9,017 million. The $20,626 million of exposures to non-sovereigns were diversified across both names and sectors and include $9,253 million to U.K.-focused counterparties that generate more than one-third of their revenues in the U.K., $4,131 million to geographically diversified counterparties, and $6,212 million to exchanges and clearinghouses.

June 2021 Form 10-Q			33

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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 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.

			34			June 2021 Form 10-Q

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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 June 30, 2021, and the related condensed consolidated income statements, comprehensive income statements and statements of changes in total equity for the three-month and six-month periods ended June 30, 2021 and 2020, and the cash flow statements for the six-month periods ended June 30, 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
August 2, 2021

June 2021 Form 10-Q			35

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Consolidated Income Statements (Unaudited)

			Three Months Ended June 30,						Six Months Ended June 30,
in millions, except per share data			2021			2020			2021			2020
Revenues
Investment banking			$	2,560		$	2,142		$	5,400		$	3,413
Trading			3,330			4,803			7,555			7,604
Investments			381			275			699			313
Commissions and fees			1,308			1,102			2,934			2,462
Asset management			4,973			3,265			9,371			6,682
Other			342			473			626			9
Total non-interest revenues			12,894			12,060			26,585			20,483
Interest income			2,212			2,358			4,649			5,861
Interest expense			347			758			756			2,905
Net interest			1,865			1,600			3,893			2,956
Net revenues			14,759			13,660			30,478			23,439
Provision for credit losses			73			239			(25)			646
Non-interest expenses
Compensation and benefits			6,423			6,035			13,221			10,318
Brokerage, clearing and exchange fees			795			716			1,705			1,456
Information processing and communications			765			589			1,498			1,152
Professional services			746			535			1,370			984
Occupancy and equipment			414			365			819			730
Marketing and business development			146			63			292			195
Other			831			763			1,688			1,457
Total non-interest expenses			10,120			9,066			20,593			16,292
Income before provision for income taxes			4,566			4,355			9,910			6,501
Provision for income taxes			1,054			1,119			2,230			1,485
Net income			$	3,512		$	3,236		$	7,680		$	5,016
Net income applicable to noncontrolling interests			1			40			49			122
Net income applicable to Morgan Stanley			$	3,511		$	3,196		$	7,631		$	4,894
Preferred stock dividends			103			149			241			257
Earnings applicable to Morgan Stanley common shareholders			$	3,408		$	3,047		$	7,390		$	4,637
Earnings per common share
Basic			$	1.88		$	1.98		$	4.10		$	3.00
Diluted			$	1.85		$	1.96		$	4.04		$	2.96
Average common shares outstanding
Basic			1,814			1,541			1,804			1,548
Diluted			1,841			1,557			1,829			1,565

Consolidated Comprehensive Income Statements

(Unaudited)

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Net income			$	3,512		$	3,236		$	7,680		$	5,016
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			41			21			(178)			(111)
Change in net unrealized gains (losses) on available-for-sale securities			(7)			295			(783)			1,620
Pension and other			12			(1)			17			24
Change in net debt valuation adjustment			186			(2,496)			323			1,307
Total other comprehensive income (loss)			$	232		$	(2,181)		$	(621)		$	2,840
Comprehensive income			$	3,744		$	1,055		$	7,059		$	7,856
Net income applicable to noncontrolling interests			1			40			49			122
Other comprehensive income (loss) applicable to noncontrolling interests			1			(87)			(60)			51
Comprehensive income applicable to Morgan Stanley			$	3,742		$	1,102		$	7,070		$	7,683

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

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Consolidated Balance Sheets

$ in millions, except share data			(Unaudited) At June 30, 2021			At December 31, 2020
Assets
Cash and cash equivalents			$	126,480		$	105,654
Trading assets at fair value ($108,288 and $132,578 were pledged to various parties)			321,145			312,738
Investment securities (includes $93,222 and $110,383 at fair value)			175,342			182,154
Securities purchased under agreements to resell (includes $10 and $15 at fair value)			95,930			116,234
Securities borrowed			126,703			112,391
Customer and other receivables			100,921			97,737
Loans:
Held for investment (net of allowance for credit losses of $687 and $835)			154,346			137,784
Held for sale			11,713			12,813
Goodwill			16,838			11,635
Intangible assets (net of accumulated amortization of $3,518 and $3,265)			8,690			4,980
Other assets			23,697			21,742
Total assets			$	1,161,805		$	1,115,862
Liabilities
Deposits (includes $2,672 and $3,521 at fair value)			$	320,358		$	310,782
Trading liabilities at fair value			169,074			157,631
Securities sold under agreements to repurchase (includes $1,028 and $1,115 at fair value)			57,645			50,587
Securities loaned			9,574			7,731
Other secured financings (includes $6,574 and $11,701 at fair value)			11,232			15,863
Customer and other payables			233,810			227,437
Other liabilities and accrued expenses			27,808			25,603
Borrowings (includes $75,508 and $73,701 at fair value)			224,142			217,079
Total liabilities			1,053,643			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: 1,834,370,291 and 1,809,624,144			20			20
Additional paid-in capital			28,030			25,546
Retained earnings			84,791			78,694
Employee stock trusts			3,768			3,043
Accumulated other comprehensive income (loss)			(2,523)			(1,962)
Common stock held in treasury at cost, $0.01 par value (204,523,688 and 229,269,835 shares)			(11,198)			(9,767)
Common stock issued to employee stock trusts			(3,768)			(3,043)
Total Morgan Stanley shareholders’ equity			106,870			101,781
Noncontrolling interests			1,292			1,368
Total equity			108,162			103,149
Total liabilities and equity			$	1,161,805		$	1,115,862

See Notes to Consolidated Financial Statements			37			June 2021 Form 10-Q

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Consolidated Statements of Changes in Total Equity (Unaudited)

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Preferred Stock
Beginning balance			$	7,750		$	8,520		$	9,250		$	8,520
Redemption of Series J preferred stock			—			—			(1,500)			—
Ending balance			7,750			8,520			7,750			8,520
Common Stock
Beginning and ending balance			20			20			20			20
Additional Paid-in Capital
Beginning balance			27,406			23,428			25,546			23,935
Share-based award activity			624			354			292			(153)
Issuance of common stock for the acquisition of Eaton Vance			—			—			2,185			—
Other net increases (decreases)			—			—			7			—
Ending balance			28,030			23,782			28,030			23,782
Retained Earnings
Beginning balance			82,034			71,518			78,694			70,589
Cumulative adjustment related to the adoption of financial instruments-credit losses accounting update1			—			—			—			(100)
Net income applicable to Morgan Stanley			3,511			3,196			7,631			4,894
Preferred stock dividends2			(103)			(149)			(241)			(257)
Common stock dividends2			(651)			(550)			(1,286)			(1,111)
Other net increases (decreases)			—			—			(7)			—
Ending balance			84,791			74,015			84,791			74,015
Employee Stock Trusts
Beginning balance			3,861			3,088			3,043			2,918
Share-based award activity			(93)			(70)			725			100
Ending balance			3,768			3,018			3,768			3,018
Accumulated Other Comprehensive Income (Loss)
Beginning balance			(2,754)			2,095			(1,962)			(2,788)
Net change in Accumulated other comprehensive income (loss)			231			(2,094)			(561)			2,789
Ending balance			(2,523)			1			(2,523)			1
Common Stock Held in Treasury at Cost
Beginning balance			(8,197)			(19,721)			(9,767)			(18,727)
Share-based award activity			17			56			1,037			844
Repurchases of common stock and employee tax withholdings			(3,018)			(28)			(5,600)			(1,810)
Issuance of common stock for the acquisition of Eaton Vance			—			—			3,132			—
Ending balance			(11,198)			(19,693)			(11,198)			(19,693)
Common Stock Issued to Employee Stock Trusts
Beginning balance			(3,861)			(3,088)			(3,043)			(2,918)
Share-based award activity			93			70			(725)			(100)
Ending balance			(3,768)			(3,018)			(3,768)			(3,018)
Noncontrolling Interests
Beginning balance			1,329			1,368			1,368			1,148
Net income applicable to noncontrolling interests			1			40			49			122
Net change in Accumulated other comprehensive income (loss) applicable to noncontrolling interests			1			(87)			(60)			51
Other net increases (decreases)			(39)			43			(65)			43
Ending balance			1,292			1,364			1,292			1,364
Total Equity			$	108,162		$	88,009		$	108,162		$	88,009

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.

June 2021 Form 10-Q			38			See Notes to Consolidated Financial Statements

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Consolidated Cash Flow Statements (Unaudited)

			Six Months Ended June 30,
$ in millions			2021			2020
Cash flows from operating activities
Net income			$	7,680		$	5,016
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Stock-based compensation expense			1,136			548
Depreciation and amortization			1,944			1,510
Provision for credit losses			(25)			646
Other operating adjustments			(165)			599
Changes in assets and liabilities:
Trading assets, net of Trading liabilities			(1,526)			17,539
Securities borrowed			(14,312)			(285)
Securities loaned			1,843			1,987
Customer and other receivables and other assets			(2,360)			(7,789)
Customer and other payables and other liabilities			9,917			(1,005)
Securities purchased under agreements to resell			20,304			(8,388)
Securities sold under agreements to repurchase			7,058			(3,352)
Net cash provided by (used for) operating activities			31,494			7,026
Cash flows from investing activities
Proceeds from (payments for):
Other assets—Premises, equipment and software, net			(1,039)			(782)
Changes in loans, net			(17,426)			(8,700)
Investment securities:
Purchases			(40,125)			(33,195)
Proceeds from sales			17,546			3,581
Proceeds from paydowns and maturities			24,479			5,616
Cash paid as part of the Eaton Vance acquisition, net of cash acquired			(2,648)			—
Other investing activities			(231)			(138)
Net cash provided by (used for) investing activities			(19,444)			(33,618)
Cash flows from financing activities
Net proceeds from (payments for):
Other secured financings			(1,107)			332
Deposits			9,643			46,287
Proceeds from issuance of Borrowings			49,100			32,914
Payments for:
Borrowings			(40,300)			(24,632)
Repurchases of common stock and employee tax withholdings			(5,600)			(1,810)
Cash dividends			(1,501)			(1,328)
Other financing activities			(186)			(164)
Net cash provided by (used for) financing activities			10,049			51,599
Effect of exchange rate changes on cash and cash equivalents			(1,273)			(902)
Net increase (decrease) in cash and cash equivalents			20,826			24,105
Cash and cash equivalents, at beginning of period			105,654			82,171
Cash and cash equivalents, at end of period			$	126,480		$	106,276
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest			$	881		$	2,742
Income taxes, net of refunds			2,033			679

See Notes to Consolidated Financial Statements			39			June 2021 Form 10-Q

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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:

Institutional Securities provides a variety of products and services to corporations, governments, financial institutions and ultra-high net worth clients. Investment banking services consist of capital raising and financial advisory services, including services relating to the underwriting of debt, equity and other securities, as well as advice on mergers and acquisitions, restructurings and project finance. Our Equity and Fixed Income businesses include sales, financing, prime brokerage, market-making, Asia wealth management services and certain business-related investments. Lending activities include originating corporate loans and commercial real estate loans, providing secured lending facilities, and extending securities-based and other financing to customers. Other activities include research.

Wealth Management provides a comprehensive array of financial services and solutions to individual investors and small to medium-sized businesses and institutions covering: financial advisor-led brokerage and investment advisory services; self-directed brokerage services; financial and wealth planning services; workplace services including stock plan administration; annuity and insurance products; securities-based lending, residential real estate loans and other lending products; banking; and retirement plan services.

Investment Management provides a broad range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Strategies and products, which are offered through a variety of investment vehicles, include equity, fixed income, alternatives and solutions, and liquidity and overlay services. Institutional clients include defined benefit/defined contribution plans, foundations,

endowments, government entities, sovereign wealth funds, insurance companies, third-party fund sponsors and corporations. Individual clients are generally served through intermediaries, including affiliated and non-affiliated distributors.

Basis of Financial Information

The financial statements are prepared in accordance with U.S. GAAP, which requires the Firm to make estimates and assumptions regarding the valuations of certain financial instruments, the valuations of goodwill and intangible assets, the outcome of legal and tax matters, deferred tax assets, ACL, and other matters that affect its financial statements and related disclosures. The Firm believes that the estimates utilized in the preparation of its financial statements are prudent and reasonable. Actual results could differ materially from these estimates.

