Registered number: 02068222
Morgan Stanley
Registered office:
25 Cabot Square
Canary Wharf
London
E14 4QA
Morgan Stanley & Co. International plc
Report and financial statements
31 December 2024
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
STRATEGIC REPORT
...............................................................................................................................
3
Group and Company Overview
.................................................................................................................
3
Principal Activity
...................................................................................................................................
3
Supervision and Regulation
...............................................................................................................
3
Risk Factors and Business Environment
.........................................................................................
3
ESG Overview
.....................................................................................................................................
4
Financial Performance and Condition
......................................................................................................
5
Performance Indicators
......................................................................................................................
5
Overview of 2024 Financial Results
.................................................................................................
6
Key Accounting Estimates and Judgements
...................................................................................
7
Capital and Liquidity Resource Management and Regulation
.............................................................
9
Capital Management
...........................................................................................................................
9
Funding and Liquidity Management
.................................................................................................
10
Recovery and Resolution Planning
..................................................................................................
11
Regulatory Developments
..................................................................................................................
12
Risk Management
........................................................................................................................................
13
Risk Management Framework
..........................................................................................................
13
Market Risk
..........................................................................................................................................
16
Credit Risk
............................................................................................................................................
17
Valuation Risk
......................................................................................................................................
20
Leverage Risk
......................................................................................................................................
20
Liquidity Risk
........................................................................................................................................
21
Operational Risk
..................................................................................................................................
22
Climate and Environmental Risk
.......................................................................................................
23
ESG Report
...................................................................................................................................................
24
General Information
............................................................................................................................
24
Environmental Information
.................................................................................................................
27
Social Information
................................................................................................................................
34
Governance Information
.....................................................................................................................
37
Stakeholder Engagement and Section 172(1) Statement
.....................................................................
39
Corporate Governance
...............................................................................................................................
41
DIRECTORS’ REPORT
..............................................................................................................................
46
Directors’ Responsibilities Statement
...............................................................................................
49
INDEPENDENT AUDITOR’S REPORT
...................................................................................................
51
PRIMARY FINANCIAL STATEMENTS
...................................................................................................
60
NOTES TO THE FINANCIAL STATEMENTS
........................................................................................
67
2
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
The Directors present their Strategic Report for
Morgan Stanley & Co. International plc (the
“Company”) and all of its subsidiary undertakings
(together the “Group”) for the year ended
31 December 2024.
Group and Company
Overview
The ultimate parent undertaking and controlling
entity of the Company is Morgan Stanley, which
together with the Group and Morgan Stanley’s
other subsidiary undertakings, forms the “Morgan
Stanley Group”. Morgan Stanley is a global
financial services firm authorised as a Financial
Holding Company and regulated by the Board of
Governors of the Federal Reserve System in the
United States of America (“US”).
Morgan Stanley International Limited (“MSI”) is
the ultimate United Kingdom (“UK”) parent
undertaking of the Company. MSI, together with
all of its subsidiary undertakings, forms the “MSI
Group”.
The Company and Group operate within the
financial services industry and are subject to
extensive supervision and regulation.
Throughout the Strategic Report, the Directors
may refer to policies, procedures and practices
that the Company shares with the MSI Group
and the Morgan Stanley Group.
The Directors were deeply saddened by the
terrible news that Jonathan Bloomer and his wife,
Judy, were among those who lost their lives in
the tragic events in the Mediterranean in August
2024.
Jonathan had served as Non-Executive
Chairman of both the Company and MSI since
2018, and as a Non-Executive Director from
2016.
He was a friend and mentor to many and
we will all greatly miss his wise counsel and spirit
of
kindness.
Our
thoughts
and
deepest
condolences remain with the Bloomer family and
all those affected by this tragedy.
Principal Activity
of financial services to a global client base
consisting of corporations, governments and
investment banking, sales and trading, and other
services to clients. There has been no change to
the Group’s principal activity during the year and
no significant change is expected.
headquarters in London, UK and operates
branches in Abu Dhabi, Dubai, Qatar, South
Korea
and
Switzerland.
During
2024,
the
Company
obtained
a
license
to
conduct
regulated activity through its Abu Dhabi branch.
Details of the Company’s subsidiaries can be
Supervision and Regulation
As a UK-based financial services provider, the
Company
is
authorised
by
the
Prudential
Regulation
Authority
(“PRA”)
as
a
PRA-
designated investment firm and is primarily
regulated by the PRA and the Financial Conduct
Authority (“FCA”). The branches and subsidiaries
may be locally regulated.
As a provider of services to global clients, the
Company is conditionally registered with the
Securities and Exchange Commission (“SEC”) as
a Securities Based Swap Dealer (“SBSD”). The
Company is also registered with the Commodity
Futures Trading Commission (“CFTC”) as a
Swap Dealer.
Where applicable, the Company is complying
with home country capital requirements in lieu of
SEC and CFTC requirements pursuant to
substituted compliance rules.
The Company issues debt
on European Union
(“EU”) regulated markets and is subject to the
Luxembourg
Law
on
Transparency
Requirements.
Risk Factors and Business
Environment
The business results of the Group’s operations
may be impacted by exposure to risk factors and
the current business environment in which it
operates.
Risk Factors
Risk taking is an inherent part of the Group’s
business activities. The MSI Group seeks to
identify, assess, monitor and manage each of the
various types of risk involved in its business
activities, in accordance with defined policies and
procedures.
The Company’s Risk Appetite Statement (“RAS”)
articulates the aggregate level and type of risk
that the Company is willing to accept to execute
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
3
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
its business strategy and to protect its capital and
liquidity resources.
The MSI Group has an established Risk
Management
Framework
to
support
the
identification, monitoring and management of
risk.
A description of the material risks and how these
risks are managed is outlined in the ‘Risk
Management’ section.
Business Environment
The economic environment, client and investor
confidence
and
overall
market
sentiment
improved in 2024. While interest rates declined in
the latter half of 2024, elevated inflation,
geopolitical
risks,
uncertainties
surrounding
government and policy developments in the
markets the Group operates in, and the timing
and pace of further interest rate actions present
ongoing risks to the economic environment.
These factors have impacted, and could continue
to impact capital markets and the performance of
the Group. See ‘Overview of 2024 Financial
Results’ section.
The Strategic Report contains certain forward-
looking statements and information on future
developments. These statements are made by
the Board in good faith, based on the information
available at the time of the approval of the report,
and such statements should be treated with
caution
due
to
the
inherent
uncertainties,
including both economic and business risk
factors considered, underlying any such forward-
looking information.
ESG Overview
The
Morgan
Stanley
Group’s
sustainability
strategy is focused on helping clients achieve
their own sustainability-related ambitions by
providing advice, products and solutions. For
further information on its approach to, and
performance
on,
environmental,
social
and
governance (“ESG”) topics, refer to the Morgan
Stanley Group’s ESG Report, available at
https://
www.morganstanley.com/about-us/sustainability-
reports-research
The Group’s approach to ESG topics is provided
in the ‘ESG Report’ section, and is consistent
with that of the Morgan Stanley Group.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
4
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Financial Performance and
Condition
Performance Indicators
To assess the effectiveness of the execution of
the strategy, the Board monitors the results of the
Group and/or Company by reference to a range
of
performance
indicators
and
required
regulatory metrics, including, but not limited to
those disclosed below. The Group’s performance
indicators
are
as
at
the
years
ended
31 December 2024 and 31 December 2023,
except where otherwise stated. The Company
has consistently been, and continues to be, fully
compliant
with
its
financial
resources
requirements.
Return on Shareholders’ Equity (Group)
in $ millions
2024
2023
Total shareholders’ equity at
beginning of the year
23,606
24,233
Profit after tax
1,425
1,049
Return on shareholders’ equity
6.0%
4.3%
Tier 1 Capital Ratio (Company)
in $ millions
2024
2023
Risk-weighted assets (“RWAs”)
122,626
117,819
Tier 1 capital
21,526
21,798
Tier 1 capital ratio
17.6%
18.5%
Leverage Ratio (Company)
in $ millions
2024
2023
Leverage exposure
409,557
422,844
Tier 1 capital
21,526
21,798
Leverage ratio
5.3%
5.2%
Liquidity Coverage Ratio (Company)
in $ millions
2024
(1)
2023
(1)
Liquidity buffer - High quality liquid
assets ("HQLA")
39,981
41,207
Liquidity coverage ratio ("LCR")
194%
193%
(1) Calculated as the average of the preceding twelve months.
Net Stable Funding Ratio (Company)
in $ millions
2024
(1)
2023
(1)
Available stable funding ("ASF")
106,539
100,521
Required stable funding ("RSF")
100,420
91,809
Net stable funding ratio ("NSFR")
106%
109%
(1) Calculated as the average of the preceding four quarters.
Senior Unsecured Credit Ratings (Company)
At 31 December 2024 and 31 December 2023,
the Company’s senior unsecured ratings were as
follows:
Short-
Term Debt
Long-
Term Debt
Rating
Outlook
Moody’s Investor
Service, Inc
P-1
Aa3
Stable
Standard & Poor’s
Rating Service
A-1
A+
Stable
Fitch Ratings
F1+
AA-
Stable
In addition, the Group is required to disclose the
Return on Assets ratio, as per the PRA Rulebook
for Capital Requirement Regulation (“CRR”)
firms.
Return on Assets (Group)
in $ millions
2024
2023
Total assets at beginning of the year
550,050
560,391
Profit after tax
1,425
1,049
Return on assets
0.26%
0.19%
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
5
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Overview of 2024 Financial
Results
Income Statement
The Group’s financial results for the years ended
31 December 2024 and 31 December 2023 are
shown below.
in $ millions
2024
2023
Increase/
(decrease)
Variance
%
Investment Banking
938
626
312
50%
Sales and Trading
1,323 1,181
142
12%
Investment
Management
20
22
(2)
(9%)
Fee and
commission
income
2,281 1,829
452
25%
Net trading
income
(1)
5,294 4,740
554
12%
Net revenues
7,575 6,569
1,006
15%
Staff related
expenses
1,804 1,802
2
—%
Non-staff related
expenses
3,813 3,479
334
10%
Operating expenses
5,617 5,281
336
6%
Net impairment
reversal on financial
instruments
(1)
—
(1)
100%
Non-interest
expenses
5,616 5,281
335
6%
Profit before tax
1,959 1,288
671
52%
Income tax expense
534
239
295
123%
Profit after tax
1,425 1,049
376
36%
(1)
Net trading income is comprised of ‘Net gains from financial
instruments at fair value through profit or loss (“FVPL”)’,
'Other revenue' and ‘Net interest expense’ as set out in the
consolidated income statement on page 60.
Net revenues and Profit before tax split by
geographical region
Net revenues
Profit before tax
2024
($ millions / %)
($ millions / %)
EMEA
(1)
4,699
62%
751
38%
Asia
2,324
31%
938
48%
Americas
552
7%
270
14%
Total
7,575
1,959
2023
EMEA
(1)
4,300
65%
506
39%
Asia
1,833
28%
615
48%
Americas
436
7%
167
13%
Total
6,569
1,288
(1)
Europe, Middle East and Africa (“EMEA”)
Net Revenues
Overall Net revenues increased 15%.
Fee and commission income
Investment Banking increased 50%, primarily
related to higher underwriting revenues and a
rebound in mergers and acquisitions activity.
Sales and Trading increased primarily from
higher equity market volumes across all regions.
Net trading income
The 12% increase in Net trading income was due
to increased client activity in Equity Derivatives,
coupled with improved trading performance in
Macro products.
Operating expenses
Overall Operating expenses increased 6%.
Non-staff related expenses
The 10% increase in Non-staff related expenses
was mainly due to higher brokerage fees due to
the increased trading activity.
Income tax expense
The Group’s Income tax expense represents an
effective tax rate (“ETR”) of 27.3% (2023:
18.6%), which is in line with the average
standard rate of UK corporation tax (inclusive of
the UK Banking surcharge) of 28.0% (2023:
27.8%).
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
6
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Balance Sheet
in $ millions
2024
2023
Increase/
(decrease)
Variance
%
Cash and short
term deposits
16,711 18,403
(1,692)
(9%)
Trading financial
assets
369,853 336,893
32,960
10%
Secured
financing
115,453 119,968
(4,515)
(4%)
Trade and other
receivables
75,238 73,825
1,413
2%
Other assets
823
961
(138)
(14%)
Total Assets
578,078 550,050
28,028
5%
Trading financial
liabilities
319,056 274,538
44,518
16%
Secured
borrowing
105,067 105,378
(311)
—%
Trade and other
payables
78,885 86,573
(7,688)
(9%)
Debt and other
borrowings
39,523 47,940
(8,417)
(18%)
Subordinated
debt
11,798 11,796
2
—%
Other liabilities
137
219
(82)
(37%)
Total Liabilities
554,466 526,444
28,022
5%
Total Equity
23,612 23,606
6
—%
Assets and Liabilities
The increase in ‘Trading financial assets’ and
‘Trading financial liabilities’
was mainly driven by
client activity and market movements in Macro
products.
The decrease in ‘Trade and other payables’ was
due to Prime Brokerage clients decreasing cash
credits and short exposures.
The decrease in ‘Debt and other borrowings’ is
due to a decrease in unsecured funding from
parent.
Key Accounting Estimates and
Judgements
In the preparation of the financial statements,
management is required to make accounting
estimates and assumptions (refer to note 2 of the
Financial
Statements).
Of
the
material
accounting
policies,
the
following
policies
involved a higher degree of judgement and
complexity,
and
consequentially
greater
consideration by management.
Valuation of Financial Instruments at
Fair Value
Given the extent to which the Group recognises
financial instrument assets and liabilities at fair
value,
the
preparation
of
the
Group’s
consolidated
financial
statements
requires
management to consider on an on-going basis
the key valuation metrics and judgements
involved in the determination of fair value. To the
extent that valuation is based on models or
inputs that are less observable or unobservable
in the market, the determination of fair value
requires more judgement.
Management have reviewed the key valuation
metrics,
assumptions
and
methodologies
involved in the determination of the fair value of
financial instruments and determined that the
valuations were reasonable.
The accounting policy is disclosed in note 3(d) of
the Financial Statements with note 30 providing
qualitative and quantitative information on the
measurement of financial instruments at fair
value.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
7
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Tax and Litigation Provisions
The preparation of the Group’s consolidated
financial statements requires management to
make judgements, estimates and assumptions
regarding the outcome of matters that are
uncertain, including those relating to tax and
litigation. The Group has recognised provisions
on a number of uncertain tax and litigation
matters, for which management has made
judgements
and
interpretations
when
determining the amount of such provisions.
Whilst a range of outcomes is foreseeable,
management considers the amount provided to
be a reasonable estimate of probable future
liabilities after consideration of all pertinent facts.
The accounting policy is disclosed in note 3(i) of
the Financial Statements with note 18 providing
qualitative and quantitative information on the tax
and litigation provisions.
Use of best estimates for revenue
recognition on transfer pricing
The Morgan Stanley Group continues to engage
in negotiations of renewed Advanced Pricing
Agreements with selected tax authorities in
respect of its key transfer pricing methodologies
and has, accordingly, accrued based on a best
estimate basis. Negotiations may result in
changes to methodologies or inputs that could
have an impact on the Group’s revenues in the
future, when compared to those currently used in
the preparation of these financial statements.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
8
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Capital and Liquidity
Resource Management and
Regulation
The Company manages and monitors its capital
and liquidity in line with established policies and
procedures
and
in
compliance
with
local
regulatory requirements.
The key regulations impacting the financial
soundness of the Company are as follows:
Capital and Liquidity Standards:
The Company is
subject to risk-based capital, leverage and
liquidity
standards
for
banks
and
major
investments firms in the UK, as implemented by
the PRA. These are based on the standards
developed by the Basel Committee on Banking
Supervision (“BCBS”). They also include on-
shored regulatory obligations following the UK’s
withdrawal from the EU, related to the CRR.
Recovery and Resolution:
The Company is
subject to regulatory requirements on recovery
and resolution planning set by the PRA and the
Bank of England (“BOE”), as part of the UK’s
recovery and resolution framework, established
through the UK Banking Act 2009 and related
legislation. This includes regulatory requirements
that apply directly to the Company, and those
regulatory requirements that apply to the MSI
Group and therefore, indirectly, apply to the
Company. The Company is also within the scope
of the resolution strategy adopted by the Morgan
Stanley Group. Refer to ‘Capital and Liquidity
Resource
Management
and
Regulation
–
Recovery and Resolution Planning’ section for
further information.
Capital Management
Consistent with the Morgan Stanley Group
capital management policies, the MSI Group
manages its capital position based upon, among
other things, business opportunities, risks, capital
availability and rate of return together with
internal capital policies, current and future
regulatory
requirements
and
rating
agency
guidelines.
The Company is included as a significant
subsidiary in the MSI Group's Pillar 3 report.
This
report
can
be
found
at
https://
www.morganstanley.com/about-us-ir/pillar-uk
Regulatory Capital and Leverage
Requirements
The Company is subject to minimum risk-based
capital requirements calculated in accordance
with PRA rules – referred to as Pillar 1. The
Company is also subject to a Pillar 2 requirement
to undertake an Internal Capital Adequacy
Assessment (“ICAAP”), for risks not covered in
Pillar 1.
The MSI Group and the Company conduct an
ICAAP at least annually. The ICAAP is a key tool
used to inform the MSI Board and executive
management
on
risk
profile
and
capital
adequacy.
The PRA reviews the ICAAP through its
Supervisory Review and Evaluation Process
(“SREP”) and sets a Total Capital Requirement
(“TCR”) comprising Pillar 1 and Pillar 2A, which
establishes the minimum level of regulatory
capital for the MSI Group and the Company.
As at 31 December 2024, the Company’s TCR
was
$13,403
million
(31
December
2023:
$12,878
million),
equivalent
to
10.9%
(31 December 2023: 10.9%) of RWAs. In
addition, the PRA sets a buffer, which is available
to support the Company in a stressed market
environment.
The Company’s capital is monitored on an
ongoing basis to ensure compliance with these
requirements. The Company complied with all of
its capital requirements during the year.
Capital Resources
The capital managed by the Company includes
share capital, Additional Tier 1 (“AT1”) capital
instruments, subordinated debt and reserves.
To maintain or adjust its capital structure, the
Company may pay dividends, return capital to its
shareholders, issue new shares, or issue or
repay AT1 capital instruments or subordinated
debt.
Set out below are details of the Company’s
Capital Resources, as at 31 December 2024 and
31 December 2023:
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
9
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
in $ millions
2024
2023
Total Company equity
23,491
23,591
Regulatory adjustments
(1,965)
(1,793)
Tier 1 Capital
21,526
21,798
Of which
CET1
17,226
17,498
AT1
4,300
4,300
Tier 2 Capital
5,098
5,096
Total Capital Resources
26,624
26,894
CET1 capital ratio
14.0 %
14.9 %
Total capital ratio
21.7 %
22.8 %
The decrease in the total capital ratio reflects the
higher
RWAs,
see
below.
Regulatory
adjustments include deductions applied based on
the prudential filters in compliance with the PRA
Rule book (CRR).
RWAs
Set out below are details of the Company’s
RWAs.
in $ millions
2024
2023
Credit RWAs
70,947
71,514
Market RWAs
41,136
35,559
Operational risk RWAs
10,543
10,746
Total RWAs
122,626
117,819
RWAs increased by $4,807 million over the year,
largely driven by higher Market Risk due to
changes in the risk profile.
Leverage Ratio
The leverage ratio is a supplementary measure
to the risk-based capital requirements, calculated
as the ratio of Tier 1 capital to total leverage
exposure (certain assets plus certain off-balance
sheet exposures adjusted for Tier 1 capital
deductions).
The Company has been subject to a minimum
leverage ratio of 3.25% since 1 January 2023.
In addition, at least 75% of the Company’s Tier 1
capital
must
consist
of
CET1
capital.
Furthermore, the Company must also maintain
an additional countercyclical leverage ratio buffer
of
CET1
equal
to
35%
of
its
current
Countercyclical Capital Buffer (“CCyB”) rate of
0.63%.
The Company’s leverage ratio is included in the
Performance indicators section on page 5
.
Leverage exposure decreased over the year
primarily driven by derivatives and other on
balance sheet exposures.
Funding and Liquidity
Management
Funding and Balance Sheet
Management
Liquidity and funding risk refers to the risk that
the Group is unable to meet its financial
obligations
without
experiencing
significant
business disruption or reputational damage that
may threaten its viability as a going concern, as
well as the associated funding risks triggered by
the market or idiosyncratic stress events that
may negatively affect the Group’s liquidity and
may impact the Group’s ability to raise new
funding.
The Group manages its funding in a manner that
reduces the risk of disruption to its operations.
The Group pursues a strategy of diversification of
secured and unsecured funding sources (by
product and investor) and attempts to ensure that
the tenor of its liabilities equals or exceeds the
expected holding period of the assets being
financed.
The Group funds itself through diverse sources.
These sources may include equity capital, long-
term debt, securities sold under agreements to
repurchase, securities lending and deposits. The
MSI Group has active financing programmes for
both standard and structured products, targeting
global investors and currencies.
In managing both the Morgan Stanley Group’s
and the Group’s funding risk, the composition
and size of the entire balance sheet, not just
financial liabilities, is monitored and evaluated.
The liquid nature of the marketable securities
and short-term receivables arising principally
from
sales
and
trading
activities
in
the
Institutional Securities business provide the
Morgan Stanley Group and the Group with
flexibility in managing the composition and size
of its balance sheet.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
10
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Credit Ratings
The Company relies on external sources to
finance
a
significant
portion
of
its
daily
operations. The cost and availability of financing
generally are impacted by the Company’s credit
ratings, among other variables. In addition, the
Company’s credit ratings can have an impact on
certain trading revenues, particularly in those
businesses
where
longer-term
counterparty
performance is a key consideration, such as
certain over the counter (“OTC”) derivative
transactions. When determining credit ratings,
ratings agencies consider both company-specific
and
industry-wide
factors.
The
Company’s
unsecured credit ratings are included in the
‘Financial Performance and Condition’ section.
Regulatory Liquidity and Funding
Requirements
The
Company
is
subject
to
the
liquidity
regulations prescribed by the PRA which include
the LCR and NSFR under Pillar 1 and additional
Pillar 2 requirements.
The Pillar 2 requirements are assessed by the
PRA for risks not captured in Pillar 1. Pillar 2
risks are identified by the Company and
documented in the Internal Liquidity Adequacy
Assessment Process (“ILAAP”), reviewed and
assessed by the PRA as part of the Liquidity
Supervisory Review Process (“L-SREP”).
Throughout
the
year,
the
Company
held
adequate liquidity in the form of HQLA and
maintained an appropriate funding profile to meet
LCR and NSFR regulatory requirements.
The Company’s liquidity ratios are included in the
Performance indicators section on page 5
.
Recovery and Resolution
Planning
The UK Banking Act 2009 and related legislation
established a recovery and resolution framework
for UK institutions, including the Company.
Annually, the MSI Group prepares a recovery
plan which identifies mitigation tools available in
times of severe stress. The Company is covered
in the recovery plan and is identified as a
material legal entity of the MSI Group.
The MSI Group and the Company produce
information required for resolution purposes by
the BOE, as the UK Resolution Authority in
accordance with UK statutory and regulatory
requirements. The Company also complies with
relevant BOE and PRA rules on resolution
planning and resolvability, including requirements
under
the
BOE’s
Resolvability Assessment
Framework, and the Minimum Requirement for
own funds and Eligible Liabilities (“MREL”) set by
the BOE (see following sub-section).
The Morgan Stanley Group has developed a
resolution
plan
in
accordance
with
the
requirements of Section 165(d) of Title I of the
Dodd-Frank Wall Street Reform and Consumer
Protection Act and its implementing regulations
adopted by the Federal Reserve Board and the
Federal Deposit Insurance Corporation. The
resolution
plan
presents
Morgan
Stanley’s
strategy for resolution of Morgan Stanley upon
material
financial
distress
or
failure.
The
Company is a Material Operating Entity of the
Morgan Stanley Group and is within the scope of
the single point of entry resolution strategy
adopted by the Morgan Stanley Group.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
11
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
MREL
MREL and Total Loss Absorbing Capacity
(“TLAC”) are broadly consistent measures that
are designed to enhance the resilience of the
financial system by ensuring firms have sufficient
capital instruments and eligible liabilities to
absorb losses and appropriately recapitalise
entities in the case of resolution. They reflect the
UK Banking Act and other relevant retained EU
law
.
TLAC, which only applied to the MSI Group,
no longer applied from 1 January 2024 as PRA
removed the requirement given the overlap with
MREL.
MREL requirements apply to the Company on an
individual level and to the MSI Group on a
consolidated basis.
The Company and MSI Group have issued
senior subordinated debt to ensure compliance
with this requirement.
Regulatory Developments
The Company continues to monitor the changing
political, tax and regulatory environment, with
specific changes expected as part of the BOE
implementation
of
Basel
III
standards,
as
described below. Whilst the Company continues
to engage with various stakeholders, it remains
difficult to predict the exact impact these changes
and other changes will have on its business,
statement
of
financial
position,
results
of
operations and cash flows for a particular future
period. The Company expects to remain subject
to extensive supervision and regulation.
Finalising Basel III Reforms
BCBS sets the standard for international banking
prudential regulation in a series of accords
(“Basel Accords”) that are implemented in the UK
via the PRA Rulebook including retained EU Law
under the European Union (Withdrawal) Act
2018.
There are a number of remaining standards of
the Basel III reform package (referred to as
“Finalisation of Basel III”) that are yet to be
implemented.
These
revisions
cover
RWA
requirements for credit, market, credit valuation
adjustments (“CVA”) and operational risk.
In the UK, the PRA have issued their near final
rules, referred to as Basel 3.1, to implement
these final standards. These rules are effective
from 1 January 2027 with no further material
changes expected at this time. The proposed
rules are largely consistent with the Basel III
reform package with some adjustments to
address UK specificities. These changes have
been considered in the capital planning and
ICAAP of the Company.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
12
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Risk Management
The business strategy acts as a key driver for the
MSI Group’s business model, which in turn
drives the risk strategy and the consequent risk
profile of the Group. The business strategy and
risk strategy are considered and aligned as part
of the annual strategic review, or more frequently
if necessary.
Note 26 provides additional qualitative and
quantitative
disclosures
about
the
Group’s
management
of,
and
exposure
to,
certain
financial risks.
Risk Management Framework
Risk taking is an inherent part of the Group’s
business
activities
and
effective
risk
management is vital to the success of the
Group. The MSI Group has established a Risk
Management Framework which encompasses
the risk management culture, risk governance,
approach
and
practices
that
support
risk
identification,
measurement,
monitoring,
reporting, challenge and escalation. This chapter
covers the core components of the Framework.
Three Lines of Defence Framework
The MSI Group executes risk oversight through
a “Three Lines of Defence” framework, to create
a clear delineation of responsibilities between
risk
owners
and
independent
risk
control
functions with a view to addressing potential
conflicts of interest. The functions responsible for
carrying out the activities across the Three Lines
of Defence are summarised below.
•
First Line of Defence
: Business units are
responsible for managing their strategy and
business activities in accordance with the
Risk
Appetite
and
Risk
Management
Framework.
Support
functions
are
independent of the business units and
support strategy execution of the Group’s
revenue-generating activities.
•
Second Line of Defence
: Independent Risk
Management and Control Functions identify,
measure, monitor, report, challenge and
escalate
risks.
Independent
Risk
Management and other Control Functions
include, for example, functions performed by
the EMEA Risk Division, EMEA Second-Line
Non-Financial
Risk
(“2LoD
NFR”)
Organisation, and the EMEA Product Control
and EMEA Valuation Control (“VC”) parts of
Finance Division.
•
EMEA Risk Division: The EMEA Chief Risk
Officer
(“CRO”)
leads,
manages
and
oversees the EMEA Risk Division and is a
member of the MSI Board. The EMEA Risk
Division is responsible for the independent
identification, measurement, monitoring,
reporting, challenge and escalation of all
market, credit and liquidity risks (including
the financial risks from climate change)
arising from MSI Group and EMEA-
managed business. The EMEA CRO has
overall responsibility for the Enterprise
Risk Management Framework applicable
to
the
MSI
Group
which
includes
development of risk appetite, oversight of
relevant risks reflected in the RAS and
monitoring and reporting of risks in line
with agreed appetite to relevant Boards.
The
EMEA
CRO
is
assisted
by
governance across first and second line
functions to discharge this responsibility.
•
EMEA Second-Line Non-Financial Risk
Organisation: Includes Compliance, Global
Financial Crimes and Operational Risk
Departments and provides independent
oversight and challenge of Non-Financial
Risk Management across the MSI Group
by
identifying,
measuring,
monitoring
reporting, challenging and escalating the
non-financial risks. The EMEA Head of
Non-Financial Risk leads, manages and
oversees
the
EMEA
2LoD
NFR
Organisation.
•
Other
Independent
Control
Functions:
Finance Control and Assurance Functions
determine
whether
the
conceptual
framework,
governance,
measurement
and monitoring systems and controls are
appropriate
for
MSI
Group’s
size,
complexity and business activities. The
primary
EMEA
Finance
Control
and
Assurance Functions reporting to the
EMEA
CFO
include
EMEA
Product
Control, EMEA VC and EMEA Regulatory
Reporting Quality Assurance Group.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
13
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
•
Third Line of Defence
: The EMEA Internal
Audit
Department
(“IAD”)
provides
independent, objective and timely assurance
about the effectiveness of risk management,
governance and controls over key risks within
the businesses and functions. EMEA IAD’s
responsibilities are carried out independently
with support and oversight from the MSI Audit
Committee. The teams within EMEA IAD do
not
have
reporting
lines
to
business
management.
EMEA
IAD
executes
its
activities in accordance with the mandatory
elements of The Institute of Internal Auditors'
International
Professional
Practices
Framework, including the Core Principles for
the Professional Practice of Internal Auditing,
and the Definition of Internal Auditing.
Risk Policies and Processes
Morgan Stanley has several well-established
policies and procedures which set out the
standards
that
govern
the
identification,
measurement, monitoring, reporting, challenge
and escalation of the various types of risk
involved in its business activities. The MSI Group
has implemented specific risk management
policies to address local business and regulatory
requirements, where appropriate. These policies
are approved by the MSI Board and reviewed at
least annually.
Risk Culture
MSI Group’s Risk Management Culture is rooted
in
the
following
key
principles:
integrity,
comprehensiveness,
independence,
accountability, and transparency.
The
MSI
Group
has
a
risk
culture
that
encourages open dialogue, effective challenge,
escalation and appropriate reporting of risk to
EMEA senior management, the MSI Board (or a
committee
thereof)
and
the
MSI
Group’s
regulators, as well as external risk disclosures.
Developing the MSI Group’s risk culture is a
continuous process and builds upon Morgan
Stanley’s commitment to its values, including
“doing the right thing”, which make managing risk
each
employee’s
responsibility.
Senior
management promotes the MSI Group’s risk
culture, which enables individuals across the
organisation to make appropriate risk decisions.
The RAS of the Company is embedded in the
risk culture and linked to the Company’s short-
term and long-term strategic, capital and financial
plans, as well as compensation programmes.
Risk Identification, Risk Appetite and
Risk Limits/Tolerances
Risk Identification
The process of Risk Identification is performed
on a continuous basis as part of the day-to-day
activities of the EMEA business units and the
EMEA Independent Risk Management and other
Control Functions including the EMEA Risk
Division, and the EMEA 2LoD NFR Organisation.
A number of risk management processes, such
as regular risk reviews and stress testing, are
conducted
to
identify
business
model
vulnerabilities,
review
market
events
and
regulations
and
support
the
continuous
assessment process for risk identification.
As part of these processes, the MSI Group
identifies all potential material risks related to the
MSI Group’s business activities. The collection of
risks identified through this process are assessed
for capital and liquidity adequacy as part of the
Company’s ICAAP and ILAAP, and form an
integral
part
of
the
development
of
the
Company’s RAS.
The following risk types involved in MSI Group’s
business activities are currently considered
material
as
determined
through
the
Risk
Identification Framework:
Financial Risks
•
Market Risk
•
Credit Risk
•
Model Risk
•
Valuation Risk
•
Leverage Risk
•
Liquidity Risk
Non-Financial Risks
•
Operational Risk
•
Compliance Risk (including Conduct)
•
Financial Crimes Risk
Other Material Risks
•
Strategic Risk (including Earnings at Risk)
•
Reputational Risk
Climate change is a driver of existing risks and is
managed within the Company’s existing Risk
Appetite (for more information refer to the ‘ESG
Report’ section).
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
14
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
The MSI Board has established frameworks to
identify, measure, monitor, report, challenge and
escalate these risks. The frameworks for Market
Risk, Credit Risk, Valuation Risk, Leverage Risk,
Liquidity Risk, and Operational Risk described in
further detail in the respective parts of this
document.
A summary of the remaining material risks is
outlined below:
•
Model Risk
is 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,
non-
compliance
with
applicable
laws
and/or
regulations, or damage to the MSI Group’s
reputation.
•
Compliance Risk
is defined as the risk of
legal
or
regulatory
sanctions,
material
financial
loss
or
damage
to
reputation
resulting from the failure to comply with laws,
rules,
regulations,
related
self-regulatory
organisation standards and codes of conduct
applicable
to
the
Group’s
activities.
Compliance Risk includes Conduct Risk,
which is defined as the risk arising from
misconduct
by
individual
employees
or
contingent workers (collectively, “Personnel”)
or groups of Personnel, or the risk arising
from conduct by the Group where the
outcome has an adverse impact on clients,
markets or the Group’s reputation. Conduct
Risk
includes
both
intentional
and
unintentional behaviours.
•
Financial Crimes Risk
refers to the risk of
regulatory sanctions and reputation damage
posed to the Group in the event of failure to
comply
with
applicable
anti-money
laundering,
economic
sanctions,
anti-tax
evasion, or anti-bribery and corruption laws
and regulations.
•
Strategic Risk (including Earnings at Risk)
is defined as risk to baseline earnings from
misaligned design and implementation of the
Group’s overall strategic objectives and the
associated business unit strategic initiatives
required to enable them, and any threat to the
effective
and
efficient
execution
of
the
Group’s strategic business initiatives.
•
Reputational Risk (also referred to as
Franchise Risk)
, refers to potential risks
associated with the way in which the Group
conducts its business and the perception of
the Group by external parties including
shareholders, clients, regulators and the
public. Reputational risks may be triggered by
either the nature of the transaction (e.g.
unusual complexity or novel issues) or
business practice (e.g. a transaction without
appropriate economic substance or business
purpose), or by the identity or reputation of
the client or counterparty (e.g. a client linked
to alleged corruption or other improper
activities).
Risk Appetite
The Company’s RAS articulates the aggregate
level and types of risk that the Company is willing
to accept in order to execute its business
strategy and protect its capital and liquidity
resources. The Company’s Risk Appetite is set
by the Board in conjunction with its business
strategy and in consideration of its capital and
liquidity resource adequacy framework.
The RAS includes risks that have both qualitative
and quantitative elements. The combination of
qualitative
Risk
Appetite
and
Tolerance
Statements and quantitative limits aims to ensure
that the Company’s businesses are carried out in
line with the Risk Appetite approved by the
Board, and to protect the Group’s reputation in
both normal and stressed environments.
Risk Limits/Tolerances
The Risk Appetite of the Company is translated
into a comprehensive set of risk limits and
tolerances. The Company’s limits and tolerance
framework mostly covers limits and tolerances
across Market Risk, Credit Risk, Liquidity Risk
and
Operational
Risk,
each
at
different
granularity levels to manage risk taking in line
with Risk Appetite. These limits and tolerance
frameworks are approved and monitored by the
Board, the MSI Risk Committee, the EMEA Risk
Committee (‘ERC’), and the Independent Risk
Management and other Control Functions.
The MSI Group employs integrated risk stress
tests that set the boundary for risk-taking
activities relative to the MSI Group’s Risk Capital
Resource Capacity by defining a set of limits.
The
MSI
Board
owns
and
approves
the
Macroeconomic Stress Loss Limit and the
Climate
Stress
Loss
Limit
(“CSLL”).
Macroeconomic and climate-related scenarios
are used to monitor stress losses against the
Stress Loss Limits.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
15
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
The potential impact of climate-related risks on
Credit and Market Risk is assessed through a
specific transition risk/carbon repricing scenario
and managed via the CSLL. Risk limits are
reviewed and updated on an annual basis at a
minimum,
with
more
frequent
updates
as
necessary.
Stress Testing
Stress testing is a key risk management tool for
the
Group,
informing
risk
and
capital
management processes and decisions, and is
performed in line with internal and external
regulatory
requirements.
It
provides
an
understanding of the aggregate risk for the
Group and an assessment of the Group’s
resilience to different scenarios over a range of
severities. At a more granular level, stress tests
provide detailed coverage of potential areas of
weaknesses
at
the
business
area
and
counterparty level, respectively. The Group
conducts cross-risk stress tests and risk specific
stress tests, including reverse stress testing, with
the following objectives:
•
Risk Identification:
Identification of material
risk concentrations and vulnerabilities in
adverse scenarios;
•
Risk Aggregation:
Estimation of aggregate
size of exposures and losses in adverse
shocks;
•
Risk Management
: Management of tail risks
or vulnerabilities against risk appetite;
•
Capital and Liquidity Management:
Informing
capital
and
liquidity
risk
assessment
processes and plans (ICAAP, ILAAP);
•
Recovery and Resolution Planning:
As a key
component of the Recovery and Resolution
Planning exercises; and
•
Regulatory
Requirements
:
Meeting
the
relevant regulatory requirements for Stress
Testing.
Risk Reporting
The MSI Group has established a Risk Reporting
Framework to monitor and report MSI Group’s
risk profile against set risk limits and tolerances,
and to provide timely risk information and/or
escalation to responsible limit owners and
relevant MSI Group risk governance forums and/
or the MSI Board and senior management, as
appropriate (for further detail, refer to section
‘Corporate Governance’).
The Risk Reporting Framework covers all
material
risks,
identification
of
matters
for
escalation and decision-making and highlights
emerging risks, mitigating actions and other risk
matters that are deemed significant to the
relevant governance forums and/or the MSI
Board and senior management. The key purpose
of risk reporting is to provide decision makers
and risk managers with an accurate and timely
representation of risk exposures, including risk
concentrations, at the MSI Group level, across
business lines and between legal entities. To
provide this information, MSI Group generates
various
risk
reports
across
individual
risk
functions including Market, Credit, Liquidity,
Model Risk and non-financial risks, at different
frequencies (e.g. daily, weekly).
In addition, the MSI Group follows Morgan
Stanley Group-wide principles for risk reports,
such as the appropriate level of aggregation,
balance between qualitative and quantitative
information or implementation of controls to
ensure reported information is complete and
accurate.
Risk Governance
The MSI Group has a comprehensive risk
management
governance
framework
which
includes MSI Board approved policies and a
defined senior management risk oversight and
escalation process at various levels of the
governance structure, including for key MSI
Group legal entities as appropriate.
The corporate governance structure between
MSI and the Company, including the executive
and management-level Committees (associated
with Risk Governance) is described in further
detail within the ‘Corporate Governance’ section.
Market Risk
Definition
Market risk refers to the risk that a change in the
level of one or more market prices, rates,
spreads, indices, implied volatilities (the price
volatility of the underlying instrument imputed
from option prices), correlations or other market
factors, such as market liquidity, will result in
losses for a position or portfolio.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
16
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Governance
The MSI Group manages the market risk
associated with its trading activities at both a
division and an individual product level, and
includes consideration of market risk at the legal
entity level.
Sound market risk management is an integral
part of the MSI Group’s culture. The MSI Group
is responsible for ensuring that market risk
exposures are well-managed and monitored. The
Market
Risk
Department
(“MRD”)
ensures
transparency of material market risks, monitors
compliance with established limits, and escalates
risk
concentrations
to
appropriate
senior
management.
To execute these responsibilities, the Company
monitors its market risk against limits on
aggregate risk exposures and performs a variety
of risk analysis. This includes monitoring VaR,
stress testing and scenario analyses, regular
reporting of risk exposures, and maintenance of
the VaR and scenario analysis methodologies.
Material risks identified by these processes are
summarised
and
reported
to
senior
management.
The market risk management policies and
procedures applicable to MSI Group establish
the
framework
for
the
identification,
measurement, monitoring, reporting, challenge
and escalation of market risks. These are
consistent with those of the Morgan Stanley
Group and include escalation to the MSI Board
and appropriate management personnel.
The information in this Strategic Report is
complemented by note 26 of the Financial
Statements which contains additional information
on primary market risk exposures, market risk
management and measurement and non-trading
risks and currency risk together with an analysis
of VaR sensitivity. For information regarding the
management of market risk driven by climate
risk, refer to the ‘ESG Report - Climate and
Environmental Risk Management’ section.
Measurement and Management of risk
Year End VaR
The Company’s VaR for Primary Risk Categories
and Total Management VaR for the years ended
31 December 2024 and 31 December 2023 are
shown in the below table. Refer to note 26 for
further details.
95%/ one-day
VaR 2024
95%/ one-day
VaR 2023
in $ millions
Year
end Average
Year
end Average
Primary Market Risk
Categories
21
23
18
24
Credit Portfolio
(1)
4
5
6
8
Less diversification
benefit
(2)
(5)
(4)
(4)
(5)
Total Management
VaR
20
24
20
27
(1)
The Credit Portfolio VaR is disclosed as a separate category from
the Primary Risk Categories and includes loans that are carried at
fair value and associated hedges as well as counterparty credit
valuation adjustments and related hedges.
(2)
Diversification benefit equals the difference between total trading
VaR and the sum of the VaRs for the individual risk categories.
This benefit arises because the simulated one-day losses for
each of the primary market risk categories occur on different
days; similar diversification benefits are also taken into account
within each category.
The 2024 year-end Total Management VaR of
$20 million is of the same magnitude as the 2023
period end of $20 million. 2024 average Total
Management VaR reduced to $24 million (from
$27 million in 2023), following a reduction in
Credit Portfolio risk.
Credit Risk
Definition
Credit risk refers to the risk of loss arising when a
borrower, counterparty or issuer does not meet
its financial obligations to the MSI Group. Credit
risk includes country risk, which is further
described below.
Governance
Credit risk exposure is managed on a global
basis and in consideration of each significant
legal entity within the Morgan Stanley Group.
The
credit
risk
management
policies
and
procedures applicable to MSI Group establish
the framework for identification, measurement,
monitoring, reporting, challenge
and escalation
of credit risks whilst ensuring transparency of
material credit risks, compliance with established
limits, requisite approvals for extensions of credit
and
escalation
of
risk
concentrations
to
appropriate senior management.
The
MSI Group Credit Risk Management
Department is an independent risk oversight
group. The
Department
is
responsible
for
managing and overseeing the credit risk profile of
the MSI Group. This includes the design and
oversight of the credit risk and limits framework
as well as the evaluation, monitoring, control and
escalation
of
credit
risk
exposure
at
the
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
17
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
transaction, obligor and portfolio levels. The
Credit Risk Management Department also helps
to ensure that the creditworthiness of the Group’s
counterparties is reviewed on a regular basis.
The MSI Group Credit Limits Framework is one
of the primary tools used to monitor, manage,
and control credit risk exposures. The MSI Board
approves limits that reflect the credit risk
tolerance of the MSI Group and serve as a basis
from which more detailed limits are established.