The financial statements reflect the effects of the following reclassifications to prior period amounts. The Provision for credit losses for loans and lending commitments is 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 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

June 2021 Form 10-Q			40

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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 six months ended June 30, 2021 (“current year period”), 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 intangible assets 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 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.

Eaton Vance Purchase Price Allocation

$ 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

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 Results Included in the Firm’s Consolidated Results

$ in millions			Three Months Ended June 30, 2021			Six Months Ended June 30, 20211
Net revenues			$	535		$	709
Net income			119			150

1.Reflects Eaton Vance results from March 1, 2021 through June 30, 2021.

Morgan Stanley and Eaton Vance Proforma Combined Financial Information

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			20211			2020			2021			2020
Net revenues			$	14,759		$	14,076		$	30,774		$	24,241
Net income			3,512			3,282			7,780			4,691

1.Amounts are the same as those presented in the Consolidated Income Statement for the current quarter.

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

			41			June 2021 Form 10-Q

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Notes to Consolidated Financial Statements (Unaudited)

have been had the companies actually been combined as of this date.

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 June 30, 2021			At December 31, 2020
Cash and due from banks			$	8,943		$	9,792
Interest bearing deposits with banks			117,537			95,862
Total Cash and cash equivalents			$	126,480		$	105,654
Restricted cash			$	41,203		$	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 June 30, 2021
$ in millions			Level 1			Level 2			Level 3			Netting1			Total
Assets at fair value
Trading assets:
U.S. Treasury and agency securities			$	48,097		$	28,134		$	25		$	—		$	76,256
Other sovereign government obligations			32,496			5,020			78			—			37,594
State and municipal securities			—			2,002			4			—			2,006
MABS			—			1,424			357			—			1,781
Loans and lending commitments2			—			10,249			4,896			—			15,145
Corporate and other debt			—			31,781			1,801			—			33,582
Corporate equities3			104,834			508			150			—			105,492
Derivative and other contracts:
Interest rate			1,805			174,122			1,241			—			177,168
Credit			—			7,673			636			—			8,309
Foreign exchange			41			70,710			95			—			70,846
Equity			1,051			68,919			387			—			70,357
Commodity and other			4,932			17,576			2,557			—			25,065
Netting1			(6,406)			(250,928)			(975)			(52,481)			(310,790)
Total derivative and other contracts			1,423			88,072			3,941			(52,481)			40,955
Investments4			638			571			978			—			2,187
Physical commodities			—			2,106			—			—			2,106
Total trading assets4			187,488			169,867			12,230			(52,481)			317,104
Investment securities—AFS			46,234			46,988			—			—			93,222
Securities purchased under agreements to resell			—			10			—			—			10
Total assets at fair value			$	233,722		$	216,865		$	12,230		$	(52,481)		$	410,336

			At June 30, 2021
$ in millions			Level 1			Level 2			Level 3			Netting1			Total
Liabilities at fair value
Deposits			$	—		$	2,586		$	86		$	—		$	2,672
Trading liabilities:
U.S. Treasury and agency securities			14,504			377			—			—			14,881
Other sovereign government obligations			27,980			2,030			—			—			30,010
Corporate and other debt			—			12,367			9			—			12,376
Corporate equities3			73,195			471			50			—			73,716
Derivative and other contracts:
Interest rate			1,855			158,946			573			—			161,374
Credit			—			8,354			839			—			9,193
Foreign exchange			32			66,144			62			—			66,238
Equity			1,274			79,795			1,224			—			82,293
Commodity and other			4,750			16,103			1,127			—			21,980
Netting1			(6,406)			(250,928)			(975)			(44,678)			(302,987)
Total derivative and other contracts			1,505			78,414			2,850			(44,678)			38,091
Total trading liabilities			117,184			93,659			2,909			(44,678)			169,074
Securities sold under agreements to repurchase			—			579			449			—			1,028
Other secured financings			—			6,173			401			—			6,574
Borrowings			—			73,533			1,975			—			75,508
Total liabilities at fair value			$	117,184		$	176,530		$	5,820		$	(44,678)		$	254,856

			At December 31, 2020
$ in millions			Level 1			Level 2			Level 3			Netting1			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 commitments2			—			5,389			5,759			—			11,148
Corporate and other debt			—			30,093			3,435			—			33,528
Corporate equities3			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
Netting1			(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
Investments4			624			234			828			—			1,686
Physical commodities			—			3,260			—			—			3,260
Total trading assets4			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

June 2021 Form 10-Q			42

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Notes to Consolidated Financial Statements (Unaudited)

			At December 31, 2020
$ in millions			Level 1			Level 2			Level 3			Netting1			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 equities3			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
Netting1			(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 June 30, 2021			At December 31, 2020
Corporate			$	13		$	13
Secured lending facilities			666			648
Commercial Real Estate			2,441			916
Residential Real Estate			1,829			2,145
Securities-based lending and Other loans			10,196			7,426
Total			$	15,145		$	11,148

Unsettled Fair Value of Futures Contracts1

$ in millions			At June 30, 2021			At December 31, 2020
Customer and other receivables, net			$	323		$	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 June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
U.S. Treasury and agency securities
Beginning balance			$	12		$	99		$	9		$	22
Realized and unrealized gains (losses)			44			(3)			59			(20)
Purchases			22			81			25			108
Sales			(68)			(38)			(68)			(23)
Net transfers			15			(42)			—			10
Ending balance			$	25		$	97		$	25		$	97
Unrealized gains (losses)			$	44		$	(1)		$	58		$	(21)
Other sovereign government obligations
Beginning balance			$	17		$	17		$	268		$	5
Realized and unrealized gains (losses)			—			(1)			—			—
Purchases			75			—			76			9
Sales			(16)			(3)			(260)			(4)
Net transfers			2			(2)			(6)			1
Ending balance			$	78		$	11		$	78		$	11
Unrealized gains (losses)			$	—		$	(1)		$	—		$	—
State and municipal securities
Beginning balance			$	—		$	1		$	—		$	1
Purchases			4			—			4			—
Net transfers			—			(1)			—			(1)
Ending balance			$	4		$	—		$	4		$	—
Unrealized gains (losses)			$	—		$	—		$	—		$	—
MABS
Beginning balance			$	374		$	483		$	322		$	438
Realized and unrealized gains (losses)			8			11			59			(62)
Purchases			21			274			128			384
Sales			(58)			(401)			(123)			(418)
Net transfers			12			12			(29)			37
Ending balance			$	357		$	379		$	357		$	379
Unrealized gains (losses)			$	6		$	8		$	1		$	(60)
Loans and lending commitments
Beginning balance			$	5,045		$	5,980		$	5,759		$	5,073
Realized and unrealized gains (losses)			22			(2)			3			(119)
Purchases and originations			1,527			808			2,673			1,160
Sales			(1,438)			(672)			(2,569)			(755)
Settlements			(712)			(901)			(933)			(1,508)
Net transfers1			452			(1,145)			(37)			217
Ending balance			$	4,896		$	4,068		$	4,896		$	4,068
Unrealized gains (losses)			$	38		$	5		$	9		$	(116)
Corporate and other debt
Beginning balance			$	3,319		$	1,708		$	3,435		$	1,396
Realized and unrealized gains (losses)			207			55			135			(87)
Purchases and originations			883			2,859			1,413			2,522
Sales			(908)			(1,726)			(1,087)			(861)
Settlements			—			(232)			—			(311)
Net transfers2			(1,700)			22			(2,095)			27
Ending balance			$	1,801		$	2,686		$	1,801		$	2,686
Unrealized gains (losses)			$	264		$	46		$	248		$	(92)

			43			June 2021 Form 10-Q

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			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Corporate equities
Beginning balance			$	114		$	146		$	86		$	97
Realized and unrealized gains (losses)			12			(12)			26			(100)
Purchases			25			13			50			24
Sales			(36)			(25)			(38)			(127)
Net transfers			35			(39)			26			189
Ending balance			$	150		$	83		$	150		$	83
Unrealized gains (losses)			$	15		$	(9)		$	28		$	(91)
Investments
Beginning balance			$	924		$	725		$	828		$	858
Realized and unrealized gains (losses)			47			(23)			107			(49)
Purchases			28			14			92			17
Sales			(9)			(11)			(24)			(20)
Net transfers			(12)			54			(25)			(47)
Ending balance			$	978		$	759		$	978		$	759
Unrealized gains (losses)			$	47		$	(22)		$	94		$	(50)
Investment securities —AFS
Beginning balance			$	127		$	—		$	2,804		$	—
Realized and unrealized gains (losses)			—			—			(4)			—
Sales			(11)			—			(203)			—
Net transfers3			(116)			—			(2,597)			—
Ending balance			$	—		$	—		$	—		$	—
Unrealized gains (losses)			$	—		$	—		$	—		$	—
Securities purchased under agreements to resell
Beginning balance			$	—		$	—		$	3		$	—
Net transfers			—			—			(3)			—
Ending balance			$	—		$	—		$	—		$	—
Unrealized gains (losses)			$	—		$	—		$	—		$	—
Net derivatives: Interest rate
Beginning balance			$	691		$	873		$	682		$	777
Realized and unrealized gains (losses)			(43)			(126)			(388)			70
Purchases			41			11			57			129
Issuances			(52)			(24)			(66)			(27)
Settlements			18			(12)			103			(26)
Net transfers			13			38			280			(163)
Ending balance			$	668		$	760		$	668		$	760
Unrealized gains (losses)			$	(40)		$	(160)		$	(370)		$	27
Net derivatives: Credit
Beginning balance			$	(82)		$	198		$	49		$	124
Realized and unrealized gains (losses)			(88)			(74)			(75)			(60)
Purchases			17			13			25			44
Issuances			(24)			(22)			(38)			(39)
Settlements			36			54			(60)			102
Net transfers			(62)			(38)			(104)			(40)
Ending balance			$	(203)		$	131		$	(203)		$	131
Unrealized gains (losses)			$	(76)		$	(143)		$	(75)		$	(63)

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Net derivatives: Foreign exchange
Beginning balance			$	(110)		$	(150)		$	61		$	(31)
Realized and unrealized gains (losses)			96			122			(26)			94
Purchases			2			—			4			3
Issuances			—			—			(2)			(9)
Settlements			1			2			(67)			(11)
Net transfers			44			43			63			(29)
Ending balance			$	33		$	17		$	33		$	17
Unrealized gains (losses)			$	(49)		$	44		$	25		$	35
Net derivatives: Equity
Beginning balance			$	(2,117)		$	(1,376)		$	(2,231)		$	(1,684)
Realized and unrealized gains (losses)			283			(135)			344			181
Purchases			28			149			71			237
Issuances			(143)			(391)			(461)			(595)
Settlements			105			10			5			(52)
Net transfers2			1,007			(141)			1,435			29
Ending balance			$	(837)		$	(1,884)		$	(837)		$	(1,884)
Unrealized gains (losses)			$	(36)		$	(156)		$	(25)		$	(4)
Net derivatives: Commodity and other
Beginning balance			$	1,944		$	1,849		$	1,709		$	1,612
Realized and unrealized gains (losses)			122			338			348			448
Purchases			—			3			10			21
Issuances			—			(2)			(13)			(17)
Settlements			(170)			(119)			(222)			7
Net transfers			(466)			18			(402)			16
Ending balance			$	1,430		$	2,087		$	1,430		$	2,087
Unrealized gains (losses)			$	(63)		$	182		$	69		$	257
Deposits
Beginning balance			$	177		$	117		$	126		$	179
Realized and unrealized losses (gains)			4			6			2			3
Settlements			(2)			(4)			(2)			(9)
Net transfers			(93)			(29)			(40)			(83)
Ending balance			$	86		$	90		$	86		$	90
Unrealized losses (gains)			$	4		$	7		$	2		$	3
Nonderivative trading liabilities
Beginning balance			$	62		$	64		$	79		$	37
Realized and unrealized losses (gains)			(4)			5			4			(10)
Purchases			(38)			(42)			(43)			(45)
Sales			16			24			16			22
Settlements			—			—			—			3
Net transfers			23			23			3			67
Ending balance			$	59		$	74		$	59		$	74
Unrealized losses (gains)			$	(2)		$	5		$	4		$	(10)
Securities sold under agreements to repurchase
Beginning balance			$	441		$	—		$	444		$	—
Realized and unrealized losses (gains)			8			(31)			6			(31)
Issuances			—			471			—			471
Net transfers			—			—			(1)			—
Ending balance			$	449		$	440		$	449		$	440
Unrealized losses (gains)			$	8		$	(31)		$	6		$	(31)

June 2021 Form 10-Q			44

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			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Other secured financings
Beginning balance			$	555		$	389		$	516		$	109
Realized and unrealized losses (gains)			9			—			4			(12)
Issuances			37			5			407			7
Settlements			(176)			(88)			(498)			(203)
Net transfers			(24)			(6)			(28)			399
Ending balance			$	401		$	300		$	401		$	300
Unrealized losses (gains)			$	10		$	—		$	4		$	(12)
Borrowings
Beginning balance			$	4,262		$	3,998		$	4,374		$	4,088
Realized and unrealized losses (gains)			125			500			36			(202)
Issuances			146			385			276			766
Settlements			(217)			(92)			(326)			(283)
Net transfers2			(2,341)			(656)			(2,385)			(234)
Ending balance			$	1,975		$	4,135		$	1,975		$	4,135
Unrealized losses (gains)			$	121		$	496		$	29		$	(200)
Portion of Unrealized losses (gains) recorded in OCI—Change in net DVA			(4)			281			(8)			(125)

1.Net transfers in the prior year periods reflect the largely offsetting impacts of the transfer in of $857 million of equity margin loans in the first quarter of the prior year and transfers out of $707 million of equity margin loans in the prior year quarter. The loans were transferred into Level 3 in the first quarter of the prior year as the significance of the margin loan rate input increased as a result of reduced liquidity, and transferred out of Level 3 in the prior year quarter as liquidity conditions improved, reducing the significance of the input.

2.Net transfers from Level 3 to Level 2 in the current quarter reflect $2.0 billion of Corporate and Other Debt, $1.0 billion of net Equity derivatives, and $2.2 billion of Borrowings as the unobservable inputs were not significant to the overall fair value measurements as of June 30, 2021.

3.Net transfers in the current year period also reflect the transfer in the first quarter of $2.5 billion of AFS securities from Level 3 to Level 2 due to increased trading activity and observability of pricing inputs.

Level 3 instruments may be hedged with instruments classified in Level 1 and Level 2. The realized and unrealized gains or losses for assets and liabilities within the Level 3 category presented in the previous tables do not reflect the related realized and unrealized gains or losses on hedging instruments that have been classified by the Firm within the Level 1 and/or Level 2 categories.

The unrealized gains (losses) during the period for assets and liabilities within the Level 3 category may include changes in fair value during the period that were attributable to both observable and unobservable inputs. Total realized and unrealized gains (losses) are primarily included in Trading revenues in the income 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 (Average1)
$ in millions, except inputs			At June 30, 2021			At December 31, 2020
Assets at Fair Value on a Recurring Basis
Other sovereign government obligations			$	78		$	268
Comparable pricing:
Bond price			132 to 153 points (143 points)			106 points
MABS			$	357		$	322
Comparable pricing:
Bond price			0 to 81 points (55 points)			0 to 80 points (50 points)
Loans and lending commitments			$	4,896		$	5,759
Margin loan model:
Margin loan rate			0% to 4% (2%)			1% to 5% (3%)
Comparable pricing:
Loan price			75 to 101 points (98 points)			75 to 102 points (93 points)
Corporate and other debt			$	1,801		$	3,435
Comparable pricing:
Bond price			90 to 102 points (98 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			37% to 47% (41%)			18% to 21% (19%)
Corporate equities			$	150		$	86
Comparable pricing:
Equity price			100%			100%
Investments			$	978		$	828
Discounted cash flow:
WACC			10% to 16% (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 40 times (10 times)			8 to 32 times (11 times)
Comparable pricing:
Equity price			43% to 100% (99%)			45% to 100% (99%)
Investment securities —AFS			$	—		$	2,804
Comparable pricing:
Bond price			N/A			97 to 107 points (101 points)
Net derivative and other contracts:
Interest rate			$	668		$	682
Option model:
IR volatility skew			25% to 104% (60% / 59%)			0% to 349% (62% / 59%)
IR curve correlation			69% to 98% (84% / 83%)			54% to 99% (87% / 89%)
Bond volatility			4% to 25% (10% / 6%)			6% to 24% (13% / 13%)
Inflation volatility			25% to 66% (45% / 43%)			25% to 66% (45% / 43%)
IR curve			1% to 2% (2%)			1%

			45			June 2021 Form 10-Q

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Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

			Balance / Range (Average1)
$ in millions, except inputs			At June 30, 2021			At December 31, 2020
Credit			$	(203)		$	49
Credit default swap model:
Cash-synthetic basis			7 points			7 points
Bond price			0 to 85 points (46 points)			0 to 85 points (47 points)
Credit spread			14 to 474 bps (90 bps)			20 to 435 bps (74 bps)
Funding spread			21 to 95 bps (62 bps)			65 to 118 bps (86 bps)
Correlation model:
Credit correlation			26% to 42% (29%)			27% to 44% (32%)
Foreign exchange2			$	33		$	61
Option model:
IR - FX correlation			53% to 57% (55% 55%)			55% to 59% (56% / 56%)
IR volatility skew			25% to 104% (60% / 59%)			0% to 349% (62% / 59%)
IR curve			6% to 7% (7% / 7%)			6% to 8% (7% / 8%)
Foreign exchange volatility skew			-6% to -3% (-5% / -5%)			-22% to 28% (3% / 1%)
Contingency probability			95%			50% to 95% (83% / 93%)
Equity2			$	(837)		$	(2,231)
Option model:
Equity volatility			5% to 91% (23%)			16% to 97% (43%)
Equity volatility skew			-3% to 0% (-1%)			-3% to 0% (-1%)
Equity correlation			35% to 98% (68%)			24% to 96% (74%)
FX correlation			-85% to 65% (-35%)			-79% to 60% (-16%)
IR correlation			15% to 40% (38%)			-13% to 47% (21% / 20%)
Commodity and other			$	1,430		$	1,709
Option model:
Forward power price			$-1 to $258 ($33) per MWh			$-1 to $157 ($28) per MWh
Commodity volatility			8% to 176% (19%)			8% to 183% (19%)
Cross-commodity correlation			43% to 100% (94%)			43% to 99% (92%)
Liabilities Measured at Fair Value on a Recurring Basis
Deposits			$	86		$	126
Option model:
Equity volatility			7%			7% to 22% (8%)
Nonderivative trading liabilities —Corporate equities			$	50		$	63
Comparable pricing:
Equity price			100%			100%
Securities sold under agreements to repurchase			$	449		$	444
Discounted cash flow:
Funding spread			100 to 116 bps (111 bps)			107 to 127 bps (115 bps)
Other secured financings			$	401		$	516
Discounted cash flow:
Funding spread			N/A			111 bps (111 bps)
Comparable pricing:
Loan price			30 to 101 points (82 points)			30 to 101 points (56 points)

			Balance / Range (Average1)
$ in millions, except inputs			At June 30, 2021			At December 31, 2020
Borrowings			$	1,975		$	4,374
Option model:
Equity volatility			7% to 61% (17%)			6% to 66% (23%)
Equity volatility skew			-1% to 0% (0%)			-2% to 0% (0%)
Equity correlation			39% to 95% (81%)			37% to 95% (78%)
Equity - FX correlation			-32% to 10% (-23%)			-72% to 13% (-24%)
IR FX Correlation			-28% to 7% (-5% / -5%)			-28% to 6% (-6% / -6%)
Discounted cash flow:
Recovery rate			40% to 62% (46% / 40%)			N/M
Nonrecurring Fair Value Measurement
Loans			$	1,202		$	3,134
Corporate loan model:
Credit spread			45 to 526 bps (237 bps)			36 to 636 bps (336 bps)
Comparable pricing:
Loan price			40 to 88 points (76 points)			N/M
Warehouse model:
Credit spread			217 to 309 bps (291 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.

June 2021 Form 10-Q			46

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Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Net Asset Value Measurements

Fund Interests

			At June 30, 2021						At December 31, 2020
$ in millions			Carrying Value			Commitment			Carrying Value			Commitment
Private equity			$	2,448		$	576		$	2,367		$	644
Real estate			1,518			216			1,403			136
Hedge1			75			3			59			—
Total			$	4,041		$	795		$	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 income in the form of carried interest. The carrying amounts are measured based on the NAV of the fund taking into account the distribution terms applicable to the interest held. This same measurement applies whether the fund investments are accounted for under the equity method or fair value.

For a description of the Firm’s investments in private equity funds, real estate funds and hedge funds, which are measured based on NAV, see Note 5 to the financial statements in the 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 June 30, 2021
$ in millions			Private Equity			Real Estate
Less than 5 years			$	1,148		$	434
5-10 years			1,087			401
Over 10 years			213			683
Total			$	2,448		$	1,518

Nonrecurring Fair Value Measurements

Carrying and Fair Values

			At June 30, 2021
			Fair Value
$ in millions			Level 2			Level 31			Total
Assets
Loans			$	3,787		$	1,202		$	4,989
Other assets—Other investments			—			79			79
Total			$	3,787		$	1,281		$	5,068
Liabilities
Other liabilities and accrued expenses—Lending commitments			$	154		$	69		$	223
Total			$	154		$	69		$	223

			At December 31, 2020
			Fair Value
$ in millions			Level 2			Level 31			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 Remeasurements1

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Assets
Loans2			$	(38)		$	(13)		$	(55)		$	(488)
Goodwill			—			—			(8)			—
Intangibles			(1)			—			(3)			—
Other assets—Other investments3			(2)			(52)			(53)			(52)
Other assets—Premises, equipment and software4			(2)			(3)			(4)			(6)
Total			$	(43)		$	(68)		$	(123)		$	(546)
Liabilities
Other liabilities and accrued expenses—Lending commitments2			$	5		$	130		$	40		$	(88)
Total			$	5		$	130		$	40		$	(88)

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.

			47			June 2021 Form 10-Q

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Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Financial Instruments Not Measured at Fair Value

			At June 30, 2021
			Carrying Value			Fair Value
$ in millions						Level 1			Level 2			Level 3			Total
Financial assets
Cash and cash equivalents			$	126,480		$	126,480		$	—		$	—		$	126,480
Investment securities—HTM			82,120			30,623			51,282			972			82,877
Securities purchased under agreements to resell			95,920			—			94,399			1,526			95,925
Securities borrowed			126,703			—			126,703			—			126,703
Customer and other receivables			97,370			—			94,071			3,218			97,289
Loans1			166,059			—			21,535			145,503			167,038
Other assets			504			—			504			—			504
Financial liabilities
Deposits			$	317,686		$	—		$	318,107		$	—		$	318,107
Securities sold under agreements to repurchase			56,617			—			56,666			—			56,666
Securities loaned			9,574			—			9,575			—			9,575
Other secured financings			4,658			—			4,661			—			4,661
Customer and other payables			233,810			—			233,810			—			233,810
Borrowings			148,634			—			155,115			5			155,120
			Commitment Amount
Lending commitments2			$	137,508		$	—		$	680		$	406		$	1,086

			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			92,907			—			89,832			3,041			92,873
Loans1			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			224,951			—			224,951			—			224,951
Borrowings			143,378			—			150,824			5			150,829
			Commitment Amount
Lending commitments2			$	125,498		$	—		$	709		$	395		$	1,104

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

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

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

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 June 30, 2021			At December 31, 2020
Business Unit Responsible for Risk Management
Equity			$	35,924		$	33,952
Interest rates			29,684			31,222
Commodities			6,373			5,078
Credit			1,211			1,344
Foreign exchange			2,316			2,105
Total			$	75,508		$	73,701

Net Revenues from Borrowings under the Fair Value Option

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Trading revenues			$	(2,931)		$	(3,439)		$	(446)		$	8
Interest expense			84			81			157			164
Net revenues1			$	(3,015)		$	(3,520)		$	(603)		$	(156)