The Credit Limits Framework includes single
name
limits
(e.g.,
counterparty,
lending,
settlement
and
treasury)
and
portfolio
concentration limits by country, industry and
product type.
The information in this Strategic Report is
complemented by note 26 of the Financial
Statements which contains additional information
about the primary credit exposures, credit risk
management and mitigation, exposure to credit
risk, including the maximum exposure to credit
risk by credit rating. For information regarding the
management of credit risk driven by climate-
related credit risk, refer to the ‘ESG Report -
Climate and Environmental Risk Management’
section.
Measurement and Management of risk
The Group is exposed to credit risk primarily from
the extension of credit to clients through
derivatives, securities financing, prime brokerage
activities, and deposits. The Group is also
exposed to credit risk via inventory holdings.
The Group incurs credit risk exposure to
Corporates,
Financial
Institutions
(including
Central
Clearing
Counterparties),
Central
Governments, and Central Banks through its
Institutional Securities business segment. The
table
below
shows
the
Group’s
maximum
exposure to credit risk and credit exposure for
certain financial assets which are exposed to
credit risk and where the Group has entered into
credit enhancements, including receiving cash
and securities as collateral and master netting
agreements. The net credit exposure represents
the credit exposure remaining after the effect of
the credit enhancements. Exposure to other
Morgan Stanley Group undertakings is included
in this table.
2024
in $ millions
(audited)
Gross
credit
exposure
(1)
Credit
enhancem
ents
(2)
Net credit
exposure
Trading financial
assets:
Derivatives
281,206
(270,311)
10,895
Secured financing
115,453
(114,572)
881
Trade and other
receivables
559
(181)
378
Loan commitments
207
(103)
104
397,425
(385,167)
12,258
2023
in $ millions
(audited)
Gross
credit
exposure
(1)
Credit
enhanceme
nts
(2)
Net credit
exposure
Trading financial
assets:
Derivatives
237,738
(228,506)
9,232
Secured financing
119,968
(119,365)
603
Trade and other
receivables
905
(283)
622
Loan commitments
19
—
19
358,630
(348,154)
10,476
(1)
Gross credit exposure is the carrying amount which best
represents the Group's maximum exposure to credit risk, and for
financial instruments - FVPL is reflected in the consolidated
statement of financial position.
(2)
Credit enhancements include collateral received and netting
allowable under master netting agreements used to manage
credit exposure.
Country and Sovereign Exposures
Country risk is the risk that events in, or affecting,
a foreign country might adversely affect the MSI
Group. “Events” can include changes to global
trade policies, the implementation of tariffs or
imposition of capital controls resulting from
numerous risks such as tensions between the
US and China. “Foreign country” means any
country other than the UK. Sovereign risk, by
contrast, is the risk that a government will be
unwilling or unable to meet its debt obligations or
will renege on the debt that it guarantees.
Sovereign risk is a single-name risk for a
sovereign
government,
its
agencies
and
guaranteed entities.
Country
risk
exposure
is
measured
in
accordance with the MSI Group’s internal risk
management standards and includes obligations
from
sovereign
governments,
corporations,
clearing houses and financial institutions. The
MSI
Group
actively
manages
country
risk
exposure
through
a
comprehensive
risk
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
18
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
management framework that combines credit
and market fundamentals and allows the MSI
Group to effectively identify, measure, monitor,
report, challenge and escalate country risk.
The MSI Group’s obligor credit evaluation
process defines country of risk as the country
that has the largest economic impact on the
obligor and may be different from the obligor's
country of jurisdiction. Examples where this
applies
may
include
corporations
that
are
incorporated in one country but that derive the
bulk of their revenue from another and mutual
funds incorporated in one jurisdiction but with a
concentration of investments in a different
country.
The following table shows the Company’s five
largest non-UK net country exposures as at
31 December 2024.
Exposures to other Morgan Stanley Group
undertakings have been excluded from this table.
Five Largest Non-UK Country Risk Total Net Exposures for the Company
(5)
:
in $ millions
Net
inventory
(1)
Net
counterparty
exposure
(2)
Funded
lending
Exposure
before
hedges
Hedges
(3)
Total net
exposure
2024
⁽⁴⁾
Total net
exposure
2023
⁽⁴⁾
Country
United States
Sovereigns
128
10
—
138
(27)
111
(931)
Non-sovereigns
3,491
5,886
28
9,405
(4)
9,401
9,132
Total United States
3,619
5,896
28
9,543
(31)
9,512
8,201
France
Sovereigns
982
—
—
982
(76)
906
646
Non-sovereigns
208
1,484
—
1,692
(27)
1,665
2,195
Total France
1,190
1,484
—
2,674
(103)
2,571
2,841
Republic Of Korea
Sovereigns
1,480
120
—
1,600
(25)
1,575
518
Non-sovereigns
16
727
—
743
—
743
561
Total Republic Of
Korea
1,496
847
—
2,343
(25)
2,318
1,079
Norway
Sovereigns
(5)
1,663
—
1,658
—
1,658
868
Non-sovereigns
137
6
—
143
—
143
64
Total Norway
132
1,669
—
1,801
—
1,801
932
Italy
Sovereigns
1,570
—
—
1,570
(29)
1,541
(611)
Non-Sovereigns
(45)
189
—
144
(146)
(2)
79
Total Italy
1,525
189
—
1,714
(175)
1,539
(532)
(1)
Net inventory represents exposure to both long and short single name and index positions (i.e. bonds and equities at fair value and Credit
Default Swap ("CDS") based on notional amount assuming zero recovery adjusted for any fair value receivable or payable). As a market
maker, the Company transacts in these CDS positions to facilitate client trading.
(2)
Current exposure of repurchase transactions, securities lending and derivatives taking into consideration legally enforceable master netting
agreements and collateral as well as relevant valuation adjustments.
(3)
Represents CDS hedges (purchased and sold) on net counterparty exposure and lending executed by trading desks responsible for hedging
counterparty and lending credit risk exposures for the Company. Amounts are based on the CDS notional amount assuming zero recovery
adjusted for any fair value receivable or payable.
(4)
Total net exposure represents the sum of net inventory exposure, net counterparty exposure, funded lending and hedges.
(5)
In addition, at 31 December 2024, the Company had exposure to these countries for overnight deposits with banks of approximately $579
million.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
19
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Valuation Risk
Definition
Valuation risk represents the possibility that a
valuation estimate of a position would differ from
the amount observed in a close-out transaction
due to uncertainty around the actual price that
could be obtained.
Governance
Valuation Control (“VC”) within Finance is
responsible for the Group’s valuation policies and
procedures which ensure compliance with the
relevant accounting standards and regulatory
requirements. VC implements valuation control
processes designed to validate the fair value of
the Group’s financial instruments measured at
fair value including those derived from pricing
models.
Measurement and Management of risk
There are three primary control processes that
mitigate the risk of valuation errors:
•
Model Certification Process: All models are
certified before use, and at least annually
thereafter. New models (and enhancements
to existing models) are developed by
Strategists within the Business Units, who
affirm that they are appropriate for intended
use. Senior Traders in the Business Units
sign off that they have been involved in the
development of the model and understand
the model’s assumptions and limitations. VC
must approve the model by performing an
independent review to ensure the valuation
methodology
and
valuation
outputs
produced by the model are consistent with
accounting
standards.
Model
Risk
Management (“MRM”), within Firm Risk
Management, must approve the application
of all models, being responsible for the
independent oversight of model risks.
•
Mark Review Process: VC performs a mark
review process which covers the financial
instruments inventory held at fair value by
the Group. VC ensures that the valuation
generated by the Business Units is in
compliance with accounting standards. This
is
performed
by
reviewing
the
appropriateness of the prices or pricing
inputs applied to valuation models using
approved
valuation
methodologies
and
external
pricing
data.
Variances
are
reviewed against VC's tolerance framework;
breaches are communicated to controllers
for consideration as part of the general
ledger close.
•
Significant Transaction Analytical Review
Process (“STAR”): As defined by the STAR
policy, for all trades with significant gross
day 1 profit and loss, VC reconfirms that the
valuation methodologies are adequate and
the modelling uncertainty is appropriately
addressed.
STAR
reviews
may
be
conducted before trade execution, post-
execution, and at the point of early unwind
of the trade, if it occurs. Reviews are
documented, presented to, and approved
by, relevant STAR Committees.
Leverage Risk
Definition
Risk of excessive leverage refers to the risk
resulting from an institution's vulnerability due to
leverage or contingent leverage that may require
unintended corrective measures to its business
plan, including distressed selling of assets which
might result in losses or in valuation adjustments
to its remaining assets.
Governance
The risk of excessive leverage is assessed and
managed through the application and allocation
of leverage ratio exposure limits of business unit
and
internal
leverage
ratio
Early
Warning
Indicator (“EWI”) levels. If internal limits are
exceeded, cross-functional teams identify the key
drivers of the elevated exposures and consider
appropriate remediation actions. EWI levels are
monitored daily to ensure that any increases
above the internal thresholds are escalated to
governance forums to allow for any appropriate
management actions to be taken, i.e. Tier 1
capital increases and/or leverage exposure
reductions, in a timely manner.
The leverage ratio exposures of MSI Group and
the
Group,
(including
business
unit
limit
utilisation) are regularly calculated and reported
to either the EMEA Asset and Liability Committee
(
“
ALCO”), alongside other additional factors that
are considered, such as maturity and funding
profiles considering both assets and liabilities
and asset encumbrance metrics. Additionally,
weekly capital resource meetings occur between
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
20
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
senior cross-functional stakeholders to monitor,
analyse, and optimise resources including but
not limited to leverage ratio exposure.
In addition to reporting of the leverage ratio, a
quarterly risk identification assessment is in
place to monitor both qualitative and quantitative
leverage ratio exposure drivers, risks and
quantify contingent leverage exposures to ensure
compliance
with
internal
and
regulatory
minimums in the event they were to crystallise.
Output from this process is shared with the
EMEA ALCO quarterly who are responsible for
monitoring the Group’s leverage ratio.
Moreover, robust capital planning ensures future
leverage ratio requirements are considered. The
capital planning focuses on, but is not limited to,
forecasted business activity, planned mitigation,
future regulatory changes, net income forecasts
and required capital.
In addition to capital planning, the Large
Transaction
Approval
process
requires
the
leverage ratio exposure impact to be assessed
prior to execution. Trades are approved based
on, amongst others capacity and return metrics.
Large transactions are defined as transactions
that are anticipated to utilise capital resources in
excess of defined thresholds. Thresholds relate
to RWAs, leverage ratio exposure, liquidity, and
funding. If a transaction exceeds the defined
thresholds,
management
provides
approval
before the execution takes place. Approval is
based on various criteria, such as capital
resources, return on investment and refinancing
costs carried out.
Liquidity Risk
Definition
Liquidity risk is the risk that the Group’s financial
condition or overall soundness is adversely
affected by an inability or perceived inability to
meet its financial obligations in a timely manner.
Liquidity
risk
encompasses
the
associated
funding risks triggered by stress events, which
may cause unexpected changes in funding
needs or an inability to raise new funding.
Governance
The
Group
manages
the
Liquidity
Risk
associated with its activities at both an overall
group level and at a product level, including
consideration of each significant legal entity. The
Liquidity
Risk
Management
policies
and
procedures establish the framework for the
identification,
measurement,
monitoring,
reporting, challenge and escalation of
liquidity
risk whilst ensuring transparency of material
Liquidity and Funding Risks, compliance with
established
limits
and
escalating
risk
concentrations
to
appropriate
senior
management. To execute these responsibilities,
the Group establishes and maintains limits and
risk
indicators in line with the Morgan Stanley
Group’s Liquidity and Funding Risk Appetite,
identifies and analyses emerging Liquidity and
Funding
Risks
to
ensure
such
risks
are
appropriately mitigated, and monitors and reports
risk exposures against metrics and limits. The
Liquidity and Funding Risks identified by these
processes are summarised and reported to
senior management.
The information in this
Strategic Report is complemented by note 26 of
the
Financial
Statements
which
contains
additional information on stress testing and limits
framework.
For
information
regarding
the
management of Liquidity risk driven by climate
risk, refer to the ‘ESG Report - Climate and
Environmental Risk Management’ section.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
21
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Measurement and Management of risk
In order to measure liquidity risk the Group uses
a range of approaches (point-in-time, forward-
looking and backward looking) at product and BU
levels.
MSI Group maintains Liquidity Risk limits and
risk indicators at various levels of the Group's
governance structure to support links between
the Group's overall Liquidity Risk Appetite and
more granular risk-taking decisions and activities.
These more granular limits and risk indicators on
the various products also serve to promote risk
reducing
behaviour,
ensure
an
appropriate
liquidity and funding profile, and to assist senior
management in the early identification of a
stressed environment.
These scenarios contain various combinations of
idiosyncratic and systemic stress events of
different severity and duration. Quantitative
information on the regulatory requirements for
Liquidity Coverage Ratio (“LCR”) and Net Stable
Funding Ratio (“NSFR”) is disclosed in the
‘Performance Indicators’ section.
The information in this Strategic Report is
complemented by note 26.
Operational Risk
Definition
Operational risk is defined as the risk of loss, or
of damage to the Group’s reputation, resulting
from inadequate or failed processes, people and
systems, from human factors or from external
events (e.g. fraud, theft, legal and compliance
risks, cyber-attacks or damage to physical
assets). Operational risk relates to the following
risk event categories as defined by Basel Capital
Standards:
internal
fraud;
external
fraud;
employment practices and workplace safety;
clients,
products
and
business
practices;
business disruption and system failure; damage
to physical assets; and execution, delivery and
process management. This includes legal risk
and the risks arising from ESG risks (e.g.,
climate risks), but excludes strategic risk.
Governance
The Group is exposed to
operational risk across
the full scope of its business activities. The
Group has established an operational risk
framework to identify, measure, monitor and
control risk across the Group. This framework is
consistent with the framework established by the
Morgan Stanley Group and includes escalation to
the Board and appropriate senior management
personnel.
Effective
operational
risk
management is essential to reducing the impact
of operational risk incidents and mitigating legal
and
reputational
risks.
The
framework
is
continually evolving to reflect changes in the
Group and to respond to the changing regulatory
and business environment.
Measurement and Management of risk
The Group has implemented operational risk
data and assessment systems to monitor and
analyse internal and external operational risk
events, to assess business environment and
internal control factors and to perform scenario
analysis. The collected data elements are
incorporated in the operational risk capital model.
The model encompasses both quantitative and
qualitative elements. Internal loss data and
scenario analysis results are direct inputs to the
capital
model,
while
external
operational
incidents, business environment and internal
control factors are evaluated as part of the
scenario analysis process.
In addition, the Group employs a variety of risk
processes
and
mitigants
to
manage
its
operational risk exposures. These include a
governance framework, a comprehensive risk
management programme and insurance.
The breadth and variety of operational risks are
such that the types of mitigating activities are
wide ranging. Examples of such activities include
enhancement of defences against cyber-attacks;
use of legal agreements and contracts to transfer
and/or limit operational risk exposures; due
diligence; implementation of enhanced policies
and
procedures;
exception
management
processing controls; and segregation of duties.
The information in this Strategic Report is
complemented by note 26.4 which contains
additional information regarding identification of
Priority Non-Financial Risks (“NFRs”) Pathways
and End Risks; operational risk management;
measurement
and
risk
mitigation;
business
continuity management and disaster recovery;
third-party risk management.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
22
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Operational Resilience
The Morgan Stanley Group’s critical processes
and businesses could be disrupted by events
including cyberattacks, failure or loss of access
to technology and/or associated data, military
conflicts, acts of terror, natural disasters, severe
weather events and infectious disease. The
Morgan Stanley Group maintains a firmwide
resilience programme that is designed to provide
for operational resilience and enable it to
respond to and recover critical processes and
supporting assets in the event of a disruption
impacting our people, technology, facilities and
third parties. The key elements of the Morgan
Stanley Group’s resilience programme include
business continuity management, technology
disaster recovery, third party resilience and key
business service resilience. Resilience testing is
performed both internally and with critical third
parties
to
validate
recovery
capability
in
accordance with business requirements. The
Company is subject to the operational resilience
requirements of the FCA and the PRA.
The UK
regulatory requirements are incorporated within
the broader firmwide resilience programme.
Climate and Environmental Risk
For information on the incorporation of climate
and
environmental
risks
into
the
Risk
Management Framework, refer to the ‘ESG
Report’ section.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
23
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
ESG Report
General Information
About This ESG Report
This ESG Report provides an annual overview
of the Group’s approach to and performance
on ESG topics.
The Group’s ESG Report includes disclosures
required by the PRA Supervisory Statement
3/19
‘Enhancing
Banks’
and
Insurers’
Approaches to Managing the Financial Risks
From Climate Change’ (“SS3/19”), the UK
Streamlined Energy and Carbon Reporting
Regulations (“SECR”) and the Companies Act
2006, section 414CB.
The Group's approach to ESG is consistent
with that of the Morgan Stanley Group. The
Morgan
Stanley
Group
is
committed
to
transparent disclosure of information relating
to ESG and the full list of available disclosures
is in the Morgan Stanley Group’s ESG Report.
The Report’s data, content and narrative are
informed by the Sustainability Accounting
Standards Board ("SASB") standards for
Investment Banking, Asset Management and
Commercial
Banking
and
the
recommendations of the Task Force on
Climate-related
Financial
Disclosures
("TCFD"), both of which are now part of the
International Sustainability Standards Board
("ISSB").
The Morgan Stanley Group's ESG Report is
available at
https://www.morganstanley.com/
about-us/sustainability-reports-research
.
As
at
publication
date
of
this
Group
Management
Report,
the
latest
Morgan
Stanley Group ESG Report is the 2023
Report. The 2024 Report will be available at
this site when published.
Portfolio Managed Climate-related
Disclosure
In the UK, FCA Policy Statement 21/24
‘Enhancing Climate-related Disclosures by
Asset Managers, Life Insurers and FCA-
regulated Pension Providers’ requires annual
disclosures
consistent
with
the
recommendations of the TCFD at both entity
level and product or portfolio level, covering
portfolio management activities. The Company
is in scope of these requirements as a result of
its portfolio management activities in relation
to certain funds of Morgan Stanley Investment
Management
("MSIM").
The
Company's
activities in this regard will be included in
MSIM's TCFD report ("Climate Report"), which
will be published by end of June 2025 in the
Sustainable Investing section of the Morgan
Stanley
website
at
https://
www.morganstanley.com/im/publication/
resources/msim_climate_report_en.pdf.
Sustainability Disclosure Requirements
and Investment Labels
FCA Policy Statement 23/16 ‘Sustainability
Disclosure
Requirements
("SDR")
and
Investment Labels’ has introduced from 31
May
2024
the
Anti-Greenwashing
Rule,
clarifying
requirements for the communication
of sustainability characteristics of products and
services. These requirements are consistent
with the Group's pre-existing processes, and in
order
to
confirm
compliance
with
the
requirements,
the
Group
reviewed
its
Greenwashing Risk processes, and delivered
refreshed
anti-greenwashing
training
to
relevant employees.
Evolving Regulatory Developments
On
28
November
2022,
the
European
Commission
adopted
the
Corporate
Sustainability Reporting Directive (“CSRD”)
which
replaces
the
existing
reporting
requirements of the Non-financial Reporting
Directive (“NFRD”). The CSRD requirements
apply to financial years commencing on or
after 1 January 2024, subject to transposition
into EU member state law. As a result of its
debt issuances on EU regulated markets, the
Company is subject to the Luxembourg Law
on Transparency Requirements and will be
subject
to
CSRD
once
transposed
into
Luxembourg law.
CSRD
has
not
been
transposed
into
Luxembourg law, therefore the Company is not
subject to the CSRD requirements for the
financial year ending 31 December 2024.
On
26
February
2025,
the
European
Commission
published
the
Omnibus
Sustainability package which seeks to delay
and limit sustainability reporting obligations to
the
largest
companies
and
streamline
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
24
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
disclosure
requirements.
The
Company
continues to monitor the proposals for impact
on future sustainability reporting.
Approach to ESG
Business Model and Sustainability Matters
As set out in the ‘Group and Company
Overview’ section, the principal activity of the
Group is the provision of financial services to a
global client base consisting of corporations,
governments
and
financial
institutions.
Revenue generation from these activities is set
out in the ‘Overview of 2024 Financial Results’
section.
The Morgan Stanley Group and the Group are
committed to helping clients achieve their
sustainability objectives, including the evolving
considerations related to climate, by providing
strategic advice, solutions and services. The
Group
takes
an
integrated
approach
to
creating sustainable value for its clients,
shareholders, communities, and employees. It
does so by leveraging the expertise, networks
and resources from the Morgan Stanley
Group.
Sustainable Finance
Solutions and Services
As part of its focus on Sustainable Solutions
and Services, the Morgan Stanley Group is
responding to client demand with financial
solutions and advisory services designed to
help deliver both competitive financial returns
as
well
as
meet
client
sustainability
preferences. For more information, refer to
https://www.morganstanley.com/about-us/
sustainable-solutions-services
.
The Morgan Stanley Group is committed to
mobilising $1 trillion in sustainable finance by
2030 which includes $750 billion to support
low-carbon and green solutions. Progress
toward this goal is guided by our Sustainable
Finance Framework (the “Framework”) and
tracked at the global Morgan Stanley Group
level. Since 2018, more than $820 billion in
capital has been mobilised toward the $1
trillion goal, including over $640 billion in low-
carbon and green solutions. The Framework is
maintained by the Global Sustainability Office
(“GSO”), which considers the United Nations
Sustainable Development Goals (“UN SDGs”)
and industry frameworks and standards, such
as
the
International
Capital
Markets
Association’s (“ICMA”) Green and Social Bond
Principles, when evaluating the Framework on
an annual basis to help ensure alignment with
evolving
industry
best
practices.
The
Framework is further informed by input from
contributing
business
units
and
relevant
committees across the Morgan Stanley Group
in order to remain aligned with the Morgan
Stanley Group ESG priorities as well as
changes
in
its
business
activities
and
products. In addition, the underlying data is
subject to internal review and verification.
Business segments, units and programmes
contributing
to
the
target
include
the
Institutional
Securities
Group,
Investment
Management,
Wealth
Management,
Community Development Finance, and the
Morgan Stanley Inclusive and Sustainable
Ventures (“MSISV”). Eligible themes and
products under the Framework are reported in
the 2023 Morgan Stanley Group ESG Report.
For the Company, the relevant contributing
business segments, units and programmes
include the Institutional Securities Group and
the MSISV.
The Morgan Stanley Institute for Sustainable
Investing
Established in 2013, the Morgan Stanley
Institute for Sustainable Investing (“ISI”) aims
to accelerate sustainable finance by 1) driving
innovation, 2) empowering investors with
insights and 3) supporting the development of
the next generation of sustainable investing
leaders. The ISI is guided by an advisory
board of prominent leaders from business,
academia
and
non-governmental
organisations.
The
ISI
publishes
regular
thought leadership on sustainable finance
trends and themes and also runs a number of
initiatives
including
the
Kellogg-Morgan
Stanley Sustainable Investing Challenge, the
Sustainable Investing Fellowship, the MSISV.
Morgan Stanley Inclusive and Sustainable
Ventures
MSISV includes two in-house accelerator
programmes – a Lab designed for startup
founders and a Collaborative to support
emerging non-profits. MSISV, announced in
February 2025, builds on the success of the
Inclusive Ventures Lab and the Sustainable
Solutions Collaborative, integrating the two
complementary accelerators. MSISV provides
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
25
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
founders who may have experienced systemic
barriers to accessing capital and/or have a
focus on sustainability with access to capital
and resources to scale innovative solutions
globally.
The Lab is an intensive, five-month, in-house
accelerator designed to help further develop
and scale startups, culminating in a showcase
presentation and Demo Day to the investor
community. Through the Lab, the Morgan
Stanley Group makes direct investments in
early-stage,
technology
and
technology
enabled
companies,
and
supports
each
founder's growth and development through a
rigorous programme and a global ecosystem
of internal and external partners. The Lab
provides startups in the programme with
much-needed access to investors - along with
the tools,
resources
and connections to grow
and thrive. The EMEA Lab has invested in 25
high-potential companies to date, 15 of which
are based in the UK, that have raised
approximately £19 million during and after the
accelerator programme.
Morgan Stanley has also signed a Letter of
Intent as part of the government-backed
“Invest in Women Taskforce” initiative to
support female entrepreneurship in the UK,
aiming to invest between £10-25 million of
capital to UK female founders through the
Inclusive Ventures Lab or other existing
investment pools to support UK female
entrepreneurs over the next 5 years.
Overview of Stakeholder Engagement
To assist the Directors in discharging their duty
under s172 Companies Act 2006, Directors
undertake
a
number
of
stakeholder
engagement activities to provide them with the
information they need to understand the views
and interests of stakeholders. This information
helps Directors to have regard to stakeholders
interests,
and
the
likely
long-term
consequences, including to the reputation of
the Company, when making decisions and
setting strategy.
More information on stakeholder engagement
activities and how they inform decision making
are provided in the ‘Stakeholder Engagement
and
s172(1)
Statement’
section
of
the
Strategic Report.
ESG Governance
Board and Management’s Roles and
Responsibilities
An EMEA ESG governance framework is in
place which establishes clear escalation and
reporting
channels
from
dedicated
ESG
working groups, to ESG specific committees,
up to executive committees and then the
Board. Prior to information on sustainability-
related impacts, risks and opportunities being
brought to the Board, it is subject to a review
and challenge process.
A dedicated EMEA ESG Committee supports
the Board in its oversight of the relevant
sustainability
matters.
The
EMEA
ESG
Committee is in place to support the Group in
the continued consideration, governance and
oversight of the incorporation of ESG impacts,
risks and opportunities into strategy, business
processes and risk management. In particular,
the EMEA ESG Committee advises on the
integration of ESG considerations into the
regional
business
strategy,
oversees
the
embedding of ESG risks into the risk and
control framework and oversees the tracking,
analysis and implementation of key regulatory
requirements related to ESG. The EMEA ESG
Committee reports on at least an annual basis
to the Morgan Stanley Group ESG Committee.
At least annually, the EMEA ESG Committee
will invite representatives from Human Capital
Management (“HCM”) and the EMEA Diversity
Action Council to provide updates on regional
diversity and inclusion matters to ensure the
EMEA ESG Committee has transparency on
how
those
activities
impact
on
wider
sustainability matters.
At a Company level, the Board has appointed
the EMEA Chief Risk Officer ("CRO") as the
Senior Manager responsible for managing the
financial risks from climate change. The EMEA
CRO Co-Chairs the EMEA ESG Committee
and is a member of the MSI Board and the
Board. The EMEA Chief Administrative Officer
and the EMEA Chief Operating Officer are
both members of the EMEA ESG Committee
and members of the MSI Board and the Board.
The Board is briefed regularly on sustainability
topics,
including
on
related
risks
and
opportunities. The Board is responsible for
approving the risk appetite statement, risk
tolerance statements and limits, regulatory
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
26
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
public disclosures and for determining the
EMEA strategy, in relation to the Company,
which
include
sustainability-related
considerations as applicable.
During
2024,
the
Board
considered
sustainability-related matters through regular
Board reporting and focused updates. For
example, the Board received reports from the
heads of the EMEA businesses on the 2024
strategic and business priorities including in
relation
to
sustainability
products
and
supporting clients in their climate transition.
The Board also received updates on the KPI to
monitor
alignment
of
lending
exposure
retained on MSI Group to align to Morgan
Stanley Group’s Net Zero target.
The
Board
considered
and
agreed
performance priorities including in relation to
Morgan Stanley's net zero strategy, Culture,
Conduct, and Diversity and Inclusion and
regularly considered performance against the
priorities.
The Board received focused reports on the
EMEA
Culture
Framework,
the
energy
transition
and
related
risks,
new
global
decarbonisation
targets,
and
the
related
opportunities and governance matters.
The MSI Risk Committee assists and provides
guidance to the Board on its oversight of the
management of financial and non-financial
risks including ESG risks. Climate transition
risk is incorporated into the MSI Group Risk
Appetite and Limits Framework via a specific
Climate Stress Loss Limit, that was set by the
MSI Group Board. On a quarterly basis, the
MSI Risk Committee reviews the utilisation of
the Climate Stress Loss Limit and the credit
risk limits that are established for industries
highly exposed to climate risk.
Refer to the
section ‘Climate and Environmental Risk
Management
-
Risk Appetite
and
Limit
Framework’ for further details. The MSI Risk
Committee also reviewed and recommended
to the Board, the MSI Group and the
Company's
respective
Risk
Appetite
Statements which include climate change as a
driver of existing risks.
The MSI Audit Committee assists and provides
guidance to the Board in monitoring financial
reporting, internal controls and legal and
regulatory compliance, including in relation to
sustainability-related matters. The MSI Audit
Committee received regular updates on ESG
disclosures, in relation to the Company's
Financial Statements, to support the MSI Audit
Committee's review and recommendation to
the Board.
The
MSI
Nomination
and
Governance
Committee (“NomCo”) assists and provides
guidance to the Board on succession planning,
the
recruitment
of
board
members
and
considers climate- and environmental-related
skills in its annual assessment of the Board.
Environmental Information
Climate and Environmental Strategy
Morgan
Stanley
recognises
that
climate
change is a complex issue, and considers
climate change in its business, operational and
risk
management
activities. The
Group’s
strategy is to support the Morgan Stanley
Group in achieving the overall goal of net-zero
financed emissions across its global business
by 2050. It will contribute to each component
of a four-part climate strategy:
• Transition to a low-carbon economy – goal to
reach net-zero financed emissions by 2050
and to mobilise $750 billion to support low-
carbon and green solutions by 2030 (see
‘General Information - Sustainable Finance’
section);
• Climate risk – Morgan Stanley Group Firm
Risk Management (“FRM”), in partnership with
other areas of Morgan Stanley, focuses on
identifying,
measuring,
managing
and
monitoring climate-related financial risks. (see
'Environmental Information - Climate and
Environmental Risk Management' section);
• Operations – Morgan Stanley achieved
carbon neutrality across its global operations
in 2022 and maintained it in 2023
1
;
• Transparency – Climate-related disclosures
are published in Morgan Stanley’s annual ESG
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
27
1
For further information on how carbon neutrality has been achieved, refer to page 47 of the 2023 Morgan Stanley Group ESG
Report. Morgan Stanley Group’s 2024 carbon neutrality status will be addressed in the 2024 Morgan Stanley Group ESG
Report.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Report (see ‘General Information - About This
ESG Report’ section).
The Morgan Stanley Group aims to realise its
climate ambitions and contribute to real-
economy
decarbonisation
by
supporting
clients in achieving their own climate-related
objectives. Its approach to making progress
towards its net-zero goal is described in the
Morgan Stanley Group ESG Report and
focuses on 1) mobilising capital toward low-
carbon solutions, 2) striving toward net-zero
targets, and 3) maintaining carbon neutrality.
To demonstrate progress toward its net-zero
by 2050 target, the Morgan Stanley Group set
interim
2030
financed
emissions
lending
intensity (“FELI”) targets in November 2021 for
the three most emissions-intensive sectors:
Auto Manufacturing, Energy, and Power.
Progress against these targets is reported in
the Morgan Stanley Group ESG Report. In
October 2024, these targets were updated to
refresh the existing sector-specific targets for
Power, Energy and Auto Manufacturing and
set new targets for the Aviation, Chemicals
and Mining sectors. These targets cover
corporate relationship lending exposure. More
information can be found in the Net Zero
Methodology:
https://
www.morganstanley.com/
content/dam/msdotcom/en/assets/pdfs/
MS_2024_Net-
Zero_Methodology_Report_10.pdf
.
The MSI Group maintains a KPI to monitor
alignment of lending exposure retained on MSI
Group to Morgan Stanley Group’s Net Zero
target and global targets in the six sectors. In
2024, the KPI was updated to reflect the
updates to the Morgan Stanley Group targets
explained above. Accountability for this KPI
sits with the MSI Board. No targets have been
set at the legal entity level.
The Morgan Stanley Group Climate Strategy
Assessment Framework (“CSAF”) provides a
data-driven assessment of clients’ climate
strategies, to help the Group better engage
with its clients and inform business decisions.
The CSAF will help the Morgan Stanley Group
to
assess
company
targets,
climate
governance, plans and actions taken toward
meeting targets, and greenhouse gas (“GHG”)
emissions performance. The CSAF has been
further embedded into business activities and
risk management processes as set out in the
Morgan Stanley Group ESG Report.
Resilience of Strategy and Business Model
to Climate Change
In 2022, the Group conducted a qualitative
assessment
of
the
potential
business
outcomes of four long-term scenarios that
considered both transition and physical risk. In
2024,
this
qualitative
assessment
was
refreshed
for
two
of
the
scenarios.
A
quantitative assessment was also conducted
by
FRM,
refer
to
the
‘Environmental
Information - Climate and Environmental Risk
Management’ section for further details.
The impact on business activities was broadly
assessed to be limited in most circumstances
given the agility of the Group’s business model
to
adapt
to
evolving
market
conditions.
Insights were included as an input into
business strategy and planning. For further
detail
on
the
Morgan
Stanley
Group’s
approach to scenario analysis, refer to the
2023 Morgan Stanley Group ESG Report.
To estimate the impact of climate risk on
strategic risk, the impact on the Group’s
revenues as a result of adverse client impacts
in the short-term transition carbon repricing
scenario
were
modelled.
This
analysis
concluded
that
strategic
risk
under
this
scenario is non-material for the Group.
Operational Resilience
The Group's critical processes and businesses
could
be
disrupted
by
multiple
events,
including natural disasters and severe weather
events. See note 26.4.7 'Non-Financial Risks -
Business
Continuity
Management
and
Disaster Recovery’ for information on the
Morgan Stanley Group's Firm Resilience
programme that is designed to provide for
operational resilience.
Climate and Environmental Risk
Management
MSI Group’s risk management framework,
processes and policies cover climate and
environmental risks.
Climate
and
environmental
risks
include
negative potential impacts to biodiversity,
pollution of land, water or air, climate change,
deforestation and forest degradation, and
other negative impacts on the environment as
a result of human activities. Within climate and
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
28
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
environmental risks, the risks arising from
climate change are a particular area of focus.
MSI
Group
considers
climate
and
environmental
risks
through
two
main
categories: transition risks and physical risks.
•
Transition Risks:
Transitioning to a low-
carbon and more environmentally sustainable
economy
will
entail
extensive
regulatory,
policy, legal, technology and market initiatives
as society adapts to climate change, mitigates
its causes and promotes a more sustainable
environment. Depending on the nature, speed
and focus of these changes, transition risks
may pose varying types and levels of financial
and reputational risk to businesses and other
organisations.
•
Physical Risks:
These risks include both
acute physical events such as flooding, and
chronic physical risks related to longer-term
shifts in climate patterns such as more
frequent
and
prolonged
drought
and
progressive shifts like biodiversity loss, land
use change, habitat destruction and resource
scarcity.
Financial
implications
for
organisations can range from direct damage to
assets to indirect impacts from supply chain
disruption, driven by factors such as changes
in
water
availability,
food
security
and
agricultural productivity. Extreme temperature
changes may affect an organisation's physical
locations, operations, supply chain, transport
needs and employee safety.
MSI Group may also be exposed to litigation
risk or reputational risk losses arising from
compliance risks related to increasing and
evolving ESG-focused regulation.
Managing Climate and Environmental
Risks
The Central Climate Risk team within FRM is
responsible for working with stakeholders in
Risk and across the Morgan Stanley Group to
identify, monitor, mitigate and report on the
climate-related financial risks it may face. This
includes
partnering
with
MSI
Group
stakeholders to manage and embed climate
and
environmental
risks
in
the
risk
management framework including regional
regulatory
requirements
and
with
consideration of the MSI Group's portfolio.
Climate
and
environmental
risks
are
incorporated into the EMEA and MSI Group
risk management framework. The framework
also applies to the Company as a legal entity
of the Group. The framework continues to be
enhanced to meet requirements set out in new
and evolving regulations.
Risk Identification and Materiality
Assessment
As part of its risk identification and materiality
assessment process, MSI Group conducts a
granular risk assessment of short-term climate
and environmental risks across risk types.
The risk inventory captures climate and
environmental risks as drivers of existing risks.
Risk events assessed for their impact on
credit, market, liquidity, and operational risks
include:
•
Transition risk driven by climate policy
(carbon
repricing
and
accelerated
green
technology)
and
other
environmental policies (reduction of
pollution)
•
Physical risk driven by climate events
(extreme
temperature,
wildfire,
drought, riverine flood, coastal flood,
and storms) and other environmental
events (biodiversity loss, water stress
and marine resources)
In
addition,
the
Group
assessed
ESG
scenarios for litigation and reputational risks
(see the ‘Scenario Analysis and Stress Testing’
section).
A quantitative assessment is performed on a
quarterly basis across risk types to determine
the materiality of the impact of short-term ESG
risks. A risk is considered material if the
estimated stress loss or liquidity outflow is
above the existing risk identification materiality
threshold.
MSI Group also performed a medium- and
long-term assessment of climate risks based
on 5 year and 30 year losses from long-term
scenarios.
Materiality Assessment in the Short-Term
In 2024, climate transition was assessed as a
material credit risk for MSI Group and the
Group. Climate physical risks were assessed
as non-material for credit risk. Operational risk
(business
disruption,
litigation
risk
and
reputational risk), market risk and liquidity risk
were
assessed
as
non-material
given
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
29
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
estimated
losses
fell
below
respective
materiality thresholds. Other environmental
risks are assessed as non-material across risk
types.
Credit climate transition risk was assessed as
the only material risk in the MSI Group, in line
with 2023 results, and the Company portfolio.
Material
identified
risks
inform
risk
measurement, monitoring, management, and
the scenarios that support the internal capital
adequacy assessment process (“ICAAP”). In
addition, material risks guide the risk appetite.
Materiality Assessment in the Medium- and
Long-Term
The medium- and long-term assessments for
credit and market risk consider results of the
Net
Zero
by
2050
scenario
and
the
Fragmented World scenario. In 2024, this
materiality
assessment
concluded
that
transition risk is material for credit risk in the
long-term for MSI Group.
Risk Appetite and Limit Framework
A MSI Group and Company Board-level
Climate Stress Loss Limit (“CSLL”) is set
across credit and market risks.
The CSLL is integrated into the MSI Group’s
and the Company’s Risk Appetite Statement,
which is approved by the MSI Board on an
annual basis.
In addition to the CSLL, climate risk is
incorporated into the credit risk management
framework through industry sector limits as
well as country and obligor ratings.
•
Climate Stress Loss Limit:
The MSI
Board expresses risk appetite via the
CSLL. To monitor potential credit and
market risk losses against this limit,
MSI Group runs a short-term transition
risk carbon repricing scenario (refer to
‘Scenario Analysis and Stress Testing’
section). This scenario is run monthly
and the results are reported quarterly
to the Risk Committee of the MSI
Board.
•
Industry Sector Limits
: Credit risk
limits are established for industries
that are highly exposed to climate risk.
This process includes a portfolio
segmentation of industries into groups
with common climate risk profiles.
These limits enable the MSI Group
and the Company to monitor and
manage credit risk arising from climate
change.
•
Country Ratings:
ESG considerations
are incorporated into the internal
sovereign credit rating assessment.
The sovereign rating is an important
input in determining country limits,
therefore
ESG
considerations
influence risk appetite at the country
level.
•
Obligor Ratings
: Climate risk is being
incorporated
into
the
rating
assessment
for
corporates.
The
corporate rating is an important input
in determining single name limits,
therefore climate risk will influence risk
appetite at the single name level.
Scenario Analysis and Stress Testing
Scenario analysis is central to MSI Group’s
climate risk management framework and is
used
to
identify
and
measure
potential
financial vulnerabilities from climate-related
risks.
Both
transition
and
physical
risks
can
materialise over different time horizons. For
example, extreme flooding events present
near-term physical risks to vulnerable regions
and populations, while certain climate policy
measures, particularly those implemented over
several years, present longer-term challenges
as economies adjust to increased costs and
market or technological changes stemming
from new policies.
Therefore, scenarios may be developed to
assess potential losses or financial impact
over the short-, medium- or long-term. Morgan
Stanley defines these time horizons as set out
below.
Short-term: 0 - < 1 year
Medium-term: 1 - < 5 years
Long-term: > 5 years
MSI Group has implemented short-, medium-
and long-term scenarios to assess the impact
of climate risks. Short-term scenarios are
considered in the capital planning process and
prioritised to manage financial risk due to the
short maturity of the business activities.
Medium- and long-term scenarios are used to
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
30
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
assess materiality and inform the business
strategy.
Please refer to the table below that covers the
ESG scenarios implemented by the MSI
Group.
ESG Scenarios Implemented by MSI Group
Scenario
Risk Types
Narrative & Assumptions
Carbon Repricing:
Transition Risk
Short-term (1 year)
Internal scenario
•
Credit Risk - Lending and
Counterparty
•
Market Risk
• Global effort to curb emissions leads
to
the
implementation
of
climate
policies
• Sudden and sustained rise in carbon
prices across countries
Net Zero by 2050:
Transition Risk
Medium- and Long-term (5 and 30 year)
Based on NGFS
(1)
, aligned to 1.5C
•
Credit Risk - Lending and
Counterparty
•
Market Risk
• Global ambitious plan to reach net
zero by 2050 in an orderly fashion
Fragmented World:
Transition and Physical Risk
Medium- and Long-term (5 and 30 year)
Based on NGFS
(1)
•
Credit Risk - Lending and
Counterparty
•
Market Risk
• Governments suddenly enact global
carbon policies in 2030; policies vary
among nations
• Net zero is not achieved, leading to
extreme weather events and increased
physical risk
Continental Europe Flooding / UK
Flooding:
Physical Risk
Short-term (1 year)
Internal scenario
•
Credit Risk - Lending and
Counterparty
•
Market Risk
•
Operational Risk
• Heavy flooding across Continental
Europe/ the UK
Climate Physical Events Impacting
MS Operations:
Physical Risk:
Short-term (1 year)
Range of scenarios specific to Physical
events impacting operations in each of
our geographic locations
•
Operational Risk
• Heavy
flooding
across
London
impacting transport links
• Severe
flooding
across
Mumbai
resulting in infrastructure damage and
power outage
• Severe
Heatwave
impacting
India
resulting in power outage
ESG Litigation Scenarios
Litigation Risk
Medium-term (2 years)
Range of ESG scenarios such as
Greenwashing, Product Mis-selling and
Reporting Errors
•
Operational Risk
•
Misstatements in ESG disclosures
•
Misstatement of ESG objectives linked
to a product
1.
Network for Greening the Financial System (“NGFS”)
is a group of Central Banks and Supervisors willing, on a voluntary
basis, to share best practices and contribute to the development of environment and climate risk management in the
financial sector.
Climate Metrics and Targets
Morgan Stanley Group has set 2030 interim
financed emissions targets in relation to
certain emissions-intensive sectors. No targets
have been set at the legal entity level. For
further information, refer to ‘Environmental
Information - Climate and Environmental
Strategy.’
Streamlined Energy and Carbon Reporting
(“SECR”)
Organisational Boundary
The organisational boundary is defined as all
entities and operations owned by the Group
and other sites, assets or undertakings under
the Group’s financial control and additionally
emissions related to energy consumed from
activities for which the Group is responsible,
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
31
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
as required by SECR. The Group is also
responsible for energy consumed associated
with its usage of UK properties leased by other
Morgan Stanley Group undertakings.