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 June 30,
			2021						2020
$ in millions			Trading Revenues			OCI			Trading Revenues			OCI
Loans and other debt1			$	95		$	—		$	(40)		$	—
Lending commitments			1			—			(1)			—
Deposits			—			10			—			(63)
Borrowings			(10)			237			(1)			(3,237)

June 2021 Form 10-Q			48

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Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

			Six Months Ended June 30,
			2021						2020
$ in millions			Trading Revenues			OCI			Trading Revenues			OCI
Loans and other debt1			$	253		$	—		$	(239)		$	—
Lending commitments			1			—			1			—
Deposits			—			9			—			9
Borrowings			(27)			422			(6)			1,711

$ in millions			At June 30, 2021			At December 31, 2020
Cumulative pre-tax DVA gain (loss) recognized in AOCI			$	(2,926)		$	(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 Value1

$ in millions			At June 30, 2021			At December 31, 2020
Loans and other debt2			$	13,124		$	14,042
Nonaccrual loans2			10,883			11,551
Borrowings3			(2,298)			(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 June 30, 2021			At December 31, 2020
Nonaccrual loans			$	770		$	1,407
Nonaccrual loans 90 or more days past due			$	203		$	239

7. Derivative Instruments and Hedging Activities

Fair Values of Derivative Contracts

			Assets at June 30, 2021
$ in millions			Bilateral OTC			Cleared OTC			Exchange- Traded			Total
Designated as accounting hedges
Interest rate			$	654		$	11		$	—		$	665
Foreign exchange			219			18			—			237
Total			873			29			—			902
Not designated as accounting hedges
Economic loan hedges
Credit			1			16			—			17
Other derivatives
Interest rate			168,475			7,702			326			176,503
Credit			5,356			2,936			—			8,292
Foreign exchange			69,108			1,425			76			70,609
Equity			32,308			—			38,049			70,357
Commodity and other			18,601			—			6,464			25,065
Total			293,849			12,079			44,915			350,843
Total gross derivatives			$	294,722		$	12,108		$	44,915		$	351,745
Amounts offset
Counterparty netting			(212,181)			(10,000)			(41,074)			(263,255)
Cash collateral netting			(45,922)			(1,613)			—			(47,535)
Total in Trading assets			$	36,619		$	495		$	3,841		$	40,955
Amounts not offset1
Financial instruments collateral			(12,680)			—			—			(12,680)
Net amounts			$	23,939		$	495		$	3,841		$	28,275
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable												$	4,132

			Liabilities at June 30, 2021
$ in millions			Bilateral OTC			Cleared OTC			Exchange- Traded			Total
Designated as accounting hedges
Interest rate			$	—		$	5		$	—		$	5
Foreign exchange			5			15			—			20
Total			5			20			—			25
Not designated as accounting hedges
Economic loan hedges
Credit			15			246			—			261
Other derivatives
Interest rate			154,804			6,154			411			161,369
Credit			5,428			3,504			—			8,932
Foreign exchange			64,788			1,333			97			66,218
Equity			43,053			—			39,240			82,293
Commodity and other			15,510			—			6,470			21,980
Total			283,598			11,237			46,218			341,053
Total gross derivatives			$	283,603		$	11,257		$	46,218		$	341,078
Amounts offset
Counterparty netting			(212,181)			(10,000)			(41,074)			(263,255)
Cash collateral netting			(38,774)			(958)			—			(39,732)
Total in Trading liabilities			$	32,648		$	299		$	5,144		$	38,091
Amounts not offset1
Financial instruments collateral			(6,634)			—			(1,103)			(7,737)
Net amounts			$	26,014		$	299		$	4,041		$	30,354
Net amounts for which master netting or collateral agreements are not in place or may not be legally enforceable												7,394

June 2021 Form 10-Q			49

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Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

			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
Credit1			2			51			—			53
Other derivatives
Interest rate			221,895			10,343			300			232,538
Credit1			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 offset2
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
Credit1			18			177			—			195
Other derivatives
Interest rate			210,015			7,965			639			218,619
Credit1			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 offset2
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 June 30, 2021
$ in billions			Bilateral OTC			Cleared OTC			Exchange- Traded			Total
Designated as accounting hedges
Interest rate			$	4		$	109		$	—		$	113
Foreign exchange			13			2			—			15
Total			17			111			—			128
Not designated as accounting hedges
Economic loan hedges
Credit			—			—			—			—
Other derivatives
Interest rate			4,095			7,338			576			12,009
Credit			188			107			—			295
Foreign exchange			3,494			97			12			3,603
Equity			483			—			410			893
Commodity and other			128			—			77			205
Total			8,388			7,542			1,075			17,005
Total gross derivatives			$	8,405		$	7,653		$	1,075		$	17,133

			Liabilities at June 30, 2021
$ in billions			Bilateral OTC			Cleared OTC			Exchange- Traded			Total
Designated as accounting hedges
Interest rate			$	—		$	90		$	—		$	90
Foreign exchange			1			1			—			2
Total			1			91			—			92
Not designated as accounting hedges
Economic loan hedges
Credit			—			7			—			7
Other derivatives
Interest rate			4,084			7,156			523			11,763
Credit			197			113			—			310
Foreign exchange			3,425			90			23			3,538
Equity			535			—			766			1,301
Commodity and other			118			—			76			194
Total			8,359			7,366			1,388			17,113
Total gross derivatives			$	8,360		$	7,457		$	1,388		$	17,205

			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
Credit1			—			1			—			1
Other derivatives
Interest rate			3,847			6,946			409			11,202
Credit1			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

June 2021 Form 10-Q			50

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Notes to Consolidated Financial Statements (Unaudited)

			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
Credit1			1			5			—			6
Other derivatives
Interest rate			4,000			6,915			511			11,426
Credit1			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						Six Months Ended
			June 30,						June 30,
$ in millions			2021			2020			2021			2020
Fair value hedges—Recognized in Interest income
Interest rate contracts			$	(331)		$	(16)		$	500		$	(80)
Investment Securities—AFS			345			23			(427)			89
Fair value hedges—Recognized in Interest expense
Interest rate contracts			$	1,238		$	245		$	(2,870)		$	6,912
Deposits			22			46			58			(215)
Borrowings			(1,270)			(327)			2,751			(6,759)
Net investment hedges—Foreign exchange contracts
Recognized in OCI			$	(106)		$	(96)		$	299		$	314
Forward points excluded from hedge effectiveness testing—Recognized in Interest income			(14)			(8)			(13)			25

Fair Value Hedges—Hedged Items 

$ in millions			At June 30, 2021			At December 31, 2020
Investment Securities—AFS
Amortized cost basis currently or previously hedged			$	18,009		$	16,288
Basis adjustments included in amortized cost1			$	(371)		$	(39)
Deposits
Carrying amount currently or previously hedged			$	6,316		$	15,059
Basis adjustments included in carrying amount1			$	35		$	93
Borrowings
Carrying amount currently or previously hedged			$	114,420		$	114,349
Basis adjustments included in carrying amount—Outstanding hedges			$	3,799		$	6,575
Basis adjustments included in carrying amount—Terminated hedges			$	(757)		$	(756)

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

Gains (Losses) on Economic Loan Hedges

			Three Months Ended						Six Months Ended
			June 30,						June 30,
$ in millions			2021			2020			2021			2020
Recognized in Other revenues
Credit contracts1			$	(44)		$	(120)		$	(149)		$	135

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

Net Derivative Liabilities and Collateral Posted

$ in millions			At June 30, 2021			At December 31, 2020
Net derivative liabilities with credit risk-related contingent features			$	20,227		$	30,421
Collateral posted			14,954			23,842

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 June 30, 2021
One-notch downgrade			$	227
Two-notch downgrade			328
Bilateral downgrade agreements included in the amounts above1			$	489

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

			51			June 2021 Form 10-Q

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Notes to Consolidated Financial Statements (Unaudited)

event of one-notch or two-notch downgrade scenarios based on the relevant contractual downgrade triggers.

Maximum Potential Payout/Notional of Credit Protection Sold1

			Years to Maturity at June 30, 2021
$ in billions			< 1			1-3			3-5			Over 5			Total
Single-name CDS
Investment grade			$	9		$	23		$	30		$	9		$	71
Non-investment grade			6			12			16			2			36
Total			$	15		$	35		$	46		$	11		$	107
Index and basket CDS
Investment grade			$	2		$	7		$	89		$	16		$	114
Non-investment grade			6			15			37			15			73
Total			$	8		$	22		$	126		$	31		$	187
Total CDS sold			$	23		$	57		$	172		$	42		$	294
Other credit contracts			1			—			—			—			1
Total credit protection sold			$	24		$	57		$	172		$	42		$	295
CDS protection sold with identical protection purchased															$	248

			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 Sold1

$ in millions			At June 30, 2021			At December 31, 2020
Single-name CDS
Investment grade			$	1,495		$	1,230
Non-investment grade			147			(22)
Total			$	1,642		$	1,208
Index and basket CDS
Investment grade			$	1,331		$	843
Non-investment grade			(617)			(824)
Total			$	714		$	19
Total CDS sold			$	2,356		$	1,227
Other credit contracts			(3)			(4)
Total credit protection sold			$	2,353		$	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 CRM’s assessment of credit risk and the basis for a comprehensive credit limits framework used to control credit risk. The Firm uses quantitative models and judgment to estimate the various risk parameters related to each obligor.

Protection Purchased with CDS

			Notional
$ in billions			At June 30, 2021			At December 31, 2020
Single name			$	118		$	116
Index and basket			185			116
Tranched index and basket			15			14
Total			$	318		$	246

			Fair Value Asset (Liability)
$ in millions			At June 30, 2021			At December 31, 2020
Single name			$	(1,906)		$	(1,452)
Index and basket			(999)			(57)
Tranched index and basket			(335)			(329)
Total			$	(3,240)		$	(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.

8. Investment Securities

AFS and HTM Securities

			At June 30, 2021
$ in millions			Amortized Cost1			Gross Unrealized Gains			Gross Unrealized Losses			Fair  Value
AFS securities
U.S. Treasury securities			$	45,594		$	654		$	38		$	46,210
U.S. agency securities2			28,855			422			136			29,141
Agency CMBS			15,467			424			47			15,844
State and municipal securities			230			31			5			256
FFELP student loan ABS3			1,769			13			11			1,771
Total AFS securities			91,915			1,544			237			93,222
HTM securities
U.S. Treasury securities			29,429			1,235			40			30,624
U.S. agency securities2			49,247			306			760			48,793
Agency CMBS			2,513			—			25			2,488
Non-agency CMBS			931			42			1			972
Total HTM securities			82,120			1,583			826			82,877
Total investment securities			$	174,035		$	3,127		$	1,063		$	176,099

June 2021 Form 10-Q			52

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Notes to Consolidated Financial Statements (Unaudited)

			At December 31, 2020
$ in millions			Amortized Cost1			Gross Unrealized Gains			Gross Unrealized Losses			Fair  Value
AFS securities
U.S. Treasury securities			$	45,345		$	1,010		$	—		$	46,355
U.S. agency securities2			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 ABS3			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 securities2			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 mortgage pass-through pool securities, CMOs and agency-issued debt.

3.Underlying loans are backed by a guarantee, ultimately from the U.S. Department of Education, of at least 95% of the principal balance and interest outstanding.

Investment Securities in an Unrealized Loss Position

			At June 30, 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			$	13,017		$	38		$	151		$	—
Total			13,017			38			151			—
U.S. agency securities
Less than 12 months			9,081			135			5,808			22
12 months or longer			793			1			1,168			3
Total			9,874			136			6,976			25
Agency CMBS
Less than 12 months			2,983			47			2,779			9
12 months or longer			28			—			46			—
Total			3,011			47			2,825			9
Corporate bonds
12 months or longer			—			—			31			—
Total			—			—			31			—
State and municipal securities
Less than 12 months			34			5			86			—
12 months or longer			—			—			36			1
Total			34			5			122			1
FFELP student loan ABS
Less than 12 months			87			—			—			—
12 months or longer			802			11			1,077			26
Total			889			11			1,077			26
Total AFS securities in an unrealized loss position
Less than 12 months			25,202			225			8,824			31
12 months or longer			1,623			12			2,358			30
Total			$	26,825		$	237		$	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 and the Firm expects to recover the amortized cost basis of these securities. Additionally, the Firm does not intend to sell these securities and is not likely to be required to sell these securities prior to recovery of the amortized cost basis. As of June 30, 2021 and December 31, 2020, the securities in an unrealized loss position are predominantly investment grade.