For
the
purposes
of
SECR
reporting,
emissions are limited to UK emissions.
Operational Boundary
a. Scope 1 emissions
Scope 1 emissions are direct emissions from
the combustion of fuel from sources inside the
organisational
boundary
and
include
the
following:
Source
Boundary Description
Combustion of natural
gas and diesel fuel
UK properties and data centres
utilised by the Group as part of
its activities
b. Scope 2 emissions
Scope 2 emissions are indirect emissions from
the generation of acquired and consumed
electricity, and where it occurs, steam, heat, or
chilled water occurring at sources outside of
the organisational boundary as a consequence
of
activities
from
sources
inside
the
organisational boundary, and include the
following:
Source
Boundary Description
Purchased electricity
UK properties and data centres
utilised by the Group as part of
its activities
c. Scope 3 emissions
Scope 3 emissions are indirect emissions from
the consumption of energy from sources
outside the organisational boundary as a
consequence of activities of the Group. As
required
by
SECR,
the
Group
reports
emissions from the consumption of fuel
directly
purchased
for
the
purposes
of
transport. In addition, the Group voluntarily
discloses emissions from
commercial air and
ground
transportation.
Source
Boundary Description
Employee expensed car
mileage
Automobile travel (including
employee-owned and rental
cars)
Commercial air and ground
transportation
Air, rail and bus travel
Basis of Preparation
The Group presents its emissions under the
SECR
approach
as
informed
by
the
Greenhouse
Gas
Protocol
Corporate
Accounting and Reporting Standard (Revised
Edition) (“GHGP”), accounting for emissions
for which it is responsible as a result of its
activities, including emissions related to its use
of properties or other assets which are not
directly held by the Group.
In line with the Morgan Stanley Group's
organisational
structure,
properties
are
primarily leased by service entity subsidiaries
of the Morgan Stanley Group. The service
entities recharge property and travel costs to
the Group reflecting its usage. Total scope 1
and scope 2 emissions reported relate to the
Group’s usage of UK properties only. Scope 3
emissions relate to the Group’s share of UK
employee business travel only. This disclosure
is a subset of the emissions reported in the
financial statements of Morgan Stanley’s UK
service entities - Morgan Stanley UK Limited
and Morgan Stanley UK Group, both of which
are subsidiaries of the MSI Group.
The Group calculates emissions using factors
from the US Environmental Protection Agency
(2024) for Scope 1. The Group has chosen to
report both location-based and market-based
emissions for Scope 2. The Scope 2 location-
based emissions reflect the average emissions
of the grid where the energy consumption
occurs
using
emission
factors
from
the
Department for Environment, Food & Rural
Affairs ("DEFRA") (2024). The Scope 2
market-based
calculation
uses
supplier
specific emission factors and residual mix
factors (in order of preference), to align with
the GHGP's hierarchy of Scope 2 instruments.
Where available, the Group also makes use of
renewable
energy
guarantee
of
origin
certificates to reduce its Scope 2 market-
based emissions.
For data centres, Scope 2 emissions and
associated electricity to operate information
technology hardware are calculated using a
data centre facility power usage effectiveness
ratio.
The intensity ratio is calculated using square
metre ("SQM") of UK real estate. This is
considered most appropriate as the service
entity subsidiaries of the Morgan Stanley
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
32
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Group recharge property costs to the Group
using SQM reflecting its usage.
The table below represents the Group’s share
of the UK’s carbon emissions for the years
ended 31 December 2024 and 31 December
2023:
2024
2023
Energy consumption used to calculate emissions in kWh*
53,370,509
54,190,287
CO2e Tonnes**
CO2e Tonnes**
Location
based
Market
based
Location
based
Market
based
Emission source
Scope 1 – Combustion of fuel and operation of facilities
369
369
482
482
Scope 2 – Electricity, heat, steam and cooling purchased for own use
10,630
—
10,714
10,313
Total scope 1 and scope 2
10,999
369
11,196
10,795
Scope 3 – Commercial air and ground transportation
7,211
7,211
7,101
7,101
Scope 3 – Employee expensed car mileage
12
12
16
16
Total emissions
18,222
7,592
18,313
17,912
Intensity ratio (tCO2e/SQM)***
0.1648
0.0055
0.1474
0.1421
* Energy consumption includes the SECR mandatory activities captured in Scope 1, 2 and Scope 3 - Employee expensed car
mileage only
** Tonnes of carbon dioxide equivalent
*** Tonnes of CO2e per square metre of UK real estate (Scope 1 and 2 emissions only)
Scope 1
emissions decreased by 23%
due to
reduced generator usage at data centres
compared to the prior year. Scope 2 market-
based emissions decreased by 100% due to
application of zero-carbon supplier specific
emissions
factors
where
available
and
application of renewable energy guarantee of
origin certificates in 2024.
Energy Efficiency Opportunities in Operations
Energy efficiency opportunities in operations
are represented through UK initiatives such as
a quarterly assessment of equipment run-
times
and
operational
requirements,
to
maintain consistent performance.
Climate Risk Metrics
The section ‘Environmental Information - Risk
Appetite and Limit Framework’ describes the
limits established to manage climate risk in
MSI Group and the Company and the
exposures that are monitored against those
limits.
Climate Stress Loss Limit
: MSI Group and
the Company remained within their portfolio
CSLL throughout 2024.
Exposure to climate risk
: Credit exposure to
industries with high climate transition or
physical risk comprises of 2% and 3% of the
Company’s
aggregate
risk
net
current
exposure,
respectively.
Climate
risk
concentration metrics are calculated based on
deposits
with
central
and
agent
banks,
repurchase transactions, securities lending,
derivatives and corporate loan commitments
after
taking
into
consideration
legally
enforceable
master
netting
agreements,
collateral and credit risk mitigants. Trading
activities and other receivables are excluded.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
33
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Credit Exposures to High Climate Risk
Industries
2024
Exposure
in $ millions
% of
Exposure
Group total net exposure
39,148
of which transition risk
862
2 %
of which physical risk
1,212
3%
2023
Exposure
in $ millions
% of
Exposure
Group total net exposure
37,545
of which transition risk
736
2 %
of which physical risk
1,000
3 %
Note: The table above includes the credit exposure to
sectors highly vulnerable to climate transition and climate
physical risks. The vulnerability of obligors is assessed
based on a segmentation approach which differentiates
between low, medium, high and very high (high and very
high are presented in the table). The segments are sub-
industries with consistent climate risk profile. The
assessment
considers
expert
credit
assessment,
greenhouse gas emission data and external physical risk
scores.
IFRS 9 Expected Credit Loss (“ECL”)
Corporate credit ratings include a climate risk
adjustment, which assesses the impact of
climate risk on the obligor’s creditworthiness.
Climate risk is therefore reflected in the
obligor’s probability of default (“PD”), which is
used to calculate the ECL in the IFRS 9
process.
As at 31 December 2024, climate risk does not
have an impact on the ECL charge since there
are no corporate loans in the Company’s
portfolio. The ECL charge is driven by
intercompany exposures (see Note 26 Risk
Management - Credit Risk).
Social Information
Workforce Strategy
The Group’s workforce strategy is built on the
core values of the Morgan Stanley Group - Put
Clients First, Do the Right Thing, Lead with
Exceptional Ideas, Commit to Diversity &
Inclusion, and Give Back.
Leadership, including from the Board, sets the
tone for the Group, and the executive team
drives a culture that is central to how the
Group serves clients, advances and develops
the workforce, and supports the communities
around it. Maintaining a first-class workforce is
paramount to the Group’s ability to support its
clients. The Group strives to be inclusive
across
backgrounds,
identities,
and
perspectives, and to ensure all employees feel
a sincere sense of belonging.
The results of the most recent biennial
employee engagement survey demonstrate
the strength of the Group commitment to its
culture and employees, with 92% of EMEA
employees being proud to work at Morgan
Stanley.
Building Our Workforce
The Group’s recruitment efforts are marked by
a commitment to attract top talent across a
variety of disciplines.
With a global presence and a reputation for
excellence in the financial services industry,
the Group employs a multifaceted approach to
recruitment,
utilising
campus
outreach
programmes, job fairs, internships and digital
platforms to identify and cultivate prospective
candidates. Individuals from all backgrounds
and perspectives contribute to a diverse and
dynamic work environment. Through rigorous
selection
processes
and
comprehensive
training programmes, the Group aims to build
a workforce equipped to tackle the challenges
of the ever-evolving financial landscape.
Consequently, recruiting efforts reflect the
Group’s desire to attract and retain the best
and brightest from all talent pools. The Group
wants to be the first choice for prospective
employees.
Investing In Our Workforce
Compensation practices
The Group is committed to responsible and
effective
compensation
programmes.
Compensation philosophy is fundamental to
the Group’s goals of attracting, retaining and
motivating its workforce in a competitive
market.
The
compensation
philosophy
provides the guiding principles that drive
compensation-related decisions:
•
Deliver pay for performance;
•
Align compensation with shareholders’
interests;
•
Mitigate excessive risk-taking; and
•
Attract and retain top talent.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
34
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Benefits and Wellbeing
The Group offers employees access to a wide
array of resources to support their personal
and
professional
wellbeing.
From
comprehensive
benefits
to
employee
networks, the Group prioritises the needs of its
people to ensure they thrive.
The Group’s comprehensive benefits support
the physical, mental and financial wellbeing of
the Group’s employees and their families, and
provide
the
Group
with
a
competitive
advantage in attracting and retaining top talent
from all backgrounds. A three-prong approach
to employee wellbeing is taken:
•
Awareness - educating employees on
health and wellbeing matters and
engaging them to take charge of their
health and wellbeing;
•
Prevention - a focus on mitigating
health risk and promoting healthy
lifestyles; and
•
Access
-
providing
best-in-class
resources for employees.
The Morgan Stanley Group Global Wellbeing
Board, composed of senior leaders globally,
continues to help shape wellbeing strategy,
contributing
sponsorship,
oversight
and
accountability.
Regional
Wellbeing
Boards
have also been established to ensure a local
lens. A network of over 500 global Wellbeing
Influencers amplify programming and connect
colleagues with Morgan Stanley resources.
Developing Our Workforce
Promoting Training and Skills Development
Morgan Stanley provides employees with a
robust suite of resources to succeed in their
chosen career paths. From development and
mobility
opportunities
to
a
modern
performance
management
practice,
the
Morgan Stanley Group encourages employees
to pursue excellence and drive their own
growth.
In
addition
to
an
enhanced
performance evaluation process, leadership
programmes
and
manager
trainings,
the
Morgan Stanley Group offers specialised
programmes for enrichment, internal and
external
educational
resources,
and
development courses to learn and hone skills.
A Focus on Workforce Diversity
The Group continues to deliver against a
comprehensive diversity and inclusion strategy
focused on the workforce, societal issues, and
the marketplace.
•
Workforce - Continue to develop and
invest
in
internal
diversity
and
inclusion efforts to enable the Group to
become
a
leader
in
attracting,
developing,
and
retaining
diverse
talent, and to create a culture of
inclusion;
•
Society
-
Support
underserved
communities
through
employee
engagement that addresses inequities
in
education,
careers,
economic
prosperity and health, and also helps
communities continue to grow and
thrive; and
•
Marketplace
-
Invest
to
advance
economic outcomes in underserved
communities
through
products,
services, business practices, spending
and thought leadership.
An inclusive workplace is critical to the
Group’s continued success and the ability to
serve its clients. Diverse perspectives from all
backgrounds help to drive innovation, and
foster
a
sense
of
belonging
where
all
employees feel empowered to contribute.
Supporting the rich heritage and diverse
perspectives that colleagues bring to their
work every day is integral to the Group’s
culture.
The EMEA Diversity Action Council acts as a
catalyst to drive forward the EMEA diversity
strategy. Accountability is underscored by at
least annual updates to the EMEA ESG
Committee, and regular discussion with senior
management.
The Group continues to work in alignment with
the UK Women in Finance Charter and UK
Race at Work Charter towards increasing
gender and ethnic representation at all levels,
with a mission to increase the diversity within
senior leadership. Progress is measured
against representation objectives: increase
senior management representation for women
to 35%, UK ethnically diverse officers to 30%,
and UK Black officers by 40%.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
35
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Progress has been made to narrow the UK
gender pay gap since 2017, the first year
metrics
were
reported.
This
has
been
accomplished through recruiting efforts as well
as a critical focus on the retention and
development of the senior female talent
pipeline
with
robust
talent
development
offerings and a suite of family-friendly benefits.
Gender pay gap is a measure of the average
pay difference between women and men
across an organisation regardless of role or
level. This is different from gender pay equity,
which measures whether women and men are
paid equally for the same or similar roles, or
for work of equal value.
The Board has a Board Diversity policy in
place which is reviewed annually and includes
a target of at least 40% female representation
on the Board by 2025. As at 31 December
2024, 50% of the Board was female. The
policy also includes a target of a minimum of
one Board director from an ethnic minority
background, which the Board currently meets.
The targets set out in the policy are in line with
industry targets for diversity and inclusion.
Further information on the progress made
towards the UK Women in Finance Charter
can
be
found
at
https://
www.morganstanley.com/about-us/diversity/
uk-women-in-finance-charter
.
Supporting Our Communities
The Group is committed to giving back to the
communities in which it operates through
working
in
partnership
with
charitable
organisations and engaging its employees to
support a range of philanthropic programmes.
The scope of these philanthropic initiatives
includes:
Volunteering
In 2024, as part of Morgan Stanley’s annual
Global Volunteer Month, 90% of employees in
EMEA
dedicated
approximately
60,000
volunteer hours to support local community
organisations where they live and work.
In Budapest, Frankfurt, Glasgow and London,
178
employees
gave
over
9,000
hours
providing pro bono advice to over 27 charities
as
part
of
Strategy
Challenge,
Skills
Connectors,
Make
a
Difference
and
Technology Change Makers programmes. In
addition, 385 employees in London, Glasgow
and
Budapest
spent
over
1,500
hours
volunteering in schools as part of Technology
education
and
Science,
Technology,
Engineering,
and
Mathematics
("STEM")
programmes, reaching over 15,000 children
across EMEA.
Giving
In 2024, the Morgan Stanley International
Foundation increased its level of giving to a
broader number of charities who will be
supported for a longer period of up to five
years, aiming to positively impact the health
and education outcomes of 500,000 children
and young people.
Compared to the previous 5 years, the new
programme will see a 50% uplift in funding to
charities totalling £15 million, aiming to reach
345,000 more children and double the number
of charity partners supported.
In the first year of this five-year commitment,
through
donations
from
employees
and
funding from the Morgan Stanley International
Foundation, over £3 million was provided to
ten partner charities in London, Budapest,
Glasgow, Frankfurt and Paris.
Community Impact
Over the past few years, the pandemic and
continuing cost of living crisis has deeply
affected the life outcomes of children in local
communities. To respond to this increasing
need,
the
Morgan
Stanley
International
Foundation has partnered with ten charities
across EMEA to identify innovative ways to
create better impact and build longer term
sustainable change, supporting healthy starts
and solid educations for the children in these
communities.
The charities are Alliance pour l’education –
United
Way,
Bagasz,
Csadolampa,
Kinderschutzbund,
Die
Arche,
PEEK,
Place2Be,
Restos
du
Coeur,
Save
the
Children UK and The Felix Project.
In 2024, Morgan Stanley’s support across the
partnerships positively impacted children and
young people by addressing societal issues,
including food insecurity, poverty alleviation,
social mobility, physical and mental health
support, and equal access to education.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
36
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Governance Information
Environmental and Social Risk
Management
Morgan Stanley takes a Group-wide approach
to the management of environmental and
social risks that could impact the Morgan
Stanley Group’s reputation, which is set out in
its Environmental and Social Policy Statement
(“ESPS”) and related policies and procedures
where applicable. Due diligence and risk
management
processes
are
designed
to
identify, assess and address, as appropriate,
potentially significant environmental and social
issues that may impact the Morgan Stanley
Group, clients and other stakeholders. As
outlined in the ESPS, the Morgan Stanley
Group has tailored approaches to certain
sectors and cross-sector environmental and
social issues.
Morgan Stanley's Environmental and Social
Risk Management Group ("ESRM") provides
internal
subject
matter
expertise
on
environmental and social risks and manages
development
and
implementation
of
the
Morgan Stanley Group's ESPS and related
policies and procedures. ESRM also conducts
diligence on relevant transactions, engages
with stakeholders and monitors emerging risks
and developments in partnership with the
business units, Global Sustainability Office
and other relevant control functions.
Transactions that carry potential franchise risk
associated with environmental and social
issues may be escalated to the Group’s Global
Franchise Committee, or Regional Franchise
Committees such as the EMEA Franchise
Committee, as well as business unit senior
management. The ESPS is reviewed annually
and updated as necessary to reflect strategy
and key developments. For further detail, refer
to Morgan Stanley's Environmental and Social
Policy Statement which can be found at
https://www.morganstanley.com/content/dam/
msdotcom/en/about-us-governance/pdf/
Environmental_and_Social_Policy_Statement.
pdf
.
Human Rights in the Supply Chain
The Morgan Stanley Group is committed to
being a responsible corporate citizen and
fulfilling the important role business can play in
protecting and advancing global standards for
human rights including equal opportunity, the
freedom to associate and bargain collectively,
and the elimination of modern slavery, human
trafficking and harmful or exploitative forms of
child labour. Human rights considerations are
incorporated into the transaction due diligence
process,
engagement
with
companies,
supplier expectations, and own operations.
Morgan
Stanley
Group
is
committed
to
complying with the laws and regulations of the
countries
in
which
it
operates
while
simultaneously
conducting
business
and
encouraging the promotion of human rights
through its policies, standards, and practices.
Its approach is guided by leading frameworks,
including the Universal Declaration of Human
Rights, adopted by the UN General Assembly
and the UN Guiding Principles on Business
and Human Rights.
Morgan Stanley Group's Supplier Code of
Conduct outlines expectations with regard to
human
rights,
employment
and
non-
discrimination practices, health and safety,
diversity and inclusion, and data protection,
and is included in supplier agreements. As
outlined in the Supplier Code of Conduct,
suppliers must conduct their operations in full
compliance with applicable laws including, but
not limited to, those associated with child
labour, human trafficking, Modern Slavery,
forced or compulsory labour, working hours
and compensation, freedom of association,
collective bargaining and a harassment-free
work environment. Morgan Stanley expects
suppliers
to
adhere
to
ethical
business
practices, including environmental and social
standards set by the Morgan Stanley Group.
In an effort to foster a culture of responsibility
and transparency throughout its supply chain,
Morgan Stanley will require certain suppliers to
participate in an ESG due diligence exercise.
As part of Morgan Stanley’s ESG due
diligence
programme,
suppliers
will
be
expected to provide information regarding: 1)
their
sustainability
practices;
2)
labour
conditions;
and
3)
overall
corporate
governance. The foregoing shall be expected
during a competitive bid process, the supplier
risk review, or periodically throughout the
lifecycle of the contract.
Each
year,
the
Morgan
Stanley
Group
publishes its Modern Slavery and Human
Trafficking Statement in accordance with
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
37
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Section 54 of the UK Modern Slavery Act 2015
that outlines the steps taken by Morgan
Stanley during the preceding financial year to
address the risk of modern slavery in its own
operations and supply chain, as well as future
plans in that regard. The Modern Slavery and
Human Trafficking Statement is incorporated
in the contractual supplier agreements. If the
Group identifies a modern slavery issue with a
supplier,
it
may
take
various
steps
to
remediate the issue, including: working with
the
supplier
to
change
its
practices;
terminating the agreement with the supplier; or
working with the affected parties to address
the issue or provide other forms of support.
For further detail, refer to the Human Rights
Statement,
Modern
Slavery
and
Human
Trafficking
Statement,
Environmental
and
Social Policy Statement, and Supplier Code of
Conduct, which can be found at
http://
www.morganstanley.com/about-us-
governance
.
Prevention and Detection of
Corruption and Bribery
The Group, principally through Morgan Stanley
Group’s Legal and Compliance Division, has
established
and
implemented
policies,
procedures, and internal controls reasonably
designed to comply with applicable anti-
corruption
laws
and
regulations
in
the
jurisdictions in which it operates.
The Morgan Stanley Group’s Global Anti-
Corruption Policy, which is updated annually
by the Morgan Stanley Group’s Legal and
Compliance Division and approved by the
Morgan Stanley Audit Committee, addresses
corruption
risks
and
prohibits
offering,
promising, giving or authorising others to give
anything of value, either directly or indirectly,
to any party, to improperly obtain or retain
business
or
gain
an
improper
business
advantage. It also prohibits receiving, or
agreeing to receive, anything of value that
results
or
may
result
in
the
improper
performance of employees’ duties at Morgan
Stanley. These values are embedded within
the Morgan Stanley Group’s Code of Conduct,
to
which
employees
must
attest
their
understanding of, and adherence to, on an
annual basis. For details, refer to:
https://
www.morganstanley.com/about-us-
governance/code-of-conduct
.
An annual risk assessment is performed to
consider key areas of potential corruption risk.
Anti-corruption training is provided to all staff
globally on an annual basis and targeted
training
is
additionally
conducted
as
necessary.
In
2024,
all
eligible
Group
employees have completed corresponding
annual training on financial crimes risk.
Morgan
Stanley
Group
maintains
whistleblowing policies and procedures to
ensure that individuals can confidentially
report
concerns
when
these
arise.
Management information regarding the anti-
corruption
programme
is
reported
to
appropriate senior management personnel
through
Legal
and
Compliance
Division
governance frameworks.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
38
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Stakeholder Engagement
and Section 172(1)
Statement
Directors of the Company are required to act in a
way that they consider, in good faith, to be most
likely to promote the success of the Company for
the benefit of its members as a whole, and in so
doing have regard, among other matters, to:
•
the likely consequences of any decision in the
long term;
•
the interests of the Company’s employees;
•
the need to foster the Company’s business
relationships with suppliers, customers and
others;
•
the impact of the Company’s operations on
the community and the environment;
•
the desirability of the Company maintaining a
reputation for high standards of business
conduct; and
•
the need to act fairly as between members of
the Company.
To assist them in discharging their duty under
s172 Companies Act 2006, Directors undertake a
number of stakeholder engagement activities to
provide them with the information they need to
understand
the
views
and
interests
of
stakeholders. This information helps Directors to
have regard to stakeholder interests, and the
likely long term consequences, including to the
reputation
of
the
Company,
when
making
decisions and setting strategy. The Company’s
key stakeholders were considered in 2024, and
are listed below with examples of the stakeholder
engagement activities that took place in 2024.
Employees
During
2024,
Director
engagement
with
employees was enhanced under the stewardship
of one of the Non-Executive Directors.
Directors
continued a programme of “open door” sessions
at which employees were encouraged to ask
questions about the Company’s business, its
strategy, performance, current initiatives and the
role of the Board, and Directors participated in
round tables with employees and diversity and
inclusion
events.
Employees
attended
MSI
NomCo meetings to report on diversity and
inclusion
initiatives
within
the
MSI
Group,
including the findings of the social mobility
survey, and the Board received regular updates
on employee initiatives. The Board continued to
focus on employee culture and conduct through
regular reports to the MSI Audit Committee and
Board which informed management actions for
the year. For more information on employees,
diversity and inclusion, and culture, refer to the
ESG Report -
‘Social Information’ section.
Suppliers
Reporting on the Morgan Stanley Modern
Slavery Act Statement provided the Board with
insights into how supplier relationships are
managed.
Clients
Throughout the year, the Board received focused
reports from the heads of each Business Unit
including a deep dive on the competitive
landscape for their business and the plans in
place to respond to client demands. Business
Unit heads also provided regular updates on
performance and client focus areas which gave
the Board insight into client issues and concerns.
The
Board
considered
the
geopolitical
environment and its impact on clients and the
markets. The Board continued to oversee the
Company’s compliance with the FCA’s Consumer
Duty
Principles,
including
approval
of
the
Company’s first annual Consumer Duty report.
Community and Environment
The Morgan Stanley Group is committed to
giving back to the communities in which it
operates. The Board receives updates on
sustainability initiatives taking place in EMEA.
Refer to the following sections of the ESG Report
for more information: (i) Morgan Stanley’s
community initiatives see the ‘Supporting Our
Communities’
section;
(ii)
Morgan
Stanley
Group’s and the MSI Group’s approach to
Climate Risk and sustainability initiatives see the
‘ Environmental Information'’ section;
and (iii)
climate-related matters considered by the MSI
Board and the Company (see ‘ESG Governance’
section).
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
39
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Regulators
In 2024, the Board considered regulatory focus
areas at each of its meetings and the Board
continued its open and ongoing dialogue with the
Company’s
regulators,
including
through
meetings with the Chair and CEO. In addition,
individual Directors engage regularly with the
Company’s
regulators
through
Continuous
Assessment
and
Proactive
Engagement
meetings.
Investors
The Company is a wholly owned subsidiary of
Morgan Stanley. A number of Executive Directors
on the Board are members of Morgan Stanley
Group management committees and are able to
provide the Board with insights on Morgan
Stanley’s views and priorities. The Chair of the
MSI Audit Committee is also a member of the
Morgan Stanley Board. Further insight into the
views of Morgan Stanley and its shareholders
are
obtained
through
regular
interactions
between certain of the Company’s Directors and
the Morgan Stanley non-executive directors,
including the Chairs of the Morgan Stanley Audit
and Risk Committees.
Making Decisions
When making decisions, the Board considers the
insights obtained through relevant stakeholder
engagement activities as well as the need to
maintain a reputation for high standards of
business
conduct
and
the
long
term
consequences of its decisions. In 2024 the Board
approved
a number of annual items, including
the Business Plan, the Company’s 2023 ICAAP.
the MSI Group’s 2024 ILAAP and the annual
Consumer Duty report.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
40
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Corporate Governance
Corporate Governance
Framework
The Company seeks to align with best practice
guidance
on
the
corporate
governance
of
financial institutions. While it has chosen not to
formally
adopt
an
additional
corporate
governance code, the corporate governance
arrangements in place for the Company are
described
below
and
are
materially
in
accordance with the framework set out in the
Wates Corporate Governance Principles. As a
financial services firm, the Company applies
regulatory requirements set out by the PRA and
FCA when determining its corporate governance
arrangements.
Purpose
The Company’s purpose is to deliver the strategy
of the Morgan Stanley Group in the markets and
communities in which it operates and to its global
client base.
Our Strategy
What we do
- Advise, originate, trade, manage
and
distribute
capital
for
governments,
institutions and individuals, and always do so
with a standard of excellence.
How we do it
- Execute in a way that is
consistent with our values and, whenever
possible, deliver more than one part of the
Morgan Stanley Group.
With what result
- Deliver strong returns for our
shareholders, build long-term value for our
clients
and
offer
highly
attractive
career
opportunities for our employees.
Board Composition
At 31 December 2024, the Board comprised 14
Directors (8 Executive Directors and 6 Non-
Executive Directors). The list below provides an
overview of the Board. In line with corporate
governance best practice, the roles of Chair and
CEO are held by different people.
Non- Executives
•
David Cannon
1
: Chair
•
Megan Butler: Chair of MSI Audit
Committee
•
Terri Duhon: Chair of MSI Risk
Committee
•
Jane Pearce
•
Melanie Richards
•
Paul Taylor
Executives
•
Clare Woodman: EMEA Chief Executive
Officer
•
Anthony Mullineaux: EMEA Chief
Financial Officer
•
Arya Sekhar: EMEA Chief Risk Officer
•
Christopher Beatty: EMEA Chief
Operating Officer
•
David Cantillon: EMEA Head of
Institutional Equities Division
•
Kim Lazaroo: EMEA Chief Administration
Officer
•
Salvatore Orlacchio: EMEA Head of
Fixed Income Division
•
Noreen Whyte: Global Head Loan
Solutions & Securitisation Group
1.
Jonathan Bloomer, Chair, passed away on 19 August 2024. With
effect from 19 September 2024, David Cannon was appointed
acting Chair of the Company and the MSI Nomination &
Governance and Remuneration Committees, and as Chair with
effect from 17 December 2024.
The size, structure and composition of the Board
is reviewed to ensure it remains appropriate and
promotes effective decision making. The NomCo,
led by the Chair, considers the balance of skills
and
experience
on
the
Board,
with
recommendations made to the Board as needed.
Having
a
diverse
range
of
approaches,
backgrounds, skills, experience, opinions and
views on the Board is important. To promote this
the Board has a Board Diversity policy in place
which is reviewed annually and includes a target
of at least 40% female representation on the
Board by 2025. As at 31 December 2024, 50% of
the Board was female. The policy also includes a
target of a minimum of one Board director from
an ethnically diverse background, which the
Board currently meets. The targets set out in the
policy are in line with industry targets for diversity
and inclusion.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
41
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
New appointments to the Board are reviewed by
the NomCo prior to recommendation to the
Board for approval. The NomCo will consider a
number of factors when deciding on a new
appointment including, but not limited to, a
candidate’s: skills, experience, demographics,
ethnicity, gender and geographical experience;
honesty, integrity and independence of mind;
time commitment; and collective fit with the
Board and the Morgan Stanley core values.
When new Directors are appointed to the Board,
they receive a tailored induction programme
designed to give them a broad understanding of
the Company, its business and governance and
risk
management
frameworks
and
an
understanding of their regulatory and legal
responsibilities.
To
keep
their
skills
and
knowledge up to date, the Board receives
training sessions on key topics. Non-Executive
Directors receive additional briefings from senior
management, attend site visits to ensure they
continue to have the skills and knowledge
needed to fulfil their role and Directors continued
a programme of “open door sessions” throughout
2024. For more information see the ‘Employees’
section of the ‘Stakeholder Engagement and
Section 172(1) Statement’ section.
The Board reviews its effectiveness annually
using either an internal or externally facilitated
assessment. In 2024 an internal assessment was
facilitated by Company Secretarial. Directors also
receive
individual
annual
performance
assessments
to
assist
with
their
personal
development.
Director Responsibilities
The Board and each Director have a clear
understanding of their responsibilities. These are
set out in the matters reserved to the Board and
the terms of reference for each of the MSI Board
Committees and the role profile provided to each
director on appointment, and are reviewed
periodically.
The Company is a wholly owned subsidiary of
MSI.
The MSI Board has established Board
Committees to assist it, and a number of its
regulated subsidiaries, in performing their duties.
The MSI Board is assisted in discharging its
responsibilities via the MSI Audit Committee,
Risk Committee, Remuneration Committee, and
NomCo. The Board Committees are described
below in the ‘MSI Board Committee Structure
and EMEA Executive Management Structure’
section.
In 2024 the Board met 7 times and received
regular
reporting
on
key
aspects
of
the
Company’s
business,
including
performance
against
KPIs,
financial
performance,
risk
management information and updates on market
conditions and the regulatory environment. The
MSI Risk Committee and MSI Audit Committee
meet
at
least
quarterly
and
the
MSI
Remuneration Committee and NomCo meet at
least twice a year to receive reports on key
matters within their remit.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
42
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
MSI Board Committee Structure and EMEA Executive Management Structure
Board Committees
The MSI Risk Committee assists the Board on
the management of financial and non-financial
risks, including (i) risk strategy and appetite; (ii)
risk identification and management; (iii) risk
framework and policies; (iv) measurement of risk
against tolerance and limits; (v) risk culture (save
for conduct risk, which is overseen by the MSI
Audit
Committee);
(vi)
financial
resource
management and capital; and (vii) recovery and
resolution.
The MSI Audit Committee assists the Board in
monitoring: (i) financial reporting; (ii) internal
controls; (iii) legal and regulatory compliance
(including Client Assets Sourcebook (“CASS”)
requirements) and certain non-financial risks
(including Compliance, Conduct, Financial Crime
and Operational Risk); (iv) internal audit; (v)
external
auditors;
and
(vi)
recovery
and
resolution planning.
The MSI Remuneration Committee assists the
Board in (i) overseeing the implementation of
remuneration policies and practices applicable to
the Company (as a member of the MSI Group)
and (ii) overseeing compliance by the Company
with applicable EU and UK remuneration rules,
statements and guidance.
The NomCo assists the Board in (i) the
recruitment of Board members; (ii) assessment
of the performance of the Board and (iii) the MSI
Group corporate governance framework (as it
applies to the Company).
Each MSI Board Committee is comprised solely
of
independent
Non-Executive
Directors
appointed
to
provide
robust
and
effective
challenge of the matters within its remit.
Processes are in place to manage conflicts of
interest, should they arise.
EMEA Executive and Management
Committees
Day to day management of the Company’s
business is delegated to key EMEA Executive
Committees,
namely
the
EMEA
Operating
Committee, the EMEA Remuneration Oversight
Committee, and the EMEA Risk Committee.
These Executive Committees are the most senior
MSI Group executive management committees
and have responsibility for overseeing business
performance, operations and risks identified in
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
43
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
relation to the MSI Group. The Executive
Committees are supported in their oversight of
specific areas of the MSI Group’s activities by a
number of management committees.
Executive Committees
The
EMEA Operating Committee
(“
EOC
”) is the
principal forum for key decisions regarding
matters affecting the operations and performance
of the MSI Group in accordance with the strategy
approved by the MSI Board. The Committee’s
responsibilities include matters relating to: (i)
strategy; (ii) financial and business performance;
(iii) risk and control; (iv) operational, legal and
regulatory matters; and (v) human resources.
The
EMEA
Remuneration
Oversight
Committee
provides executive oversight of
EMEA remuneration matters and helps to ensure
remuneration practices in EMEA are compliant
with relevant UK and EU legislation and do not
incentivise excessive risk taking.
The
EMEA Risk Committee
(“
ERC
”) assists in
the oversight of the management of risk
(including financial and non-financial risks) within
the
MSI
Group.
The
Committee
provides
oversight of: (i) risk strategy and appetite; (ii) risk
framework and policies; (iii) risk identification and
management; (iv) risk culture; and (v) financial
resource management and capital.
Management-level Committees
The
EMEA Asset and Liability Committee
assists the ERC to oversee the capital adequacy,
funding, and liquidity risk management of the
MSI Group.
The
Client Assets Governance Committee
provides governance over Morgan Stanley’s
approach to ensuring compliance and adherence
to the relevant rules covering the arranging of
and / or the safeguarding, including holding, of
client financial instruments and client money in
respect of relevant entities in the MSI Group.
The
EMEA Electronic Trading Governance
Committee
is established by the ERC to review
and
challenge
controls
applicable
to
the
electronic trading business undertaken by the
MSI Group.
The
EMEA ESG Committee
supports the MSI
Group in the development, governance and
oversight of the incorporation of environmental,
social and governance risks, impacts and
opportunities into risk management, business
processes and strategy in EMEA.
The
EMEA Franchise Committee
assists in the
oversight of potentially significant reputational or
franchise risks in connection with relevant
transactions, activities, or clients in EMEA.
The
EMEA Non-Financial Risk Committee
assists and provides guidance to the ERC in
relation to the oversight of the management of
non-financial risk of the MSI Group.
The
EMEA Product Committee
assists the ERC
in discharging its responsibilities for the oversight
of approvals of New Products, and the oversight
of Product Governance.
The
EMEA
Public
Disclosure
Review
Committee
provides governance and oversight
over publicly disclosed information relating to
Morgan Stanley’s EMEA business.
The
EMEA Regulatory Oversight Steering
Committee
provides oversight of (1) deliverables
due in response to findings of or requests from
the FCA and PRA, (2) initiatives to address
regulatory priorities and expectations, and (3)
MSI Group strategic initiatives.
The
EMEA
Recovery
and
Resolution
Planning, Operational Resilience, and Third
Party Stakeholder Committee
is responsible for
overseeing the policies and procedures relating
to
Recovery
and
Resolution
Planning,
Operational Resilience, and Third Party risk
across EMEA.
Strategy and Risk
The Board sets the Company strategy, which
implements the Global Morgan Stanley Strategy
as it applies to the Company’s business and is
aligned to the Company’s RAS. The Board, with
assistance
from
the
MSI
Risk
and Audit
Committees, reviews performance against the
strategy and risk appetite (including compliance
with the risk management framework, risk
tolerances and risk limits) at its meetings
throughout the year. The Board holds an annual
strategy day to consider long term strategic
opportunities
and
risks
for
the
business.
Significant changes in strategy or risk appetite,
including material changes to the Company’s
business,
require
Board
consideration
and
approval to ensure they are in the long-term
interests of the Company and to consider the
impact on key stakeholders. The Board is
supported in its monitoring of financial and non-
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
44
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
financial risk by the MSI Risk and Audit
Committees. The ERC is responsible for the
oversight of the day to day management of the
Company’s financial and non-financial risks.
Further information on the risk management
framework applicable to the Company’s business
is provided in the ‘Risk Management’ section of
the Strategic Report.
Remuneration
The Company, as a wholly owned subsidiary of
Morgan Stanley, is subject to Global Morgan
Stanley Remuneration Policies and Procedures
which determine the remuneration paid to
Company employees. Morgan Stanley has a pay
for performance philosophy and is committed to
responsible compensation programs with the
following key objectives, all of which support
Morgan
Stanley’s
culture
and
values
and
shareholders’
interests:
deliver
pay
for
sustainable performance; align compensation
with shareholders’ interests; attract and retain top
talent; and mitigate excessive risk-taking. The
Board has delegated responsibility to the MSI
Remuneration
Committee
to
oversee
the
implementation of those policies and procedures
to
the
Company’s
business
and
oversee
compliance by the Company with applicable EU
and UK remuneration rules, statements and
guidance.
Further information on the link between the
culture, values and conduct of employees and
their remuneration is provided in the ‘Risk
Culture’
section
of
Risk
Management.
Information about compliance with the Capital
Requirements Directive (“CRD V”), the FCA
Remuneration Code for dual-regulated firms
(“SYSC
19D”),
the
PRA
Rulebook:
Remuneration, and any guidelines or guidance
related to these provisions is included in MSI’s
annual CRR 450 remuneration disclosure.
Approved by the Board and signed on its behalf
by
A Mullineaux
Director
4 April 2025
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
45
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
The
Directors
present
their
report
and
consolidated financial statements of the Group
and Company, which comprise the consolidated
income statement, consolidated statement of
comprehensive income, consolidated statement
of changes in equity, consolidated statement of
financial position, consolidated statement of cash
flows, together with the Company’s statement of
changes in equity, statement of financial position
and the Group and Company related notes 1 to
34 and the appendix to the financial statements
for the year ended 31 December 2024.
Results and Dividends
The Group’s profit for the year, after tax, was
$1,425 million (2023: $1,049 million).
In accordance with the Company’s dividend
policy, the Board approved and paid the 2023
final dividend on 18 April 2024 of $180 million
($0.014
per
ordinary
share)
and
on
19
September 2024, paid a dividend of $345 million
($0.028 per ordinary share) to Morgan Stanley
Investments (UK) (“MSIUK”). Refer to note 22 for
details on the dividend policy. On 3 April 2025,
the Board approved the 2024 final dividend of
$160 million ($0.013 per ordinary share).
In addition, on 19 September 2024, the Board
approved and paid an extraordinary dividend of
$500 million ($0.040 per ordinary share) to
MSIUK.
The Company paid the following dividends on 2
December 2024 (see ‘Dividends’ note 22):
•
Coupon payment on the $1,300 million AT1
capital instrument of $71 million (2023: $71
million);
•
Coupon payment on the $2,200 million AT1
capital instrument of $165 million (2023: $165
million); and
•
Coupon payment on the $800 million AT1
capital instrument of $59 million (2023: $87
million);
Regulation, Risk Management,
Branches and Future
Developments
Information
regarding
regulation,
risk
management, branches and future developments
has been included in the Strategic Report.
Corporate Governance
Arrangements
Information
on
the
Corporate
Governance
Arrangements for the Company has been
included within the Strategic Report.
Energy and Carbon Reporting
Information on the Company’s UK energy and
carbon reporting has been included in the
Strategic Report within the ‘ESG Report’ section.
Employees
Both the Company and the Morgan Stanley
Group
place
considerable
value
on
the
investment
in
their
employees
and
have
continued their practice of keeping employees
informed on matters affecting them.
Employees
are encouraged to present their suggestions and
views
on
the
Morgan
Stanley
Group’s
performance to management and employees
participate directly in the success of the business
through the Morgan Stanley Group’s various
compensation incentive plans.
Every effort is also made to ensure that disabled
applicants, or those existing employees who are
disabled or may have become disabled, are
treated as fairly as possible on terms comparable
with those of other employees. Appropriate
training
is
arranged
for
disabled
persons,
including retraining for alternative work for
employees who become disabled, to promote
their career development within the organisation.
Employee Remuneration
The Group employs staff directly, in addition to
utilising staff employed by other Morgan Stanley
Group undertakings. The Group’s policies are
comparable and consistent with those of the
Morgan Stanley Group, which include the
deferral of significant portions of certain key
employees’ discretionary compensation. Notes 7
and 32 to the consolidated financial statements
provide additional information and disclosure
regarding the Group’s compensation policies.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
DIRECTORS’ REPORT
46
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Stakeholder Relationships and
Engagement
Details of engagement activities undertaken by
the Board in 2024 with suppliers, clients and
other stakeholders and how they inform decision
making are provided in the ‘S172(1) Statement’
section in the Strategic Report.
Pillar
3
Disclosures
and
Country-by-Country Reporting
The Company is included in the MSI Group Pillar
3 disclosures, which allow investors and other
market
participants
to
understand
capital
adequacy, particularly risk exposures and risk
management
processes
of
individual
firms
required by the EU implementation of Basel
capital standards.
The Company is also included in the MSI
consolidated disclosure to comply with the
provisions of Statutory Instrument 2013 No. 3118
Capital
Requirements
(Country-by-Country
Reporting) Regulations 2013, which implements
in the UK the requirements set out in Article 89 of
the Capital Requirement Directive (Directive
2013/36/EU). The Pillar 3 disclosures and the
Country-by-Country Reporting for the MSI Group
for the year ended 31 December 2024 will be
made available on the Morgan Stanley website at
https://www.morganstanley.com/investorrelations
Directors
The following Directors held office throughout the
year and to the date of approval of this report
(except where otherwise shown):
D Cannon
(Appointed as acting Chair on
19 September 2024 and as
Chair on 17 December 2024)
C Beatty
J Bloomer
(Ceased to be a director on 19
August 2024)
M Butler
D Cantillon
T Duhon
K Lazaroo
A Mullineaux
S Orlacchio
J Pearce
M Richards
A Sekhar
P Taylor
N Whyte
C Woodman
Directors’ and Officers’ Liability
Insurance
Directors’ and Officers’ Liability Insurance is
taken out by Morgan Stanley, for the benefit of
the Directors and Officers of the Group.
Directors’ Indemnity
Qualifying third party indemnity provisions (as
defined in section 234 of the Companies Act
2006) were in force during the year and up to
and including the date of the Directors’ report for
the benefit of the Directors of the Group.
Audit Committee
MSI,
the
Company’s
ultimate
UK
parent
undertaking, has appointed the MSI Audit
Committee to assist and provide guidance to the
Boards of MSI, the Company, other MSI
regulated subsidiary undertakings and certain
other Morgan Stanley Group undertakings in
monitoring, among other things, internal controls,
compliance, and external financial reporting
obligations. For details on the Risk governance
framework,
refer
to
‘Risk
Management
Framework’ within the Strategic Report.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
DIRECTORS’ REPORT
47
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Going Concern
Business risks associated with the uncertain
market and economic conditions are being
actively monitored and managed by the Group.
Retaining sufficient capital and liquidity to
withstand
these
market
pressures
remains
central to the Group’s strategy. In particular, the
Group’s capital and liquidity is deemed sufficient
to exceed regulatory minimums under both a
normal and in a stressed market environment.
The effect of relevant macroeconomic scenarios
on the business of the Group have been
considered as part of the going concern analysis,
including impact on operational capacity, access
to capital and liquidity, contractual obligations,
asset valuations and other critical accounting
judgements and key sources of estimation
uncertainty. The Group has access to further
Morgan Stanley Group capital and liquidity as
required.
Taking all of these factors into consideration, the
Directors believe it is reasonable to assume that
the
Group
will
have
access
to
adequate
resources to continue in operational existence for
the foreseeable future being at least 12 months
from the date of approval of these financial
statements. Accordingly, they continue to adopt
the going concern basis in preparing the annual
reports and financial statements.
Auditor
Deloitte LLP have expressed their willingness to
continue in office as auditor of the Group and
their re-appointment was approved by the MSI
Board on 18 April 2024.
Statement as to Disclosure of
Information to the Auditor
Each of the persons who are Directors of the
Company at the date when this report is
approved confirms that:
•
so far as each of the Directors is aware, there
is
no
relevant
audit
information
(being
information needed by the Group’s auditor in
connection with preparing their report) of
which the Group's auditor is unaware; and
•
each of the Directors has taken all the steps
that they ought to have taken as a Director to
make themselves aware of any relevant audit
information and to establish that the Group’s
auditor is aware of that information.
This confirmation is given and should be
interpreted in accordance with the provisions of
section 418 of the Companies Act 2006.
Approved by the Board and signed on its behalf
by
A Mullineaux
Director
4 April 2025
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
DIRECTORS’ REPORT
48
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Directors’ Responsibilities
Statement
The Directors are responsible for preparing the
annual report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year.
Under that law the Directors have prepared the
Group financial statements in accordance with
UK-adopted International Accounting Standards,
International
Financial
Reporting
Standards
(“IFRS”) as adopted by the EU and Article 4 of
the International Accounting Standards (“IAS”)
Regulation and have elected to prepare the
parent
company
financial
statements
in
accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom
Accounting
Standards
and
applicable
law),
including
FRS
101
“
Reduced
Disclosure
Framework
” (“FRS 101”).
Under company law
the Directors must not approve the accounts
unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and
of the profit or loss of the Group for that period.
In preparing the Group financial statements, the
Directors are required by IAS 1
‘Presentation of
financial statements’
to:
•
properly select and apply accounting policies;
•
present
information,
including
accounting
policies, in a manner that provides relevant,
reliable,
comparable
and
understandable
information;
•
provide
additional
disclosures
when
compliance with the specific requirements in
IFRSs is insufficient to enable users to
understand
the
impact
of
particular
transactions, other events and conditions on
the entity’s financial position and financial
performance; and
•
make an assessment of the Group’s ability to
continue as a going concern.
In preparing the Company financial statements,
the Directors are also required to:
•
select suitable accounting policies and then
apply them consistently;
•
make judgements and accounting estimates
that are reasonable and prudent;
•
state whether applicable UK accounting
standards have been followed; and
•
prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the Company will continue in
business.
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Group’s transactions
and disclose with reasonable accuracy at any
time the financial position of the Group and
enable
them
to
ensure
that
the
financial
statements comply with the Companies Act 2006.
They are also responsible for safeguarding the
assets of the Group and hence for taking
reasonable
steps
for
the
prevention
and
detection of fraud and other irregularities.
The
Directors
are
responsible
for
the
maintenance and integrity of the corporate and
financial information included on the company’s
website. Legislation in the United Kingdom
governing the preparation and dissemination of
financial statements may differ from legislation in
other jurisdictions.
The Directors are responsible for preparing and
filing the consolidated financial statements of the
Group in compliance with the European Single
Electronic Format Regulation (EU) 2019/815
(“ESEF Regulation”) with the relevant member
state
regulator’s
storage
mechanism.
In
preparing the Group financial statements in
compliance with ESEF Regulation, the Directors
are required to:
•
prepare the Group financial statements in a
valid xHTML format; and
•
apply iXBRL markup of the Group financial
statements using the core taxonomy and the
common rules on markups specified in the
ESEF Regulation.
The Directors confirm to the best of their
knowledge:
•
in accordance with Article 3.2(c) of the
Luxembourg
Law
on
Transparency
Requirements for Issuers of 11 January 2008,
as amended (“Luxembourg Transparency
Law”), the consolidated financial statements,
which have been prepared in accordance with
UK-adopted
International
Accounting
Standards, IFRSs as adopted by the EU and
in compliance with the ESEF Regulation,
have been prepared in accordance with the
applicable set of accounting standards and
give a true and fair view of the assets,
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
DIRECTORS’ REPORT
49
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
liabilities, financial position and profit or loss
of the Group and the undertakings included in
the consolidation taken as a whole; and
•
the management report represented by the
Strategic Report has been prepared in
accordance with Article 3.2(c) of Luxembourg
Transparency Law, and includes a fair review
of the development and performance of the
business and the position of the Group and
the undertakings included in the consolidation
taken as a whole, together with a description
of the principal risks and uncertainties that the
Group faces.
Approved by the Board and signed on its behalf
by
A Mullineaux
Director
4 April 2025
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
DIRECTORS’ REPORT
50
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Report on the Audit of the Financial Statements
Opinion
In our opinion:
•
the financial statements of Morgan Stanley &
Co. International plc (the “parent company”)
and its subsidiaries (the “Group”) give a true
and fair view of the state of the Group’s and of
the
parent
company’s
affairs
as
at
31 December 2024 and of the Group’s profit
for the year then ended;
•
the Group financial statements have been
properly prepared in accordance with United
Kingdom adopted international accounting
standards, and IFRSs as adopted by the EU;
•
the parent company financial statements have
been properly prepared in accordance with
United
Kingdom
Generally
Accepted
Accounting
Practice,
including
Financial
Reporting Standard (“FRS”) 101 “Reduced
Disclosure Framework”; and
•
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements which
comprise:
Group
Parent
company
•
Consolidated income
statement;
•
Consolidated statement of
comprehensive income;
•
Consolidated statement of
changes in equity;
•
Consolidated statement of
financial position; and
•
Consolidated statement of
cash flows.
•
Statement
of changes
in equity;
and
•
Statement
of financial
position.
Group and Parent Company
•
Relevant notes 1 – 34
to the financial
statements.
The financial reporting framework that has been
applied in the preparation of the Group financial
statements is applicable law, United Kingdom
adopted international accounting standards, and
IFRSs as adopted by the EU.
The financial reporting framework that has been
applied in the preparation of the parent company
financial statements is applicable law and United
Kingdom Accounting Standards, including FRS
101 “Reduced Disclosure Framework” (United
Kingdom
Generally
Accepted
Accounting
Practice)
.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law. Our responsibilities
under those standards are further described in
the auditor’s responsibilities for the audit of the
financial statements section of our report.
We are independent of the Group and the parent
company
in
accordance
with
the
ethical
requirements that are relevant to our audit of the
financial statements in the UK, including the
Financial Reporting Council’s (the “FRC’s”)
Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities
in accordance with these requirements. The non-
audit services provided to the Group and parent
company for the year are disclosed in note 7 to
the financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a
basis for our opinion.
Summary of our audit approach
Key audit matter
The key audit matter that we identified in the
current year was:
•
Valuation of Level 3 financial instruments
Materiality
The materiality that we used for the Group
financial statements in the current year was
$212.5 million, which was determined on the
basis of 0.9% of total equity.
Table of contents
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN STANLEY & CO.
INTERNATIONAL plc
51
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Scoping
The planning and scoping of our audit consider
the Group’s business, organisational structure
and
global
operating
model.
This
model
comprises a common control structure for key
business processes and internal controls over
financial reporting.
Based on this global operating model, our audit
scope is globally integrated with various audit
procedures performed by our component auditor,
Deloitte & Touche LLP, USA, the lead auditor of
the ultimate parent company, Morgan Stanley.
Significant changes in our approach
There are no significant changes in our approach
as compared to the prior year.
Conclusions relating to going
concern
In auditing the financial statements, we have
concluded that the Directors’ use of the going
concern basis of accounting in the preparation of
the financial statements is appropriate.
Our evaluation of the Directors’ assessment of
the Group’s and parent company’s ability to
continue to adopt the going concern basis of
accounting included understanding the current
and forecast profitability of the entity, the
historical accuracy of the forecasts and the
capital and liquidity position relative to minimum
regulatory requirements, under base and stress
forecasts, over the lookout period, being a period
of at least twelve months from when the financial
statements are authorised for issue.
Based on the work we have performed, we have
not identified any material uncertainties relating
to events or conditions that, individually or
collectively, may cast significant doubt on the
Group's and parent company’s ability to continue
as a going concern for a period of at least twelve
months from when the financial statements are
authorised for issue.
Our responsibilities and the responsibilities of the
Directors with respect to going concern are
described in the relevant sections of this report.
Key audit matters
Key audit matters are those matters that, in our
professional
judgement,
were
of
most
significance
in
our
audit
of
the
financial
statements of the current period and include the
most significant assessed risks of material
misstatement (whether or not due to fraud) that
we identified. These matters included those
which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit;
and directing the efforts of the engagement team.
This matter was addressed in the context of our
audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not
provide a separate opinion on this matter.
Valuation of Level 3 financial
instruments
Relevant references in the financial
statements
Group financial statements:
•
Note 2 – Basis of Preparation – (e) Critical
accounting judgements and key sources of
estimation uncertainty
•
Note 3 – Summary of material accounting
policies
– (d) Fair value
•
Note 30 – Financial instruments measured at
fair value – (a) (c) (d) (e)
Key audit matter description
As at 31 December 2024, the Group and parent
company’s total financial assets and liabilities
measured at fair value were each $486 billion
(2023: $458 billion) and $402 billion (2023: $352
billion), respectively, of which Level 3 financial
assets and liabilities were $3.8 billion (2023: $4.9
billion) and $2.8 billion (2023: $2.9 billion),
respectively.
The Group and parent company’s trading and
financing activities result in the Group and parent
company carrying material financial instruments
for which the fair value is derived using
significant unobservable inputs. Under IFRS 13
Fair
Value
Measurement
,
such
financial
instruments are classified as Level 3 financial
assets or liabilities.
Unlike financial instruments whose inputs are
readily observable and, therefore, more easily
independently corroborated, the valuation of
financial instruments classified as Level 3 are
Table of contents
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN STANLEY & CO.
INTERNATIONAL plc
52
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
inherently subjective, and often involve the use of
inputs and proprietary valuation models whose
underlying
algorithms
and
valuation
methodologies are complex. This degree of
subjectivity may also give rise to potential fraud
through management intentionally manipulating
fair values or incorporating management bias in
determining fair values. Auditing the Group and
parent company’s valuation of Level 3 financial
instruments is therefore subjective and presents
certain
challenges
in
evaluating
the
appropriateness
of
the
Group
and
parent
company’s valuation judgements and estimates.
Significant judgements made by the Group and
parent company include the derivation of key
model inputs which are not observable and the
underlying valuation methodologies used by the
pricing model to determine an appropriate fair
value. Performing our audit procedures to
evaluate the appropriateness of these models
and inputs involved a high degree of auditor
judgement, professionals with specialised skills
and knowledge, and an increased extent of
testing.
How the scope of our audit
responded to the key audit
matter
To address the complexities associated with
auditing the valuation of Level 3 financial
instruments, our team included internal valuation
specialists who have significant valuation and
modelling
expertise.
Our
valuation
audit
procedures included the following procedures:
•
Testing the Group and parent company’s
internal controls that address the risk of errors
and the risk of fraud in the fair value
estimates.
This
includes
model
review
controls and independent price verification
controls.
Management
maintains
these
internal
controls
to
assess
the
appropriateness
of
its
valuation
methodologies and the relevant inputs and
assumptions used to determine fair value
estimates.
•
On a sample basis, in line with our audit
methodology, to address the risk of errors and
the risk of fraud we:
–
Evaluated
the
Group
and
parent
company’s
significant
valuation
methodologies,
including
the
input
assumptions, considering our observations
of assumptions made by other market
participants
and
external
data
when
available.
–
With the involvement of the internal
valuation
specialists
we
developed
independent fair value estimates for Level
3 financial instruments, using externally
sourced inputs and independent valuation
models, to the extent possible, compared
the resulting fair values to those recorded
by the Group and the parent company and
assessed the differences against pre-
determined thresholds.
–
Tested the revenues arising from the trade
date fair value estimates for selected
structured transactions classified as Level
3
financial
instruments,
with
the
involvement
of
internal
valuation
specialists using externally sourced inputs
and independent valuation models, to the
extent possible, and assessed differences
to those recorded by the Group and the
parent company against pre-determined
thresholds.
–
Assessed the consistency with which
management has applied significant and
unobservable valuation assumptions used
in developing fair value estimates, across
similar transactions.
–
Performed a retrospective assessment of
management’s fair value estimates for
certain of our selected Level 3 financial
instruments, for which there were events
or
transactions
occurring
after
the
valuation date. We did so by comparing
management’s estimates to the relevant
evidence provided by such events or
transactions, as applicable.
•
Assessed
the
appropriateness
of
the
disclosures related to Level 3 financial
instruments in the financial statements.
Key observations
As a result of our audit procedures, we
concluded with reasonable assurance that the
valuation of Level 3 financial instruments was not
materially misstated.
Our application of materiality
We define materiality as the magnitude of
misstatement in the financial statements that
makes it probable that the economic decisions of
a reasonably knowledgeable person would be
Table of contents
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN STANLEY & CO.
INTERNATIONAL plc
53
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
changed or influenced. We use materiality both
in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we
determined
materiality
for
the
financial
statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
$212.5 million (2023: $176 million)
$210.4 million (2023: $174 million)
Basis for
determining
materiality
The Group materiality of $212.5 million
represents 0.90% (2023: 0.75%) of total
equity
The
parent
company
materiality
of
$210.4 million represents 0.90% (2023:
0.75%) of total equity
Rationale for
the benchmark
applied
We have considered total equity to be
the most appropriate benchmark as the
Group is wholly owned by the ultimate
parent entity Morgan Stanley and is a
regulated entity, therefore its total equity
position is of importance to the key users
of the Group and company’s financial
statements. These key users include
regulators, counterparties, external rating
agencies and the ultimate parent entity.
We considered it appropriate to maintain
the same benchmark as that for the
Group as the parent company is the
most significant member of the Group
and its solo capital position is of
importance to the key users of the
financial statements who are common
with those for the Group.
Performance
materiality
Group performance materiality and parent company performance materiality was
set at 70% of Group materiality for the 2024 audit (2023: 70%).
Basis and
rationale for
determining
performance
materiality
We set performance materiality at a level lower than materiality to reduce the
probability that, in aggregate, uncorrected and undetected misstatements exceed
the materiality for the financial statements as a whole.
In determining performance materiality, we considered the following factors:
–
our risk assessment, including our assessment of the Group’s overall
control environment and that we consider it appropriate to rely on controls
over a number of
business processes;
–
ability of the Group to detect misstatements; and
–
our past experience of the audit, which has indicated a low number of
corrected and uncorrected misstatements identified in prior periods.
Error reporting threshold
We agreed with the Morgan Stanley International
(“MSI”) Audit Committee that we would report to
the Committee all audit differences in excess of
$10.6 million (2023: $9 million), as well as
differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We
also report to the MSI Audit Committee on
disclosure matters that we identified when
assessing the overall presentation of the financial
statements.
An overview of the scope of our
audit
Identification and scoping of
components
Morgan Stanley is a globally managed business
with a global operating model in which major
classes of transactions are subject to a common
control processing environment irrespective of
product, region or legal entity. Our audit plan for
testing significant accounts involved determining
the components at which to perform further audit
procedures. Our identified components were
Table of contents
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN STANLEY & CO.
INTERNATIONAL plc
54
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
consistent with the business segments identified
by Morgan Stanley.
Our audit work focused on
significant
accounts
from
the
Institutional
Securities component of the Group. Given this
global operating model for the Group, we audit
relevant controls, financial reporting processes
and balances utilising significant component
auditors in New York.
We instructed our component auditor, Deloitte &
Touche
LLP,
USA
to
perform
their
audit
procedures at a materiality level of $141 million
(2023: $165 million).
Involvement with component auditor
We exercised oversight over the work of our
component
auditor
by
remaining
in
active
dialogue at regular intervals throughout the
duration of the audit. In person, we attended the
global audit planning meeting in New York,
training sessions which were also attended by
US partners and met with members of global
management.
We
involved
our
component
auditor in our team briefings and issued a set of
instructions setting out the audit work and the
specified audit procedures we requested them to
undertake. We undertook visits to our component
auditor during the interim period and final stages
of our audit, in conjunction with regular remote
meetings and review sessions throughout the
year, to oversee and review the work performed
in support of our audit.
Audit procedures undertaken at the
Group level
We designed our audit approach for the Group
based on our understanding of the business and
our independent assessment of the risks of
material misstatement arising in the financial
statements.
These
procedures
included,
amongst others, auditing the consolidation of the
Group’s results and the preparation of the Group
financial statements as well as obtaining an
understanding and testing of relevant controls
over the financial reporting process.
Our consideration of the control
environment
For certain relevant controls, we tested internal
controls
over
financial
reporting
and
key
business processes where our scoping and risk
assessment determined those controls to be
relevant to the audit and where we intended to
place reliance on those controls. This included
testing
of
general
IT
controls
with
the
involvement of our IT specialists, process level
controls and entity level controls at the Group
level. For certain other relevant controls, we have
obtained an understanding to support our risk
assessment and design our audit procedures.
Our consideration of climate-related
risks
In planning our audit, we have considered the
impact of climate change on the Group’s
operations
and
subsequent
impact
on
its
financial statements. The Group and parent
company set out its assessment of the potential
impact on pages 24 to 36 of the Strategic Report
and in note 26.2.1.2 Credit Evaluation on page
108 of the Annual Report.
We have held discussions with the Group to
understand their:
•
process for identifying affected operations,
including the governance and controls over
this process, and the subsequent effect on
the financial reporting for the Group and
parent company; and
•
long-term strategy to respond to climate
change risks as they evolve including the
effect on the Group and parent company’s
forecasts.
Our audit work has involved:
•
obtaining an understanding of management’s
analysis and data considered in the Group’s
climate risk assessment;
•
performing our own risk assessment of the
potential impact of climate change on the
Group’s account balances and classes of
transactions
and
did
not
identify
any
additional risks of material misstatement; and
•
evaluating the appropriateness of disclosures
included in the financial statements.
As part of our audit procedures, we are required
to read and consider whether climate-related
disclosures in the annual report are materially
consistent with the financial statements and our
knowledge obtained in the audit and we did not
identify any material inconsistencies as a result
of these procedures.
Table of contents
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN STANLEY & CO.
INTERNATIONAL plc
55
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Other information
The other information comprises the information
included in the annual report, other than the
financial statements and our auditor’s report
thereon. The Directors are responsible for the
other information contained within the annual
report.
Our opinion on the financial statements does not
cover the other information and, except to the
extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information
and, in doing so, consider whether the other
information is materially inconsistent with the
financial statements or our knowledge obtained
in the course of the audit or otherwise appears to
be materially misstated.
If we identify such material inconsistencies or
apparent
material
misstatements,
we
are
required to determine whether this gives rise to a
material misstatement in the financial statements
themselves. If, based on the work we have
performed, we conclude that there is a material
misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Responsibilities of Directors
As explained more fully in the Directors’
responsibilities statement, the Directors are
responsible for the preparation of the financial
statements and for being satisfied that they give
a true and fair view, and for such internal control
as the Directors determine is necessary to
enable the preparation of financial statements
that are free from material misstatement, whether
due to fraud or error.
In
preparing
the
financial
statements,
the
Directors are responsible for assessing the
Group’s and the parent company’s ability to
continue as a going concern, disclosing as
applicable, matters related to going concern and
using the going concern basis of accounting
unless the Directors either intend to liquidate the
Group or the parent company or to cease
operations, or have no realistic alternative but to
do so.
The Directors are responsible for preparing the
Group financial statements in compliance with
the requirements set out in the European Single
Electronic Format Regulatory Technical Standard
(“ESEF RTS”).
Auditor’s responsibilities for the
audit of the financial statements
Our
objectives
are
to
obtain
reasonable
assurance
about
whether
the
financial
statements as a whole are free from material
misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will
always detect a material misstatement when it
exists. Misstatements can arise from fraud or
error and are considered material if, individually
or in the aggregate, they could reasonably be
expected to influence the economic decisions of
users taken on the basis of these financial
statements.
A further description of our responsibilities for the
audit of the financial statements is located on the
FRC’s
website
at
www.frc.org.uk/
auditorsresponsibilities
. This description forms
part of our auditor’s report.
Our responsibility is to assess whether the Group
financial statements have been prepared, in all
material respects, with the requirements laid
down in the ESEF RTS.
Extent to which the audit was
considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of
non-compliance with laws and regulations. We
design
procedures
in
line
with
our
responsibilities, outlined above, to detect material
misstatements
in
respect
of
irregularities,
including
fraud. The
extent
to
which
our
procedures
are
capable
of
detecting
irregularities, including fraud is detailed below.
Identifying and assessing potential
risks related to irregularities
In identifying and assessing risks of material
misstatement
in
respect
of
irregularities,
including fraud and non-compliance with laws
and regulations, we considered the following:
•
the nature of the industry and sector, control
environment
and
business
performance
including
the
design
of
the
Group’s
Table of contents
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN STANLEY & CO.
INTERNATIONAL plc
56
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
remuneration
policies,
key
drivers
for
Directors’ remuneration, bonus levels and
performance targets;
•
the Group’s own assessment of the risks that
irregularities may occur either as a result of
fraud or error in the financial statements;
•
results of our enquiries of management, legal
counsel, internal audit, the Directors and the
Audit Committee about their own identification
and assessment of the risks of irregularities,
including those that are specific to the
Group’s sector;
•
any matters we identified having obtained and
reviewed the Group’s documentation of their
policies and procedures relating to:
–
identifying, evaluating and complying with
laws and regulations and whether they
were aware of any instances of non-
compliance;
–
detecting and responding to the risks of
fraud and whether they have knowledge of
any actual, suspected or alleged fraud;
and
–
the internal controls established to mitigate
risks of fraud or non-compliance with laws
and regulations.
•
the matters discussed among the audit
engagement team including the significant
component audit team and relevant internal
specialists,
including
tax,
valuations,
IT
regulatory and fraud specialists regarding
how and where fraud might occur in the
financial
statements
and
any
potential
indicators of fraud.
As a result of these procedures, we considered
the opportunities and incentives that may exist
within the organisation for fraud and identified the
greatest potential for fraud in the following area:
valuation of Level 3 financial instruments. In
common with all audits under ISAs (UK), we are
also required to perform specific procedures to
respond to the risk of management override.
We also obtained an understanding of the legal
and regulatory frameworks that the Group and
parent
company
operate
in,
focusing
on
provisions of those laws and regulations that had
a direct effect on the determination of material
amounts
and
disclosures
in
the
financial
statements.
The key laws and regulations we
considered in this context included the UK
Companies Act 2006, Luxembourg Transparency
Law, Luxembourg 9.8.6R(3) Rules, pensions
legislation and tax legislation.
In addition, we considered provisions of other
laws and regulations that do not have a direct
effect on the financial statements but compliance
with which may be fundamental to the Group’s
ability to operate or to avoid a material penalty.
These included the regulation and supervisory
requirements
of
the
Prudential
Regulation
Authority (“PRA”) and the Financial Conduct
Authority (“FCA”).
Audit response to risks identified
As a result of performing the above, we identified
the valuation of Level 3 financial instruments as a
key audit matter related to the potential risk of
fraud. The key audit matters section of our report
explains the matter in more detail and also
describes the specific procedures we performed
in response to that key audit matter.
In addition to the above, our procedures to
respond to risks identified included the following:
•
reviewing the financial statement disclosures
and testing to supporting documentation to
assess compliance with provisions of relevant
laws and regulations described as having a
direct effect on the financial statements;
•
enquiring of management, Directors, the Audit
Committee and in-house and external legal
counsel concerning actual and potential
litigation and claims;
•
performing analytical procedures to identify
any unusual or unexpected relationships that
may indicate risks of material misstatement
due to fraud;
•
reading minutes of meetings of those charged
with governance, reviewing internal audit
reports and reviewing correspondence with
HMRC
and
other
regulatory
authorities
including the PRA and the FCA; and
•
in addressing the risk of fraud through
management override of controls, testing the
appropriateness of journal entries selected
against specific fraud factors and other
adjustments;
assessing
whether
the
judgements made in making accounting
estimates are indicative of a potential bias;
and evaluating the business rationale of any
significant transactions that are unusual or
outside the normal course of business.
Table of contents
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN STANLEY & CO.
INTERNATIONAL plc
57
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
We also communicated relevant identified laws
and regulations and potential fraud risks to all
engagement team members including internal
specialists and the component audit team and
remained alert to any indications of fraud or non-
compliance with laws and regulations throughout
the audit.
Report on other legal and
regulatory requirements
Opinions on other matters prescribed
by the Companies Act 2006
In our opinion, based on the work undertaken in
the course of the audit:
•
the information given in the Strategic Report
and the Directors’ Report for the financial year
for
which
the
financial
statements
are
prepared is consistent with the financial
statements; and
•
the Strategic Report and the Directors’ Report
have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding
of the Group and the parent company and their
environment obtained in the course of the audit,
we
have
not
identified
any
material
misstatements in the Strategic Report or the
Directors’ Report.
Opinions on other matters prescribed
by the European Single Electronic
Format
Regulatory
Technical
Standard
We have checked the compliance with the Group
and parent company financial statements as at
31 December 2024 with the relevant statutory
requirements as set out in the ESEF RTS that
are applicable to the Group and parent company
financial statements.
For the Group and parent company it relates to:
•
Group
and
parent
company
financial
statements prepared in a valid xHTML format;
and
•
the XBRL markup of the Group and parent
company financial statements using the core
taxonomy and the common rules on markups
specified in the ESEF RTS.
In our opinion, the Group and parent company
financial statements of Morgan Stanley & Co.
International plc as at 31 December 2024, have
been prepared, in all material respects, in
compliance with the requirements laid down in
the ESEF RTS.
Matters on which we are required to
report by exception
Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we are required
to report to you if, in our opinion:
•
we have not received all the information and
explanations we require for our audit; or
•
adequate accounting records have not been
kept by the parent company, or returns
adequate for our audit have not been
received from branches not visited by us; or
•
the parent company financial statements are
not in agreement with the accounting records
and returns.
We have nothing to report in respect of these
matters.
Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if in our opinion certain
disclosures of Directors’ remuneration have not
been made.
We have nothing to report in respect of this
matter.
Table of contents
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN STANLEY & CO.
INTERNATIONAL plc
58
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Use of our report
This report is made solely to the company’s
members, as a body, in accordance with Chapter
3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might
state to the company’s members those matters
we are required to state to them in an auditor’s
report and for no other purpose. To the fullest
extent permitted by law, we do not accept or
assume responsibility to anyone other than the
company and the company’s members as a
body, for our audit work, for this report, or for the
opinions we have formed.
James Polson (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
4 April 2025
Table of contents
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MORGAN STANLEY & CO.
INTERNATIONAL plc
59
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
in $ millions
Note
2024
2023
Net gains from financial instruments at fair value through profit or loss
4
Fee and commission income
5
Other revenue
Interest income
6
Interest expense
6
(14,385 )
(12,374 )
Net interest expense
(1,688 )
(914 )
Net revenue
Non-interest expenses:
Operating expense
7
(5,617 )
(5,281 )
Net impairment reversal/(loss) on financial instruments
PROFIT BEFORE TAX
Income tax expense
8
(534 )
(239 )
PROFIT FOR THE YEAR
All operations were continuing in the current and prior year.
The notes on pages 67 to 150 form an integral part of the consolidated financial statements.
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its
own income statement for the year. The Company reported a profit after tax of $1,304 million for the
year ended 31 December 2024 (31 December 2023: $1,052 million).
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
CONSOLIDATED INCOME STATEMENT
Y
ear ended 31 December 2024
60
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
in $ millions
Note
2024
2023
PROFIT FOR THE YEAR
OTHER COMPREHENSIVE INCOME AFTER INCOME TAX
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of net defined benefit liability
8
(1 )
(1 )
Changes in fair value attributable to own credit risk on financial liabilities
designated at fair value
8,9
(70 )
(189 )
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences arising on foreign operations
8
(75 )
(8 )
OTHER COMPREHENSIVE INCOME AFTER INCOME TAX
(146 )
(198 )
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
The notes on pages 67 to 150 form an integral part of the consolidated financial statements.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2024
61
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
in $ millions
Note
2024
2023
Share capital and other equity instruments – at 1 January and 31
December
Share premium account – at 1 January and 31 December
Currency translation reserve - at 1 January
Foreign currency translation differences arising on foreign operations
(75 )
(8 )
Currency translation reserve - at 31 December
(23 )
Capital contribution reserve – at 1 January and 31 December
Capital redemption reserve – at 1 January and 31 December
Debt valuation reserve - at 1 January
(303 )
(122 )
Changes in fair value attributable to own credit risk on financial liabilities
designated at fair value
(70 )
(189 )
Realised debt valuation losses
9
Debt valuation reserve - at 31 December
(365 )
(303 )
Retained earnings and pension reserve - at 1 January
Profit for the year
Remeasurement of net defined benefit liability
(1 )
(1 )
Realised debt valuation losses
9
(8 )
(8 )
Dividends
22
(1,320 )
(1,503 )
Income tax - Current and Deferred Tax
8
Retained earnings and pension reserve - at 31 December
Other comprehensive income for the year
(146 )
(198 )
Total comprehensive income for the year
Total equity at 31 December
The notes on pages 67 to 150 form an integral part of the consolidated financial statements.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2024
62
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
in $ millions
Note
2024
2023
Share capital and other equity instruments – at 1 January and 31
December
16,765
16,765
Share premium account – at 1 January and 31 December
513
513
Currency translation reserve - at 1 January
(95)
(88)
Foreign currency translation differences arising on foreign operations
(60)
(7)
Currency translation reserve - at 31 December
(155)
(95)
Capital contribution reserve – at 1 January and 31 December
3
3
Capital redemption reserve – at 1 January and 31 December
1,400
1,400
Debt valuation reserve - at 1 January
(303)
(122)
Changes in fair value attributable to own credit risk on financial liabilities
designated at fair value
(70)
(189)
Realised debt valuation losses
9
8
8
Debt valuation reserve - at 31 December
(365)
(303)
Retained earnings and pension reserve - at 1 January
5,308
5,743
Profit for the year
1,304
1,052
Remeasurement of net defined benefit liability
(1)
(1)
Realised debt valuation losses
9
(8)
(8)
Dividends
22
(1,320)
(1,503)
Income tax - Current and Deferred Tax
8
47
25
Retained earnings and pension reserve - at 31 December
5,330
5,308
Other comprehensive income for the year
(131)
(197)
Total comprehensive income for the year
1,173
855
Total equity at 31 December
23,491
23,591
The notes on pages 67 to 150 form an integral part of the financial statements.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2024
63
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
in $ millions
Note
2024
2023
ASSETS
Cash and short term deposits
23
Trading financial assets (of which $37,384 million (2023: $42,831 million)
were pledged to various parties)
10
Secured financing
9
Loans and advances
Investment securities
Trade and other receivables
12
Current tax assets
Deferred tax assets
19
Property, plant and equipment
Other assets
TOTAL ASSETS
LIABILITIES
Bank loans and overdrafts
23
Trading financial liabilities
10
Secured borrowing
9
Trade and other payables
15
Debt and other borrowings
16
Subordinated debt
17
Provisions
18
Current tax liabilities
Post-employment benefit obligations
33
TOTAL LIABILITIES
EQUITY
Share capital
21
Other equity instruments
21
Share premium account
21
Currency translation reserve
21
(23 )
Capital contribution reserve
21
Capital redemption reserve
21
Pension reserve
21
(2 )
(1 )
Debt valuation reserve
21
(365 )
(303 )
Retained earnings
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
April 2025.
Signed on behalf of the Board
A Mullineaux
Director
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Year ended 31 December 2024
64
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
in $ millions
Note
2024
2023
ASSETS
Cash and short term deposits
23
16,336
18,070
Trading financial assets (of which $37,384 million (2023: $ 42,831 million)
were pledged to various parties)
10
369,629
336,646
Secured financing
9
115,453
119,902
Loans and advances
40
103
Investment securities
26
125
Trade and other receivables
12
75,381
73,917
Current tax assets
522
456
Deferred tax assets
19
287
230
Investment in subsidiaries
13
139
128
Property, plant and equipment
21
16
Other assets
29
27
TOTAL ASSETS
577,863
549,620
LIABILITIES
Bank loans and overdrafts
23
2
2
Trading financial liabilities
10
319,056
274,538
Secured borrowing
9
104,842
105,064
Trade and other payables
15
79,016
86,583
Debt and other borrowings
16
39,537
47,901
Subordinated debt
17
11,798
11,796
Provisions
18
91
124
Current tax liabilities
28
20
Post employment benefit obligations
33
2
1
TOTAL LIABILITIES
554,372
526,029
EQUITY
Share capital
21
12,465
12,465
Other equity instruments
21
4,300
4,300
Share premium account
21
513
513
Currency translation reserve
21
(155)
(95)
Capital contribution reserve
21
3
3
Capital redemption reserve
21
1,400
1,400
Pension reserve
21
(2)
(1)
Debt valuation reserve
21
(365)
(303)
Retained earnings
5,332
5,309
TOTAL EQUITY
23,491
23,591
TOTAL LIABILITIES AND EQUITY
577,863
549,620
These financial statements were approved by the Board and authorised for issue on 3 April 2025.
Signed on behalf of the Board
A Mullineaux
Director
The notes on pages 67 to 150 form an integral part of the financial statements.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
COMPANY STATEMENT OF FINANCIAL POSITION
Year ended 31 December 2024
65
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
in $ millions
Note
2024
2023
NET CASH FLOWS FROM OPERATING ACTIVITIES
23b
INVESTING ACTIVITIES
Purchase of property, plant and equipment
(6 )
(7 )
Proceeds from sale of property, plant and equipment
NET CASH FLOWS USED IN INVESTING ACTIVITIES
(6 )
(6 )
FINANCING ACTIVITIES
Dividends paid
22
(1,320 )
(1,503 )
Proceeds from issuance of subordinated debt
17
Proceeds from issuance of senior subordinated debt
17
Repayment of subordinated debt
17
(5,000 )
Interest on subordinated debt
(430 )
(269 )
Interest on senior subordinated debt
(454 )
(297 )
NET CASH FLOWS USED IN FINANCING ACTIVITIES
(2,204 )
(3,069 )
NET DECREASE IN CASH AND CASH EQUIVALENTS
(993 )
(482 )
Currency translation differences
(699 )
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
23a
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
23a
The notes on pages 67 to 150 form an integral part of the consolidated financial statements.
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2024
66
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
The Company is incorporated and domiciled in
The Group’s immediate parent undertaking is
which has its registered office at 20
Bank Street, Canary Wharf, London, England,
E14 4AD and is registered in England and
Wales. Copies of its financial statements can be
obtained from the Registrar of Companies for
England and Wales, Companies House, Crown
Way, Cardiff CF14 3UZ.
The Group’s ultimate parent undertaking and
controlling entity and the largest group of which
the Group is a member and for which group
financial statements are prepared is Morgan
Morgan Stanley’s other subsidiary undertakings,
form the Morgan Stanley Group. Morgan Stanley
is incorporated in the State of Delaware, the
United States of America. Copies of its financial
statements
can
be
obtained
from
www.morganstanley.com/investorrelations
.
The parent undertaking of the smallest group of
companies for which group financial statements
are drawn up and of which the Group is a
Statement of Compliance
These
financial
statements
incorporate
the
financial statements of the Group and the
Company.
The Group has prepared its annual consolidated
financial statements in accordance with IFRSs
as adopted by the EU and the UK, Interpretations
issued by the IFRS Interpretations Committee
(“IFRIC”) and the UK Companies Act 2006. The
Group has prepared its annual consolidated
financial statements in compliance with the
European Single Electronic Format Regulatory
Technical Standard (“ESEF RTS”), including the
preparation in a valid xHTML format and the
application of iXBRL markup using the core
taxonomy and the common rules on markups
specified in the ESEF RTS.
The Company financial statements have been
prepared in accordance with United Kingdom
Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable
law), including FRS 101, with a departure from
the requirement of Schedule 1 paragraph 40 to
The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations
2008 (“the Regulations”) as described in note
3(c) for the overriding purpose of giving a true
and fair view.
The Company meets the definition of a qualifying
entity and is a Financial Institution as defined in
FRS 101. The Company has taken advantage of
the disclosure exemptions available under FRS
101 in relation to share-based payments, fair
value measurements (as applicable to assets
and liabilities other than financial instruments),
revenue recognition, presentation of comparative
information in respect of certain assets and
shares outstanding, presentation of a cash flow
statement,
accounting
standards
not
yet
adopted, related party transactions, and leases.
Where relevant, equivalent disclosures have
been provided in the Group accounts in which
New
Standards
and
Interpretations
Adopted During the Year
The
following
standards,
amendments
to
standards and interpretations relevant to the
Group and Company’s operations were adopted
during the year. These did not have a material
impact on the Group or Company’s financial
statements.
Amendments to IFRS 16 ‘
Leases
’: Lease Liability
in a Sale and Leaseback were issued by the
IASB
in
September
2022
for
prospective
application in accounting periods beginning on or
after 1 January 2024. Earlier application is
permitted. The amendments were adopted by the
UK in May 2023 and endorsed by the EU in
November 2023.
Amendments to IAS 1 '
Presentation of Financial
Statements
' ('IAS 1'): Classification of Liabilities
as Current or Non-current were issued by the
IASB in January 2020 and revised in July 2020
and October 2022, for retrospective application in
accounting periods beginning on or after 1
January 2024. The amendments were adopted
by the UK in July 2023 and endorsed by the EU
in January 2024.
Amendments to IAS 1: Non-current Liabilities
with Covenants were issued by the IASB in
Table of contents
Year ended 31 December 2024
67
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
68
October 2022 for application in accounting
periods beginning on or after 1 January 2024.
The amendments were adopted by the UK in
July 2023 and endorsed by the EU in January
2024.
There were no other standards, amendments to
standards or interpretations relevant to the Group
and Company’s operations which were adopted
New Standards and Interpretations Not
Yet Adopted
At the date of authorisation of these consolidated
financial statements, the following amendments
to standards relevant to the Group’s operations
were issued by the IASB but not mandatory for
accounting periods beginning 1 January 2024.
The Group does not expect that the adoption of
the following amendments to standards will have
a material impact on the Group’s or Company’s
financial statements, unless otherwise indicated.
Amendments to IAS 21 '
The Effects of Changes
in
Foreign
Exchange
Rates
':
Lack
of
Exchangeability were issued by the IASB in
August 2023 for prospective application in
accounting periods beginning on or after 1
January 2025. Earlier application is permitted.
The amendments were adopted by the UK in
July 2024 and endorsed by the EU in November
2024.
Amendments
to
IFRS
9
‘
Financial
Instruments
’ ("IFRS 9") and IFRS 7
‘Financial
Instruments: Disclosures
’ ("IFRS 7") was issued
by the IASB in May 2024 for retrospective
application in annual periods beginning on or
after 1 January 2026. Earlier application is
permitted. The Group is currently assessing the
impact of IFRS 9 and IFRS 7 on its consolidated
financial statements.
IFRS
18
‘
Presentation
and
Disclosure
in
Financial Statements
’ ("IFRS 18") was issued by
the
IASB
in
April
2024
for
retrospective
application in annual periods beginning on or
after 1 January 2027. Earlier application is
permitted. The Group is currently assessing the
impact of IFRS 18 on its consolidated financial
d.
Basis of Measurement
The financial statements of the Company and the
consolidated financial statements of the Group
are prepared under the historical cost basis,
except for certain financial instruments that have
been measured at fair value as explained in the
accounting policies below.
Critical Accounting Judgements and Key
Sources of Estimation Uncertainty
In
preparing
the
financial
statements
and
consolidated financial statements, the Company
and Group make judgements and estimates that
affect the application of accounting policies and
reported amounts.
Critical accounting judgements are key decisions
made by management in the application of the
Group and Company’s accounting policies, other
than those involving estimations, which have the
most
significant
effects
on
the
amounts
recognised in the financial statements.
assumptions
and
estimations
made
by
management that have a significant risk of
resulting in a material adjustment to the carrying
amount of assets and liabilities within the next
financial year.
The Group and Company’s key sources of
estimation uncertainty are as follows:
•
Valuation of Level 3 financial instruments:
Valuation techniques used to measure the fair
value of instruments categorised in Level 3 of
the fair value hierarchy are dependent on
unobservable
parameters,
and
as
such
require the application of judgement, involving
estimations and assumptions. The fair value
for these financial instruments has been
determined using parameters appropriate for
the
valuation
methodology
based
on
prevailing market evidence. It is recognised
that the unobservable parameters could have
a range of reasonable possible alternate
values. See accounting policy note 3(d) and
note 30(d)(ii) ‘Sensitivity of Fair Values to
Changing
Significant
Assumptions
to
Reasonably Possible Alternatives’.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
69
•
Measurement
of
litigation
and
taxation
provisions:
Estimates
are
used
in
the
calculation of provisions, which are initially
measured, and subsequently remeasured, at
the best estimate of the expenditure required
to settle the obligation. With such items there
is a possibility that, on conclusion at a future
date, the final outcome may differ significantly.
Whilst a range of outcomes is reasonably
possible,
the
extent
of
the
reasonably
possible range has been assessed as not
material. See accounting policy note 3(j) and
note 18.
•
Use of best estimates for revenue recognition
on transfer pricing:
The Morgan Stanley
Group
has
engaged
in
negotiations
of
Advanced Pricing Agreements with selected
tax authorities in respect of its key transfer
pricing methodologies and has, accordingly,
accrued
based
on
a
best
estimate.
Negotiations
may
result
in
changes
to
methodologies or inputs that could have an
No critical accounting judgements have been
made in the process of applying the Group and
Company’s accounting policies that have had a
significant effect on the amounts recognised in
the financial statements.
The Group and Company evaluates the critical
accounting judgements and key sources of
estimation uncertainty on an ongoing basis and
Basis of Consolidation
The consolidated financial statements of the
Group comprise the financial statements of the
Company and its subsidiaries as at 31 December
2024. Subsidiaries are all entities over which the
Group has control. The Group controls an entity
when the Group is exposed to, or has rights to,
variable returns from its involvement with the
entity and has the ability to affect those returns
through its power over the entity. The financial
statements for the subsidiaries are prepared for
the same reporting year as the Group, using
consistent accounting policies. The financial
statements for the subsidiaries are translated into
US
dollars
as
described
in
note
3(b).
Subsidiaries are consolidated from the date that
the Group gains control until the date that control
ceases.
In certain cases, the Group may exercise control
over another entity on behalf of investors or other
parties.