The HTM securities net carrying amounts at June 30, 2021 and December 31, 2020 reflect an ACL of $28 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 for HTM Securities. As of June 30, 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.

Investment Securities by Contractual Maturity

			At June 30, 2021
$ in millions			Amortized Cost1			Fair Value			Annualized Average Yield
AFS securities
U.S. Treasury securities:
Due within 1 year			$	10,079		$	10,161		1.4		%
After 1 year through 5 years			26,632			27,138			1.3		%
After 5 years through 10 years			8,883			8,911			1.2		%
Total			45,594			46,210
U.S. agency securities:
Due within 1 year			1			1			1.5		%
After 1 year through 5 years			147			149			1.3		%
After 5 years through 10 years			1,466			1,504			1.8		%
After 10 years			27,241			27,487			1.6		%
Total			28,855			29,141
Agency CMBS:
Due within 1 year			240			242			1.8		%
After 1 year through 5 years			1,503			1,534			1.6		%
After 5 years through 10 years			10,665			11,030			1.6		%
After 10 years			3,059			3,038			1.5		%
Total			15,467			15,844
State and municipal securities:
Due within 1 year			4			4			1.9		%
After 1 year through 5 years			22			22			1.8		%
After 5 years through 10 years			30			39			2.3		%
After 10 Years			174			191			3.9		%
Total			230			256
FFELP student loan ABS:
Due within 1 year			32			31			0.8		%
After 1 year through 5 years			188			184			0.9		%
After 5 years through 10 years			152			148			0.7		%
After 10 years			1,397			1,408			1.1		%
Total			1,769			1,771
Total AFS securities			91,915			93,222			1.4		%

			53			June 2021 Form 10-Q

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Notes to Consolidated Financial Statements (Unaudited)

			At June 30, 2021
$ in millions			Amortized Cost1			Fair Value			Annualized Average Yield
HTM securities
U.S. Treasury securities:
Due within 1 year			3,673			3,711			1.9		%
After 1 year through 5 years			19,256			19,880			1.7		%
After 5 years through 10 years			5,418			5,855			2.4		%
After 10 years			1,082			1,178			2.5		%
Total			29,429			30,624
U.S. agency securities:
After 5 years through 10 years			546			562			2.0		%
After 10 years			48,701			48,231			1.6		%
Total			49,247			48,793
Agency CMBS:
Due within 1 year			21			21			2.4		%
After 1 year through 5 years			1,358			1,349			1.3		%
After 5 years through 10 years			971			958			1.4		%
After 10 years			163			160			1.5		%
Total			2,513			2,488
Non-agency CMBS:
Due within 1 year			151			151			4.5		%
After 1 year through 5 years			65			67			2.7		%
After 5 years through 10 years			662			698			3.7		%
After 10 years			53			56			3.8		%
Total			931			972
Total HTM securities			82,120			82,877			1.7		%
Total investment securities			$	174,035		$	176,099		1.6		%

1.Amounts are net of any ACL.

Gross Realized Gains (Losses) on Sales of AFS Securities

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Gross realized gains			$	74		$	16		$	219		$	65
Gross realized (losses)			(16)			(6)			(27)			(14)
Total1			$	58		$	10		$	192		$	51

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

9. Collateralized Transactions

Offsetting of Certain Collateralized Transactions

			At June 30, 2021
$ in millions			Gross Amounts			Amounts Offset			Balance Sheet Net Amounts			Amounts Not Offset1			Net Amounts
Assets
Securities purchased under agreements to resell			$	198,942		$	(103,012)		$	95,930		$	(93,720)		$	2,210
Securities borrowed			137,720			(11,017)			126,703			(121,432)			5,271
Liabilities
Securities sold under agreements to repurchase			$	160,657		$	(103,012)		$	57,645		$	(48,791)		$	8,854
Securities loaned			20,591			(11,017)			9,574			(9,275)			299
Net amounts for which master netting agreements are not in place or may not be legally enforceable
Securities purchased under agreements to resell															$	1,824
Securities borrowed															1,120
Securities sold under agreements to repurchase															8,099
Securities loaned															164

			At December 31, 2020
$ in millions			Gross Amounts			Amounts Offset			Balance Sheet Net Amounts			Amounts Not Offset1			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 June 30, 2021
$ in millions			Overnight and Open			Less than 30 Days			30-90 Days			Over 90 Days			Total
Securities sold under agreements to repurchase			$	53,852		$	52,208		$	14,459		$	40,138		$	160,657
Securities loaned			13,432			250			150			6,759			20,591
Total included in the offsetting disclosure			$	67,284		$	52,458		$	14,609		$	46,897		$	181,248
Trading liabilities— Obligation to return securities received as collateral			22,331			—			—			—			22,331
Total			$	89,615		$	52,458		$	14,609		$	46,897		$	203,579

June 2021 Form 10-Q			54

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Notes to Consolidated Financial Statements (Unaudited)

			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 June 30, 2021			At December 31, 2020
Securities sold under agreements to repurchase
U.S. Treasury and agency securities			$	39,247		$	94,662
Other sovereign government obligations			85,282			71,140
Corporate equities			26,775			24,692
Other			9,353			7,999
Total			$	160,657		$	198,493
Securities loaned
Other sovereign government obligations			$	1,414		$	3,430
Corporate equities			19,079			16,536
Other			98			295
Total			$	20,591		$	20,261
Total included in the offsetting disclosure			$	181,248		$	218,754
Trading liabilities—Obligation to return securities received as collateral
Corporate equities			$	22,312		$	16,365
Other			19			24
Total			$	22,331		$	16,389
Total			$	203,579		$	235,143

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

$ in millions			At June 30, 2021			At December 31, 2020
Trading assets			$	35,894		$	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 June 30, 2021			At December 31, 2020
Collateral received with right to sell or repledge			$	708,327		$	724,818
Collateral that was sold or repledged1			540,654			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.

Securities Segregated for Regulatory Purposes

$ in millions			At June 30, 2021			At December 31, 2020
Segregated securities1			$	23,912		$	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 June 30, 2021			At December 31, 2020
Margin and other lending			$	72,942		$	74,714

The Firm provides margin lending arrangements that allow customers to borrow against the value of qualifying securities. Receivables from these arrangements are included within Customer and other receivables in the balance sheets. Under these arrangements, the Firm receives collateral, which includes U.S. government and agency securities, other sovereign government obligations, corporate and other debt, and corporate equities. Margin loans are collateralized by customer-owned securities held by the Firm. The Firm monitors required margin levels and established credit terms daily and, pursuant to such guidelines, requires customers to deposit additional collateral, or reduce positions, when necessary.

For a further discussion of the Firm’s margin lending activities, see Note 9 to the financial statements in the 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.

			55			June 2021 Form 10-Q

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Notes to Consolidated Financial Statements (Unaudited)

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

Loans by Type

			At June 30, 2021
$ in millions			Loans Held for Investment			Loans Held for Sale			Total Loans
Corporate			$	4,724		$	7,098		$	11,822
Secured lending facilities			28,217			3,951			32,168
Commercial real estate			6,707			583			7,290
Residential real estate			38,917			47			38,964
Securities-based lending and Other loans			76,468			34			76,502
Total loans			155,033			11,713			166,746
ACL			(687)						(687)
Total loans, net			$	154,346		$	11,713		$	166,059
Fixed rate loans, net									$	38,968
Floating or adjustable rate loans, net									127,091
Loans to non-U.S. borrowers, net									21,567

			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 June 30, 2021									At December 31, 2020
			Corporate
$ in millions			IG			NIG			Total			IG			NIG			Total
Revolving			$	1,404		$	2,353		$	3,757		$	1,138		$	3,231		$	4,369
2021			—			71			71
2020			183			25			208			585			80			665
2019			11			187			198			204			202			406
2018			195			—			195			195			—			195
2017			—			62			62			—			64			64
Prior			233			—			233			247			100			347
Total			$	2,026		$	2,698		$	4,724		$	2,369		$	3,677		$	6,046

			At June 30, 2021									At December 31, 2020
			Secured lending facilities
$ in millions			IG			NIG			Total			IG			NIG			Total
Revolving			$	6,932		$	15,899		$	22,831		$	4,711		$	14,510		$	19,221
2021			460			308			768
2020			84			214			298			162			253			415
2019			179			1,644			1,823			260			1,904			2,164
2018			328			824			1,152			614			1,432			2,046
2017			144			359			503			245			581			826
Prior			—			842			842			—			1,055			1,055
Total			$	8,127		$	20,090		$	28,217		$	5,992		$	19,735		$	25,727

			At June 30, 2021									At December 31, 2020
			Commercial real estate
$ in millions			IG			NIG			Total			IG			NIG			Total
2021			$	82		$	363		$	445
2020			165			820			985			$	95		$	943		$	1,038
2019			1,031			1,585			2,616			1,074			1,848			2,922
2018			433			537			970			746			774			1,520
2017			367			341			708			412			387			799
Prior			100			883			983			100			967			1,067
Total			$	2,178		$	4,529		$	6,707		$	2,427		$	4,919		$	7,346

			At June 30, 2021
			Residential real estate
			by FICO Scores												by LTV Ratio									Total
$ in millions			≥ 740			680-739			≤ 679						≤ 80%			> 80%
Revolving			$	69		$	30		$	5					$	104		$	—					$	104
2021			5,506			1,131			101						6,312			426						6,738
2020			8,530			1,761			136						9,874			553						10,427
2019			5,176			1,168			155						6,096			403						6,499
2018			2,108			547			70						2,505			220						2,725
2017			2,422			621			78						2,900			221						3,121
Prior			6,745			2,201			357						8,461			842						9,303
Total			$	30,556		$	7,459		$	902					$	36,252		$	2,665					$	38,917

			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 June 30, 2021
			Securities-based lending1			Other2
$ in millions						Investment Grade			Non-Investment Grade			Total
Revolving			$	63,243		$	5,383		$	715		$	69,341
2021			31			232			49			312
2020			—			817			586			1,403
2019			18			1,121			637			1,776
2018			232			378			421			1,031
2017			—			645			147			792
Prior			16			1,496			301			1,813
Total			$	63,540		$	10,072		$	2,856		$	76,468

June 2021 Form 10-Q			56

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Notes to Consolidated Financial Statements (Unaudited)

			December 31, 2020
			Securities-based lending1			Other2
$ 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 June 30, 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 Allowance1

$ in millions			At June 30, 2021			At December 31, 2020
Residential real estate			194			332
Securities-based lending and Other loans			—			31
Total			$	194		$	363

1.The majority of the amounts are past due for a period of less than 90 days as of June 30, 2021 and December 31, 2020.

Nonaccrual Loans Held for Investment before Allowance

$ in millions			At June 30, 2021			At December 31, 2020
Corporate			$	98		$	164
Secured lending facilities			298			—
Commercial real estate			71			152
Residential real estate			123			97
Securities-based lending and Other loans			163			178
Total1			$	753		$	591
Nonaccrual loans without an ACL			$	124		$	90

1.Includes all HFI loans that are 90 days or more past due as of June 30, 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 June 30, 2021			At December 31, 2020
Loans, before ACL			$	62		$	167
Lending commitments			—			27
ACL on Loans and Lending commitments			10			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			(14)			(67)			(21)			—			—			(102)
Provision for credit losses1			(95)			48			5			(2)			2			(42)
Other			(1)			(2)			(1)			—			—			(4)
June 30, 2021			$	199		$	177		$	194		$	57		$	60		$	687

$ 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			(33)			—			—			—			—			(33)
Recoveries			—			—			—			—			2			2
Net recoveries (charge-offs)			(33)			—			—			—			2			(31)
Provision for credit losses1			298			63			155			13			9			538
Other			1			—			(38)			—			38			1
June 30, 2020			$	379		$	122		$	226		$	59		$	80		$	866

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 losses1			18			1			—			—			(2)			17
Other			(1)			1			(1)			—			—			(1)
June 30, 2021			$	340		$	40		$	10		$	1		$	21		$	412

$ 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 losses1			73			26			7			(1)			3			108
Other			(2)			—			(4)			—			4			(2)
June 30, 2020			$	231		$	42		$	11		$	1		$	12		$	297

CRE—Commercial real estate

SBL—Securities-based lending.