In such cases it is necessary, as part of
the assessment of whether it should consolidate
the entity, for the Group to determine whether it
exercises such control primarily as an agent for
the other investors or whether it does so primarily
as principal on its own behalf. In making such a
determination, management will consider all
relevant factors, including in particular:
•
the scope of the Group’s decision-making
authority over the investee;
•
the rights, including removal rights, held by
other parties;
•
the remuneration to which the Group is
entitled; and
•
the significance of the Group’s exposure to
variability of returns from its interests in the
entity.
Intra-group balances, transactions, income and
expenses and profits and losses resulting from
intra-group
transactions
are
eliminated
in
preparing the consolidated financial statements.
Details of the Group’s interests in other entities
are given in note 13 and 14 to these financial
The Going Concern Assumption
The Group’s and Company’s business activities,
together with the factors likely to affect its future
development, performance and position, and the
Group’s and Company’s objectives, policies and
processes for managing its capital; its financial
risk management; and its exposures to credit risk
and liquidity risk, are reflected in the Strategic
Report, and as set out in the Strategic report,
retaining
sufficient
capital
and
liquidity
to
withstand market pressures remains central to
the Morgan Stanley Group’s, the Group’s and the
Company’s strategy.
Taking the above factors into consideration, the
Directors believe the Group and Company will
have access to adequate resources to continue
in operational existence for the foreseeable
future being at least 12 months from the date of
approval
of
these
financial
statements.
Accordingly, they continue to adopt the going
concern basis in preparing the annual report and
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
70
ACCOUNTING POLICIES
Functional Currency
Items included in the consolidated and the
Company financial statements are measured and
presented in US dollars, the currency of the
primary economic environment in which the
Group operates.
All currency amounts in the consolidated and the
Company financial statements, Strategic Report
and Directors’ Report are rounded to the nearest
Foreign Currencies
All monetary assets and liabilities denominated in
currencies other than US dollars are translated
into US dollars at the rates ruling at the reporting
date. Transactions and non-monetary assets and
liabilities denominated in currencies other than
US dollars are recorded at the rates prevailing at
the dates of the transactions. Assets and
liabilities of foreign operations are translated into
US dollars using the closing rate. Translation
differences arising from the net investment(s) in
the foreign operations are taken to the ‘Currency
translation reserve’.
The amount of change in the fair value of
financial liabilities designated at FVPL that is
attributable to changes in the credit risk of these
liabilities (Debt Valuation Adjustment (“DVA”))
includes foreign exchange differences thereon.
All other translation differences are taken through
the
consolidated
income
statement
when
realised. Exchange differences recognised in the
consolidated income statement are presented in
‘Other income’ or ‘Operating expense’, except
Financial Instruments
Financial Instruments Mandatorily at Fair
Value through Profit and Loss
Trading financial instruments include government
debt securities, corporate and other debt, traded
loans, and corporate equities where the Group
acquires the financial asset or financial liability
for the purpose of selling or repurchasing in the
near term or is part of a portfolio for which there
is evidence of short term profit taking, and all
derivative contracts.
Purchases and sales of non-derivative financial
instruments classified as trading are initially
recognised on settlement date at fair value,
including regular way securities transactions. For
purchases of non-derivative financial instruments
classified as trading, from the date that the terms
are agreed (trade date) until the settlement date,
the
Group
and
Company
recognises
any
unrealised fair value in the statement of financial
position as ‘Trading financial instruments’ with
corresponding profit or loss recognised within the
consolidated income statement in ‘Net gains/
(losses) from financial instruments at fair value
through profit or loss’. For sales of non-derivative
financial
instruments,
unrealised
fair
value
changes are not recognised in the consolidated
income
statement
from
trade
date.
Upon
settlement date the resulting financial instrument
is
recognised
or
de-recognised
from
the
consolidated statement of financial position.
Derivatives, are initially recorded on trade date at
fair value (see note 3(d) below). All subsequent
changes in fair value are reflected in the
consolidated income statement in ‘Net gains/
(losses) from financial instruments at fair value
through profit or loss’.
directly attributable to the acquisition, issue or
disposal of a financial instrument. For all trading
financial
instruments,
transaction
costs
are
excluded from the initial fair value measurement
of the financial instrument. These costs are
recognised in the consolidated income statement
Non-trading Financial Assets at Fair Value
through Profit or Loss
Non-trading financial assets at FVPL include
secured financing transactions such as cash
collateral on securities borrowed and securities
purchased under agreements to resell, prepaid
OTC contracts and financial assets arising upon
consolidation of certain special purpose entities,
and
certain
investment
securities
(unlisted
equities).
Non-trading
financial
assets
at
FVPL
are
principally financial assets where the Group
makes decisions based upon the assets’ fair
values. These assets are generally recognised
on settlement date at fair value (see note 3(d)
below), since they are neither regular way nor
are they derivatives. From the date the terms are
agreed (trade date), until the financial asset is
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
71
funded
(settlement
date),
the
Group
and
Company recognises any unrealised fair value
changes in the financial asset as non-trading
financial assets at FVPL. On settlement date, the
fair value of consideration given is recognised as
a non-trading financial asset at FVPL.
fair value measurement of the financial assets
and are recognised in the consolidated income
measurement
of
financial
instruments mandatorily at fair value through
profit or loss
exchange
differences
are
reflected
in
the
consolidated income statement in ‘Net gains/
(losses) from financial instruments at fair value
through profit or loss’. When interest is included
as a component of an instrument’s fair value,
interest is also reflected in the consolidated
income statement in ‘Net gains/(losses) from
financial instruments at fair value through profit
or loss’, otherwise it is included within ‘Interest
Financial Instruments Designated at Fair
Value through Profit or Loss
Financial
instruments
designated
at
FVPL
include
corporate
loans,
unfunded
loan
commitments, prepaid OTC contracts, cash
collateral on securities loaned and securities sold
under
agreements
to
repurchase,
issued
structured notes and other financial assets and
liabilities.
The Group and Company have designated
certain financial instruments at FVPL when the
designation
at
fair
value
eliminates
or
significantly reduces an accounting mismatch
which would otherwise arise. The Group has also
designated certain financial liabilities at FVPL
where:
•
the financial liability forms part of a group of
financial assets or financial liabilities or both
which are managed, evaluated and reported
internally on a fair value basis; or
•
the financial liability contains an embedded
derivative that significantly modifies the cash
flows that would otherwise be required under
the contract.
From the date the transaction in a financial
instrument designated at FVPL is entered into
(trade date) until settlement date, the Group
recognises any unrealised fair value changes in
the contract as financial instruments designated
at FVPL in the statement of financial position. On
settlement date, the fair value of consideration
given or received is recognised as a financial
instrument designated at FVPL (see note 3(d)
below).
exchange
differences,
and
dividends
are
reflected in the consolidated income statement in
‘Net gains/(losses) from financial instruments at
fair value through profit or loss’, other than DVA
on financial liabilities designated at FVPL which
is recognised in the ‘Debt valuation adjustment’
reserve where those changes do not create or
enlarge an accounting mismatch. When interest
is included as a component of an instrument’s
fair value, interest is also reflected in the
consolidated income statement in ‘Net gains/
(losses) from financial instruments at fair value
through profit or loss’, otherwise it is included
presented within other comprehensive income is
not subject to reclassification to the consolidated
income statement, but is transferred to ‘Retained
For the Company, the presentation of ‘Debt
valuation adjustment’ within other comprehensive
income represents a departure from Schedule 1
paragraph 40 to the Regulations, which requires
that changes in the value of financial instruments
be included in the profit and loss account. The
Directors
consider
that
this
departure
is
necessary in order that the accounts give a true
and fair view of the results of the Company. All
other subsequent changes in fair value, foreign
exchange differences not relating to changes in
the credit risk of those liabilities, interest and
dividends are reflected in the income statement.
fair
value
measurement
of
the
financial
instrument. These costs are recognised as
incurred in the consolidated income statement in
See note 9 for an analysis of financial assets and
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
72
Investments in Subsidiaries
Subsidiaries
are
entities
over
which
the
Company has control. The Company controls an
entity when it is exposed to, or has rights to,
variable returns from its involvement with the
entity and has the ability to affect those returns
through its power over the entity.
Investments in subsidiaries are stated at cost,
less any impairment (see note 3(c)(iv) below).
Dividends, impairment losses and reversals of
impairment losses are recognised in the income
statement.
Impairment of Subsidiaries
Impairment losses on investments in subsidiaries
are measured as the difference between cost
and the current estimated recoverable amount.
When the recoverable amount is less than cost,
an impairment is recognised within the income
statement and is reflected against the carrying
amount of the impaired asset in the statement of
financial position. Investments in subsidiaries
which have previously suffered an impairment
are reviewed for possible reversal of the
Financial Assets and Financial Liabilities
at Amortised Cost
and short-term deposits, certain trade and other
receivables and certain loans and advances.
demand deposits with banks, net of outstanding
bank
overdrafts,
along
with
highly
liquid
investments, with original maturities of three
months or less, that are readily convertible to
known
amounts
of
cash
and
subject
to
cost when the Group and Company’s business
model objective is to collect the contractual cash
flows of the assets and where these cash flows
are Solely Payments of Principal and Interest
(“SPPI”) on the principal amount outstanding until
maturity. Such assets are recognised when the
Group and Company becomes a party to the
contractual provisions of the instrument. The
instruments are initially measured at fair value
(see
note
3(d)
below)
and
subsequently
measured at amortised cost less expected credit
loss (“ECL”) allowance. Interest is recognised in
the consolidated income statement in ‘Interest
income’, using the effective interest rate (“EIR”)
attributable to the acquisition of the financial
asset are added to the fair value on initial
recognition. ECL, and reversals thereof, are
recognised in the consolidated income statement
include bank loans and overdrafts, certain
secured borrowings, certain trade and other
payables, subordinated debt and certain debt
and other borrowings.
liabilities
are
classified
as
being
subsequently
measured
at
amortised
cost,
except where they are held for trading or are
designated as measured at FVPL. They are
recognised when the Group becomes a party to
the contractual provisions of the instrument and
are initially measured at fair value (see note 3(d)
below) and subsequently measured at amortised
cost. Interest is recognised in the consolidated
income statement in ‘Interest expense’ using the
EIR method. Transaction costs that are directly
attributable to the issue of a financial liability are
vi)
Financing
and
Secured
Borrowings
In the course of financing its business and part of
its trading activities, the Group and Company
enter into arrangements which involve the sale of
securities with agreements to repurchase, the
purchase of securities with resale agreements,
the lending of securities with collateral received
and the borrowing of securities with collateral
given.
Securities received by the Group and Company
under
resale
arrangements
and
securities
borrowing
arrangements
are
generally
not
recognised on the consolidated statement of
financial position.
Securities pledged or sold by the Group and
Company
under
sale
and
repurchase
agreements and securities lending arrangements
are
generally
not
derecognised
from
the
consolidated statement of financial position.
Where cash collateralised, the resulting cash
collateral
balances
repayable
and
accrued
interest are designated at FVPL where the
financial liability forms part of a group of financial
assets or financial liabilities or both, which is
managed, evaluated and reported internally of a
fair value basis; or at amortised cost if not so
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
73
Fair Value
Fair Value Measurement
Fair value is defined as the price that would be
received to sell an asset or paid to transfer a
liability (i.e. the “exit price”) in an orderly
transaction between market participants at the
measurement date.
Fair
value
is
a
market-based
measure
considered from the perspective of a market
participant
rather
than
an
entity-specific
measure.
Therefore,
even
when
market
assumptions
are
not
readily
available,
assumptions are set to reflect those that the
Group
and
Company
believes
market
participants would use in pricing the asset or
liability at the measurement date.
Where the Group and Company manages a
group of financial assets and financial liabilities
on the basis of its net exposure to either market
risks or credit risk, the Group and Company
measures the fair value of that group of financial
instruments
consistently
with
how
market
participants would price the net risk exposure at
the measurement date.
In determining fair value, the Group and
Company use various valuation approaches and
establish
a
hierarchy
for
inputs
used
in
measuring fair value that require the most
observable inputs be used when available.
Observable
inputs
are
inputs
that
market
participants would use in pricing the asset or
liability that were developed based on market
data obtained from sources independent of the
Group and Company. Unobservable inputs are
inputs that reflect assumptions the Group and
Company believe other market participants
would use in pricing the asset or liability, that are
developed
based
on
the
best
information
available in the circumstances.
The fair value hierarchy is broken down into
three levels based on the observability of inputs
as follows, with Level 1 being the highest and
Level 3 being the lowest level:
•
Level 1 - Quoted prices (unadjusted) in an
active market for identical assets or liabilities
Valuations based on quoted prices in active
markets that the Morgan Stanley Group has the
ability to access for identical assets or liabilities.
Valuation adjustments, block discounts and
discounts for equity-specific and contractual
restrictions that would not transfer to market
participants
are
not
applied
to
Level
1
instruments. Since valuations are based on
quoted prices that are readily and regularly
available in an active market, valuation of these
products does not entail a significant degree of
judgement.
•
Level
2
-
Valuation
techniques
using
observable inputs
Valuations based on quoted prices for similar
assets or liabilities in active markets, quoted
prices for identical or similar assets or
liabilities
in
inactive
markets,
significant
market inputs other than quoted prices that
are observable for the asset or liability, or
market-corroborated inputs.
•
Level 3 - Valuation techniques with significant
unobservable inputs
Valuations
based
on
inputs
that
are
unobservable and significant to the overall fair
value measurement.
The availability of observable inputs can vary
from product to product and is affected by a wide
variety of factors, including, for example, the type
of product, whether the product is new and not
yet established in the marketplace, the liquidity of
markets and other characteristics particular to
the product. To the extent that valuation is based
on models or inputs that are less observable or
unobservable in the market, the determination of
fair value requires more judgement. Accordingly,
the degree of judgement exercised by the Group
and Company in determining fair value is
greatest for instruments categorised in Level 3 of
the fair value hierarchy.
The Group and Company considers prices and
inputs that are current as of the measurement
date,
including
during
periods
of
market
dislocation. In periods of market dislocation, the
observability of prices and inputs may be
reduced for many instruments. This condition
could cause an instrument to be reclassified to a
lower Level of the fair value hierarchy.
In certain cases, the inputs used to measure fair
value may fall into different levels of the fair value
hierarchy. In such cases, the total fair value
amount is disclosed in the level appropriate for
the lowest level input that is significant to the
total fair value of the asset or liability.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
74
For assets and liabilities that are transferred
between levels in the fair value hierarchy during
the period, fair values are ascribed as if the
assets or liabilities had been transferred as of the
beginning of the period.
Valuation Techniques
Many cash instruments and OTC derivative
contracts have bid and ask prices that can be
observed in the marketplace. Bid prices reflect
the highest price that a party is willing to pay for
an asset. Ask prices represent the lowest price
that a party is willing to accept for an asset. The
Group and Company carry positions at the point
within the bid-ask range that meets its best
estimate of fair value. For offsetting positions in
the same financial instrument, the same price
within the bid-ask spread is used to measure
both the long and short positions.
Fair value for many cash instruments and OTC
derivative contracts is derived using pricing
models. Pricing models take into account the
contract terms, as well as multiple inputs
including, where applicable, commodity prices,
equity prices, interest rate yield curves, credit
curves,
correlation,
creditworthiness
of
the
counterparty, creditworthiness of the Group and
Company, option volatility and currency rates.
Where appropriate, valuation adjustments are
made to account for various factors such as
liquidity risk (bid-ask adjustments), credit quality,
model uncertainty and concentration risk in order
to arrive at fair value.
Adjustments for liquidity risk adjust model-
derived mid-market levels of Level 2 and Level 3
financial instruments for the bid-mid or mid-ask
spread required to properly reflect the exit price
of a risk position.
Bid-mid and mid-ask spreads
are marked to levels observed in trade activity,
broker quotes or other external third-party data.
Where these spreads are unobservable for the
particular position in question, spreads are
derived
from
observable
levels
of
similar
positions.
The Group and Company apply CVA to their
Borrowings (primarily structured notes) which are
designated at FVPL and to OTC derivatives. The
Group and Company consider the impact of
changes in own credit spreads based upon
observations of the secondary bond market
spreads when measuring the fair value for
borrowings. For OTC derivatives, the impact of
changes
in
both
the
Group’s
and
the
counterparty’s credit rating is considered when
measuring
fair
value.
In
determining
the
expected exposure, the Group and Company
simulate the distribution of the future exposure to
a counterparty, then apply market-based default
probabilities to the future exposure, leveraging
external third-party CDS spread data. Where
CDS spread data are unavailable for a specific
counterparty, bond market spreads, CDS spread
data based on the counterparty’s credit rating or
CDS spread data that reference a comparable
counterparty may be utilised. The Group also
considers collateral held and legally enforceable
master netting agreements that mitigate its
exposure to each counterparty.
The
Group
incorporates
Funding
Valuation
Adjustment
(“FVA”)
into
the
fair
value
measurements
of
OTC
uncollateralised
or
partially
collateralised
derivatives
and
in
collateralised derivatives where the terms of the
agreement do not permit the re-use of the
collateral received. In general, the FVA reflects a
market funding risk premium inherent in the
noted derivative instruments. The methodology
for measuring FVA leverages the Group and
Company’s
existing
credit-related
valuation
adjustment calculation methodologies, which
apply to both assets and liabilities.
Adjustments for model uncertainty are taken for
positions whose underlying models are reliant on
significant inputs that are neither directly nor
indirectly observable, hence requiring reliance on
established
theoretical
concepts
in
their
derivation. These adjustments are derived by
making assessments of the possible degree of
variability
using
statistical
approaches
and
market-based information where possible.
The
Group
and
Company
may
apply
a
concentration adjustment to certain of their OTC
derivative portfolios to reflect the additional cost
of closing out a particularly large risk exposure.
Where possible, these adjustments are based on
observable market information but in many
instances significant judgement is required to
estimate the costs of closing out concentrated
risk exposures due to the lack of liquidity in the
marketplace.
Valuation Process
VC within Finance is responsible for ensuring
that the inventory carried at fair value in the
Group and Company’s financial statements and
associated
disclosures
is
presented
in
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
75
accordance
with
applicable
accounting
standards. VC is independent of the Business
Units and reports to the Chief Financial Officer of
the Morgan Stanley Group (“CFO”) globally and
the EMEA CFO regionally, who have final
authority over the valuation of the Group’s
inventory.
VC
implements
valuation
control
processes designed to validate the fair value of
the Group’s financial instruments measured at
fair value including those derived from pricing
models.
Model Control:
VC, in conjunction with Model
Risk Management (“MRM”), which reports to the
CRO, independently reviews valuation models.
VC is responsible for reviewing that the model
valuation methodology is appropriate, model
inputs
and
valuations
are
consistent
with
accounting standards and an independent price
verification can be performed. The Group and
Company
generally
subject
valuations
and
models to a review process initially and on a
periodic basis thereafter.
Independent Price Verification:
The Business
Units are responsible for determining the fair
value of financial instruments using approved
valuation models and valuation methodologies.
Generally on a monthly basis, VC performs an
independent review of the valuation in the books
and records by determining the appropriateness
of the inputs used by the Business Units and by
testing
compliance
with
the
documented
valuation methodologies approved in the model
review process described above. External pricing
data used to validate the valuation must meet
minimum quality standards set by VC.
The results of this independent price verification
and any adjustments made to the fair value
generated by the Business Units are presented
to management of the MSI Group’s business
segments
(i.e.
Institutional
Securities
and
Investment Management), the Morgan Stanley
CFO, the EMEA CFO regionally, and the CRO on
a regular basis.
VC
reviews
the
models
and
valuation
methodology used to price new material Level 2
and Level 3 transactions and both Finance and
MRM must approve the fair value of the trade
that is initially recognised.
Gains and Losses on Inception
In the normal course of business, the fair value of
a financial instrument on initial recognition is the
transaction price (i.e. the fair value of the
consideration given or received). In certain
circumstances, however, the fair value will be
based on other observable current market
transactions in the same instrument, without
modification or repackaging, or on a valuation
technique whose variables include only data from
observable markets. When such evidence exists,
the Group and Company recognises a gain or
loss on inception of the transaction.
When the use of unobservable market data has a
significant impact on determining fair value at the
inception of the transaction, the entire initial gain
or loss indicated by the valuation technique as at
the
transaction
date
is
not
recognised
immediately
in
the
consolidated
income
statement but is deferred and recognised over
the life of the instrument or is recognised instead
when the market data becomes observable or on
maturity or disposal of the instrument.
For further information, see note 30(e).
Assets and Liabilities Measured at Fair Value
on a Non-Recurring Basis
Certain of the Group and Company’s assets and
liabilities may be measured at fair value on a
non-recurring basis. The Group and Company
incur losses or gains for any adjustments of
these assets or liabilities to fair value.
For assets and liabilities measured at fair value
on a non-recurring basis, fair value is determined
by using various valuation approaches. The
same hierarchy for inputs as described above,
which requires that the observable inputs be
used when available, is used in measuring fair
Modification and derecognition of
financial assets and liabilities
The Group derecognises a financial asset when
the contractual rights to the cash flows from the
asset expire, or when it transfers the financial
asset and substantially all the risk and rewards of
ownership of the asset.
If the asset has been transferred, and the Group
neither transfers nor retains substantially all of
the risks and rewards of the asset, then the
Group determines whether it has retained control
of the asset.
If the Group has retained control of the asset, it
continues to recognise the financial asset to the
extent of its continuing involvement in the
financial asset. If the Group has not retained
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
76
control of the asset, it derecognises the asset
and
separately
recognises
any
rights
or
obligations created or retained in the transfer.
The
renegotiation
or
modification
of
the
contractual cash flows of a financial instrument
can lead to derecognition where the modification
is
“substantial”,
determined
by
qualitative
assessment of whether the revised contractual
terms of a financial instrument, such as a loan,
are significantly different from those of the
original financial instrument. In the event that the
qualitative assessment is unclear, a quantitative
10% cash flow test is performed.
Where
modifications
do
not
result
in
derecognition of the financial instrument, the
gross carrying amount of the financial instrument
is recalculated and a modification gain/(loss) is
recognised in the income statement.
Upon derecognition of a financial asset, the
difference between the previous carrying amount
and the sum of any consideration received,
together with the transfer of any cumulative gain/
loss
previously
recognised
in
equity,
are
recognised in the income statement within ‘Net
gains/(losses)
on
derecognition
of
financial
assets measured at amortised cost and FVOCI’,
and within ‘Net gains/(losses) from financial
instruments at fair value through profit or loss’ for
financial assets which are measured at FVPL.
The Group derecognises financial liabilities when
the Group’s obligations are discharged or
Impairment of Financial Instruments
The Group recognises ECL for the following
financial instruments that are not measured at
FVPL:
•
financial assets measured at amortised cost;
•
loan commitments, except those that can be
net settled in cash or with another financial
instrument; and
•
financial guarantees.
Measurement of ECL
The Group and Company
applies a three stage
approach to measuring ECLs based on the
change in credit risk since initial recognition:
•
Stage 1:
if the credit risk of the financial
instrument at the reporting date has not
increased significantly since initial recognition,
then the loss allowance is calculated as the
lifetime cash shortfalls that will result if a
default occurs in the next 12 months,
weighted by the probability of that default
occurring.
•
Stage 2:
if there has been a significant
increase in credit risk (“SICR”) since initial
recognition, the loss allowance is calculated
as the ECL over the remaining life of the
financial instrument. If it is subsequently
determined that there has no longer been a
SICR since initial recognition, then the loss
allowance reverts to reflecting 12 month
expected losses.
•
Stage 3:
if there has been a SICR since initial
recognition and the financial instrument is
deemed
credit-impaired
(see
below
for
definition
of
credit-impaired),
the
loss
allowance is calculated as the ECL over the
remaining life of the financial instrument. If it
is subsequently determined that there has no
longer been a SICR since initial recognition,
then the loss allowance reverts to reflecting
12 month expected losses.
Notwithstanding the above, for trade receivables
a lifetime ECL is always calculated, without
considering whether a SICR has occurred.
Assessment of SICR
When assessing SICR, the Group considers both
quantitative and qualitative information and
analysis based on the Group and Company’s
historical experience and expert credit risk
assessment,
including
forward-looking
information.
The determination of a SICR is generally based
on changes in the probability of default (“PD”), in
conjunction with a rebuttable presumption that a
SICR has occurred if a financial asset is more
than 30 days past due.
Calculation of ECL
ECL is calculated using three main components:
•
PD:
for accounting purposes, the 12 month
and lifetime PD represent the expected point-
in-time probability of a default over the next
12 months and over the remaining lifetime of
the financial instrument respectively, based
on conditions existing at the balance sheet
date and future economic conditions.
•
Loss
given
default
(“LGD”):
the
LGD
represents expected loss conditional on
default, taking into account the mitigating
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
77
effect of collateral, including the expected
value of the collateral when realised and the
time value of money.
•
Exposure at default (“EAD”):
this represents
the expected EAD, taking into account the
expected repayment of principal and interest
from the balance sheet date to the date of
default event together with any expected
drawdowns of the facility over that period.
These parameters are generally derived from
internally
developed
statistical
models,
incorporating historical, current and forward-
looking macro-economic data and country risk
expert
judgement.
The
macro-economic
scenarios are reviewed quarterly.
The 12 month ECL is equal to the sum over the
next 12 months of quarterly PD multiplied by
LGD and EAD, with such expected losses being
discounted at the effective interest rate. Lifetime
ECL is calculated using the discounted present
value of total quarterly PDs multiplied by LGD
and EAD, over the full remaining life of the
facility.
When measuring ECLs, the Group and Company
consider
multiple
scenarios,
except
where
practical expedients are used to determine ECL.
Practical expedients are used where they are
consistent with the principles described above.
ECL on certain trade receivables are calculated
using a ‘matrix’ approach which reflects the
previous history of credit losses on these
financial assets, applying different provision
levels based on the age of the receivable. The
simplified ECL approach is applied to Trade
receivables where a lifetime ECL is always
calculated. Alternatively where there is a history
of no credit losses, and where this is expected to
persist into the future for structural or other
reasons, such as collateral or other credit
enhancement, it may be determined that the ECL
for a financial instrument is
de minimis
(highly
immaterial) and it may not be necessary to
recognise the ECL.
The Group and Company measure ECL on an
individual asset basis and has no purchased or
originated credit-impaired financial assets.
ECL is recognised in the consolidated income
statement
within
‘Net
impairment
loss
on
Credit-impaired Financial Instruments
In
assessing
the
impairment
of
financial
instruments under the ECL model, the Group and
Company
define
credit-impaired
financial
instruments in accordance with the Credit Risk
Management
Department’s
policies
and
procedures. A financial instrument is credit-
impaired when one or more events that have a
detrimental impact on the estimated future cash
flows of that financial asset have occurred..
Definition of Default
In
assessing
the
impairment
of
financial
instruments under the ECL model, the Group and
Company defines default in accordance with the
Credit Risk Management Department’s policies
and procedures. This considers whether the
borrower is unlikely to pay its credit obligations to
the Group or Company in full and takes into
account qualitative indicators, such as breaches
of covenants. The definition of default also
includes a presumption that a financial asset
which is more than 90 days past due has
defaulted.
Write-offs
Loans and debt securities are written off (either
partially or in full) when they are deemed
uncollectible. Financial assets that are written off
could still be subject to enforcement activities for
Revenue Recognition
Revenues are recognised when the promised
goods or services are delivered to the Group’s
customers, in an amount that is based on the
consideration the Group expects to receive in
exchange for those goods or services when such
amounts are not probable of significant reversal.
Investment Banking
Revenue from investment banking activities
consists of revenues earned from underwriting
primarily equity and fixed income securities and
advisory
fees
for
mergers,
acquisitions,
restructuring and advisory assignments.
Underwriting revenues are generally recognised
on trade date, if there is no uncertainty or
contingency related to the amount to be paid.
Underwriting costs are deferred and recognised
when the related underwriting revenues are
recorded.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
78
Advisory fees are recognised over time based on
estimated progress of work as advice is provided
to the client and is not probable of a significant
reversal. Advisory expenses are recognised as
incurred, including when reimbursed.
Fee
and
commission
income
results
from
transaction-based arrangements in which the
client is charged a fee for the execution of
transactions. Such revenues primarily arise from
transactions in equity securities; services related
to sales and trading activities; futures, insurance
products and options. Fee and commission
income is recognised on trade date when the
performance obligation is satisfied.
Fee and commission income in the consolidated
income
statement
includes
investment
management
fees,
sales
commissions,
placement fees, advisory fees and syndication
fees
when
the
performance
obligation
is
Fees and Commission Expense
Fees
and
commission
expense
in
the
consolidated
income
statement
include
transaction and service fees. Amounts are
Income Tax
The tax expense represents the sum of the tax
currently payable and deferred tax.
The tax currently payable is calculated based on
taxable profit for the year. Taxable profit may
differ
from
profit/(loss)
before
taxation
as
reported in the consolidated income statement
because it excludes items of income or expense
that are taxable or deductible in other years and
items that are never taxable or deductible.
Taxable profit is also adjusted if it is considered
that it is not probable that a taxation authority will
accept an uncertain tax treatment. The Group
and Company’s liability for current tax is
calculated using tax rates that have been
enacted or substantively enacted by the reporting
date. Current tax is charged or credited in the
consolidated income statement, except when it
relates to items charged or credited directly to
other comprehensive income or equity, in which
case the current tax is also recorded within other
comprehensive income or equity respectively.
recoverable on differences between the carrying
amounts of assets and liabilities in the financial
statements and the corresponding tax bases
used in the computation of taxable profit, and is
accounted for using the balance sheet liability
method. Deferred tax liabilities are generally
recognised for all taxable temporary differences
and deferred tax assets are recognised to the
extent that it is probably that taxable profits will
be available against which deductible temporary
differences can be utilised.
Deferred tax liabilities are recognised for taxable
temporary differences arising on investments in
subsidiaries and associates, except where the
Group and Company is able to control the
reversal of the temporary difference and it is
probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is
reviewed at each reporting date and limited to
the extent that it is probable that sufficient
taxable profits will be available to allow all or part
of the asset to be recovered.
Deferred tax is calculated at the tax rates that are
expected to apply in the period when the liability
is settled or the asset is realised. Deferred tax is
charged or credited in the consolidated income
statement, except when it relates to items
charged
or
credited
directly
to
other
comprehensive income or equity, in which case
the
deferred
tax
is
reflected
within
other
comprehensive income or equity, respectively.
Current tax assets are offset against current tax
liabilities when there is a legally enforceable right
to set off current tax assets against current tax
liabilities and the Group or Company intends to
settle its current tax assets and current tax
liabilities on a net basis or to realise the asset
and settle the liability simultaneously. Deferred
tax assets and liabilities are offset when there is
a legally enforceable right to set off current tax
assets against current tax liabilities and when
they relate to income taxes levied by the same
taxation authority and the Group intends to settle
its current tax assets and current tax liabilities on
The income tax effect of distributions are
recognised
in
the
consolidated
income
statement,
other
comprehensive
income
or
equity
dependent
on
where
those
past
transactions that generated the distributable
profits were recognised. The income tax effect of
coupons of AT1 instruments accounted for as
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
79
distributions are recognised in the consolidated
income statement.
The Group is subject to the OECD Pillar Two
Model Rules legislation that is effective from 1
January 2024. The Group has applied the
mandatory exception to deferred tax recognition
and disclosure as provided in the amendments to
IAS 12: International Tax Reform - Pillar Two
Provisions, contingent liabilities and
Provisions are recognised when the Group or
Company has an identified present obligation as
a result of a past event, when it is probable that
an outflow of resources embodying economic
benefits will be required to settle that obligation
and when a reliable estimate can be made of the
arises from past events and whose existence will
be confirmed only by the occurrence or non-
occurrence of one or more uncertain future
events not wholly within the control of the Group
or a present obligation that arises from past
events but is not recognised because either an
outflow of economic benefits is not probable or
the amount of the obligation cannot be reliably
commitment
is
any
legal
obligation
to
potentially make or receive cash payments or
Offsetting
of
Financial
Assets
and
Financial Liabilities
Where there is a current legally enforceable right
to set off the recognised amounts and an
intention to either settle on a net basis or to
realise the asset and the liability simultaneously,
financial assets and financial liabilities are offset
and the net amount is presented in the
consolidated statement of financial position. In
the absence of such conditions, financial assets
and financial liabilities are presented on a gross
Employee Compensation Plans
Equity-settled
Share-based
Compensation
Plans
Morgan Stanley issues awards in the form of
restricted stock units (“RSUs”) to employees of
the Morgan Stanley Group for services rendered
to the Group and Company. Awards are equity-
settled
and
the
cost
of
the
equity-based
transactions with employees is measured based
on the fair value of the equity instruments at
grant date. The fair value of RSUs is based on
the market price of Morgan Stanley common
stock,
measured
as
the
volume-weighted
average price on the date of grant (“VWAP”). The
fair value of RSUs not entitled to dividends until
conversion is measured at VWAP reduced by the
present value of dividends expected to be paid
on the underlying shares prior to the scheduled
conversion date.
Awards
generally
contain
clawback
and
cancellation provisions. Certain awards provide
Morgan Stanley the discretion to clawback or
cancel all or a portion of the award under
specified circumstances. Where
award terms
are considered subjective, a grant date cannot
be established, and compensation for these
awards is adjusted for changes in the fair value
of the Morgan Stanley’s common stock until
conversion. Following amendments to clarify
specific subjective award terms from April 2023,
a grant date for the awards was established such
that compensation expense for those awards is
no longer adjusted for changes in the fair value
of Morgan Stanley’s common stock.
The
Group
and
Company
recognise
compensation costs over the relevant vesting
period for each separately vesting portion of the
award. An estimation of awards that will be
forfeited prior to vesting due to the failure to
satisfy service conditions is considered in
calculating the total compensation cost to be
amortised over the relevant vesting period.
Under
Morgan
Stanley
Group
chargeback
agreements, the Group and Company pay
Morgan Stanley for the procurement of shares.
The Group and Company pay Morgan Stanley
the grant date fair value.
Share based compensation expense is recorded
within ‘Operating expense’ in the consolidated
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
80
Post-employment Benefits
The Group and Company operates defined
contribution
and
defined
benefit
post-
employment plans.
Contributions
due
in
relation
to
defined
contribution
post-employment
plans
are
recognised in ‘Direct staff costs’ within ‘Operating
expense’ in the consolidated income statement
when payable.
For the Group’s and Company’s defined benefit
post-employment plans, the plan obligations are
measured on an actuarial basis in accordance
with the advice of an independent qualified
actuary using the projected unit credit method
and discounted at a rate that reflects the
estimated settlement of the post-employment
benefit obligations. Plan assets are measured at
their fair value at the reporting date. For each
defined benefit plan, a surplus or deficit of plan
assets over liabilities is recognised in the
consolidated and the Company statement sof
financial position as an asset or a liability
respectively. If the fair value of the plan assets is
higher than the present value of the defined
benefit obligation, the measurement of the
resulting defined benefit asset is limited to the
present value of economic benefits available in
the form of refunds from the plan or reductions in
future contributions to the plan. The current
service costs and any past service costs together
with the net interest on the net defined benefit
obligation/asset is charged to ‘Direct Staff costs’
within ‘Operating expense’ in the consolidated
income statement. Remeasurements that arise in
calculating the Group and Company’s obligation
in respect of a plan are recognised in other
comprehensive income, in the period in which
they occur.
The Group and Company participate in a defined
benefit plan operated by another Morgan Stanley
affiliate. The Group and Company recognise
recharges for the net defined benefit cost of the
plan as a whole under inter-affiliate contractual
agreements.
Details of the plans are given in note 33 to the
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
81
NET
GAINS
FROM
FINANCIAL
INSTRUMENTS
AT
FAIR
VALUE
THROUGH PROFIT OR LOSS
in $ millions |
2024 |
2023 |
Assets and liabilities held for |
||
trading |
6,820 |
7,047 |
Non-trading financial assets at FVPL |
||
Secured financing |
370 |
293 |
Investment securities |
29 |
65 |
Trade and other receivables - |
||
prepaid OTC contracts |
76 |
75 |
Total non-trading financial assets |
||
at FVPL |
475 |
433 |
Financial liabilities designated at |
||
FVPL |
||
Secured borrowing |
(733) |
(503) |
Trade and other payables - |
||
prepaid OTC contracts |
(92) |
(40) |
Debt and other borrowings - |
||
issued structured notes |
488 |
(1,315) |
Total financial liabilities designated |
||
at FVPL |
(337) |
(1,858) |
Net gains from financial |
||
instruments at fair value through |
6,958 |
5,622 |
profit or loss |
Non-trading
financial
assets
at
FVPL
and
financial liabilities designated at FVPL are
frequently economically hedged with trading
financial
instruments. Accordingly,
gains
or
losses that are reported in net income from other
financial instruments held at fair value can be
partially offset by gains or losses reported in
in $ millions |
2024 |
2023 |
Investment banking(1) |
938 |
626 |
Commission income |
834 |
706 |
Trust and other fiduciary activities |
149 |
129 |
Other fee and commission income |
360 |
368 |
Total fee and commission income |
2,281 |
1,829 |
Of which, revenue from contracts with |
||
| customers |
2,491 |
1,941 |
(1)
Includes advisory and underwriting revenues
Total fee and commission income is stated after
the transfer of revenues totalling $210 million
(2023: $112 million) to other Morgan Stanley
Group undertakings. These transfers are in
accordance with the Morgan Stanley Group
Global Transfer Pricing Policy, and do not relate
to revenue from contracts with customers (refer
EXPENSE
The table below presents interest income and
expense by accounting classification. Interest
income and expense is calculated using the
effective interest rate method for financial assets
and financial liabilities measured at amortised
cost.
in $ millions |
2024 |
2023 |
Financial assets measured at |
||
amortised cost |
4,123 |
5,025 |
Trading financial assets |
411 |
399 |
Non-trading financial assets at FVPL |
8,163 |
6,036 |
Financial assets measured at FVPL |
8,574 |
6,435 |
Total interest income | 12,697 11,460 |
|
Of which, negative interest income |
(118) |
(44) |
Financial liabilities measured at |
||
amortised cost |
8,763 |
8,645 |
Financial liabilities designated at |
||
FVPL |
5,622 |
3,729 |
Total interest expense |
14,385 12,374 |
|
Of which, positive interest expense |
(135) |
(16) |
The recognition of negative interest income and
positive
interest
expense
may
result
from
transactions in certain currencies which may at
times have negative interest rates. In addition,
‘Interest income’ includes fees paid on securities
borrowed
transactions.
‘Interest
expense’
includes fees received on securities loaned and
fees from prime brokerage customers for stock
loan transactions incurred to cover customers’
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
82
in $ millions |
2024 |
2023 |
Direct staff costs |
1,200 |
1,188 |
Management charges from other Morgan |
||
Stanley Group undertakings relating to |
||
staff costs |
604 |
614 |
Staff-related expenses |
1,804 |
1,802 |
Management charges from other Morgan |
||
Stanley Group undertakings relating to |
||
other services |
1,491 |
1,431 |
Brokerage fees |
994 |
795 |
Administration and corporate services |
101 |
94 |
Professional services |
127 |
143 |
UK Bank Levy |
51 |
44 |
Other taxes |
710 |
664 |
Commission and other similar |
||
arrangements |
255 |
256 |
Auditor's remuneration: |
||
Fees payable to the Company’s auditor |
||
and its associates for the audit of the |
||
Company’s annual financial statements |
3 |
4 |
Fees payable to the Company’s auditor |
||
and its associates for other services to |
||
the Group (1) |
2 |
1 |
Other |
79 |
47 |
Non-staff related expenses |
3,813 |
3,479 |
Total operating expense |
5,617 |
5,281 |
(1)
Fees payable to the Company's auditor for other services in 2024
comprise $44 thousand for the audit of the Company's
subsidiaries (2023: $45 thousand) and $1.7 million for other
The Group employs staff directly and also uses
the services of staff who are employed by other
Morgan Stanley Group undertakings.
Further
information
regarding
employee
compensation plans is provided in note 32.
including Directors, is analysed below:
Number |
||
2024 |
2023 |
|
Institutional Securities and Investment |
||
Management |
2,006 |
2,111 |
Support services |
86 |
83 |
2,092 |
2,194 |
|
Direct staff costs, including the Directors, are
analysed below:
in $ millions |
2024 |
2023 |
Wages and salaries |
1,007 |
1,018 |
Social security costs |
161 |
140 |
Pension costs |
32 |
30 |
1,200 |
1,188 |
The Group incurs management charges in
respect of Directors’ qualifying services provided
by employees of other Morgan Stanley Group
undertakings,
included
within
‘Management
charges from other Morgan Stanley Group
The
amount
of
remuneration
received
by
Directors in respect of their qualifying services to
in $ millions |
2024 |
2023 |
Current tax |
||
UK corporation tax charge |
||
-current year |
445 |
252 |
-prior year |
(20) |
(24) |
Double taxation relief |
||
-current year |
(191) |
(135) |
Overseas tax |
||
-current year |
294 |
189 |
-prior year |
1 |
(47) |
Total Current tax |
529 |
235 |
Deferred tax (benefit)/ expense |
||
Current year |
5 |
4 |
Effect of changes in tax rates |
— |
— |
Total Deferred tax |
5 |
4 |
Income tax expense |
534 |
239 |
Reconciliation of Effective Tax Rate
The Group’s effective tax rate is sensitive to the
geographic mix of profits and tax rates in non UK
jurisdictions (including the net effect of foreign
withholding taxes suffered by the Group), the
additional 3% UK banking surcharge, as well as
the non-deductibility of certain expenses for tax
purposes.
Finance Act 2021 raised the UK main rate of
corporation tax from 19% to 25% with effect from
1 April 2023. This impacts the tax charge in the
current year.
Finance Act 2022 reduced the corporation tax
surcharge rate from 8% to 3% with effect from 1
April
2023
and
increased
the
surcharge
allowance from £25 million to £100 million. This
impacts the tax charge in the current year.
The current year income tax expense is lower
(2023: lower) than that resulting from applying
the average standard rate of corporation tax for
banking companies in the UK for the year. The
main differences are:
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
83
in $ millions |
2024 |
2023 |
Profit before income tax |
1,959 |
1,288 |
Income tax expense using the average |
||
standard rate of corporation tax for |
||
banking companies in the UK of 28% |
549 |
358 |
(2023: 27.75%) |
||
Impact on tax of: |
||
Tax-deductible coupons on Additional |
(83) |
(90) |
Tier 1 capital instruments |
||
Non-deductible UK Bank Levy |
14 |
12 |
Other expenses: |
||
Other permanent differences |
6 |
(15) |
Movement in tax reserve |
1 |
(48) |
Group relief surrendered / (received) |
||
| for no cash consideration |
— |
16 |
Effect of tax rates different to the |
(6) |
— |
consolidation rate |
||
Net effect of foreign withholding taxes |
79 |
42 |
Over provided in prior years |
(19) |
(24) |
Tax exempt income |
(7) |
(12) |
Impact of deferred tax rate change and |
— |
— |
other deferred tax adjustments |
||
Total income tax expense in the |
||
| consolidated income statement |
534 |
239 |
The Group has a policy in place of surrendering
tax-deductible losses (‘group relief’) to other
members of the Morgan Stanley UK tax group
(which consists of entities within the Group and
the
wider
Morgan
Stanley
Group).
The
surrenders are for no cash consideration except
for certain entities surrendering to the Company,
where the cash consideration is equal to the
amount of tax relief received.
Within the Group, a number of subsidiary
companies generated tax-deductible losses that
were surrendered both inside and outside the
Group in the current and prior years.
In addition to the amount charged to the
consolidated income statement, the aggregate
amount of current and deferred tax relating to
each component of other comprehensive income
was as follows:
2024 |
|||
Tax |
|||
Before |
charge |
Net of |
|
in $ millions |
tax |
(1) |
tax |
Pension reserve: |
|||
Remeasurement of net |
(1) |
— |
(1) |
defined benefit liability |
|||
Foreign currency |
|||
translation reserve: |
|||
Foreign currency |
|||
translation differences |
(75) |
— |
(75) |
on foreign operations |
|||
Debt valuation reserve: |
|||
Changes in fair value |
|||
attributable to own credit |
|||
risk on financial liabilities |
(94) |
24 |
(70) |
designated at fair value |
|||
Other comprehensive |
(170) |
24 |
(146) |
income |
|||
(1)
The tax charge includes a $Nil million charge in relation to the
impact of change in deferred tax rate
2023 |
|||
Tax |
|||
Before |
charge |
Net of |
|
in $ millions |
tax |
(1) |
tax |
Pension reserve: |
|||
Remeasurement of net |
|||
defined benefit liability |
(1) |
— |
(1) |
Foreign currency |
|||
translation reserve: |
|||
Foreign currency |
|||
differences arising on |
|||
translation of foreign |
(8) |
— |
(8) |
operations |
|||
Net amount reclassified to |
|||
consolidated income |
|||
statement upon transfer of |
— |
— |
— |
subsidiary |
|||
Debt valuation reserve: |
|||
Changes in fair value |
|||
attributable to own credit |
|||
risk on financial liabilities |
(258) |
69 |
(189) |
designated at fair value |
|||
Other comprehensive |
(267) |
69 |
(198) |
income |
|||
(1) The tax charge includes a $nil million charge in relation to the
impact of change in deferred tax rate
In addition to the amount charged to the
consolidated
income
statement
and
the
consolidated
statement
of
comprehensive
income, a $47 million benefit (2023: $25 million
benefit) in relation to tax on share based
payments and other miscellaneous items is
recognised directly in the consolidated statement
of changes in equity.
The Group has no current tax exposure in
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
84
consolidated statement of financial position and the Company’s statement of financial position by the
IFRS 9 classifications as at 31 December 2024 and 31 December 2023.
Group |
Company |
|||||||
2024 |
||||||||
FVPL |
Amortised |
FVPL |
Amortised |
|||||
in $ millions |
FVPL |
designated |
cost |
Total |
FVPL |
designated |
cost |
Total |
Cash and short term |
— |
— |
16,711 |
16,711 |
— |
— |
16,336 |
16,336 |
deposits |
||||||||
Trading financial assets |
369,853 |
— |
— |
369,853 |
369,629 |
— |
— |
369,629 |
Secured financing: |
||||||||
Cash collateral on |
13,161 |
— |
— |
13,161 |
13,161 |
— |
— |
13,161 |
securities borrowed |
||||||||
Securities purchased |
||||||||
under agreements to |
89,833 |
— |
— |
89,833 |
89,833 |
— |
— |
89,833 |
resell |
||||||||
Other secured |
||||||||
financing |
12,459 |
— |
— |
12,459 |
12,459 |
— |
— |
12,459 |
Loans and advances |
7 |
— |
76 |
83 |
7 |
— |
33 |
40 |
Investment securities |
27 |
— |
— |
27 |
26 |
— |
— |
26 |
Trade and other |
559 |
— |
74,578 |
75,137 |
559 |
— |
74,762 |
75,321 |
receivables |
||||||||
Total financial assets |
485,899 |
— |
91,365 |
577,264 |
485,674 |
— |
91,131 |
576,805 |
Bank loans and |
— |
— |
2 |
2 |
— |
— |
2 |
2 |
overdrafts |
||||||||
Trading financial |
||||||||
| liabilities |
319,056 |
— |
— |
319,056 |
319,056 |
— |
— |
319,056 |
Secured borrowings: |
||||||||
Cash collateral on |
— |
20,688 |
6,852 |
27,540 |
— |
20,688 |
6,852 |
27,540 |
securities loaned |
||||||||
Securities sold under |
||||||||
agreements to |
— |
19,198 |
26,804 |
46,002 |
— |
19,198 |
26,804 |
46,002 |
repurchase |
||||||||
Other financial |
||||||||
liabilities |
— |
26,851 |
4,674 |
31,525 |
— |
26,851 |
4,449 |
31,300 |
Trade and other |
||||||||
| payables |
— |
348 |
77,554 |
77,902 |
— |
348 |
77,563 |
77,911 |
Debt and other |
||||||||
borrowings |
— |
16,014 |
23,509 |
39,523 |
— |
16,014 |
23,523 |
39,537 |
Subordinated debt |
— |
— |
11,798 |
11,798 |
— |
— |
11,798 |
11,798 |
Total financial |
||||||||
| liabilities |
319,056 |
83,099 |
151,193 |
553,348 |
319,056 |
83,099 |
150,991 |
553,146 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
85
Group |
Company |
|||||||
2023 |
||||||||
FVPL |
Amortised |
FVPL |
Amortised |
|||||
in $ millions |
FVPL |
designated |
cost |
Total |
FVPL |
designated |
cost |
Total |
Cash and short term |
— |
— |
18,403 |
18,403 |
— |
— |
18,070 |
18,070 |
deposits |
||||||||
Trading financial assets |
336,893 |
— |
— |
336,893 |
336,646 |
— |
— |
336,646 |
Secured financing: |
||||||||
Cash collateral on |
14,502 |
— |
— |
14,502 |
14,502 |
— |
— |
14,502 |
securities borrowed |
||||||||
Securities purchased |
||||||||
under agreements to |
90,195 |
— |
— |
90,195 |
90,129 |
— |
— |
90,129 |
resell |
||||||||
Other secured |
||||||||
financing |
15,271 |
— |
— |
15,271 |
15,271 |
— |
— |
15,271 |
Loans and advances |
— |
— |
133 |
133 |
— |
— |
103 |
103 |
Investment securities |
126 |
— |
— |
126 |
125 |
— |
— |
125 |
Trade and other |
||||||||
| receivables |
905 |
— |
72,806 |
73,711 |
905 |
— |
72,898 |
73,803 |
Total financial assets |
457,892 |
— |
91,342 |
549,234 |
457,578 |
— |
91,071 |
548,649 |
Bank loans and |
||||||||
overdrafts |
— |
— |
2 |
2 |
— |
— |
2 |
2 |
Trading financial |
||||||||
liabilities |
274,538 |
— |
— |
274,538 |
274,538 |
— |
— |
274,538 |
Secured borrowings: |
||||||||
Cash collateral on |
— |
22,578 |
7,925 |
30,503 |
— |
22,578 |
7,925 |
30,503 |
securities loaned |
||||||||
Securities sold under |
||||||||
agreements to |
— |
19,284 |
33,016 |
52,300 |
— |
19,284 |
33,016 |
52,300 |
repurchase |
||||||||
Other financial |
||||||||
liabilities |
— |
19,513 |
3,062 |
22,575 |
— |
19,513 |
2,748 |
22,261 |
Trade and other |
||||||||
payables |
— |
395 |
85,313 |
85,708 |
— |
395 |
85,308 |
85,703 |
Debt and other |
||||||||
borrowings |
— |
15,523 |
32,417 |
47,940 |
— |
15,523 |
32,378 |
47,901 |
| Subordinated debt |
— |
— |
11,796 |
11,796 |
— |
— |
11,796 |
11,796 |
| Total financial |
||||||||
liabilities |
274,538 |
77,293 |
173,531 |
525,362 |
274,538 |
77,293 |
173,173 |
525,004 |
Financial Liabilities Designated at FVPL
Cash
collateral
on
securities
loaned
and
securities sold under agreements to repurchase:
These balances are classified as ‘Designated at
FVPL’ where the financial liability forms part of a
group of financial assets or financial liabilities or
both,
which
are
managed,
evaluated
and
reported
internally
on
a
fair
value
basis;
otherwise, they are classified as ‘Financial
Other financial liabilities:
Liabilities arising as a
result
of
continuing
recognition
of
certain
financial assets and the simultaneous recognition
of an associated financial liability.
These
financial
liabilities
arising
from
continuing
recognition
of
certain
financial
assets
are
designated at FVPL in order to eliminate or
significantly reduce an accounting mismatch
which would otherwise arise or, where the
financial liabilities form a part of a group of
financial assets and financial liabilities which are
managed, evaluated and reported on internally
on a fair value basis.
Prepaid OTC contracts (included in ‘Trade and
other payables’):
The risk on these financial
instruments, is primarily hedged using trading
financial instruments including equity securities
and
interest
rate
swaps.
Prepaid
contract
liabilities are designated at FVPL as they form
part of a group of financial assets and liabilities
which are managed, evaluated and reported
internally on a fair value basis.
Issued structured notes (included in ‘Debt and
other borrowings’):
These relate to financial
liabilities which arise from selling structured
products, generally in the form of notes or
certificates. The structured notes are designated
at FVPL as the risks to which the Group is a
contractual party are risk-managed on a fair
value basis as part of the Group’s trading
portfolio and the risk is reported to key
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
86
management personnel on this basis. Refer to
note 16 for more information.
The cumulative change in fair value recognised
through other comprehensive income attributable
to
own
credit
risk
for
financial
liabilities
designated at FVPL at 31 December 2024 is a
loss of $512 million (2023: loss of $425 million).
During the year, a loss of $8 million (2023: loss of
$8 million) was realised as a result of the
derecognition of such financial liabilities and was
transferred from the ‘Debt valuation adjustment
reserve’ to ‘Retained earnings’.
The Group determines the amount of changes in
fair value attributable to changes in counterparty
credit risk or own credit risk, as relating to
financial liabilities designated at FVPL, by first
determining the fair value including the impact of
counterparty credit or own credit risk, and then
deducting
those
changes
in
fair
value
representing
managed
market
risk.
In
determining fair value, the Group considers the
impact of changes in own credit spreads based
upon observations of the secondary bond market
spreads when measuring the fair value for issued
structured notes. The Group considers that this
approach most faithfully represents the amount
of change in fair value due to both counterparty
credit risk and the Group’s own credit risk.
The carrying amount of financial liabilities
designated at FVPL for which the effect of
changes
in
those
liabilities’
credit
risk
is
presented within other comprehensive income
was $781 million lower than the contractual
amount due at maturity (2023: $630 million
Group |
2024 |
2023 |
||
in $ millions |
Assets |
Liabilities |
Assets |
Liabilities |
Government debt securities |
12,176 |
6,164 |
8,725 |
8,357 |
Corporate and other debt |
7,905 |
2,672 |
14,922 |
5,100 |
Corporate equities |
68,566 |
24,902 |
75,508 |
22,321 |
Derivatives (see note 11) |
281,206 |
285,318 |
237,738 |
238,760 |
369,853 |
319,056 |
336,893 |
274,538 |
|
Company |
2024 |
2023 |
||
in $ millions |
Assets |
Liabilities |
Assets |
Liabilities |
Government debt securities |
12,176 |
6,164 |
8,725 |
8,357 |
Corporate and other debt |
7,681 |
2,672 |
14,673 |
5,100 |
Corporate equities |
68,566 |
24,902 |
75,508 |
22,321 |
Derivatives (see note 11) |
281,206 |
285,318 |
237,740 |
238,760 |
369,629 |
319,056 |
336,646 |
274,538 |
|
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
87
Group |
2024 |
2023 |
||||||
Listed |
Listed |
|||||||
Bilateral |
Cleared |
derivative |
Bilateral |
Cleared |
derivative |
|||
in $ millions |
OTC |
OTC |
contracts |
Total |
OTC |
OTC |
contracts |
Total |
Derivative assets: |
||||||||
Interest rate contracts |
70,787 |
23 |
8 |
70,818 |
72,669 |
7,853 |
41 |
80,563 |
Credit contracts |
8,963 |
1,522 |
— |
10,485 |
7,068 |
2,100 |
— |
9,168 |
Foreign exchange and |
133,536 |
4,425 |
— |
137,961 |
92,967 |
2,575 |
— |
95,542 |
gold contracts |
||||||||
Equity contracts |
49,622 |
— |
7,658 |
57,280 |
39,533 |
— |
6,937 |
46,470 |
Commodity contracts |
4,193 |
— |
469 |
4,662 |
5,399 |
— |
596 |
5,995 |
267,101 |
5,970 |
8,135 |
281,206 |
217,636 |
12,528 |
7,574 |
237,738 |
|
Derivative liabilities: |
||||||||
Interest rate contracts |
71,659 |
37 |
14 |
71,710 |
75,755 |
6,409 |
50 |
82,214 |
Credit contracts |
8,295 |
1,634 |
— |
9,929 |
7,414 |
2,135 |
— |
9,549 |
Foreign exchange and |
132,847 |
4,090 |
10 |
136,947 |
87,979 |
2,738 |
16 |
90,733 |
gold contracts |
||||||||
Equity contracts |
55,618 |
— |
6,282 |
61,900 |
44,279 |
— |
5,891 |
50,170 |
Commodity contracts |
4,359 |
— |
473 |
4,832 |
5,177 |
— |
917 |
6,094 |
272,778 |
5,761 |
6,779 |
285,318 |
220,604 |
11,282 |
6,874 |
238,760 |
|
Company |
2024 |
2023 |
||||||
Listed |
Listed |
|||||||
Bilateral |
Cleared |
derivative |
Bilateral |
Cleared |
derivative |
|||
in $ millions |
OTC |
OTC |
contracts |
Total |
OTC |
OTC |
contracts |
Total |
Derivative assets: |
||||||||
Interest rate contracts |
70,787 |
23 |
8 |
70,818 |
72,669 |
7,853 |
41 |
80,563 |
Credit contracts |
8,963 |
1,522 |
— |
10,485 |
7,068 |
2,100 |
— |
9,168 |
Foreign exchange and |
||||||||
gold contracts |
133,536 |
4,425 |
— |
137,961 |
92,969 |
2,575 |
— |
95,544 |
Equity contracts |
49,622 |
— |
7,658 |
57,280 |
39,533 |
— |
6,937 |
46,470 |
Commodity contracts |
4,193 |
— |
469 |
4,662 |
5,399 |
— |
596 |
5,995 |
267,101 |
5,970 |
8,135 |
281,206 |
217,638 |
12,528 |
7,574 |
237,740 |
|
Derivative liabilities: |
||||||||
Interest rate contracts |
71,659 |
37 |
14 |
71,710 |
75,755 |
6,409 |
50 |
82,214 |
Credit contracts |
8,295 |
1,634 |
— |
9,929 |
7,414 |
2,135 |
— |
9,549 |
Foreign exchange and |
||||||||
gold contracts |
132,847 |
4,090 |
10 |
136,947 |
87,979 |
2,738 |
16 |
90,733 |
Equity contracts |
55,618 |
— |
6,282 |
61,900 |
44,279 |
— |
5,891 |
50,170 |
Commodity contracts |
4,359 |
— |
473 |
4,832 |
5,177 |
— |
917 |
6,094 |
272,778 |
5,761 |
6,779 |
285,318 |
220,604 |
11,282 |
6,874 |
238,760 |
|
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
88
Group |
Company |
|||
in $ millions |
2024 |
2023 |
2024 |
2023 |
Trade and other |
||||
receivables |
||||
(amortised |
||||
cost) |
||||
Trade |
||||
receivables: |
||||
Contracts with |
162 |
122 |
162 |
122 |
customers |
||||
Due from |
||||
other Morgan |
36,017 |
33,026 |
36,378 |
33,336 |
Stanley Group |
||||
undertakings |
||||
Trading |
34,622 |
36,200 |
34,536 |
36,151 |
receivables |
||||
Less: ECL |
(44) |
(50) |
(44) |
(50) |
70,757 |
69,298 |
71,032 |
69,559 |
|
Other |
||||
receivables (1) : |
||||
Held at |
3,613 |
3,340 |
3,389 |
3,132 |
exchanges |
||||
Due from |
||||
other Morgan |
202 |
168 |
335 |
207 |
Stanley Group |
||||
undertakings |
||||
Other amounts |
107 |
114 |
66 |
114 |
receivable |
||||
3,922 |
3,622 |
3,790 |
3,453 |
|
74,679 |
72,920 |
74,822 |
73,012 |
|
Trade and other |
||||
receivables |
||||
(FVPL) |
||||
Prepaid OTC |
223 |
387 |
223 |
387 |
contracts |
||||
Other |
336 |
518 |
336 |
518 |
559 |
905 |
559 |
905 |
|
Total |
75,238 |
73,825 |
75,381 |
73,917 |
(1)
There was no ECL on these amounts as at 31 December 2024 or
Composition of the Group
Details
of
all
subsidiary
undertakings
are
provided in the Appendix, including changes in
holdings of subsidiaries.
Company
in $ millions |
2024 |
2023 |
Cost |
||
At 1 January |
1,257 |
1,268 |
Capital Infusion |
97 |
— |
Disposals |
— |
— |
Dissolution |
— |
(11) |
At 31 December |
1,354 |
1,257 |
Impairment Provisions |
||
At 1 January |
(1,129) |
(1,136) |
Provisions made in the |
||
year |
(86) |
(4) |
Disposals |
— |
— |
Dissolution |
— |
11 |
At 31 December |
(1,215) |
(1,129) |
Carrying Amount |
||
At 31 December |
139 |
128 |
On 19 September 2024, the Directors approved
a $87 million capital infusion into Morgan Stanley
Langton Limited, a direct subsidiary of the
Company. The Company impaired its investment
in this subsidiary by $86 million. This change had
no impact to the Group.
All subsidiaries are included in the Group’s
14.
INTERESTS
IN
STRUCTURED
ENTITIES
The Group is involved with various special
purpose
entities
in
the
normal
course
of
business. In most cases, these entities are
deemed to be structured entities. The Group’s
interests in structured entities include certain
debt
and
equity
interests,
commitments,
guarantees, and derivative instruments.
The Group’s involvement with structured entities
arises primarily from:
•
Loans
made
to,
and
investments
in,
structured entities that hold debt, equity, real
estate or other assets;
•
Interests
purchased
in
connection
with
market-making
activities
and
retained
interests held as a result of securitisation
activities,
including
re-securitisation
transactions;
•
Structuring
of
asset-repackaged
notes
designed to meet the investment objectives of
clients; and
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
89
•
Certain
derivatives
entered
into
with
structured entities.
The risks associated with derivatives entered into
with structured entities are essentially the same
as similar derivatives with non-structured entity
counterparties and are managed as part of the
Company’s overall derivative exposure.
The Group determines whether it controls, and
therefore should consolidate, a structured entity
upon its initial involvement with the structured
entity and reassesses whether it should continue
to consolidate on an ongoing basis, as long as it
has
any
continuing
involvement
with
the
structured entity. Control is the ability to direct the
activities of the entity which most significantly
affect the returns of the entity and to determine
the parties which benefit from these returns.
Control can be exercised by a number of
mechanisms, including the ability to direct the
activities
of
the
entity
at
the
time
of
establishment, to manage the assets of the entity
and to determine the time and method of its
termination. The identification of control is based
upon an analysis of the design of the structured
entity, including the structured entity’s structure
and activities; assessment of the significance of
the powers to make economic decisions which
are held by the Group and its related parties and
whether such powers may be used to affect its
investor
returns;
and
consideration
of
the
significance of direct and indirect interests in the
structured entity which are held by the Group and
its related parties.
Consolidated Structured Entities
The table below shows information about the
structured entities which the Group consolidated.
Consolidated
structured
entity
assets
and
liabilities
are
presented
after
intercompany
eliminations and include assets financed on a
non-recourse basis.
| Client |
Mortgage and |
||
| 2024 |
intermedia- |
asset-backed |
|
in $ millions |
tion |
securitisations |
Total |
Assets of structured |
|||
| entities |
— |
316 |
316 |
Liabilities of |
— |
224 |
224 |
structured entities |
|||
2023 |
|||
Assets of structured |
94 |
471 |
565 |
entities |
|||
Liabilities of |
|||
| structured entities |
93 |
248 |
341 |
The Group has interests in structured entities
that the Group does not control and which are
therefore not consolidated.
The table below shows certain non-consolidated
structured entities in which the Group has an
interest
at
31
December
2024
and
at
31 December 2023. The table includes all
structured entities in which the Group has
determined that its maximum exposure to loss is
greater than specific thresholds or meets certain
other criteria. In addition the table includes
structured
entities
sponsored
by
unrelated
parties, as well as structured entities sponsored
by the Group; an example of the Group’s
involvement with these structured entities is its
secondary market-making activities.
The Group’s maximum exposure to loss is
dependent on the nature of the Group’s interest
in the structured entity and is limited to notional
amounts of certain liquidity facilities, total return
swaps, as well as the fair value of certain other
derivatives and investments the Group has made
in the structured entity. The reported exposure
does not include the offsetting benefit of hedges,
including total return swaps in relation to fund
investments and other entities, or any reductions
associated with the collateral held as part of a
transaction with the structured entity or with any
party to the structured entity. Where notional
amounts are used to quantify the maximum
exposure related to derivatives, such amounts do
not reflect changes in fair value already recorded
by the Group.
Liabilities issued by structured
entities generally are non-recourse to the Group.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
90
Mortgage | ||||
and | ||||
asset- | ||||
Client | backed | Collateral- | ||
intermed | securitis- | ised debt | ||
in $ millions | -iation | ations | obligations | Total |
31 December | ||||
2024 | ||||
Assets of the | ||||
structured entity | 15,768 | 7,253 | 850 | 23,871 |
Maximum | ||||
exposure to | ||||
loss: | ||||
Debt and | ||||
equity | 237 | 349 | 17 | 603 |
interests | ||||
Derivative and | ||||
other | 3,347 | — | — | 3,347 |
contracts | ||||
Total | ||||
maximum | ||||
exposure to | 3,584 | 349 | 17 | 3,950 |
loss | ||||
Carrying value | ||||
of interests - | ||||
assets (1) : | ||||
Debt and | ||||
equity | 237 | 349 | 17 | 603 |
interests | ||||
Derivative and | ||||
other | 1,609 | 1,609 | ||
contracts | ||||
Total carrying | ||||
value of | ||||
exposure to | 1,846 | 349 | 17 | 2,212 |
loss - assets | ||||
Carrying value | ||||
of interests - | ||||
liabilities (1) : | ||||
Debt and | ||||
equity | 1,335 | 1,335 | ||
interests | ||||
Derivative and | ||||
other | 420 | 420 | ||
contracts | ||||
Total carrying | ||||
value of | ||||
exposure to | 1,755 | 1,755 | ||
loss - liabilities | ||||
Additional | ||||
interests in | ||||
structured | 397 | |||
entities - | ||||
Other (2) |
(1) The carrying value of the interests in structured entities are
recognised in the consolidated statement of financial position in
Trading financial assets or Trading financial liabilities - derivatives or
Trading financial liabilities - Corporate and other debt.
(2) Primarily as a result of its secondary market-making activities,
the Group owned additional securities issued by securitisation
structured entities for which the maximum exposure to loss is less
than the specific thresholds noted earlier.
Mortgage | ||||
and | ||||
asset- | ||||
Client | backed | Collateral- | ||
intermed | securitis- | ised debt | ||
in $ millions | -iation | ations | obligations | Total |
31 December | ||||
2023 | ||||
Assets of the | ||||
structured entity | 18,699 | 8,335 | 709 | 27,743 |
Maximum | ||||
exposure to | ||||
loss: | ||||
Debt and | ||||
equity | 949 | 457 | 26 | 1,432 |
interests | ||||
Derivative and | ||||
other | 4,066 | — | — | 4,066 |
contracts | ||||
Total | ||||
maximum | ||||
exposure to | 5,015 | 457 | 26 | 5,498 |
loss | ||||
Carrying value | ||||
of interests - | ||||
assets (1) : | ||||
Debt and | ||||
equity | 948 | 457 | 26 | 1,431 |
interests | ||||
Derivative and | ||||
other | 1,310 | — | — | 1,310 |
contracts | ||||
Total carrying | ||||
value of | ||||
exposure to | 2,258 | 457 | 26 | 2,741 |
loss - assets | ||||
Carrying value | ||||
of interests - | ||||
liabilities (1) : | ||||
Debt and | ||||
equity | 1,363 | — | — | 1,363 |
interests | ||||
Derivative and | ||||
other | 446 | — | — | 446 |
contracts | ||||
Total carrying | ||||
value of | ||||
exposure to | 1,809 | — | — | 1,809 |
loss - liabilities | ||||
Additional | ||||
interests in | ||||
structured | 631 | |||
entities - | ||||
Other (2) |
(1) The carrying value of the interests in structured entities are
recognised in the consolidated statement of financial position in
Trading financial assets or Trading financial liabilities - derivatives or
Trading financial liabilities - Corporate and other debt.
(2) Primarily as a result of its secondary market-making activities,
the Group owned additional securities issued by securitisation
structured entities for which the maximum exposure to loss is less
than the specific thresholds noted earlier.
Client intermediation transactions represent a
range of transactions designed to provide
investors with returns based on the returns of
underlying
securities,
referenced
assets
or
indexes. The Group’s involvement in these
transactions is to act as the intermediary
between the Structured Entity and the client,
generally either through a derivative or by
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
91
intermediating financing.
Securitisation
transactions
generally
involve
structured entities. Primarily as a result of its
secondary market-making activities, the Group
owned
additional
securities
issued
by
securitisation structured entities for which the
maximum exposure to loss is less than the
specific threshold noted earlier.
Collateralised Debt Obligations (“CDOs”) are
structured entities that purchase a pool of assets
consisting of corporate loans (“collateralised loan
obligations”), corporate bonds, Asset-backed
Securities (“ABS”) or synthetic exposures on
similar assets through derivatives, and issue
multiple tranches of debt and equity securities to
investors. Although not obligated, the Group
generally makes a market in the securities issued
by structured entities in these transactions and
may retain unsold securities. These beneficial
interests are included in ‘Trading financial assets’
and are measured at fair value.
The Group’s primary risk exposure is to the
securities issued by the structured entity owned
by the Group, with the risk highest on the most
subordinate class of beneficial interests. These
securities generally are included in ‘Trading
financial assets – corporate and other debt’.
The
Group does not provide additional support in
these transactions through contractual facilities,
such as liquidity facilities, guarantees or similar
derivatives. The Group’s maximum exposure to
loss generally equals the fair value of the
securities owned.
The Group has not provided financial support to,
or otherwise agreed to be responsible for
supporting
financially,
any
unconsolidated
structured entity.
Sponsored
Unconsolidated
Structured
Entities
The Group considers itself the sponsor of certain
non-consolidated structured entities where it was
primarily involved in the establishment of a
structured entity and where, additionally, the
Group has been involved in the transfer of
assets; servicer of the assets; ability to access
the
assets;
marketing;
managing
activities;
purchasing
protection
or
providing
explicit
guarantees; when Morgan Stanley’s name is
associated with the structured entity or where
market participants may generally expect Morgan
Stanley to be associated with the structured
entity.
In some sponsored entities, the Group has been
involved with the structured entity through
establishing the structured entity, marketing of
products associated with the structured entity in
its own name, and/ or through involvement in the
design of the structured entity. The Group has no
interest in or exposure to loss from these entities
as at 31 December 2024 (2023: $nil).
During 2024, $2,287 million (2023: $666 million)
of
assets
were
transferred
to
sponsored
structured entities. It is the investors in the
structured entity, rather than the Group, that are
exposed
to
the
carrying
value
of
assets
transferred.
The
Group’s
exposure
to
the
sponsored entities is limited to net amounts
receivable from swap transactions with the entity
and is not directly linked to the transferred assets
themselves. The loss that the Group incurred in
relation to transactions with sponsored entities
during 2024 was $144 million (2023: loss of $45
million). Gains or losses are reported within ‘Net
gains from financial instruments at FVPL’ in the
consolidated income statement. The Group may
hedge its exposure to these transactions and the
gains or losses of this hedging activity are also
presented
within
‘Net
gains
from
financial
instruments at FVPL’, offsetting the gains or
Group |
Company |
|||
in $ millions |
2024 |
2023 |
2024 |
2023 |
Trade and other |
||||
payables |
||||
(amortised |
||||
cost) |
||||
Trade payables |
76,946 |
84,664 |
76,933 |
84,640 |
Other payables |
||||
Due to other |
||||
Morgan |
||||
Stanley Group |
1,054 |
1,003 |
1,210 |
1,050 |
undertakings |
||||
Other amounts |
||||
payable |
69 |
120 |
60 |
109 |
Other taxation |
||||
and social |
22 |
23 |
22 |
23 |
security |
||||
Accruals and |
446 |
368 |
443 |
366 |
Deferred Income |
||||
78,537 |
86,178 |
78,668 |
86,188 |
|
Trade and other |
||||
payables |
||||
(designated at |
||||
FVPL) |
||||
Prepaid OTC |
||||
contracts |
348 |
395 |
348 |
395 |
348 |
395 |
348 |
395 |
|
Total |
78,885 |
86,573 |
79,016 |
86,583 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
92
Group |
||
in $ millions |
2024 |
2023 |
Debt and other borrowings |
||
(amortised cost) |
||
Other borrowings (1) |
23,509 |
32,417 |
Debt and other borrowings |
||
(designated FVPL) |
||
Issued structured notes |
16,014 |
15,523 |
Total |
39,523 |
47,940 |
Company
in $ millions
2024
2023
Debt and other borrowings
(amortised cost)
Other borrowings
(1)
23,523
32,378
Debt and other borrowings
(designated FVPL)
Issued structured notes
16,014
15,523
Total
39,537
47,901
(1)
There is a floating charge over a pool of assets in favour of
MSIUK to secure certain intercompany loans which MSIUK has
provided to the Company and which are presented within ‘Other
borrowings’. The value of assets subject to this charge at 31
December 2024 was $23,363 million (2023: $29,967 million). The
floating charge is limited to $18,138 million (2023: $32,086
million) being the amount of the funding received by MSI down
Group |
||
in $ millions |
2024 |
2023 |
Subordinated Debt (amortised |
||
cost) |
||
Subordinated debt |
5,098 |
5,096 |
Senior subordinated debt |
6,700 |
6,700 |
Total |
11,798 |
11,796 |
As at 31 December 2024 and 31 December
2023, the Company’s
subordinated debt was the
same as for the Group.
The amounts subject to subordinated debt
agreements are wholly repayable as shown
below:
in $ millions |
2024 |
|||
Repayment |
Interest |
Accrued |
||
Counterparty |
date |
rate |
interest |
Balance |
11 August |
SOFR (1) |
|||
MSIUK |
2032 |
plus 1.44% |
35 |
1,400 |
13 June |
SOFR (1) |
|||
MSIUK |
2033 |
plus 2.34% |
103 |
2,500 |
15 |
||||
December |
SOFR (1) |
|||
MSIUK |
2034 |
plus 2.29% |
4 |
1,200 |
in $ millions |
2023 |
|||
Repayment |
Interest |
Accrued |
||
Counterparty |
date |
rate |
interest |
Balance |
11 August |
SOFR (1) |
|||
MSIUK |
2032 |
plus 1.44% |
38 |
1,400 |
13 June |
SOFR (1) |
|||
MSIUK |
2033 |
plus 2.34% |
106 |
2,500 |
15 |
||||
December |
SOFR (1) |
|||
MSIUK |
2034 |
plus 2.29% |
4 |
1,200 |
(1)
Secured Overnight Financing Rate ("SOFR")
The amounts subject to senior subordinated debt
agreements are wholly repayable as shown
below:
in $ millions |
2024 |
|||
Repayment |
Interest |
Accrued |
||
Counterparty |
date |
rate |
interest |
Balance |
30 January |
MS |
|||
MSIUK |
2026 (1) |
Proxy (2) |
— |
6,700 |
in $ millions |
2023 |
|||
Repayment |
Interest |
Accrued |
||
Counterparty |
date |
rate |
interest |
Balance |
29 January |
MS |
|||
MSIUK |
2025 (1) |
Proxy (2) |
— |
6,700 |
(1)
The repayment date can be extended for 395 days on each
business day but no later than 49 years from utilisation date.
(2)
Interest rate at which Morgan Stanley is offering loans, in the
relevant currency, to members of the Morgan Stanley Group on
such day, which counterparties have acknowledged and agreed
to apply to any loan, acting on an arm's length basis.
The senior subordinated debt, including accrued
interest, may be bailed in by the BOE in certain
circumstances.
The Group has not defaulted on principal,
interest
or
breached
any
terms
of
its
subordinated debt or senior subordinated debt
during the year.
All amounts outstanding under subordinated debt
agreements are repayable on the repayment
date.
Prepayment
of
the
$2,500
million
instrument, the $1,400 million instrument and the
$1,200 million instrument is at the Company’s
discretion from the contractual call option date.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
93
PROVISIONS
AND
CONTINGENT
LIABILITIES
Group |
||||
in $ millions |
Property |
Litigation |
Taxes |
Total |
At 1 January 2024 |
2 |
123 |
— |
125 |
Additional |
||||
provisions |
— |
5 |
23 |
28 |
Provisions utilised |
— |
(14) |
— |
(14) |
Unused provisions |
||||
reversed |
— |
(24) |
(22) |
(46) |
Foreign exchange |
||||
revaluation |
— |
(3) |
1 |
(2) |
At 31 December |
||||
2024 |
2 |
87 |
2 |
91 |
As at 31 December 2024 and 31 December
2023, the Company’s and Group’s
provisions for
litigation matters were the same as in the table
above. As at 31 December 2024, the provisions
for property matters for the Company were $2
million (31 December 2023: $1 million).
Litigation Matters
In addition to the matters described below, in the
normal course of business, the Group 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 third-party entities
that are, or would otherwise be, the primary
defendants in such cases are bankrupt, in
financial distress, or may not honour applicable
indemnification obligations. These actions have
included, but are not limited to, antitrust claims,
and matters arising from the Group’s sales and
trading businesses and activities in the capital
markets.
The Group is also involved, from time to time, in
other reviews, investigations and proceedings
(both formal and informal) by governmental or
other regulatory agencies regarding the Group’s
business, and involving, among other matters,
sales,
trading,
financing,
prime
brokerage,
market-making activities, investment banking
advisory services, capital markets activities,
financial
products
or
offerings
sponsored,
underwritten or sold by the Group, wealth and
investment
management
services,
and
accounting and operational matters, certain of
which
may
result
in
adverse
judgments,
settlements,
fines,
penalties,
disgorgement,
restitution, forfeiture, injunctions, limitations on
the Group’s ability to conduct certain business, or
other relief.
The Group 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 Group can
reliably estimate the amount of that loss, or the
range of loss, the Group accrues an estimated
loss by a charge to income, including with
respect to certain of the individual proceedings or
investigations described below.
The Group’s legal expenses can, and may in the
future, fluctuate from period to period, given the
current environment regarding government or
regulatory agency investigations and private
litigation affecting global financial services firms,
including the Group.
In many legal proceedings and investigations, it
is inherently difficult to determine whether any
loss is probable or more than remotely possible,
or to estimate the amount of any loss. In addition,
even where the Group has determined that a
loss is probable or more than remotely possible,
the Group may be unable to reliably estimate the
amount of the loss or range of loss. It is
particularly difficult to determine if a loss is
probable or more than remotely possible, or to
reliably estimate the amount of loss,
where the
factual record is being developed or contested or
where plaintiffs or government entities seek
substantial or indeterminate damages, restitution,
forfeiture, disgorgement or penalties. Numerous
issues
may
need
to
be
resolved
in
an
investigation
or
proceeding
before
a
determination can be made that a loss or
additional loss (or range of loss or range of
additional loss) is probable or more than
remotely possible, or to reliably estimate the
amount of loss, including through potentially
lengthy discovery or determination of important
factual matters, determination of issues related to
class certification, the calculation of damages or
other relief, and consideration of novel or
unsettled
legal
questions
relevant
to
the
proceedings or investigations in question.
The Group has identified below any individual
proceedings or investigations where the Group
believes a material economic outflow to be more
than
remotely
possible.
In
certain
legal
proceedings,
in which the Group has determined
that a material economic outflow is more than
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
94
remotely possible, the Group is unable to reliably
estimate the loss or range of loss.
There are
other matters in which the Group has determined
a loss or range of loss to be more than remotely
possible, but the Group does not believe, based
on current knowledge and after consultation with
counsel, that such losses could have a material
adverse
effect
on
the
Group’s
financial
statements as a whole, although the outcome of
such
proceedings
or
investigations
may
significantly impact the Group’s business or
results of operations for any particular reporting
period, or cause significant reputational harm.
The Group disclosure of the financial impact of
litigation is made by individual matter, where
material, except when it is not practicable or it is
seriously prejudicial to do so.
While the Group has identified below certain
proceedings or investigations that the Group
believes
to
be
material,
individually
or
collectively, 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 more than remotely possible.
On 5 October 2017, various institutional investors
filed a claim against the Group and another bank
in a matter now styled
Case number B-803-18
(previously
BS 99-6998/2017
), in the City Court
of Copenhagen, Denmark concerning their roles
as underwriters of the initial public offering
(“IPO”) in March 2014 of the Danish company
OW Bunker A/S. The claim seeks damages of
approximately DKK 529 million (approximately
$76 million) plus interest in respect of alleged
losses arising from investing in shares in OW
Bunker,
which
entered
into
bankruptcy
in
November 2014. Separately, on 29 November
2017, another group of institutional investors
joined
the
Group
and
another
bank
as
defendants to pending proceedings in the High
Court of Eastern Denmark against various other
parties involved in the IPO in a matter styled
C
ase number B-2073-16
. The claim brought
against the Group and the other bank has been
given its own
Case number B-2564-17
. The
investors claim damages of approximately DKK
767 million (approximately $111 million) plus
interest from the Group and the other bank on a
joint and several basis with the Defendants to
these proceedings. Both claims are based on
alleged prospectus liability; the second claim also
alleges professional liability of banks acting as
financial intermediaries. On 8 June 2018, the City
Court of Copenhagen, Denmark ordered that the
matters now styled
Case number B-803-18,
Case number B-2073-16
, and
Case number
B-2564-17
(the “Cases”) be heard together
before the High Court of Eastern Denmark. On 1
July 2024, defendants reached a conditional
settlement agreement with the plaintiffs in the
Cases. A conditional settlement agreement was
reached in an additional related claim to which
the Morgan Stanley Group is not a party but
which formed part of the complex of cases
proceeding before the High Court of Eastern
Denmark in connection with the bankruptcy of
OW Bunker (
Case number B-407-17
). The
conditional
settlement
agreements
were
conditioned upon approval of the settlement of
Case number B-407-17
by the 14th Division of
the Danish Court of Appeal Eastern Division.
Approval was granted on 26 August 2024, and
the settlement agreements are now final.
The Group and other financial institutions are
responding
to
a
number
of
governmental
investigations and civil litigation matters related
to allegations of anticompetitive conduct in
various aspects of the financial services industry,
including the matters described below.
Beginning in February of 2016, the Group and
certain Morgan Stanley Group affiliates were
named as a defendant in multiple purported
antitrust class actions now consolidated into a
single proceeding in the United States District
Court for the Southern District of New York
(“SDNY”) styled
In Re: Interest Rate Swaps
Antitrust Litigation
. Plaintiffs allege, inter alia, that
the Group and certain Morgan Stanley Group
affiliates, together with a number of other
financial institution defendants, violated US and
New York state antitrust laws from 2008 through
December of 2016 in connection with their
alleged efforts to prevent the development of
electronic exchange-based platforms for interest
rate swaps trading. Complaints were filed both
on behalf of a purported class of investors who
purchased interest rate swaps from defendants,
as well as on behalf of three operators of swap
execution facilities that allegedly were thwarted
by the defendants in their efforts to develop such
platforms. The consolidated complaints seek,
inter alia, certification of the investor class of
plaintiffs and treble damages. On 28 July 2017,
the court granted in part and denied in part the
defendants’ motion to dismiss the complaints. On
15 December 2023, the court denied the class
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
95
plaintiffs’ motion for class certification. On 29
December 2023, the class plaintiffs petitioned the
United States Court of Appeals for the Second
Circuit for leave to appeal that decision. On 28
February
2024,
the
parties
reached
an
agreement in principle to settle the class claims.
On 11 July 2024, the court granted preliminary
approval of the settlement.
On 21 February 2025, the UK Competition and
Markets Authority announced a settlement with
the Company and Morgan Stanley, as well as
other financial institutions, in connection with its
investigation
of
suspected
anti-competitive
arrangements in the financial services sector,
specifically regarding the Company and Morgan
Stanley’s activities concerning certain liquid fixed
income products between 2009 and 2012.
Separately, on 16 June 2023, the Company and
a Morgan Stanley Group undertaking were
named as defendants in a purported antitrust
class action in the United States District Court for
the SDNY styled
Oklahoma Firefighters Pension
and Retirement System v. Deutsche Bank
Aktiengesellschaft, et al.
, alleging, inter alia, that
the Company and a Morgan Stanley Group
undertaking, together with a number of other
financial institution defendants, violated US
antitrust laws in connection with their alleged
effort to fix prices of gilts traded in the United
States between 2009 and 2013. The complaint
seeks, inter alia, certification of the class of
plaintiffs and treble damages. On 16 September
2024, the court granted defendants’ joint motion
to dismiss, and the complaint was dismissed
without prejudice. The Company, the Morgan
Stanley Group undertaking and certain other
defendants have reached an agreement in
principle to settle the US litigation. On 17 March
2025, the court granted preliminary approval of
the settlement.
Tax Matters
The Group is responding to requests for
information and documents from authorities in
Germany related to the period 2006 to 2022,
including from the Federal Tax Office and the
Cologne Public Prosecutor, in relation to certain
equities transactions over dividend record dates
and
related
tax
matters.
The
Group
is
cooperating with the relevant authorities.
In matters styled
Case number 15/3637
and
Case number 15/4353
, the Dutch Tax Authority
(“Dutch Authority”) challenged in the Dutch courts
the prior set-off by a subsidiary undertaking of
the
Group
of
approximately
€124
million
(approximately
$128
million)
plus
accrued
interest of withholding tax credits against the
subsidiary undertaking of the Group’s corporation
tax liabilities for the tax years 2007 to 2012. The
Dutch Authority alleged that the subsidiary
undertaking of the Group was not entitled to
receive the withholding tax credits on the basis,
inter alia, that the subsidiary undertaking of the
Group did not hold legal title to certain securities
subject to withholding tax on the relevant dates.
On 26 April 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 12 May 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 19 January 2024, the Dutch High Court
granted
the
subsidiary
undertaking
of
the
Group’s appeal in matters re-styled
Case number
20/01884
and referred the case to the Court of
Appeal in The Hague. On 11 November 2024,
the
Morgan
Stanley
Group
reached
an
agreement
to
settle
the
Dutch Authority’s
challenges for the tax years 2007 to 2012, and
made payment of the prior set-off amounts and
interest indicated above. The case has been
withdrawn.
On 22 June 2021, Dutch criminal authorities
sought various documents in connection with an
investigation of the subsidiary undertaking of the
Group related to the civil claims asserted by the
Dutch Authority concerning the accuracy of the
subsidiary of the Group’s tax returns and the
maintenance of its books and records for 2007 to
2012. The Dutch criminal authorities have
requested additional information, and the Group
is continuing to respond to them in connection
with their ongoing investigation, and is engaging
with them as the criminal process progresses.
The preparation of the Group’s consolidated
financial statements requires management to
make judgements, estimates and assumptions
regarding the outcome of matters that are
uncertain, including those relating to tax.