Provision for Credit Losses

			Three Months Ended June 30,
$ in millions			2021			2020
Loans			$	16		$	246
Lending commitments			57			(7)

The aggregate allowance for loans and lending commitments decreased in the current year period, primarily reflecting charge-offs and 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, partially offset by the provision for one Secured lending facility.The base scenario used in our ACL models as

			57			June 2021 Form 10-Q

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Notes to Consolidated Financial Statements (Unaudited)

of June 30, 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 continued growth over the forecast period with U.S. GDP reaching a year-over-year growth rate of approximately 6% by the fourth 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 June 30, 2021			At December 31, 2020
Currently employed by the Firm1			$	3,329		$	3,100
No longer employed by the Firm2			133			$	140
Employee loans			$	3,462		$	3,240
ACL			(163)			(165)
Employee loans, net of ACL			$	3,299		$	3,075
Remaining repayment term, weighted average in years			5.6			5.3

1.These loans were predominantly current as of June 30, 2021 and December 31, 2020.

2.These loans were predominantly past due for a period of 90 days or more as of June 30, 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 June 30, 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 June 30, 2021			At December 31, 2020
Investments			$	2,266		$	2,410

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Income (loss)			$	51		$	(63)		$	27		$	(34)

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 June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Income (loss) from investment in MUMSS			$	52		$	(1)		$	84		$	31

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 June 30, 2021			At December 31, 2020
Savings and demand deposits			$	299,681		$	279,221
Time deposits			20,677			31,561
Total			$	320,358		$	310,782
Deposits subject to FDIC insurance			$	237,803		$	234,211
Time deposits that equal or exceed the FDIC insurance limit			$	6		$	16

Time Deposit Maturities

$ in millions			At June 30, 2021
2021			$	6,804
2022			5,523
2023			4,117
2024			2,821
2025			776
Thereafter			636
Total			$	20,677

13. Borrowings and Other Secured Financings

Borrowings

$ in millions			At June 30, 2021			At December 31, 2020
Original maturities of one year or less			$	5,538		$	3,691
Original maturities greater than one year
Senior			$	207,781		$	202,305
Subordinated			10,823			11,083
Total			$	218,604		$	213,388
Total borrowings			$	224,142		$	217,079
Weighted average stated maturity, in years1			7.6			7.3

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

June 2021 Form 10-Q			58

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Notes to Consolidated Financial Statements (Unaudited)

Other Secured Financings

$ in millions			At June 30, 2021			At December 31, 2020
Original maturities:
One year or less			$	6,767		$	10,453
Greater than one year			4,465			5,410
Total			$	11,232		$	15,863
Transfers of assets accounted for as secured financings			$	1,253		$	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 June 30, 2021
$ in millions			Less than 1			1-3			3-5			Over 5			Total
Lending:
Corporate			$	16,396		$	38,716		$	44,932		$	7,479		$	107,523
Secured lending facilities			6,007			6,669			2,086			643			15,405
Commercial and Residential real estate			428			233			19			248			928
Securities-based lending and Other			11,103			3,724			308			266			15,401
Forward-starting secured financing receivables			69,886			—			—			—			69,886
Central counterparty			300			—			—			6,237			6,537
Underwriting			—			60			—			—			60
Investment activities			1,019			253			56			356			1,684
Letters of credit and other financial guarantees			26			—			—			3			29
Total			$	105,165		$	49,655		$	47,401		$	15,232		$	217,453
Lending commitments participated to third parties															$	9,223
Forward-starting secured financing receivables settled within three business days															$	64,159

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 June 30, 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 derivatives1			$	1,352,865		$	1,029,619		$	445,441		$	955,300					$	(46,932)
Standby letters of credit and other financial guarantees issued2			1,537			1,250			517			3,735						89
Market value guarantees			79			22			—			—						—
Liquidity facilities			4,073			—			—			—						5
Whole loan sales guarantees			—			—			58			23,123						—
Securitization representations and warranties3			—			—			—			69,210						(42)
General partner guarantees			315			12			20			125						(68)
Client clearing guarantees			52			—			—			—						—

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 $0.6 billion of notional and collateral/recourse, due to the nature of the Firm’s obligations under these arrangements. As of June 30, 2021, the carrying amount of standby letters of credit and other financial guarantees issued includes an allowance for credit losses of $88 million.

3.Primarily related to residential mortgage securitizations.

The Firm has obligations under certain guarantee arrangements, including contracts and indemnification agreements, that contingently require the Firm to make payments to the guaranteed party based on changes in an 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

			59			June 2021 Form 10-Q

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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 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

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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 $147 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. On June 22, 2021, Dutch criminal authorities sought various documents in connection with an investigation of the Firm related to the civil claims asserted by the Dutch Tax Authority in matters re-styled Case number 18/00318 and Case number 18/00319, concerning the accuracy of the Dutch subsidiary’s tax returns and the maintenance of its books and records for 2007 to 2012.

15. Variable Interest Entities and Securitization Activities

Consolidated VIE Assets and Liabilities by Type of Activity1

			At June 30, 2021						At December 31, 2020
$ in millions			VIE Assets			VIE Liabilities			VIE Assets			VIE Liabilities
CLO			$	800		$	705		$	418		$	350
MABS2			388			47			590			17
Other3			1,497			378			1,110			47
Total			$	2,685		$	1,130		$	2,118		$	414

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

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 and investment funds.

Consolidated VIE Assets and Liabilities by Balance Sheet Caption

$ in millions			At June 30, 2021			At December 31, 2020
Assets
Cash and cash equivalents			$	318		$	269
Trading assets at fair value			1,781			1,445
Securities purchased under agreements to resell			200			—
Customer and other receivables			25			23
Intangible assets			92			98
Other assets			269			283
Total			$	2,685		$	2,118
Liabilities
Other secured financings			$	949		$	366
Other liabilities and accrued expenses			181			48
Total			$	1,130		$	414
Noncontrolling interests			$	143		$	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

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recognized in its financial statements, net of amounts absorbed by third-party variable interest holders.

Non-consolidated VIEs

			At June 30, 2021
$ in millions			MABS1			CDO			MTOB			OSF			Other2
VIE assets (UPB)			$	155,510		$	1,918		$	6,424		$	2,001		$	50,129
Maximum exposure to loss3
Debt and equity interests			$	20,473		$	166		$	4		$	1,245		$	10,741
Derivative and other contracts			—			—			4,073			—			5,997
Commitments, guarantees and other			1,390			—			—			—			1,443
Total			$	21,863		$	166		$	4,077		$	1,245		$	18,181
Carrying value of variable interests—Assets
Debt and equity interests			$	20,473		$	166		$	4		$	1,245		$	10,741
Derivative and other contracts			—			—			5			—			2,208
Total			$	20,473		$	166		$	9		$	1,245		$	12,949
Additional VIE assets owned4															$	17,235
Carrying value of variable interests—Liabilities
Derivative and other contracts			$	—		$	—		$	—		$	—		$	217

			At December 31, 2020
$ in millions			MABS1			CDO			MTOB			OSF			Other2
VIE assets (UPB)			$	184,153		$	3,527		$	6,524		$	2,161		$	48,241
Maximum exposure to loss3
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 owned4															$	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.

Detail of Mortgage- and Asset-Backed Securitization Assets

			At June 30, 2021						At December 31, 2020
$ in millions			UPB			Debt and Equity Interests			UPB			Debt and Equity Interests
Residential mortgages			$	17,146		$	2,637		$	17,775		$	3,175
Commercial mortgages			62,404			3,705			62,093			4,131
U.S. agency collateralized mortgage obligations			70,091			11,989			99,182			17,224
Other consumer or commercial loans			5,869			2,142			5,103			1,717
Total			$	155,510		$	20,473		$	184,153		$	26,247

Transferred Assets with Continuing Involvement

			At June 30, 2021
$ in millions			RML			CML			U.S. Agency CMO			CLN and Other1
SPE assets (UPB)2			$	7,217		$	90,355		$	31,722		$	15,181
Retained interests
Investment grade			$	98		$	936		$	605		$	—
Non-investment grade			21			214			—			80
Total			$	119		$	1,150		$	605		$	80
Interests purchased in the secondary market
Investment grade			$	—		$	78		$	20		$	—
Non-investment grade			46			68			—			1
Total			$	46		$	146		$	20		$	1
Derivative assets			$	—		$	—		$	—		$	608
Derivative liabilities			—			—			—			197

			At December 31, 2020
$ in millions			RML			CML			U.S. Agency CMO			CLN and Other1
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

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			Fair Value At June 30, 2021
$ in millions			Level 2			Level 3			Total
Retained interests
Investment grade			$	702		$	—		$	702
Non-investment grade			12			50			62
Total			$	714		$	50		$	764
Interests purchased in the secondary market
Investment grade			$	97		$	1		$	98
Non-investment grade			76			39			115
Total			$	173		$	40		$	213
Derivative assets			$	607		$	1		$	608
Derivative liabilities			163			34			197

			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 June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
New transactions1			$	16,410		$	9,189		$	31,200		$	17,660
Retained interests			2,985			1,136			5,564			5,224
Sales of corporate loans to CLO SPEs1, 2			73			73			73			139

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).

Assets Sold with Retained Exposure

$ in millions			At June 30, 2021			At December 31, 2020
Gross cash proceeds from sale of assets1			$	61,885		$	45,051
Fair value
Assets sold			$	63,544		$	46,609
Derivative assets recognized in the balance sheets			1,972			1,592
Derivative liabilities recognized in the balance sheets			314			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 June 30, 2021 and December 31, 2020, the differences between the actual and required ratios were lower under the Standardized Approach.

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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 June 30, 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 which began on January 1, 2020 in accordance with the final rule.

Risk-Based Regulatory Capital Ratio Requirements

						At June 30, 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%
CCyB1						0%			0%
Capital buffer requirement2						8.7%			5.5%
						At June 30, 2021 and December 31, 2020
			Regulatory Minimum			Standardized			Advanced
Required ratios3
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

$ in millions						Required Ratio1			At June 30, 2021			At December 31, 2020
Risk-based capital
Common Equity Tier 1 capital									$	76,815		$	78,650
Tier 1 capital									84,612			88,079
Total capital									92,782			97,213
Total RWA									462,808			453,106
Common Equity Tier 1 capital ratio						13.2		%	16.6		%	17.4		%
Tier 1 capital ratio						14.7		%	18.3		%	19.4		%
Total capital ratio						16.7		%	20.0		%	21.5		%
$ in millions						Required Ratio1			At June 30, 2021			At December 31, 2020
Leverage-based capital
Adjusted average assets2									$	1,135,262		$	1,053,510
Tier 1 leverage ratio						4.0		%	7.5		%	8.4		%
Supplementary leverage exposure3,4									$	1,439,971		$	1,192,506
SLR4						5.0		%	5.9		%	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.

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

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 June 30, 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.

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At June 30, 2021 and December 31, 2020, MSBNA and MSPBNA risk-based capital ratios are based on the Standardized Approach rules. At June 30, 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, which began on January 1, 2020.

MSBNA’s Regulatory Capital

									At June 30, 2021						At December 31, 2020
$ in millions			Well-Capitalized Requirement			Required Ratio1			Amount			Ratio			Amount			Ratio
Risk-based capital
Common Equity Tier 1 capital			6.5		%	7.0		%	$	18,069		19.8		%	$	17,238		18.7		%
Tier 1 capital			8.0		%	8.5		%	18,069			19.8		%	17,238			18.7		%
Total capital			10.0		%	10.5		%	18,644			20.5		%	17,882			19.4		%
Leverage-based capital
Tier 1 leverage			5.0		%	4.0		%	$	18,069		10.4		%	$	17,238		10.1		%
SLR			6.0		%	3.0		%	18,069			8.1		%	17,238			8.0		%

MSPBNA’s Regulatory Capital

									At June 30, 2021						At December 31, 2020
$ in millions			Well-Capitalized Requirement			Required Ratio1			Amount			Ratio			Amount			Ratio
Risk-based capital
Common Equity Tier 1 capital			6.5		%	7.0		%	$	9,629		25.1		%	$	8,213		21.3		%
Tier 1 capital			8.0		%	8.5		%	9,629			25.1		%	8,213			21.3		%
Total capital			10.0		%	10.5		%	9,702			25.2		%	8,287			21.5		%
Leverage-based capital
Tier 1 leverage			5.0		%	4.0		%	$	9,629		7.4		%	$	8,213		7.2		%
SLR			6.0		%	3.0		%	9,629			7.1		%	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 June 30, 2021			At December 31, 2020
Net capital			$	16,739		$	12,869
Excess net capital			12,837			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 June 30, 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.

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 June 30, 2021			Liquidation Preference per Share			At June 30, 2021			At December 31, 2020
Series
A			44,000			$	25,000		$	1,100		$	1,100
C1			519,882			1,000			408			408
E			34,500			25,000			862			862
F			34,000			25,000			850			850
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 Firm’s preferred stock has a preference over its common stock upon liquidation. The Firm’s preferred stock qualifies as and is included in Tier 1 capital in

			65			June 2021 Form 10-Q

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Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

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 June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Repurchases of common stock under the Firm’s Share Repurchase Program			$	2,939		$	—		$	5,074		$	1,347

Beginning late in the first quarter of 2020, the Firm suspended its share repurchase program, however the Federal Reserve permitted the resumption of share repurchases for the current year period. On June 28, 2021, the Firm announced its Board of Directors authorized the repurchase of up to $12 billion of outstanding common stock from July 1, 2021 through June 30, 2022, from time to time as conditions warrant, which supersedes the previous common stock repurchase authorization. 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 June 30,						Six Months Ended June 30,
in millions			2021			2020			2021			2020
Weighted average common shares outstanding, basic			1,814			1,541			1,804			1,548
Effect of dilutive Stock options, RSUs and PSUs			27			16			25			17
Weighted average common shares outstanding and common stock equivalents, diluted			1,841			1,557			1,829			1,565
Weighted average antidilutive common stock equivalents (excluded from the computation of diluted EPS)			—			8			—			10

Dividends

$ in millions, except per share data			Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
			Per Share1			Total			Per Share1			Total
Preferred stock series
A			$	253		$	11		$	253		$	11
C			25			13			25			13
E			445			15			445			15
F			430			15			430			15
H			240			12			305			16
I			398			16			398			16
J2			—			—			694			42
K			366			15			366			15
L			305			6			305			6
Total Preferred stock						$	103					$	149
Common stock			0.35			$	651		$	0.35		$	550

$ in millions, except per share data			Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
			Per Share1			Total			Per Share1			Total
Preferred stock series
A			$	503		$	22		$	506		$	22
C			50			26			50			26
E			891			30			891			30
F			859			29			859			29
H			480			25			649			34
I			797			32			797			32
J2			253			15			694			42
K			731			30			731			30
L			609			12			609			12
M3			29			12			—			—
N4			2,650			8			—			—
Total Preferred stock						$	241					$	257
Common stock			$	0.70		$	1,286		$	0.70		$	1,111

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 its redemption.

3.Series M is payable semiannually until September 15, 2026, and thereafter will be payable quarterly.

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

Accumulated Other Comprehensive Income (Loss)1

$ in millions			CTA			AFS Securities			Pension and Other			DVA			Total
March 31, 2021			$	(936)		$	1,011		$	(493)		$	(2,336)		$	(2,754)
OCI during the period			41			(7)			12			185			231
June 30, 2021			$	(895)		$	1,004		$	(481)		$	(2,151)		$	(2,523)
March 31, 2020			$	(1,038)		$	1,532		$	(619)		$	2,220		$	2,095
OCI during the period			21			295			(1)			(2,409)			(2,094)
June 30, 2020			$	(1,017)		$	1,827		$	(620)		$	(189)		$	1
December 31, 2020			$	(795)		$	1,787		$	(498)		$	(2,456)		$	(1,962)
OCI during the period			(100)			(783)			17			305			(561)
June 30, 2021			$	(895)		$	1,004		$	(481)		$	(2,151)		$	(2,523)
December 31, 2019			$	(897)		$	207		$	(644)		$	(1,454)		$	(2,788)
OCI during the period			(120)			1,620			24			1,265			2,789
June 30, 2020			$	(1,017)		$	1,827		$	(620)		$	(189)		$	1

CTA—Cumulative foreign currency translation adjustments

1.Amounts are net of tax and noncontrolling interests.

Components of Period Changes in OCI

			Three Months Ended June 30, 2021
$ in millions			Pre-tax Gain (Loss)			Income Tax Benefit (Provision)			After-tax Gain (Loss)			Non- controlling Interests			Net
CTA
OCI activity			$	12		$	29		$	41		$	—		$	41
Reclassified to earnings			—			—			—			—			—
Net OCI			$	12		$	29		$	41		$	—		$	41
Change in net unrealized gains (losses) on AFS securities
OCI activity			$	47		$	(10)		$	37		$	—		$	37
Reclassified to earnings			(58)			14			(44)			—			(44)
Net OCI			$	(11)		$	4		$	(7)		$	—		$	(7)
Pension and other
OCI activity			$	8		$	—		$	8		$	—		$	8
Reclassified to earnings			7			(3)			4			—			4
Net OCI			$	15		$	(3)		$	12		$	—		$	12
Change in net DVA
OCI activity			$	237		$	(59)		$	178		$	1		$	177
Reclassified to earnings			10			(2)			8			—			8
Net OCI			$	247		$	(61)		$	186		$	1		$	185

June 2021 Form 10-Q			66

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Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

			Three Months Ended June 30, 2020
$ in millions			Pre-tax Gain (Loss)			Income Tax Benefit (Provision)			After-tax Gain (Loss)			Non- controlling Interests			Net
CTA
OCI activity			$	5		$	19		$	24		$	—		$	24
Reclassified to earnings			(3)			—			(3)			—			(3)
Net OCI			$	2		$	19		$	21		$	—		$	21
Change in net unrealized gains (losses) on AFS securities
OCI activity			$	395		$	(93)		$	302		$	—		$	302
Reclassified to earnings			(10)			3			(7)			—			(7)
Net OCI			$	385		$	(90)		$	295		$	—		$	295
Pension and other
OCI activity			$	(4)		$	(1)		$	(5)		$	—		$	(5)
Reclassified to earnings			5			(1)			4			—			4
Net OCI			$	1		$	(2)		$	(1)		$	—		$	(1)
Change in net DVA
OCI activity			$	(3,301)		$	805		$	(2,496)		$	(87)		$	(2,409)
Reclassified to earnings			1			(1)			—			—			—
Net OCI			$	(3,300)		$	804		$	(2,496)		$	(87)		$	(2,409)

			Six Months Ended June 30, 2021
$ in millions			Pre-tax Gain (Loss)			Income Tax Benefit (Provision)			After-tax Gain (Loss)			Non- controlling Interests			Net
CTA
OCI activity			$	(92)		$	(86)		$	(178)		$	(78)		$	(100)
Reclassified to earnings			—			—			—			—			—
Net OCI			$	(92)		$	(86)		$	(178)		$	(78)		$	(100)
Change in net unrealized gains (losses) on AFS securities
OCI activity			$	(829)		$	193		$	(636)		$	—		$	(636)
Reclassified to earnings			(192)			45			(147)			—			(147)
Net OCI			$	(1,021)		$	238		$	(783)		$	—		$	(783)
Pension and other
OCI activity			$	8		$	—		$	8		$	—		$	8
Reclassified to earnings			14			(5)			9			—			9
Net OCI			$	22		$	(5)		$	17		$	—		$	17
Change in net DVA
OCI activity			$	404		$	(102)		$	302		$	18		$	284
Reclassified to earnings			27			(6)			21			—			21
Net OCI			$	431		$	(108)		$	323		$	18		$	305

			Six Months Ended June 30, 2020
$ in millions			Pre-tax Gain (Loss)			Income Tax Benefit (Provision)			After-tax Gain (Loss)			Non- controlling Interests			Net
CTA
OCI activity			$	(15)		$	(93)		$	(108)		$	9		$	(117)
Reclassified to earnings			(3)			—			(3)			—			(3)
Net OCI			$	(18)		$	(93)		$	(111)		$	9		$	(120)
Change in net unrealized gains (losses) on AFS securities
OCI activity			$	2,168		$	(509)		$	1,659		$	—		$	1,659
Reclassified to earnings			(51)			12			(39)			—			(39)
Net OCI			$	2,117		$	(497)		$	1,620		$	—		$	1,620
Pension and other
OCI activity			$	21		$	(5)		$	16		$	—		$	16
Reclassified to earnings			10			(2)			8			—			8
Net OCI			$	31		$	(7)		$	24		$	—		$	24
Change in net DVA
OCI activity			$	1,714		$	(411)		$	1,303		$	42		$	1,261
Reclassified to earnings			6			(2)			4			—			4
Net OCI			$	1,720		$	(413)		$	1,307		$	42		$	1,265

18. Interest Income and Interest Expense

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Interest income
Investment securities			$	608		$	629		$	1,457		$	1,074
Loans			1,040			1,050			2,028			2,204
Securities purchased under agreements to resell and Securities borrowed1			(321)			(141)			(617)			257
Trading assets, net of Trading liabilities			486			616			996			1,365
Customer receivables and Other2			399			204			785			961
Total interest income			$	2,212		$	2,358		$	4,649		$	5,861
Interest expense
Deposits			$	108		$	220		$	228		$	626
Borrowings			719			823			1,433			1,820
Securities sold under agreements to repurchase and Securities loaned3			116			209			230			718
Customer payables and Other4			(596)			(494)			(1,135)			(259)
Total interest expense			$	347		$	758		$	756		$	2,905
Net interest			$	1,865		$	1,600		$	3,893		$	2,956

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 June 30, 2021			At December 31, 2020
Customer and other receivables			$	2,160		$	1,652
Customer and other payables			2,517			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.

			67			June 2021 Form 10-Q

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Notes to Consolidated Financial Statements (Unaudited)

20. Segment, Geographic and Revenue Information

Selected Financial Information by Business Segment

			Three Months Ended June 30, 2021
$ in millions			IS			WM			IM			I/E			Total
Investment banking			$	2,376		$	203		$	—		$	(19)		$	2,560
Trading			3,078			255			(22)			19			3,330
Investments			61			14			306			—			381
Commissions and fees1			682			714			1			(89)			1,308
Asset management1,2			148			3,447			1,418			(40)			4,973
Other			137			207			1			(3)			342
Total non-interest revenues			6,482			4,840			1,704			(132)			12,894
Interest income			873			1,366			10			(37)			2,212
Interest expense			263			111			12			(39)			347
Net interest			610			1,255			(2)			2			1,865
Net revenues			$	7,092		$	6,095		$	1,702		$	(130)		$	14,759
Provision for credit losses			$	70		$	3		$	—		$	—		$	73
Compensation and benefits			2,433			3,275			715			—			6,423
Non-compensation expenses			2,091			1,181			557			(132)			3,697
Total non-interest expenses			$	4,524		$	4,456		$	1,272		$	(132)		$	10,120
Income before provision for income taxes			$	2,498		$	1,636		$	430		$	2		$	4,566
Provision for income taxes			574			372			108			—			1,054
Net income			1,924			1,264			322			2			3,512
Net income applicable to noncontrolling interests			20			—			(19)			—			1
Net income applicable to Morgan Stanley			$	1,904		$	1,264		$	341		$	2		$	3,511

			Three Months Ended June 30, 2020
$ in millions			IS			WM			IM			I/E			Total
Investment banking			$	2,051		$	110		$	—		$	(19)		$	2,142
Trading3			4,272			492			22			17			4,803
Investments			36			8			231			—			275
Commissions and fees1			717			473			—			(88)			1,102
Asset management1,2			115			2,507			684			(41)			3,265
Other3			439			84			(47)			(3)			473
Total non-interest revenues			7,630			3,674			890			(134)			12,060
Interest income			1,300			1,210			7			(159)			2,358
Interest expense			731			180			11			(164)			758
Net interest			569			1,030			(4)			5			1,600
Net revenues3			$	8,199		$	4,704		$	886		$	(129)		$	13,660
Provision for credit losses3			$	217		$	22		$	—		$	—		$	239
Compensation and benefits			2,952			2,729			354			—			6,035
Non-compensation expenses3			2,037			811			316			(133)			3,031
Total non-interest expenses3			$	4,989		$	3,540		$	670		$	(133)		$	9,066
Income before provision for income taxes			$	2,993		$	1,142		$	216		$	4		$	4,355
Provision for income taxes			790			289			39			1			1,119
Net income			2,203			853			177			3			3,236
Net income applicable to noncontrolling interests			17			—			23			—			40
Net income applicable to Morgan Stanley			$	2,186		$	853		$	154		$	3		$	3,196