The
Group has reserves arising on a number of
uncertain tax matters, for which management
has made judgements and interpretations about
the application of inherently complex tax laws
when determining these reserves. Whilst a range
of
outcomes
is
foreseeable,
management
considers the amount reserved to be a reliable
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
96
estimate of expected future liabilities after
consideration of all pertinent facts.
Refer to accounting policy note 3(k) for more
details on the Group’s accounting policy on
provisions. Tax provisions are included within
Current tax liabilities. Refer to note 8 for further
LIABILITIES
Deferred taxes are calculated on all temporary
differences under the liability method. The
movement in the deferred tax account is as
follows:
Group |
Company |
|||
2024 |
2023 |
2024 |
2023 |
|
Deferred |
Deferred |
Deferred |
Deferred |
|
tax |
tax |
tax |
tax |
|
asset/ |
asset/ |
asset/ |
asset/ |
|
in $ millions |
(liability) |
(liability) |
(liability) |
(liability) |
At 1 January |
231 |
151 |
230 |
150 |
Amount |
||||
recognised in the |
||||
| consolidated |
(5) |
(4) |
(5) |
(4) |
income statement |
||||
Amount |
||||
recognised in |
||||
consolidated |
||||
| statement of other |
24 |
69 |
24 |
69 |
comprehensive |
||||
income |
||||
Amount |
||||
recognised |
38 |
15 |
38 |
15 |
directly in equity |
||||
Impact of changes |
||||
in tax rates |
||||
recognised in the |
— |
— |
— |
|
consolidated |
||||
income statement |
||||
Impact of changes |
||||
in tax rates |
||||
recognised in |
||||
consolidated |
— |
— |
— |
|
statement of other |
||||
comprehensive |
||||
income |
||||
At 31 December |
288 |
231 |
287 |
230 |
For
the
purposes
of
presentation
in
the
consolidated statement of financial position,
certain deferred tax assets and liabilities have
been offset in accordance with IAS 12.
The deferred tax included in the consolidated
statement of financial position and changes
recorded in 'Income tax expense' are detailed
below:
in $ millions |
Group |
||
Other |
|||
comprehen- |
|||
Deferred |
Consolidated |
sive |
|
tax asset/ |
income |
income / |
|
2024 |
(liability) |
statement |
Equity |
Accelerated |
|||
| capital allowances |
1 |
— |
— |
Deferred |
|||
| compensation |
148 |
8 |
(36) |
Transitional |
|||
| adjustment |
(4) |
— |
(2) |
Temporary |
|||
differences arising |
|||
in respect of |
|||
changes in |
143 |
— |
(24) |
Group's and |
|||
Company's own |
|||
credit risk |
|||
Unrealised gains/ |
|||
| (losses) |
— |
(3) |
— |
288 |
5 |
(62) |
|
in $ millions |
Group |
||
Other |
|||
comprehen- |
|||
Deferred |
Consolidated |
sive |
|
tax asset/ |
income |
income / |
|
2023 |
(liability) |
statement |
Equity |
Accelerated |
1 |
— |
— |
| capital allowances |
|||
Deferred |
120 |
5 |
(14) |
| compensation |
|||
Transitional |
(6) |
— |
(1) |
| adjustment |
|||
Temporary |
|||
differences arising |
|||
in respect of |
|||
changes in |
119 |
(1) |
(69) |
Group's and |
|||
Company's own |
|||
credit risk |
|||
Unrealised gains/ |
(3) |
— |
— |
| (losses) |
|||
231 |
4 |
(84) |
|
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
97
in $ millions |
Company |
||
Other |
|||
comprehen- |
|||
Deferred |
Consolidated |
sive |
|
tax asset/ |
income |
income / |
|
2024 |
(liability) |
statement |
Equity |
Accelerated |
|||
| capital allowances |
1 |
— |
— |
Deferred |
|||
| compensation |
147 |
8 |
(36) |
Transitional |
|||
| adjustment |
(4) |
— |
(2) |
Temporary |
|||
differences arising |
|||
in respect of |
|||
changes in |
143 |
— |
(24) |
Group's and |
|||
Company's own |
|||
credit risk |
|||
Unrealised gains/ |
|||
| (losses) |
— |
(3) |
— |
287 |
5 |
(62) |
|
in $ millions |
Company |
||
Other |
|||
comprehen- |
|||
Deferred |
Consolidated |
sive |
|
tax asset/ |
income |
income / |
|
2023 |
(liability) |
statement |
Equity |
Accelerated |
|||
| capital allowances |
1 |
— |
— |
Deferred |
|||
| compensation |
119 |
5 |
(14) |
Transitional |
|||
| adjustment |
(6) |
— |
(1) |
Temporary |
|||
differences arising |
|||
in respect of |
|||
changes in |
119 |
(1) |
(69) |
Group's and |
|||
Company's own |
|||
credit risk |
|||
Unrealised gains/ |
|||
| (losses) |
(3) |
— |
— |
230 |
4 |
(84) |
The UK blended statutory rate is 28% for the
year, including an 3% corporation tax surcharge
on the profits of banking companies.
The net deferred tax asset shown above has
been
recognised
based
on
management’s
assessment that it is probable that the Group will
have taxable profits against which the temporary
At 31 December 2024 and 2023, the Group and
Company
had
the
following
outstanding
commitments arising from off-balance sheet
financial instruments:
in $ millions |
2024 |
2023 |
Commitments (1) |
||
Loan commitments |
207 |
19 |
Guarantees |
357 |
340 |
Unsettled securities purchased |
||
under agreements to resell (2) |
47,788 |
45,568 |
Unsettled securities sold under |
||
agreements to repurchase (2) |
36,467 |
30,618 |
Other commitments |
16 |
42 |
(1)
(1) Certain loan commitments, forward starting securities sold
under agreements to repurchase and guarantees are classified as
financial instruments mandatorily at fair value through profit and
loss or financial instruments designated at fair value through profit
or loss in accordance with note 3(c)(i) and 3(c)(ii).
(2)
(2) Unsettled securities purchased under agreements to resell
and sold under agreements to repurchase have a trade date at or
prior to 31 December and settle after the year end. The amounts
shown reflect the obligation to transfer or receive cash payments
in $ millions |
2024 |
2023 |
Authorised, Issued and |
||
fully paid: |
||
Ordinary shares of $1 |
||
each (1) |
10,935 |
10,935 |
Ordinary shares of £1 |
||
each (1) |
30 |
30 |
Class A ordinary shares of |
||
$1 each (2) |
1,500 |
1,500 |
Additional Tier 1 capital (2) |
4,300 |
4,300 |
Total equity instruments at |
||
31 December |
16,765 |
16,765 |
(1)
Ordinary shares of $1 each carry 99.8% of the voting rights
(2023: 99.8%)
Ordinary shares of £1 each carry 0.2% of the voting rights (2023:
0.2%)
Ordinary shares are pari passu with each other regardless of
currency.
(2)
Class A ordinary shares and Additional Tier 1 capital do not carry
Equity Instruments
At
31
December
2024,
the
total
equity
instruments which the Company authorised and
had in issue amounted to $16,765 million
(31 December 2023: $16,765 million) comprising
10,935,105,148 ordinary shares of $1 each,
17,615,107
ordinary
shares
of
£1
each,
1,500,000,000 Class A Non-voting ordinary
shares of $1 each and Additional Tier 1 capital
instruments of $4,300 million (31 December
2023: $4,300 million). All equity instruments are
fully paid. There have been no changes to equity
instruments for the Company from 1 January
2024 (2023: no change).
Ordinary Shares
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
98
The holders of the ordinary shares are entitled to
receive dividends as declared from time to time
and, excluding holders of the Class A ordinary
shares, are entitled, on a show of hands, to one
vote and, on a poll, one vote per share at
meetings of the shareholders of the Company. All
shares
rank
equally
with
regard
to
the
Company’s residual net assets. All ordinary
shares are recorded at the rates of exchange
AT1 Capital
AT1 capital issued by the Company comprises
three separate Instruments, with balances of
$2,200 million, $1,300 million and $800 million,
respectively. The Instruments include a trigger
mechanism whereby, if the Common Equity Tier
1 capital ratio of the Company or MSI Group falls
below 7%, the BOE as the UK Resolution
Authority also has the authority to trigger the
write down of the instruments upon the exercise
of statutory powers in a resolution scenario. In
this
situation,
Morgan
Stanley
International
Limited, the holder of the AT1, would have no
further rights against the Group in respect of the
AT1.
The Instruments have no defined maturity and
are
subordinated
to
senior
creditors
and
subordinated debt creditors of the Company. The
Instruments are not entitled to any participation in
the residual net assets of the Company. The
Instruments are callable at the Company’s
discretion, from 30 November 2023 for the
$2,200 million instrument, from 30 November
2025 for the $1,300 million instrument and from
30
November
2027
for
the
$800
million
instrument.
Coupons on the Instruments are non-cumulative.
Coupons are payable at a fixed rate of 7.5% per
annum for the $2,200 million instrument, 5.45%
per annum for the $1,300 million instrument and
7.42% per annum for the $800 million instrument.
Payment of the coupon is wholly at the discretion
of the Company.
Coupon interest on the $2,200 million, $1,300
million and $800 million instruments was paid on
2 December 2024 (see note 22).
Share Premium
The ‘Share premium account’ comprises the
capital raised in an issue of shares that exceeds
the nominal value of the shares.
Currency Translation Reserve
The ‘Currency translation reserve’ comprises all
foreign exchange differences arising from the
translation of the total assets less total liabilities
of foreign operations. The tax effect of these
movements is also included in the ‘Currency
translation reserve’.
Capital Contribution Reserve
The ‘Capital contribution reserve’ comprises
contributions of capital from the Group’s parent
company to subsidiaries of the Group.
Capital Redemption Reserve
The ‘Capital redemption reserve’ represents
transfers in prior years from retained earnings in
accordance with relevant legislation.
Pension Reserve
The ‘Pension reserve’ comprises cumulative
actuarial gains or losses on scheme assets and
obligations net of current tax and the impact of
the asset surplus ceiling (see note 33).
Debt Valuation Adjustment Reserve
The ‘Debt valuation adjustment reserve’ includes
the cumulative change in fair value of certain
financial liabilities designated at fair value
through profit or loss that is attributable to
changes in the credit risk of those liabilities at the
reporting date, together with the tax effect of
Dividends on ordinary shares paid to MSIUK
in $ |
|||
2024 |
millions |
||
Per |
|||
Type |
Date |
Amount |
share ($) |
Ordinary |
18 April 2024 |
180 |
0.014 |
Ordinary |
19 September 2024 |
345 |
0.028 |
Extraordinary |
19 September 2024 |
500 |
0.040 |
1,025 |
in $ |
|||
2023 |
millions |
||
Per |
|||
Type |
Date |
Amount |
share ($) |
Ordinary |
18 May 2023 |
1,000 |
0.080 |
Ordinary |
14 December 2023 |
180 |
0.014 |
1,180 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
99
On 18 May 2023, the Board approved for the
Company to target an ordinary dividend of 50%
of retained profit, after the impact of AT1
distributions,
subject
to
evolving
strategic
opportunities and capital requirements. See note
21 for further details.
On 3 April 2025, the Board approved a final
dividend of $160 million ($0.013 per ordinary
share) under the policy.
Coupons on on AT1 instruments
AT1 dividends were paid to MSI out of reserves
available for distribution on 2 December 2024
and 30 November 2023.
in $ millions
Instrument | 2024 | 2023 |
$2,200 million AT1 | 165 | 165 |
$1,300 million AT1 | 71 | 71 |
$800 million AT1 | 59 | 87 |
295 | 323 |
INFORMATION
Cash and Cash Equivalents
For the purposes of the consolidated statement
of cash flows, cash and cash equivalents
comprise the following balances, which have less
than three months maturity from the date of
acquisition:
in $ millions | 2024 | 2023 |
Cash and short term deposits | 16,711 | 18,403 |
Bank loans and overdrafts | (2) | (2) |
16,709 | 18,401 |
short term deposits’ is $6,758 million (2023:
$8,334 million) of segregated client money, held
in accordance with the FCA’s Client Money
Rules. Additionally, an amount for the Group of
$172 million (2023: $239 million) and for the
Company of $93 million (2023: $149 million)
represents other client money, that is not
available for use. The corresponding payable is
recognised and included in ‘Trade and other
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
100
Reconciliation of Cash Flows from Operating Activities
in $ millions |
Note |
2024 |
2023 |
Profit for the year |
1,425 |
1,049 |
|
Adjustments for: |
|||
Net Impairment reversal on financial instruments |
(1) |
— |
|
Depreciation on property, plant and equipment |
7 |
6 |
|
Provisions |
18 |
(18) |
(5) |
Interest income |
6 |
(12,697) |
(11,460) |
Interest expense |
6 |
14,385 |
12,374 |
Income tax expense |
8 |
534 |
239 |
Income tax - current and deferred tax |
47 |
25 |
|
Loss/(Gain) on modification of subordinated debt |
2 |
(2) |
|
Operating cash flows before changes in operating assets and liabilities |
3,684 |
2,226 |
|
Changes in operating assets |
|||
Net decrease in secured financing |
4,515 |
9,811 |
|
Net decrease/ (increase) in loans and advances |
50 |
(70) |
|
Net (increase)/ decrease in trade and other receivables |
(1,576) |
7,920 |
|
Net decrease in investment securities |
99 |
16 |
|
Net increase in trading financial assets |
(32,960) |
(7,511) |
|
Net increase in other assets |
(374) |
(291) |
|
(30,246) |
9,875 |
||
Changes in operating liabilities |
|||
Net (decrease)/ increase in secured borrowing |
(311) |
11,412 |
|
Net decrease in trade and other payables |
(7,588) |
(10,797) |
|
Net (decrease)/ increase in debt and other borrowings |
(8,487) |
14,868 |
|
Net increase/(decrease) in trading financial liabilities |
44,518 |
(24,152) |
|
Net decrease in other liabilities |
(48) |
(38) |
|
Net decrease in provisions |
(14) |
(7) |
|
28,070 |
(8,714) |
||
Interest received |
12,866 |
11,494 |
|
Interest paid |
(13,601) |
(11,939) |
|
Income taxes paid |
(169) |
(159) |
|
Effect of foreign exchange movements |
613 |
(190) |
|
Net cash flows from operating activities |
1,217 |
2,593 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
101
c.
Reconciliation of Equity and Liabilities arising from Financing Activities
Senior |
Total equity and |
||||
subordinated |
Subordinated |
liabilities from |
|||
in $ millions |
Note |
AT1 |
debt |
debt |
financing activities |
Balance as at 1 January 2023 |
4,300 |
3,900 |
8,898 |
17,098 |
|
Issuance |
17 |
— |
2,800 |
1,200 |
4,000 |
Repayment |
17 |
— |
— |
(5,000) |
(5,000) |
Gain on modification of subordinated debt |
— |
— |
(2) |
(2) |
|
Balance as at 31 December 2023 and 1 January 2024 |
4,300 |
6,700 |
5,096 |
16,096 |
|
Issuance |
17 |
— |
— |
— |
— |
Repayment |
17 |
— |
— |
— |
— |
Loss on modification of subordinated debt |
— |
— |
2 |
2 |
|
Balance as at 31 December 2024 |
4,300 |
6,700 |
5,098 |
16,098 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
102
The table below shows an analysis of assets and liabilities analysed according to when they are
expected to be recovered, realised or settled.
Group | 2024 | 2023 | ||||
Less than or | Less than or | |||||
equal to | More than | equal to | More than | |||
twelve | twelve | twelve | twelve | |||
in $ millions | months | months | Total | months | months | Total |
ASSETS | ||||||
Secured financing | 115,154 | 299 | 115,453 | 119,692 | 276 | 119,968 |
Loans and advances | 26 | 57 | 83 | 90 | 43 | 133 |
Investment securities | — | 27 | 27 | — | 126 | 126 |
Trade and other receivables | 75,103 | 135 | 75,238 | 73,045 | 780 | 73,825 |
Deferred tax assets | 58 | 230 | 288 | 46 | 185 | 231 |
Property, plant and equipment | — | 35 | 35 | — | 33 | 33 |
Other | 386,952 | 2 | 386,954 | 355,732 | 2 | 355,734 |
577,293 | 785 | 578,078 | 548,605 | 1,445 | 550,050 | |
LIABILITIES | ||||||
Secured borrowing | 102,796 | 2,271 | 105,067 | 103,263 | 2,115 | 105,378 |
Trade and other payables | 78,662 | 223 | 78,885 | 86,240 | 333 | 86,573 |
Debt and other borrowings | 7,142 | 32,381 | 39,523 | 12,586 | 35,354 | 47,940 |
Subordinated debt | — | 11,798 | 11,798 | — | 11,796 | 11,796 |
Post-employment benefit | ||||||
| obligations | — | 5 | 5 | — | 4 | 4 |
Other | 319,167 | 21 | 319,188 | 274,753 | — | 274,753 |
507,767 | 46,699 | 554,466 | 476,842 | 49,602 | 526,444 | |
Company | 2024 | 2023 | ||||
Less than or | Less than or | |||||
equal to | More than | equal to | More than | |||
twelve | twelve | twelve | twelve | |||
in $ millions | months | months | Total | months | months | Total |
ASSETS | ||||||
Secured financing | 115,154 | 299 | 115,453 | 119,626 | 276 | 119,902 |
Loans and advances | 26 | 14 | 40 | 90 | 13 | 103 |
Investment securities | — | 26 | 26 | — | 125 | 125 |
Trade and other receivables | 75,264 | 117 | 75,381 | 73,153 | 764 | 73,917 |
Deferred tax assets | 58 | 229 | 287 | 46 | 184 | 230 |
Investments in subsidiaries | — | 139 | 139 | — | 128 | 128 |
Property, plant and equipment | — | 21 | 21 | — | 16 | 16 |
Other | 386,514 | 2 | 386,516 | 355,197 | 2 | 355,199 |
577,016 | 847 | 577,863 | 548,112 | 1,508 | 549,620 | |
LIABILITIES | ||||||
Secured borrowing | 102,796 | 2,046 | 104,842 | 103,198 | 1,866 | 105,064 |
Trade and other payables | 78,793 | 223 | 79,016 | 86,250 | 333 | 86,583 |
Debt and other borrowings | 7,142 | 32,395 | 39,537 | 12,587 | 35,314 | 47,901 |
Subordinated debt | — | 11,798 | 11,798 | — | 11,796 | 11,796 |
Post-employment benefit | ||||||
| obligations | — | 2 | 2 | — | 1 | 1 |
Other | 319,156 | 21 | 319,177 | 274,684 | — | 274,684 |
507,887 | 46,485 | 554,372 | 476,719 | 49,310 | 526,029 | |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
103
Segment information is presented for the Group’s
reportable operating segments and geographical
information.
The
operating
segments
and
geographical information are based on the
Group’s management and internal reporting
structure.
Transactions
between
business
segments are on normal commercial terms and
conditions.
Reportable Operating Segment
Morgan
Stanley
structures
its
operating
segments primarily based upon the nature of the
financial products and services provided to
customers
and
Morgan
Stanley’s
internal
management
structure.
The
Group’s
own
operating segments are consistent with those of
Morgan Stanley.
The
Group
has
one
reportable
operating
segment, Institutional Securities, which includes
capital raising and financial advisory services;
corporate lending; sales, trading, financing and
market-making activities in equity and fixed
income securities and related products, including
global macro, credit and commodities products
and investment activities. The Group is a key
contributor to the execution of the Morgan
Stanley Group’s global Institutional Securities
segment strategy.
The Group operates in three geographic regions,
being EMEA, the Americas and Asia.
The
following
table
presents
selected
consolidated income statement and consolidated
statement of financial position information of the
Group’s operations by geographic area. The net
revenues, profit before tax and total assets
reported in the tables below are based on the
financial information that is used to produce the
Group’s financial statements. This reflects the
regional managed view of the Group’s operations
based on the location where the transactions are
recorded.
Geographical | ||||
Information | Net Revenue | Profit before Tax | ||
in $ millions | 2024 | 2023 | 2024 | 2023 |
EMEA | 4,699 | 4,300 | 751 | 506 |
Asia | 2,324 | 1,833 | 938 | 615 |
Americas | 552 | 436 | 270 | 167 |
Total | 7,575 | 6,569 | 1,959 | 1,288 |
Geographical Information | Total Assets | |
in $ millions | 2024 | 2023 |
EMEA | 274,204 | 291,853 |
Asia | 116,143 | 113,131 |
Americas | 187,731 | 145,066 |
Total | 578,078 | 550,050 |
Market risk refers to the risk that a change in the
level of one or more market prices, rates,
spreads, indices, implied volatilities (the price
volatility of the underlying instrument imputed
from option prices), correlations or other market
factors, such as market liquidity, will result in
losses for a position or portfolio.
Additional information on primary market risk
exposures, market risk management as well as
VaR methodology, assumptions and limitations is
presented in the 'Market risk' sub- section of the
'Risk Management' section of the Strategic
Report.
26.1.1 Primary Market Risk Exposures
During the year, the Company had exposures to
a wide range of market risk factors related to the
global markets in which it conducts its trading
activities. These market risk factors include
interest rate and credit spread risk, equity prices,
foreign exchange rates and commodity prices
and the associated implied volatilities.
The Company is exposed to interest rate and
credit spread risk, as well as associated implied
volatility risks, as a result of its market making
activities in interest rate or credit sensitive
financial instruments (e.g. risk arising from
changes in the level of interest rates, the shape
of the yield curve and credit spreads). The
activities from which those exposures arise and
the markets in which the Company is active
include, but are not limited to: interest rate and
credit derivatives, corporate and government
debt across both developed and emerging
markets
and
asset-backed
debt
(including
mortgage-related securities).
The Company is exposed to equity price and
implied volatility risk as a result of making
markets in equity securities and derivatives and
maintaining other positions (including positions in
non-public
entities).
Positions
in
non-public
entities may include, but are not limited to,
exposures to private equity, venture capital,
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
104
private partnerships, real estate funds and other
funds. Such positions are less liquid, have longer
investment horizons and are more difficult to
hedge than listed equities.
The Company is exposed to foreign exchange
rate and implied volatility risk as a result of
making markets in foreign currencies and foreign
currency derivatives, from maintaining foreign
exchange positions and from holding non-US
dollar-denominated financial instruments.
The Company has exposure to commodities.
This exposure is due to price and implied
volatility risk as a result of market-making
activities in crude and refined oil products,
natural gas, electricity, emissions, and precious
and base metals.
26.1.2 Risk Management
The Company manages its trading positions by
employing a variety of risk mitigation strategies.
These strategies include diversification of risk
exposures
and
hedging.
Hedging
activities
consist of the purchase or sale of positions in
related securities and financial instruments,
including a variety of derivative products (e.g.,
futures, forwards, swaps and options). Hedging
activities may not always provide effective
mitigation
against
trading
losses
due
to
differences in the terms, specific characteristics
or other basis risks that may exist between the
hedge instrument and the risk exposure that is
being hedged. Risk models are designed to
ensure these differences are captured and
appropriately capitalised.
The Company manages and monitors its market
risk exposures, including outright and basis risks,
in such a way as to maintain a portfolio that the
Company believes is well-diversified in the
aggregate with respect to market risk factors and
that reflects the Company’s aggregate risk
tolerance, as established by the Board. The
effectiveness
of
hedges
and
mitigants
is
monitored using processes such as risk and limit
reporting.
Aggregate market risk limits have been approved
for the Company in line with the risk appetite set
by the Board. Additional market risk limits are
assigned, as appropriate, to trading desks,
products and/ or regions and are commensurate
with the aggregate limits. MRD monitors market
risk measures against limits in accordance with
policies set by the MSI Board and senior
management.
26.1.3 Measurement - Value at Risk
The Company uses the statistical technique
known as VaR as one of the tools used to
measure, monitor and review the market risk
exposures
of
its
trading
portfolios.
MRD
calculates and distributes daily VaR-based risk
measures to various levels of management.
The Company calculates VaR using a model
based on historical simulation for general market
risk factors and name-specific equity risk, and a
Monte Carlo simulation for name-specific risk in
corporate bonds, loans and related derivatives.
Market risk factors’ daily moves are modelled
either as absolute changes or relative changes,
dependent on the most suitable stochastic
process (normal or log normal diffusion process)
to describe the daily risk factor changes. The
model constructs a distribution of hypothetical
daily changes in the value of trading portfolios
based on: historical observation of daily changes
in key market indices or other market risk factors;
and information on the sensitivity of the portfolio
values to these market risk factor changes.
26.1.4 VaR Methodology, Assumptions and
Limitations
The methodology for VaR at Morgan Stanley
Group is 1-year historical simulation. VaR profit
and losses are composed of greek and full-
revaluation
grid-based
risk
measures
in
combination with complete full-revaluation based
profit and losses. Historical simulations cover
both systematic and specific risk components.
The time series data is updated on a weekly
basis, with the exception of idiosyncratic risk
factors which are updated quarterly.
A set of internal processes and controls ensure
that all trading positions booked by the Company
are being included in VaR. Management VaR is
computed at a 95% level of confidence over a
one-day time horizon, which is a useful indicator
of possible trading losses resulting from adverse
daily market moves. The 95%/one-day VaR
corresponds to the unrealised loss in portfolio
value that, based on historically observed market
risk
factor
movements,
could
have
been
exceeded with a frequency of five times in every
100 trading days, if the portfolio were held
constant for one day.
The Company uses VaR as one of a range of risk
management tools. Among their benefits, VaR
models
permit
estimation
of
a
portfolio’s
aggregate market risk exposure, incorporating a
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
105
range of market risks and portfolio assets. One
key element of the VaR model is that it reflects
portfolio diversification or hedging activities.
However, VaR has various limitations, which
include but are not limited to: use of historical
changes in market risk factors, which may not be
accurate predictors of future market conditions,
and may not fully incorporate the risk of extreme
market events that are outsized relative to
observed historical market behaviour or reflect
the historical distribution of results beyond the
95% confidence interval; and reporting of losses
in a single day, which does not reflect the risk of
positions that cannot be liquidated or hedged in
one day. A small proportion of market risk
generated by trading positions is not included in
VaR.
The modelling of the risk characteristics of some
positions relies on approximations that, under
certain
circumstances,
could
produce
significantly different results from those produced
using more precise measures. VaR is most
appropriate as a risk measure for trading
positions in liquid financial markets and will
understate the risk associated with severe
events, such as periods of extreme illiquidity. The
Company is aware of these and other limitations
and, therefore, uses VaR as only one component
in its risk management oversight process. This
process also incorporates stress testing and
scenario analyses and extensive risk monitoring,
analysis, quantification of risk not captured in
VaR, and control at the trading desk, division,
entity and Company levels.
The Company is committed to continuous review
and enhancement of VaR methodologies and
assumptions to capture evolving risks associated
with changes in market structure and dynamics.
As
part
of
regular
process
improvement,
additional systematic and name-specific risk
factors may be added to improve the VaR
model’s ability to estimate more accurately risks
to specific asset classes or industry sectors.
Since the reported VaR statistics are estimates
based on historical data, VaR should not be
viewed as predictive of the Company’s future
revenues or financial performance or of its ability
to manage risk. There can be no assurance that
the Company’s actual losses on a particular day
will not exceed the VaR amounts indicated in the
following paragraphs or that such losses will not
occur more than five times in 100 trading days
for a 95%/one-day VaR. VaR does not predict the
magnitude of losses which, should they occur,
may be significantly greater than the VaR
amount.
VaR statistics are not readily comparable across
firms because of differences in the firms’
portfolios,
modelling
assumptions
and
methodologies. These differences can result in
materially-different VaR estimates across firms
for similar portfolios. The impact of such
differences varies depending on the factor history
assumptions, the frequency with which the factor
history is updated and the confidence level. As a
result, VaR statistics are more useful when
interpreted as indicators of trends in a firm’s risk
profile rather than as an absolute measure of risk
to be compared across firms.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
106
26.1.5 VaR for the Year Ended 31 December
2024
The table below presents the Management VaR
for the Company’s trading portfolio on a year-
end, average and annual high and low basis for
31 December 2024 and 31 December 2023.
95%/ one-day VaR for the year ended 31 | 95%/ one-day VaR for the year ended 31 | |||||||
| December 2024 | December 2023 | |||||||
Period | Period | |||||||
in $ millions | end | Average | High | Low | end | Average | High | Low |
Market risk category: | ||||||||
Interest rate and credit spread | 10 | 13 | 21 | 9 | 13 | 17 | 25 | 13 |
Equity price | 12 | 16 | 23 | 10 | 12 | 18 | 24 | 11 |
Foreign exchange rate | 14 | 7 | 15 | 3 | 5 | 6 | 13 | 3 |
Commodity price | 1 | 2 | 10 | — | 1 | 9 | 13 | 1 |
Less diversification benefit (1)(2) | (16) | (15) | N/A | N/A | (13) | (26) | N/A | N/A |
Primary Market Risk Categories | 21 | 23 | 28 | 17 | 18 | 24 | 30 | 17 |
Credit Portfolio (3) | 4 | 5 | 6 | 4 | 6 | 8 | 12 | 6 |
Less diversification benefit (1)(2) | (5) | (4) | N/A | N/A | (4) | (5) | N/A | N/A |
Total Management VaR | 20 | 24 | 30 | 18 | 20 | 27 | 36 | 20 |
(1)
Diversification benefit equals the difference between total trading VaR and the sum of the VaRs for the four risk categories. This benefit arises
because the simulated one-day losses for each of the four primary market risk categories occur on different days; similar diversification
benefits also are taken into account within each category.
(2)
N/A - Not Applicable. The minimum and maximum VaR values for the total VaR and each of the component VaRs might have occurred on
different days during the year and therefore the diversification benefit is not an applicable measure.
(3)
The Credit Portfolio VaR is disclosed as a separate category from the Primary Risk Categories and includes loans that are carried at fair
value and associated hedges as well as counterparty credit valuation adjustments and related hedges.
26.1.6 Non-trading Risks for the Year Ended
31 December 2024
The Company believes that sensitivity analysis is
an appropriate representation of the Company’s
non-trading
risks.
Reflected
below
is
this
analysis, which covers substantially all of the
non-trading risks in the Company’s portfolio, with
the exception of counterparty credit valuation
adjustments, which are covered in the previous
section.
26.1.7 Interest Rate Risk
The Company’s VaR excludes certain funding
liabilities and money market transactions that are
in the Banking Book.
The application of a parallel shift in interest rates
of 200 basis points increase or decrease to these
positions would result in a net loss or gain,
respectively, of $46.5 million as at 31 December
2024. This compares to a net loss or gain of
$64.2 million as at 31 December 2023.
26.1.8 Funding Liabilities
The
credit
spread
risk
sensitivity
of
the
Company’s
mark-to-market
funding
liabilities
corresponds
to
an
increase
in
value
of
approximately $6.8 million and $6.9 million for
each 1 basis point widening in the Group’s credit
spread
level
at
31
December
2024
and
31 December 2023 respectively.
26.1.9 Equity Investments Price Risk
The Group and Company are exposed to equity
price risk as a result of changes in the fair value
of its investments in listed and private equities
classified as fair value through profit or loss
(“FVPL”) financial assets. These investments are
predominantly
equity
positions
with
long
investment horizons, the majority of which are 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 asset values as
shown in the table below.
2024 | 2023 | |
in $ millions | 10% sensitivity | 10% sensitivity |
Investment securities | 3 | 13 |
26.1.10 Currency Risk
The Group and Company have foreign currency
exposure arising from foreign operations. The
majority of this foreign currency risk has been
hedged by other members of the Morgan Stanley
Group, primarily Morgan Stanley, by utilising
forward foreign currency exchange contracts.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
107
The Group and Company also have foreign
currency exposure arising from its trading
activities in currencies other than US dollars. The
Group and Company actively manage this
exposure by hedging with other Morgan Stanley
Group undertakings.
The analysis below details the foreign currency
exposure for the Group and Company, by foreign
currency, relating to the retranslation of branches
and subsidiaries which are not denominated in
US
dollars.
The
largest
foreign
currency
exposures for Group and Company are driven by
the Company’s South Korean branch and
Morgan
Stanley
Taiwan
Limited,
a
direct
subsidiary
of
the
Company.
The
analysis
calculates the impact on total comprehensive
income of a reasonably possible parallel shift of
the foreign currency in relation to the US dollar,
with all other variables held constant. This
analysis does not take into account the effect of
the foreign currency hedges held by other
members of the Morgan Stanley Group.
| 2024 | 2023 | |||||
| Sensitivity to applied percentage | Sensitivity to applied percentage | |||||
Group | change in currency (+/-) | change in currency (+/-) | ||||
Foreign | Other | Foreign | Other | |||
currency | Percentage | comprehensive | currency | Percentage | comprehensive | |
in $ millions | exposure | change applied | income | exposure | change applied | income |
Euro | 64 | 9% | 6 | (34) | 9% | (3) |
Taiwan New Dollar | 211 | 11% | 23 | 199 | 11% | 22 |
South Korean Won | 394 | 14% | 55 | 400 | 9% | 38 |
Swiss Franc | 45 | 9% | 4 | 45 | 9% | 4 |
714 | 88 | 610 | 61 | |||
| 2024 | 2023 | |||||
| Sensitivity to applied percentage | Sensitivity to applied percentage | |||||
Company | change in currency (+/-) | change in currency (+/-) | ||||
Foreign | Other | Foreign | Other | |||
currency | Percentage | comprehensive | currency | Percentage | comprehensive | |
in $ millions | exposure | change applied | income | exposure | change applied | income |
Euro | 52 | 9% | 5 | 55 | 9% | 5 |
South Korean Won | 394 | 14% | 55 | 400 | 9% | 38 |
Swiss Franc | 45 | 9% | 4 | 45 | 9% | 4 |
491 | 64 | 500 | 47 | |||
The reasonably possible percentage change in
the currency rate in relation to US dollars has
been calculated based on the greatest annual
percentage change over the 5 year period from 1
January 2019 to 31 December 2024 (2023: 1
January 2018 to 31 December 2023).
The Group also has foreign currency exposure
arising from its trading activities and assets and
liabilities in currencies other than US dollars,
which it actively manages by hedging with other
counterparty
does
not
meet
its
financial
obligations to the MSI Group. Credit risk includes
country risk, which is further described below.
Additional information on credit risk monitoring,
control and mitigation is presented in the 'Credit
risk' sub-section of the 'Risk Management'
section of the Strategic Report. The 'Country and
Sovereign Risk Exposure' sub-section does not
form part of the audited financial statements.
26.2.1 Risk Management and Measurement
26.2.1.1 Monitoring and Control
In order to help protect the Group from losses
resulting from its business activities, the Credit
Risk
Management
Department
evaluates,
monitors, controls and escalates credit risk at the
transaction, obligor and portfolio levels. The
Credit Risk Management Department also helps
to ensure that the creditworthiness of the Group’s
counterparties is reviewed on a regular basis.
The evaluation of counterparties includes an
assessment of the probability that an obligor will
default on its financial obligations and any
subsequent losses that may occur when an
obligor defaults. Credit risk exposure is also
actively
managed
through
various
risk
committees,
whose
membership
includes
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
108
individuals from the Credit Risk Management
Department.
The MSI Group Credit Limits Framework is one
of the primary tools used to monitor, manage,
and control credit risk exposures. The MSI Board
approves limits that reflect the credit risk
tolerance of the MSI Group and serve as a basis
from which more detailed limits are established.
The Credit Limits Framework includes single-
name limits and portfolio concentration limits by
country, industry and product type. Limits are
assigned based on multiple factors including the
size of counterparty and the counterparty’s
Probability of Default.
The Credit Risk Management Department also
works closely with the Market Risk Department
and applicable Business Units to monitor risk
exposures and to perform stress tests to identify,
analyse and control credit risk concentrations
arising in the Group’s lending and trading
activities. The stress tests shock market factors
(e.g. interest rates, commodity prices, credit
spreads), and risk parameters (e.g. default
probabilities and loss given default) to assess the
impact of stresses on exposures, profit and loss,
and the Group’s capital position. Stress tests are
conducted in accordance with established MSI
Group policies and procedures.
26.2.1.2 Credit Evaluation
The
evaluation
of
counterparties
includes
assigning obligor credit ratings, which reflect an
assessment of an obligor’s probability of default
and
loss
given
default.
Credit
evaluations
typically involve the assessment of financial
statements, leverage, liquidity, capital strength,
asset
composition
and
quality,
market
capitalisation, access to capital markets, and in
the case of certain loans, cash flow projections
and debt service requirements. The Credit Risk
Management
Department
also
evaluates
strategy, market position, industry dynamics,
management and other factors that could affect
the obligor’s risk profile. Additionally, the Credit
Risk Management Department evaluates the
relative position of the Group’s exposure in the
borrower’s capital structure and relative recovery
prospects, as well as adequacy of collateral (if
applicable) and other structural elements of the
particular transaction.
In addition to assessing and monitoring its credit
exposure and risk at the individual obligor level,
the Group also reviews its credit exposure and
risk to geographic regions. As at 31 December
2024, the Group had no significant geographical
concentration of risk but had credit exposure to
North America, Asia and Western Europe. In
addition, the Group pays particular attention to
smaller exposures in emerging markets given
their unique risk profile. Sovereign ceiling ratings
i.e. the maximum credit rating that can be
assigned to a counterparty with a designated
country of risk, are derived using methodologies
generally consistent with those employed by
external rating agencies.
At 31 December 2024, the Group’s material
credit exposures were to Corporates, Financial
Institutions
(including
Central
Clearing
Counterparties),
Central
Governments,
and
Central Banks through its Institutional Securities
business segment. The risk may be incurred
through a variety of activities, including, but not
limited to, the following:
•
entering into derivative contracts under which
counterparties may have obligations to make
payments to the Group;
•
extending credit to clients through lending
commitments;
•
providing short- or long-term funding that is
secured by physical or financial collateral
whose value may at times be insufficient to
fully cover the repayment amount;
•
posting margin and/or collateral to clearing
houses,
clearing
agencies,
exchanges,
banks, securities firms and other financial
counterparties;
•
placing funds on deposit at other financial
institutions to support the Group’s clearing
and settlement obligations; and
•
investing or trading in securities and loan
pools, whereby the value of these assets may
fluctuate based on realised or expected
defaults on the underlying obligations or
loans.
Meanwhile, at 31 December 2024, the Group’s
risk to industries identified as having high climate
transition and physical risk was not material.
26.2.2 Risk Mitigation
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
109
The Credit Risk Management Department may
seek to mitigate credit risk from its lending and
trading activities in multiple ways. At the
transaction level, the Credit Risk Management
Department seeks to mitigate risk through
management of key risk elements such as size,
tenor, financial covenants, seniority, netting and
collateral. At the obligor level, the Group may
reduce credit risk to a direct obligor by means of
third-party guarantees. Additionally, the Group
may actively hedge its credit exposure through
various financial instruments that may include
single-name, portfolio, and structured credit
derivatives. The Group may also sell, assign or
syndicate
funded
loans
and
lending
commitments in the primary and secondary loan
markets.
26.2.2.1 Netting
The MSI Group has policies in place for
assessing
the
validity,
enforceability
and
treatment of netting agreements with clients in
connection with its derivative trading activities
and repo-style transactions. In order to net a
group of similar exposures with a counterparty, a
valid and legally enforceable master netting
agreement must be in place between the Group
and the counterparty.
26.2.2.2 Collateral
The amount and type of collateral required by the
Group depends on an assessment of the
creditworthiness of the counterparty, and any
relevant regulation. The main types of collateral
held are cash or similarly highly-liquid assets.
The MSI Group has internal policies on the
acceptability of specific classes of collateral or
credit risk mitigation. The Group closely monitors
collateral held for financial assets considered to
be credit-impaired, as in such cases it is
considered more likely that the Group will take
possession of collateral to mitigate potential
credit losses.
26.2.2.3 Guarantees
A guarantee may reduce the Group’s credit risk
to a direct obligor through a documented
arrangement in which a third party agrees to be
responsible for some portion, or all, of the debt or
obligation of a counterparty. The MSI Group
maintains policies and procedures which set out
the process for determining the eligibility of the
guarantee. Only eligible guarantees can be used
for risk mitigation purposes.
26.2.2.4 Participations
The Group may also use participation as risk
mitigation
technique.
A
participation
is
a
documented agreement through which a lender
transfers to a third party (which may include an
affiliate), certain rights and obligations of the
lender under the applicable credit agreements, or
a portion thereof, without transferring record
ownership.
26.2.2.5
Securities
Purchased
Under
Agreements to Resell and Securities Borrowed
The Group manages credit exposure arising from
securities purchased under agreements to resell
and securities borrowed transactions by, in
appropriate circumstances, entering into master
netting agreements and collateral agreements
with counterparties that provide the Group, in the
event of a counterparty default, with the right to
net a counterparty’s rights and obligations under
such agreements and to liquidate and set off
collateral held by the Group against the net
amount owed by the counterparty. Under these
securities purchased under agreements to resell
and securities borrowed transactions, the Group
receives
collateral,
including
United
States
government
and
agency
securities,
other
sovereign government obligations, corporate and
other debt and corporate equities. The Group
also monitors the fair value of the underlying
securities
as
compared
with
the
related
receivable or payable, including accrued interest,
and, as necessary, requests additional collateral
to ensure such transactions are adequately
collateralised.
26.2.2.6 Derivatives
In
connection
with
its
derivatives
trading
activities, The Group may enter into master
netting agreements and collateral arrangements
with
counterparties.
These
master
netting
agreements and collateral arrangements may
provide the Group with the ability to demand
collateral, as well as to liquidate collateral and
offset receivables and payables covered under
the same master netting agreement in the event
of counterparty default. The Group monitors the
creditworthiness
of
counterparties
to
these
transactions on an ongoing basis and requests
additional collateral in accordance with collateral
arrangements when deemed necessary.
26.2.3 Exposure to Credit Risk
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
110
T
he maximum exposure to credit risk (“gross
credit
exposure”)
of
the
Group
as
at
31 December 2024 is disclosed below, based on
the carrying amounts of the financial assets and
the maximum amount that the Group could have
to pay in relation to unrecognised financial
instruments, which the Group believes are
subject to credit risk. The table includes financial
instruments subject to Expected Credit Loss
(“ECL”) and not subject to ECL.
Where
the
Group
enters
into
credit
enhancements, including receiving cash and
security
as
collateral
and
master
netting
agreements, to manage the credit exposure on
these financial instruments the financial effect of
the credit enhancements is disclosed below. The
net
credit
exposure
represents
the
credit
exposure remaining after the effect of the credit
enhancements.
Trading financial assets are subject to traded
credit risk through exposure to the issuer of the
financial asset; the Group manages this issuer
credit risk through its market risk management
infrastructure and this traded credit risk is
incorporated within the VaR based risk measures
included in the market risk disclosure. However,
listed derivatives are included below as they are
recognised as having credit risk exposure to
central counterparties.