			Six Months Ended June 30, 2021
$ in millions			IS			WM			IM			I/E			Total
Investment banking			$	4,989		$	454		$	—		$	(43)		$	5,400
Trading			7,151			381			(19)			42			7,555
Investments			147			16			536			—			699
Commissions and fees1			1,552			1,565			1			(184)			2,934
Asset management1,2			287			6,638			2,521			(75)			9,371
Other			295			360			(23)			(6)			626
Total non-interest revenues			14,421			9,414			3,016			(266)			26,585
Interest income			1,843			2,852			18			(64)			4,649
Interest expense			595			212			18			(69)			756
Net interest			1,248			2,640			—			5			3,893
Net revenues			$	15,669		$	12,054		$	3,016		$	(261)		$	30,478
Provision for credit losses			$	(23)		$	(2)		$	—		$	—		$	(25)
Compensation and benefits			5,547			6,445			1,229			—			13,221
Non-compensation expenses			4,276			2,375			987			(266)			7,372
Total non-interest expenses			$	9,823		$	8,820		$	2,216		$	(266)		$	20,593
Income before provision for income taxes			$	5,869		$	3,236		$	800		$	5		$	9,910
Provision for income taxes			1,310			730			189			1			2,230
Net income			4,559			2,506			611			4			7,680
Net income applicable to noncontrolling interests			54			—			(5)			—			49
Net income applicable to Morgan Stanley			$	4,505		$	2,506		$	616		$	4		$	7,631

			Six Months Ended June 30, 2020
$ in millions			IS			WM			IM			I/E			Total
Investment banking			$	3,195		$	268		$	—		$	(50)		$	3,413
Trading3			7,433			145			(15)			41			7,604
Investments			11			8			294			—			313
Commissions and fees1			1,591			1,061			—			(190)			2,462
Asset management1,2			228			5,187			1,349			(82)			6,682
Other3			(112)			165			(40)			(4)			9
Total non-interest revenues			12,346			6,834			1,588			(285)			20,483
Interest income			3,723			2,403			15			(280)			5,861
Interest expense			2,692			477			25			(289)			2,905
Net interest			1,031			1,926			(10)			9			2,956
Net revenues3			$	13,377		$	8,760		$	1,578		$	(276)		$	23,439
Provision for credit losses3			$	605		$	41		$	—		$	—		$	646
Compensation and benefits			4,766			4,941			611			—			10,318
Non-compensation expenses3			4,063			1,581			608			(278)			5,974
Total non-interest expenses3			$	8,829		$	6,522		$	1,219		$	(278)		$	16,292
Income before provision for income taxes			$	3,943		$	2,197		$	359		$	2		$	6,501
Provision for income taxes			941			480			64			—			1,485
Net income			3,002			1,717			295			2			5,016
Net income applicable to noncontrolling interests			59			—			63			—			122
Net income applicable to Morgan Stanley			$	2,943		$	1,717		$	232		$	2		$	4,894

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.

June 2021 Form 10-Q			68

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Table of Contents
Notes to Consolidated Financial Statements (Unaudited)

Detail of Investment Banking Revenues

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Institutional Securities Advisory			$	664		$	462		$	1,144		$	824
Institutional Securities Underwriting			1,712			1,589			3,845			2,371
Firm Investment banking revenues from contracts with customers			90		%	92		%	91		%	91		%

Trading Revenues by Product Type1

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Interest rate			$	17		$	1,008		$	876		$	2,082
Foreign exchange			314			127			588			465
Equity security and index2			2,033			1,943			3,728			3,016
Commodity and other			680			723			1,541			733
Credit			286			1,002			822			1,308
Total			$	3,330		$	4,803		$	7,555		$	7,604

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 June 30, 2021			At December 31, 2020
Net cumulative unrealized performance-based income at risk of reversing			$	778		$	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.

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

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Fee waivers			$	131		$	22		$	225		$	33

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 June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Transaction taxes			$	217		$	146		$	455		$	330

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 Region1

			Three Months Ended June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Americas			$	10,885		$	9,950		$	22,076		$	16,838
EMEA			2,093			2,109			4,252			3,306
Asia			1,781			1,601			4,150			3,295
Total			$	14,759		$	13,660		$	30,478		$	23,439

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 June 30,						Six Months Ended June 30,
$ in millions			2021			2020			2021			2020
Non-interest revenues			$	677		$	680		$	1,066		$	1,242

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

			69			June 2021 Form 10-Q

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Notes to Consolidated Financial Statements (Unaudited)

ended June 30, 2021 these revenues primarily include investment banking advisory fees, and for the three and six months ended June 30, 2020, these revenues primarily include investment banking advisory fees and distribution fees.

Receivables from Contracts with Customers

$ in millions			At June 30, 2021			At December 31, 2020
Customer and other receivables			$	3,425		$	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 the right per the contract to bill the customer.

Assets by Business Segment

$ in millions			At June 30, 2021			At December 31, 2020
Institutional Securities			$	782,257		$	753,322
Wealth Management			361,136			355,595
Investment Management			18,412			6,945
Total1			$	1,161,805		$	1,115,862

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

June 2021 Form 10-Q			70

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Financial Data Supplement (Unaudited)

Average Balances and Interest Rates and Net Interest Income

			Three Months Ended June 30,
			2021									2020
$ in millions			Average Daily Balance			Interest			Annualized Average Rate			Average Daily Balance			Interest			Annualized Average Rate
Interest earning assets
Investment securities1			$	181,482		$	608		1.3		%	$	123,713		$	629		2.0		%
Loans1			161,767			1,040			2.6		%	147,326			1,050			2.9		%
Securities purchased under agreements to resell and Securities borrowed2:
U.S.			152,770			(200)			(0.5)		%	141,722			(85)			(0.2)		%
Non-U.S.			73,218			(121)			(0.7)		%	61,283			(56)			(0.4)		%
Trading assets, net of Trading liabilities3:
U.S.			77,814			409			2.1		%	70,641			489			2.8		%
Non-U.S.			17,897			77			1.7		%	24,757			127			2.1		%
Customer receivables and Other4:
U.S.			130,618			340			1.0		%	87,620			166			0.8		%
Non-U.S.			76,329			59			0.3		%	62,126			38			0.2		%
Total			$	871,895		$	2,212		1.0		%	$	719,188		$	2,358		1.3		%
Interest bearing liabilities
Deposits1			$	321,138		$	108		0.1		%	$	235,370		$	220		0.4		%
Borrowings1, 5			221,911			719			1.3		%	202,280			823			1.6		%
Securities sold under agreements to repurchase and Securities loaned6:
U.S.			37,849			33			0.3		%	28,840			92			1.3		%
Non-U.S.			29,719			83			1.1		%	30,446			117			1.5		%
Customer payables and Other7:
U.S.			129,695			(481)			(1.5)		%	121,977			(403)			(1.3)		%
Non-U.S.			75,829			(115)			(0.6)		%	63,778			(91)			(0.6)		%
Total			$	816,141		$	347		0.2		%	$	682,691		$	758		0.4		%
Net interest income and net interest rate spread						$	1,865		0.8		%				$	1,600		0.9		%

			Six Months Ended June 30,
			2021									2020
$ in millions			Average Daily Balance			Interest			Annualized Average Rate			Average Daily Balance			Interest			Annualized Average Rate
Interest earning assets
Investment securities1			$	184,377		$	1,457		1.6		%	$	116,995		$	1,074		1.8		%
Loans1			156,729			2,028			2.6		%	140,884			2,204			3.1		%
Securities purchased under agreements to resell and Securities borrowed2:
U.S.			149,440			(369)			(0.5)		%	131,357			293			0.4		%
Non-U.S.			70,897			(248)			(0.7)		%	59,131			(36)			(0.1)		%
Trading assets, net of Trading liabilities3:
U.S.			75,563			819			2.2		%	74,663			1,115			3.0		%
Non-U.S.			17,518			177			2.0		%	23,905			250			2.1		%
Customer receivables and Other4:
U.S.			134,298			677			1.0		%	77,694			721			1.9		%
Non-U.S.			75,249			108			0.3		%	61,078			240			0.8		%
Total			$	864,071		$	4,649		1.1		%	$	685,707		$	5,861		1.7		%
Interest bearing liabilities
Deposits1			$	320,688		$	228		0.1		%	$	217,472		$	626		0.6		%
Borrowings1, 5			218,816			1,433			1.3		%	197,171			1,820			1.9		%
Securities sold under agreements to repurchase and Securities loaned6:
U.S.			35,891			77			0.4		%	29,954			420			2.8		%
Non-U.S.			28,486			153			1.1		%	30,261			298			2.0		%
Customer payables and Other7:
U.S.			130,065			(918)			(1.4)		%	125,797			(294)			(0.5)		%
Non-U.S.			71,608			(217)			(0.6)		%	63,375			35			0.1		%
Total			$	805,554		$	756		0.2		%	$	664,030		$	2,905		0.9		%
Net interest income and net interest rate spread						$	3,893		0.9		%				$	2,956		0.8		%

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 securities lending transactions entered into to cover customers’ short positions.

			71			June 2021 Form 10-Q

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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)
CRM			Credit Risk Management Department
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
FDIC			Federal Deposit Insurance Corporation
FFELP			Federal Family Education Loan Program
FHC			Financial Holding Company
FICO			Fair Isaac Corporation
Financial statements			Consolidated financial statements
G-SIB			Global systemically important banks
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
MSBNA			Morgan Stanley Bank, N.A.
MS&Co.			Morgan Stanley & Co. LLC
MSIP			Morgan Stanley & Co. International plc
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)
OTC			Over-the-counter
PRA			Prudential Regulation Authority
PSU			Performance-based stock unit
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
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

June 2021 Form 10-Q			72

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Other Information

On July 27, 2021, Elizabeth Corley notified Morgan Stanley of her intention to resign from the Board of Directors effective on or about April 27, 2022 when it is expected that she will become board chair of a U.K.-based firm.

Legal Proceedings

The following developments have occurred since previously reporting certain matters in the Firm’s 2020 Form 10-K and the Firm’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 (the “First Quarter Form 10-Q”). See also the disclosures set forth under “Legal Proceedings” in the 2020 Form 10-K.

European Matter

On June 22, 2021, Dutch criminal authorities sought various documents in connection with an investigation of the Firm related to the civil claims asserted by the Dutch Tax Authority in matters re-styled Case number 18/00318 and Case number 18/00319, concerning the accuracy of the Dutch subsidiary’s tax returns and the maintenance of its books and records for 2007 to 2012.

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 June 30, 2021

$ in millions, except per share data			Total Number of Shares Purchased1			Average Price Paid per Share			Total Shares Purchased as Part of Share Repurchase Program2,3			Dollar Value of Remaining Authorized Repurchase
April			9,005,938			$	79.84		8,095,000			$	7,219
May			14,426,207			$	85.91		14,386,200			$	5,983
June			11,627,627			$	91.07		11,606,923			$	4,926
Total			35,059,772			$	86.06		34,088,123

1.Includes 971,649 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 June 30, 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.

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 June 28, 2021, the Firm announced its Board of Directors authorized the repurchase of up to $12 billion of outstanding common stock from July 1, 2021 through June 30, 2022, from

time to time as conditions warrant, which supersedes the previous common stock repurchase authorization. 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
10.1			Sixth Amendment to Investor Agreement, dated April 13, 2021, between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc.
15			Letter of awareness from Deloitte & Touche LLP, dated August 2, 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			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).

			73			June 2021 Form 10-Q

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MORGAN STANLEY (Registrant)
By:			/s/ SHARON YESHAYA
			Sharon Yeshaya Executive Vice President and Chief Financial Officer
By:			/s/ RAJA J. AKRAM
			Raja J. Akram Deputy Chief Financial Officer, Chief Accounting Officer and Controller

Date: August 2, 2021

June 2021 Form 10-Q			74