Exposure to Credit Risk by Class
Group | 2024 | 2023 | ||||
| Credit | Credit | |||||
| Class | Gross credit | enhance- | Net credit | Gross credit | enhance- | Net credit |
in $ millions | exposure | ments | exposure(1) | exposure | ments | exposure(1) |
Subject to ECL: | ||||||
Cash and short-term deposits | 16,711 | — | 16,711 | 18,403 | — | 18,403 |
Loans and advances | 76 | — | 76 | 133 | — | 133 |
Trade and other receivables(2) | 74,578 | — | 74,578 | 72,806 | — | 72,806 |
Not subject to ECL: | ||||||
Trading financial assets: | ||||||
Derivatives | 281,206 | (270,311) | 10,895 | 237,738 | (228,506) | 9,232 |
Secured financing | 115,453 | (114,572) | 881 | 119,968 | (119,365) | 603 |
Loans and advances | 7 | — | 7 | — | — | — |
Trade and other receivables(2) | 559 | (181) | 378 | 905 | (283) | 622 |
488,590 | (385,064) | 103,526 | 449,953 | (348,154) | 101,799 | |
Unrecognised financial | ||||||
instruments | ||||||
Not subject to ECL: | ||||||
Loan commitments | 207 | (103) | 104 | 19 | — | 19 |
Unsettled securities purchased | 47,788 | — | 47,788 | 45,568 | — | 45,568 |
under agreements to resell(3) | ||||||
Total unrecognised financial | 47,995 | (103) | 47,892 | 45,587 | — | 45,587 |
instruments | ||||||
536,585 | (385,167) | 151,418 | 495,540 | (348,154) | 147,386 | |
(1)
Of the residual net credit exposure, intercompany cross product netting arrangements are in place which would allow Group an additional
$11,886 million of an available $36,067 million (31 December 2023: $7,835 million of an available $31,933 million) to be offset in the event of
default by certain Morgan Stanley counterparties.
(2)
Trade and other receivables primarily include cash collateral pledged against the payable on OTC derivative positions. These derivative
liabilities are included within trading financial liabilities in the consolidated statement of financial position.
(3)
For unsettled securities purchased under agreements to resell, collateral in the form of securities will be received at the point of settlement.
Since the value of collateral is determined at a future date, it is currently unquantifiable and not included in the table.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
111
Company | 2024 | 2023 | ||||
| Credit | Credit | |||||
| Class | Gross credit | enhance- | Net credit | Gross credit | enhance- | Net credit |
in $ millions | exposure | ments | exposure(1) | exposure | ments | exposure(1) |
Subject to ECL: | ||||||
Cash and short-term deposits | 16,336 | — | 16,336 | 18,070 | — | 18,070 |
Loans and advances | 33 | — | 33 | 103 | — | 103 |
Trade and other receivables(2) | 74,762 | — | 74,762 | 72,898 | — | 72,898 |
Not subject to ECL: | ||||||
Trading financial assets | ||||||
Derivatives | 281,206 | (270,311) | 10,895 | 237,740 | (228,508) | 9,232 |
Secured financing | 115,453 | (114,572) | 881 | 119,902 | (119,298) | 604 |
Trade and other receivables(2) | 559 | (181) | 378 | 905 | (283) | 622 |
488,356 | (385,064) | 103,292 | 449,618 | (348,089) | 101,529 | |
Unrecognised financial | ||||||
instruments | ||||||
Not subject to ECL: | ||||||
Loan commitments | 207 | (103) | 104 | 19 | — | 19 |
Unsettled securities purchased | ||||||
| under agreements to resell(3) | 47,788 | — | 47,788 | 45,568 | — | 45,568 |
Total unrecognised financial | ||||||
| instruments | 47,995 | (103) | 47,892 | 45,587 | — | 45,587 |
536,351 | (385,167) | 151,184 | 495,205 | (348,089) | 147,116 | |
(1)
Of the residual net credit exposure, intercompany cross product netting arrangements are in place which would allow an additional $11,867
million of an available $36,027 million (31 December 2023: $7,813 million of an available $31,933 million) to be offset in the event of default
by certain Morgan Stanley counterparties.
(2)
Trade and other receivables primarily include cash collateral pledged against the payable on OTC derivative positions. These derivative
liabilities are included within trading financial liabilities in the statement of financial position
(3)
For unsettled securities purchased under agreements to resell, collateral in the form of securities will be received at the point of settlement.
Since the value of collateral is determined at a future date, it is currently unquantifiable and not included in the table
The impact of master netting arrangements and
similar agreements on the Group’s ability to
offset financial assets and financial liabilities is
disclosed in note 29.
Exposure to Credit Risk by Internal Rating
Grades
Internal
credit
ratings
are
derived
using
methodologies generally consistent with those
used by external agencies:
Investment grade: AAA - BBB
Non-investment grade: BB – CCC
Default: D
The table below presents gross carrying/nominal
amount by internal rating grade. All exposures
subject to ECL are Stage 1, unless otherwise
shown.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
112
| Group | ||||||||
| Investment Grade | ||||||||
Non- | ||||||||
Investment | Unrated (1) / | |||||||
31 December 2024 | AAA | AA | A | BBB | Grade | Default (2) | Total | Net of ECL |
in $ millions | ||||||||
Subject to ECL: | ||||||||
Cash and short term | ||||||||
deposit | ||||||||
Stage 1 | — | 7,268 | 8,469 | 830 | 144 | — | 16,711 | 16,711 |
Stage 3 | — | — | — | — | 64 | — | 64 | — |
Loans and advances | ||||||||
Stage 1 | — | — | 76 | — | — | — | 76 | 76 |
Trade and other | ||||||||
receivables | ||||||||
Stage 1 | 2,053 | 4,577 | 47,574 | 10,753 | 8,411 | 1,195 | 74,563 | 74,563 |
Stage 3 | 2 | 3 | 7 | 2 | 2 | 43 | 59 | 15 |
2,055 | 11,848 | 56,126 | 11,585 | 8,621 | 1,238 | 91,473 | 91,365 | |
Not subject to ECL: | ||||||||
Trading financial assets - | ||||||||
| derivatives | 3,630 | 14,809 | 207,837 | 41,066 | 13,427 | 437 | 281,206 | 281,206 |
Secured financing | 921 | 6,941 | 91,030 | 5,610 | 10,930 | 21 | 115,453 | 115,453 |
Loans and advances | — | — | — | — | 7 | — | 7 | 7 |
Trade and other | ||||||||
| receivables | 295 | — | 251 | 9 | — | 4 | 559 | 559 |
4,846 | 21,750 | 299,118 | 46,685 | 24,364 | 462 | 397,225 | 397,225 | |
Unrecognised financial | ||||||||
instruments not subject | ||||||||
to ECL: | ||||||||
Unsettled securities | ||||||||
purchased under | — | 6,928 | 34,127 | 1,313 | 5,420 | — | 47,788 | 47,788 |
agreements to resell | ||||||||
Loan commitments | — | 3 | — | — | 145 | 59 | 207 | 207 |
— | 6,931 | 34,127 | 1,313 | 5,565 | 59 | 47,995 | 47,995 | |
(1)
For the unrated trade receivables, a lifetime ECL is calculated without considering whether SICR has occurred.
(2)
At 31 December 2024 there were $nil of Stage 3 in default.
The Cash and short term deposit loss allowance as at 31 December 2024 is $64 million
(31 December 2023: $77 million) and Trade and other receivables loss allowance as at 31 December
2024 is $41 million (31 December 2023: $50 million).
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
113
| Group | ||||||||
| Investment Grade | ||||||||
Non- | ||||||||
Investment | Unrated (1) / | |||||||
31 December 2023 | AAA | AA | A | BBB | Grade | Default (2) | Total | Net of ECL |
in $ millions | ||||||||
Subject to ECL: | ||||||||
Cash and short term | ||||||||
deposit | ||||||||
Stage 1 | — | 6,922 | 10,445 | 870 | 166 | — | 18,403 | 18,403 |
Stage 3 | — | — | — | — | 70 | 7 | 77 | — |
Loans and advances | ||||||||
Stage 1 | — | — | 133 | — | — | — | 133 | 133 |
Trade and other | ||||||||
receivables | ||||||||
Stage 1 | 1,362 | 6,026 | 43,865 | 12,209 | 8,793 | 528 | 72,783 | 72,783 |
Stage 3 | 2 | 2 | 5 | 5 | 2 | 57 | 73 | 23 |
1,364 | 12,950 | 54,448 | 13,084 | 9,031 | 592 | 91,469 | 91,342 | |
Not subject to ECL: | ||||||||
Trading financial assets - | ||||||||
| derivatives | 3,488 | 17,959 | 161,181 | 41,158 | 13,872 | 80 | 237,738 | 237,738 |
Secured financing | 453 | 9,286 | 86,280 | 15,643 | 8,306 | — | 119,968 | 119,968 |
Trade and other | ||||||||
receivables | 518 | — | 382 | — | 5 | — | 905 | 905 |
4,459 | 27,245 | 247,843 | 56,801 | 22,183 | 80 | 358,611 | 358,611 | |
Unrecognised financial | ||||||||
instruments not subject | ||||||||
to ECL: | ||||||||
Unsettled securities | ||||||||
purchased under | — | 5,498 | 35,972 | 646 | 3,452 | — | 45,568 | 45,568 |
agreements to resell | ||||||||
Loan commitments | — | 2 | — | — | 17 | — | 19 | 19 |
— | 5,500 | 35,972 | 646 | 3,469 | — | 45,587 | 45,587 | |
(1)
For the unrated trade receivables, a lifetime ECL is calculated without considering whether SICR has occurred.
(2)
At 31 December 2023 there were $nil of Stage 3 in default.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
114
| Company | ||||||||
| Investment grade | ||||||||
Non- | ||||||||
Investment | Unrated (1) / | |||||||
31 December 2024 | AAA | AA | A | BBB | Grade | Default (2) | Total | Net of ECL |
in $ millions | ||||||||
Subject to ECL: | ||||||||
Cash and short term | ||||||||
deposit | ||||||||
Stage 1 | — | 7,264 | 8,440 | 490 | 142 | — | 16,336 | 16,336 |
Stage 3 | — | — | — | — | 64 | — | 64 | — |
Loans and advances | ||||||||
Stage 1 | — | — | 33 | — | — | — | 33 | 33 |
Trade and other | ||||||||
receivables | ||||||||
Stage 1 | 2,053 | 4,577 | 47,736 | 10,753 | 8,411 | 1,217 | 74,747 | 74,747 |
Stage 3 | 2 | 3 | 7 | 2 | 2 | 43 | 59 | 15 |
2,055 | 11,844 | 56,216 | 11,245 | 8,619 | 1,260 | 91,239 | 91,131 | |
Not subject to ECL: | ||||||||
Trading financial assets - | ||||||||
| derivatives | 3,630 | 14,809 | 207,837 | 41,066 | 13,427 | 437 | 281,206 | 281,206 |
Secured financing | 921 | 6,941 | 91,030 | 5,610 | 10,930 | 21 | 115,453 | 115,453 |
Loans and advances | — | — | — | — | 7 | — | 7 | 7 |
Trade and other | ||||||||
receivables | 295 | — | 251 | 9 | — | 4 | 559 | 559 |
4,846 | 21,750 | 299,118 | 46,685 | 24,364 | 462 | 397,225 | 397,225 | |
Unrecognised financial | ||||||||
instruments not subject | ||||||||
to ECL: | ||||||||
Unsettled securities | ||||||||
purchased under | — | 6,928 | 34,127 | 1,313 | 5,420 | — | 47,788 | 47,788 |
agreements to resell | ||||||||
Loan commitments | — | 3 | — | — | 145 | 59 | 207 | 207 |
— | 6,931 | 34,127 | 1,313 | 5,565 | 59 | 47,995 | 47,995 | |
(1)
For the unrated trade receivables, a lifetime ECL is calculated without considering whether SICR has occurred.
(2)
At 31 December 2024 there were $nil of Stage 3 in default.
The Cash and short term deposit loss allowance as at 31 December 2024 is $64 million
(31 December 2023: $77 million) and Trade and other receivables loss allowance as at 31 December
2024 is $41 million (31 December 2023: $50 million).
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
115
| Company | ||||||||
| Investment grade | ||||||||
Non- | ||||||||
Investment | Unrated (1) / | |||||||
31 December 2023 | AAA | AA | A | BBB | Grade | Default (2) | Total | Net of ECL |
in $ millions | ||||||||
Subject to ECL: | ||||||||
Cash and short term | ||||||||
deposit | ||||||||
Stage 1 | — | 6,917 | 10,417 | 573 | 163 | — | 18,070 | 18,070 |
Stage 3 | — | — | — | — | 70 | 7 | 77 | — |
Loans and advances | ||||||||
Stage 1 | — | — | 103 | — | — | — | 103 | 103 |
Trade and other | ||||||||
receivables | ||||||||
Stage 1 | 1,363 | 6,026 | 43,970 | 12,209 | 8,794 | 513 | 72,875 | 72,875 |
Stage 3 | 2 | 2 | 5 | 5 | 2 | 57 | 73 | 23 |
1,365 | 12,945 | 54,495 | 12,787 | 9,029 | 577 | 91,198 | 91,071 | |
Not subject to ECL: | ||||||||
Trading financial assets - | 3,488 | 17,959 | 161,183 | 41,158 | 13,872 | 80 | 237,740 | 237,740 |
derivatives | ||||||||
Secured financing | 452 | 9,282 | 86,229 | 15,639 | 8,300 | — | 119,902 | 119,902 |
Trade and other | ||||||||
| receivables | 518 | — | 382 | — | 5 | — | 905 | 905 |
4,458 | 27,241 | 247,794 | 56,797 | 22,177 | 80 | 358,547 | 358,547 | |
Unrecognised financial | ||||||||
instruments not subject | ||||||||
to ECL: | ||||||||
Unsettled securities | ||||||||
purchased under | — | 5,498 | 35,972 | 646 | 3,452 | — | 45,568 | 45,568 |
agreements to resell | ||||||||
Loan commitments | — | 2 | — | — | 17 | — | 19 | 19 |
— | 5,500 | 35,972 | 646 | 3,469 | — | 45,587 | 45,587 | |
(1)
For the unrated trade receivables, a lifetime ECL is calculated without considering whether SICR has occurred.
(2)
Liquidity risk is the risk that the MSI Group’s
financial condition or overall soundness is
adversely affected by an inability or perceived
inability to meet its financial obligations in a
timely manner. Liquidity risk encompasses the
associated funding risks triggered by stress
events, which may cause unexpected changes in
funding needs or an inability to raise new
funding. Additional information on liquidity risk
monitoring, control and mitigation is presented in
the 'Liquidity risk' sub-section of the 'Risk
Management' section of the Strategic Report.
26.3.1 Required Liquidity Framework
The MSI Group's Liquidity Risk Limit Framework
is critical to helping ensure that the Company
maintains sufficient liquidity reserves and durable
funding sources to meet its daily obligations and
to withstand unanticipated stress events. The
core
component
of
the
Liquidity
Risk
Management
Framework
is
the
Required
Liquidity Framework, which considers Liquidity
Stress Tests and Liquidity Resources. Liquidity
Risk Department (“LRD”), as second line of
defence, has a comprehensive limit and KRI
framework in place.
The Required Liquidity Framework establishes
the amount of liquidity the Company must hold in
both normal and stressed environments to
ensure that the entity’s financial condition and
overall soundness are not adversely affected by
an inability (or perceived inability) to meet
financial obligations in a timely manner.
The Required Liquidity Framework ensures the
entity holds sufficient liquidity to meet both the
regulatory and internal stress test requirements
at the legal entity level. In order to measure
liquidity risk the MSI Group uses a range of
approaches (point-in-time, forward-looking and
backward looking) at product and Business Unit
levels.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
116
The Company maintains sufficient 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 considering the
following components: maturity profile, balance
sheet size and composition; funding needs in a
stressed environment, inclusive of contingent
cash
outflows;
funding
currency,
collateral
requirements and regulatory requirements.
26.3.2 Liquidity Limits
The Group has a comprehensive set of limits,
KRI and targets to manage liquidity risk within
the defined liquidity risk appetite. The Liquidity
risk limit and KRI framework is owned by the
LRD,
who
then
recommend
and
set
the
Company’s liquidity risk limits and KRIs taking
into consideration the risk profile, complexity,
activities and size. LRD maintains limits at
various levels of governance structure to support
linkages between overall risk appetite, which is
determined by the MSI Board, and more granular
risk-taking decisions and activities. Liquidity limits
are set to manage various risk drivers, e.g.
Minimum Liquidity requirements, Minimum Cash
requirements,
Secured
Funding,
Unsecured
funding,
Prime
Brokerage,
Derivatives
and
Currency risk.
LRD ensures transparency of material liquidity
risks, compliance with established risk limits and
KRIs as well as escalation of risk concentrations
to appropriate senior management. The liquidity
risk metrics and limits are summarised in reports
produced by LRD that are circulated to and
discussed with the EMEA ALCO, EMEA Risk
Committee and the MSI Risk Committee as
appropriate.
26.3.3 Maturity Analysis
In the following maturity analysis of financial
liabilities, derivative contracts and other financial
liabilities held as part of the Group’s and
Company’s trading activities are presented at fair
value, consistent with how these financial
liabilities are managed, and disclosed as on
demand. Derivatives not held as part of the
Group’s trading activities and financial liabilities
designated at fair value through profit or loss
which contain an embedded derivative are
disclosed according to their earliest contractual
maturity; all such amounts are presented at their
fair value, consistent with how these financial
liabilities
are
managed. All
other
amounts
represent undiscounted cash flows payable by
the Group or Company arising from its financial
liabilities to their earliest contractual maturities as
at 31 December 2024 and 31 December 2023.
Repayments of financial liabilities that are subject
to immediate notice are treated as if notice were
given immediately and are classified as on
demand.
This presentation is considered by the
Group and Company to appropriately reflect the
liquidity risk arising from those financial liabilities,
and is consistent with how the liquidity risk on
these financial liabilities is managed by the
Group and Company.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
117
in $ millions | Group | ||||||
Greater | |||||||
Less than 1 | 1 month - 3 | 3 months - | 1 year - 5 | than 5 | |||
31 December 2024 | On demand | month | months | 1 year | years | years | Total |
Financial liabilities | |||||||
Bank loans and overdrafts | 2 | — | — | — | — | — | 2 |
Trading financial liabilities: | |||||||
Derivatives | 285,318 | — | — | — | — | — | 285,318 |
Other | 33,738 | — | — | — | — | — | 33,738 |
Secured borrowing | 83,144 | 9,358 | 3,976 | 6,692 | 2,301 | 106 | 105,577 |
Trade and other payables | 77,412 | — | 41 | 412 | 15 | 22 | 77,902 |
Debt and other borrowings | 2,557 | 356 | 1,853 | 3,355 | 26,445 | 6,017 | 40,583 |
Subordinated debt | — | 235 | 64 | 475 | 7,936 | 6,231 | 14,941 |
Total financial liabilities | 482,171 | 9,949 | 5,934 | 10,934 | 36,697 | 12,376 | 558,061 |
Unrecognised financial | |||||||
instruments | |||||||
Guarantees | 357 | — | — | — | — | — | 357 |
Loan commitments | 207 | — | — | — | — | — | 207 |
Other commitments | 16 | — | — | — | — | — | 16 |
Unsettled securities purchased | 43,249 | 1,905 | 275 | 1,280 | 1,079 | — | 47,788 |
under agreements to resell (1) | |||||||
Total unrecognised financial | 43,829 | 1,905 | 275 | 1,280 | 1,079 | — | 48,368 |
instruments | |||||||
31 December 2023 | |||||||
Financial liabilities | |||||||
Bank loans and overdrafts | 2 | — | — | — | — | — | 2 |
Trading financial liabilities: | |||||||
Derivatives | 238,760 | — | — | — | — | — | 238,760 |
Other | 35,778 | — | — | — | — | — | 35,778 |
Secured borrowing | 73,750 | 13,322 | 7,563 | 9,094 | 2,083 | 152 | 105,964 |
Trade and other payables | 85,214 | — | 33 | 299 | 148 | 14 | 85,708 |
Debt and other borrowings | 2,521 | 398 | 8,656 | 2,709 | 29,049 | 6,446 | 49,779 |
Subordinated debt | — | 39 | 71 | 532 | 7,796 | 6,315 | 14,753 |
Total financial liabilities | 436,025 | 13,759 | 16,323 | 12,634 | 39,076 | 12,927 | 530,744 |
Unrecognised financial | |||||||
instruments | |||||||
Guarantees | 340 | — | — | — | — | — | 340 |
Loan commitments | 19 | — | — | — | — | — | 19 |
Other commitments | 42 | — | — | — | — | — | 42 |
Unsettled securities purchased | 42,678 | 2,380 | — | 510 | — | — | 45,568 |
under agreements to resell (1) | |||||||
Total unrecognised financial | 43,079 | 2,380 | — | 510 | — | — | 45,969 |
instruments |
(1)
The Company enters into forward starting reverse repurchase agreements (agreements which have a trade date at or prior to 31 December
and settle subsequent to period end).
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
118
in $ millions | Company | ||||||
Greater | |||||||
Less than 1 | 1 month - 3 | 3 months - | 1 year - 5 | than 5 | |||
31 December 2024 | On demand | month | months | 1 year | years | years | Total |
Financial liabilities | |||||||
Bank loans and overdrafts | 2 | — | — | — | — | — | 2 |
Trading financial liabilities: | |||||||
Derivatives | 285,318 | — | — | — | — | — | 285,318 |
Other | 33,738 | — | — | — | — | — | 33,738 |
Secured borrowing | 83,144 | 9,358 | 3,976 | 6,692 | 2,183 | — | 105,353 |
Trade and other payables | 77,422 | — | 41 | 412 | 15 | 22 | 77,912 |
Debt and other borrowings | 2,557 | 357 | 1,854 | 3,364 | 26,460 | 6,017 | 40,609 |
Subordinated debt | — | 235 | 64 | 475 | 7,936 | 6,231 | 14,941 |
Total financial liabilities | 482,181 | 9,950 | 5,935 | 10,943 | 36,594 | 12,270 | 557,873 |
Unrecognised financial | |||||||
instruments | |||||||
Guarantees | 357 | — | — | — | — | — | 357 |
Loan commitments | 207 | — | — | — | — | — | 207 |
Other commitments | 16 | — | — | — | — | — | 16 |
Unsettled securities purchased | 43,249 | 1,905 | 275 | 1,280 | 1,079 | — | 47,788 |
under agreements to resell (1) | |||||||
Total unrecognised financial | |||||||
instruments | 43,829 | 1,905 | 275 | 1,280 | 1,079 | — | 48,368 |
31 December 2023 | |||||||
Financial liabilities | |||||||
Bank loans and overdrafts | 2 | — | — | — | — | — | 2 |
Trading financial liabilities: | |||||||
Derivatives | 238,760 | — | — | — | — | — | 238,760 |
Other | 35,778 | — | — | — | — | — | 35,778 |
Secured borrowing | 73,750 | 13,322 | 7,563 | 9,029 | 1,987 | — | 105,651 |
Trade and other payables | 85,209 | — | 33 | 299 | 148 | 14 | 85,703 |
Debt and other borrowings | 2,521 | 400 | 8,657 | 2,717 | 29,010 | 6,446 | 49,751 |
Subordinated debt | — | 39 | 71 | 532 | 7,797 | 6,315 | 14,754 |
Total financial liabilities | 436,020 | 13,761 | 16,324 | 12,577 | 38,942 | 12,775 | 530,399 |
Unrecognised financial | |||||||
instruments | |||||||
Guarantees | 340 | — | — | — | — | — | 340 |
Loan commitments | 19 | — | — | — | — | — | 19 |
Other commitments | 42 | — | — | — | — | — | 42 |
Unsettled securities purchased | |||||||
under agreements to resell (1) | 42,678 | 2,380 | — | 510 | — | — | 45,568 |
Total unrecognised financial | |||||||
instruments | 43,079 | 2,380 | — | 510 | — | — | 45,969 |
The Group does not expect that all of the cash
flows
associated
with
financial
guarantees,
letters of credits and loan commitments will be
26.4 Operational Risk
26.4.1 Priority Non Financial Risks ("NFRs")
Pathways and End Risks
The
Group has a structured process in place to
determine its Priority NFRs. The Morgan Stanley
International
Group’s
Operational
Risk
Department (“ORD”) reviews Operational Risk
data elements and forms an understanding of the
risk issues within the
Business Units and infrastructure areas. ORD
proposes additions, edits and deletions of the
MSI Group’s Priority NFRs,
supported by
information and analytics performed. These
proposals are presented to the governance
committees (refer to Note 26.4.4) to review,
challenge and ultimately to recommend for
adoption by the MSI Board.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
119
Priority NFRs are defined as i) Pathways (a
means or threat by which a detrimental impact on
the Firm, Markets, or Clients may be generated),
and ii) End Risks (an event with a frequency or
magnitude that has definitive business impact).
As of 31 December 2024, the MSI Group Board
approved Priority NFRs Pathways and End Risks
are as follows:
Pathways:
•
Cyber
•
Third Party
•
Conduct
End Risks:
•
Business Disruption and Resilience
•
Financial Crimes
•
Information Security
•
Market Abuse and Trading Practices
•
Reporting Errors
•
Sales Practice, Product and Investment
Advisory Risk
•
Transaction Processing and Execution
•
Unauthorised Trading, Theft and Fraud
26.4.2 Risk Management and Measurement
A variety of risk processes and mitigants are
used to manage operational risk exposures.
These include a strong governance framework, a
comprehensive risk management programme
and insurance.
Operational risks and associated risk exposures
are assessed relative to the risk tolerance
established by the Board and are prioritised
accordingly.
26.4.3 Risk Mitigation
The breadth and variety of operational risks are
such that the types of mitigating activities are
wide-ranging. Examples of such activities include
continuous enhancement of defences against
cyber-attacks; use of legal agreements and
contracts to transfer and/or limit operational risk
exposures; due diligence; implementation of
enhanced policies and procedures; exception
management
processing
controls;
and
segregation of duties.
The ORD provides oversight of operational risk
management
and
independently
assesses,
measures and monitors operational risk. The
ORD works with the Business Units and control
groups to help ensure a transparent, consistent
and comprehensive framework for managing
operational risk within each area and across the
MSI Group. The ORD scope includes oversight
of the technology and data risk management
programmes (e.g., cybersecurity), fraud risk
management and prevention programme and a
third-party risk management programme.
26.4.4 Operational Risk Governance
The responsibilities of key individuals and
committees for the governance of Operational
Risk, up to and including the MSI Board, are
clearly understood and followed throughout the
MSI Group. The implementation and operation of
the Operational Risk Framework is overseen by
forums at different levels in the MSI Group’s
governance structure. Key forums are:
•
The EMEA Operational Risk Oversight
Committee
•
The
Non-Financial
Risk
Management
Committee
•
The EMEA Risk Committee
•
The MSI Risk and Audit Committees
Committees and governance forums that provide
oversight of particular Priority NFR End Risks,
Pathways, Risk Themes and the effectiveness of
their
respective
management
frameworks
include:
•
EMEA Third Party Governance Committee
•
EMEA
Electronic
Trading
Governance
Committee
26.4.5 Operational Risk Framework
The MSI Group’s Operational Risk Policy and
Procedures are renewed at least annually to
articulate
clearly
the
current
design
and
implementation
of
the
Operational
Risk
Management Framework. In particular:
•
The MSI Group-specific Operational Risk
Management Policy;
•
Key elements of the Framework covered by
Policy include: Risk Appetite and Tolerance;
Risk
Assessment
and
Remediation;
Scenario Analysis; Operational Risk Incident
Management;
Industry
Incident
Data;
Operational
Risk
Metrics;
Risk
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
120
Measurement
and
Operational
Risk
Modelling; and Reporting and Escalation;
•
Underlying Procedures set out in detail the
key
processes
which
underpin
the
framework.
In
particular:
the
EMEA
Escalation & Notification procedures; the
Risk Control Self-Assessment (“RCSAs”);
identification of Horizon Risks and the
Scenario Analysis workshops for Priority
NFRs.
26.4.6
Operational
Risk
Reporting,
Management Information and Escalation
Reporting and management information provide
awareness of the state of Operational Risk
throughout
the
governance
chain,
ensures
targeted spend to address control environment
concerns, and enables the Group’s senior
management and the Board to take action if
Operational Risk becomes elevated within risk
tolerance levels. Key management information
reports include:
•
Escalated incidents on a weekly basis;
•
Lessons learned for selected incidents
including the actions planned or taken to
mitigate the Operational Risk going forward;
•
Overall incident trends, emerging risks and
outsourcing;
•
Operational Risk capital updates;
•
Operational Risk levels versus tolerance
and key remedial actions and timelines.
26.4.7 Business Continuity Management and
Disaster Recovery
Morgan Stanley's Firm Resilience organisation is
responsible for maintaining global programmes
for
Business
Continuity
Management
and
Disaster
Recovery.
The
programmes
are
designed to identify key risks and threats to the
Group’s operational resiliency to ensure that
recovery strategies and required resources are in
place for the resumption of critical business
functions following a disaster or other business
interruption. Disaster recovery plans are in place
for critical technology assets and resources on a
Morgan
Stanley
Group-wide
basis,
and
redundancies are built into the systems as
deemed appropriate.
26.4.8 Third-party Risk Management
Exposures to services provided by third parties
including external vendors are managed through
a variety of means, such as, the performance of
due diligence, consideration of operational risk,
implementation
of
service
level
and
other
contractual agreements, and ongoing monitoring
of
third
parties’
performance.
The
Group
maintains
a
third-party
risk
management
programme
with
policies,
organisation,
governance and supporting technology that
aligns with our risk tolerance and is designed to
meet regulatory requirements.
The MSI Group, principally through the Morgan
Stanley Group’s Legal and Compliance Division,
has established procedures based on legal and
regulatory requirements on a worldwide basis
that are designed to facilitate compliance with
applicable statutory and regulatory requirements
and to require that the MSI Group’s policies
relating to business conduct, ethics and practices
are followed globally.
In addition, the MSI Group has established
procedures
to
mitigate
the
risk
that
a
counterparty’s performance obligations will be
unenforceable,
including
consideration
of
counterparty legal
authority and capacity,
adequacy
of
legal
documentation,
the
permissibility of a transaction under applicable
law and whether applicable bankruptcy or
insolvency
laws
limit
or
alter
contractual
INCLUDING PLEDGES OF COLLATERAL
Transferred Financial Assets that are not
Derecognised in Their Entirety
In the ordinary course of business, the Group
and Company enter into various arrangements
including selling securities under agreements to
repurchase,
purchasing
securities
under
agreements to resell, securities borrowed and
securities loaned to, amongst other things,
acquire securities to cover short positions and
settle
other
securities
obligations,
to
accommodate customers’ needs and to finance
the Group and Company’s inventory positions.
The Group and Company pledges certain
financial instruments to collateralise repurchase
agreements and other securities financings.
Pledged financial instruments that can be sold or
repledged by the secured party are identified as
trading financial instruments (pledged to various
parties) in the statement of financial position.
The Group and Company has determined that it
retains substantially all the risks and rewards of
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
121
these financial instruments including credit risk,
settlement risk, country risk and market risk, and
therefore has not derecognised them.
In
addition, it recognises a financial liability in
respect of the consideration received.
Other financial assets transferred that continue to
be recognised for accounting purposes include
pledges of securities as collateral for derivative
transactions or otherwise, as well as certain
sales of securities with related transactions, such
as derivatives, that result in the Group and
Company retaining substantially all the risks and
rewards of the financial assets transferred.
In
addition, the Group and Company recognise a
financial liability in respect of the consideration
received.
These transactions are generally conducted
under standard agreements used by financial
market participants and are undertaken with
counterparties
subject
to
the
Group
and
Company’s normal credit risk control processes.
The resulting credit exposures are controlled by
daily monitoring and collateralisation of the
positions.
The carrying amount of the associated
financial liabilities related to financial assets
transferred that continue to be recognised is
$49,612 million (2023: $49,845 million).
The following table presents those financial
assets which have been sold or otherwise
transferred, but which for accounting purposes
remain recognised in the consolidated statement
of financial position.
There was no difference between Company and
Group in respect of the assets presented below
at 31 December 2024 or 31 December 2023.
in $ millions | 2024 | 2023 |
Trading financial assets | ||
Debt securities | 15,809 | 14,910 |
Equity instruments | 47,470 | 50,909 |
63,279 | 65,819 |
28. FINANCIAL ASSETS ACCEPTED AS
COLLATERAL
The Group and Company’s policy is generally to
take
possession
of
securities
received
as
collateral,
securities
purchased
under
agreements to resell and securities borrowed.
The Group and Company monitors the fair value
of the underlying securities as compared with the
related receivable or payable, including accrued
interest, and, as necessary, requests additional
collateral
to
ensure
such
transactions
are
adequately
collateralised.
Where
deemed
appropriate,
the
Group
and
Company
agreements with third parties specify its rights to
request additional collateral.
These transactions
are
generally
conducted
under
standard
documentation
used
by
financial
market
participants.
The fair value of collateral accepted under these
arrangements for Group and Company as at
31 December 2024 was $371,993 million (2023:
$347,018 million). Of this amount $329,229
million
(2023: $292,110 million) has been sold or
repledged to third parties in connection with
financing
activities,
or
to
comply
with
LIABILITIES SUBJECT TO OFFSETTING
In order to manage credit exposure arising from
its business activities, the Group and Company
apply various credit risk management policies
and procedures, see note 26 for further details.
Primarily in connection with securities purchased
under agreements to resell and securities sold
under agreements to repurchase, securities
borrowed and securities loaned transactions and
derivative transactions, the Group and Company
enter into master netting arrangements and
collateral arrangements with their counterparties.
These agreements provide the Group and
Company with the right, in the ordinary course of
business and/ or in the event of a counterparty
default (such as bankruptcy or a counterparty’s
failure to pay or perform), to net a counterparty’s
rights and obligations under such agreement
and, in the event of counterparty default, set off
collateral held by the Group or Company against
the net amount owed by the counterparty.
However, in certain circumstances, the Group
and Company may not have such an agreement
in place; the relevant insolvency regime (which is
based on type of counterparty of the entity and
the
jurisdiction
of
organisation
of
the
counterparty) may not support the enforceability
of the agreement; or the Group and Company
may not have sought legal advice to support the
enforceability of the agreement.
In the statement of financial position, financial
assets and financial liabilities are only offset and
presented on a net basis where there is a current
legally enforceable right to set off the recognised
amounts and an intention to either settle on a net
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
122
basis or to realise the asset and the liability
simultaneously.
In
the
absence
of
such
conditions, financial assets and financial liabilities
are presented on a gross basis.
The following tables present information about
the offsetting of financial instruments and related
collateral amounts. The tables do not include
information about financial instruments that are
subject only to a collateral agreement. The effect
of
master
netting
arrangements,
collateral
agreements and other credit enhancements, on
the Group and Company’s exposure to credit risk
is disclosed in note 26.
Group | Amounts not offset | |||||||
Amount offset (1)(2) | Collateralised by: | Not subject | ||||||
to legally | ||||||||
Derivatives | enforceable | |||||||
Cash | master | |||||||
Gross | Counterparty | collateral | Net | Financial | Cash | Net | netting | |
in $ millions | amounts | netting | netting (1) | amounts | instruments | collateral | exposure | agreement |
31 December 2024 | ||||||||
Secured Financing: | ||||||||
Cash collateral on | ||||||||
| securities borrowed | 21,654 | (8,493) | — | 13,161 | (12,626) | — | 535 | 207 |
Securities purchased | ||||||||
under agreement to | 197,340 | (107,507) | — | 89,833 | (89,533) | — | 300 | 263 |
resell | ||||||||
Other secured financing | 15,627 | (3,168) | — | 12,459 | (12,413) | — | 46 | — |
Trading financial assets - | ||||||||
| derivatives | 530,549 | (228,594) | (20,749) 281,206 | (242,205) (28,106) 10,895 | 2,192 | |||
Total Assets | 765,170 | (347,762) | (20,749) 396,659 | (356,777) (28,106) 11,776 | 2,662 | |||
Secured borrowing: | ||||||||
Cash collateral on | 36,033 | (8,493) | — | 27,540 | (27,539) | — | 1 | — |
securities loaned | ||||||||
Securities sold under | 153,509 | (107,507) | — | 46,002 | (45,762) | — | 240 | 195 |
agreement to repurchase | ||||||||
Other secured borrowing | 30,019 | (3,168) | — | 26,851 | (26,807) | — | 44 | — |
Trading financial liabilities - | ||||||||
| derivatives | 521,493 | (228,593) | (7,582) 285,318 | (243,995) (27,195) 14,128 | 2,195 | |||
Total Liabilities | 741,054 | (347,761) | (7,582) 385,711 | (344,103) (27,195) 14,413 | 2,390 | |||
31 December 2023 | ||||||||
Secured Financing: | ||||||||
Cash collateral on | ||||||||
| securities borrowed | 20,955 | (6,453) | — | 14,502 | (14,120) | — | 382 | 85 |
Securities purchased | ||||||||
under agreement to | 190,110 | (99,915) | — | 90,195 | (89,988) | — | 207 | 205 |
resell | ||||||||
Other secured financing | 20,494 | (5,223) | — | 15,271 | (15,257) | — | 14 | 14 |
Trading financial assets - | ||||||||
| derivatives | 530,089 | (278,274) | (14,077) 237,738 | (201,807) (26,699) | 9,232 | 1,564 | ||
Total Assets | 761,648 | (389,865) | (14,077) 357,706 | (321,172) (26,699) | 9,835 | 1,868 | ||
Secured borrowing: | ||||||||
Cash collateral on | ||||||||
| securities loaned | 36,956 | (6,453) | — | 30,503 | (30,501) | — | 2 | — |
Securities sold under | 152,215 | (99,915) | — | 52,300 | (52,150) | — | 150 | 37 |
agreement to repurchase | ||||||||
Other secured borrowing | 24,736 | (5,223) | — | 19,513 | (19,504) | — | 9 | 9 |
Trading financial liabilities - | 520,963 | (278,274) | (3,929) 238,760 | (203,379) (23,678) 11,703 | 3,001 | |||
derivatives | ||||||||
Total Liabilities | 734,870 | (389,865) | (3,929) 341,076 | (305,534) (23,678) 11,864 | 3,047 | |||
(1)
Derivatives cash collateral netting relates to the margin posted or received being offset against the derivative balance where all offsetting
criteria is met. All Cash Collateral are recognised within Trade and other receivables and Trade and other payables whether it is offset or not
and represents the total variation margin paid or received by counterparties.
(2)
Intercompany cross-product legally enforceable netting arrangements are in place which would allow for an additional $11,886 million (31
December 2023: $7,835 million) of the statement of financial position, to be offset in the ordinary course of business and/or in the event of
default.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
123
Company | Amounts not offset | |||||||
Amount offset (1)(2) | Collateralised by: | Not subject | ||||||
to legally | ||||||||
Derivatives | enforceable | |||||||
Cash | master | |||||||
Gross | Counterparty | collateral | Net | Financial | Cash | Net | netting | |
in $ millions | amounts | netting | netting (2) | amounts | instruments | collateral | exposure | agreement |
31 December 2024 | ||||||||
Secured Financing: | ||||||||
Cash collateral on | 21,654 | (8,493) | — 13,161 | (12,626) | — | 535 | 207 | |
securities borrowed | ||||||||
Securities purchased | ||||||||
| under agreement to resell | 197,340 | (107,507) | — 89,833 | (89,533) | — | 300 | 263 | |
Other secured financing | 15,627 | (3,168) | — 12,459 | (12,413) | — | 46 | — | |
Trading financial assets - | ||||||||
| derivatives | 530,549 | (228,594) | (20,749) 281,206 | (242,205) (28,106) 10,895 | 2,192 | |||
Total Assets | 765,170 | (347,762) | (20,749) 396,659 | (356,777) (28,106) 11,776 | 2,662 | |||
Secured borrowing: | ||||||||
Cash collateral on | 36,033 | (8,493) | — 27,540 | (27,539) | — | 1 | — | |
securities loaned | ||||||||
Securities sold under | 153,509 | (107,507) | — 46,002 | (45,762) | — | 240 | 195 | |
agreement to repurchase | ||||||||
Other secured borrowing | 30,019 | (3,168) | — 26,851 | (26,807) | — | 44 | — | |
Trading financial liabilities - | ||||||||
| derivatives | 521,493 | (228,593) | (7,582) 285,318 | (243,995) (27,195) 14,128 | 2,195 | |||
Total Liabilities | 741,054 | (347,761) | (7,582) 385,711 | (344,103) (27,195) 14,413 | 2,390 | |||
31 December 2023 | ||||||||
Secured Financing: | ||||||||
Cash collateral on | ||||||||
| securities borrowed | 20,955 | (6,453) | — 14,502 | (14,120) | — | 382 | 85 | |
Securities purchased | ||||||||
| under agreement to resell | 190,044 | (99,915) | — 90,129 | (89,921) | — | 208 | 205 | |
Other secured financing | 20,494 | (5,223) | — 15,271 | (15,257) | — | 14 | 14 | |
Trading financial assets - | 530,091 | (278,274) | (14,077) 237,740 | (201,809) (26,699) | 9,232 | 1,004 | ||
derivatives | ||||||||
Total Assets | 761,584 | (389,865) | (14,077) 357,642 | (321,107) (26,699) | 9,836 | 1,308 | ||
Secured borrowing: | ||||||||
Cash collateral on | 36,956 | (6,453) | — 30,503 | (30,501) | — | 2 | — | |
securities loaned | ||||||||
Securities sold under | ||||||||
| agreement to repurchase | 152,215 | (99,915) | — 52,300 | (52,150) | — | 150 | 37 | |
Other secured borrowing | 24,736 | (5,223) | — 19,513 | (19,504) | — | 9 | 9 | |
Trading financial liabilities - | ||||||||
| derivatives | 520,963 | (278,274) | (3,929) 238,760 | (203,379) (23,678) 11,703 | 1,446 | |||
Total Liabilities | 734,870 | (389,865) | (3,929) 341,076 | (305,534) (23,678) 11,864 | 1,492 | |||
(1)
Derivatives cash collateral netting relates to the margin posted or received being offset against the derivative balance where all offsetting
criteria is met. All Cash Collateral are recognised within Trade and other receivables and Trade and other payables whether it is offset or not
and represents the total variation margin paid or received by counterparties.
(2)
Intercompany cross-product legally enforceable netting arrangements are in place which would allow for an additional $11,867 million (31
December 2023: $7,813 million) of the statement of financial position, to be offset in the ordinary course of business and/or in the event of
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
124
FINANCIAL
INSTRUMENTS
MEASURED AT FAIR VALUE
a.
Financial
Assets
and
Liabilities
Recognised at Fair Value on a Recurring
Basis
The following tables present the carrying value of
the
Group’s
financial
assets
and
financial
liabilities recognised at fair value on a recurring
basis, classified according to the fair value
hierarchy.
At
31
December
2024
and
31 December 2023 there were no significant
differences between Group and Company in
respect of the below table.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
125
Significant | ||||
Group | Quoted prices | Observable | unobservable | |
2024 | in active market | inputs | inputs | |
in $ millions | (Level 1) | (Level 2) | (Level 3) | Total |
Trading financial assets: | ||||
Government debt securities | 6,293 | 5,867 | 16 | 12,176 |
Corporate and other debt | — | 7,115 | 790 | 7,905 |
Corporate equities | 68,236 | 300 | 30 | 68,566 |
Derivatives: | ||||
Interest rate contracts | 9 | 70,459 | 350 | 70,818 |
Credit contracts | — | 10,286 | 199 | 10,485 |
Foreign exchange and gold contracts | — | 137,251 | 710 | 137,961 |
Equity contracts | 1,473 | 55,009 | 798 | 57,280 |
Commodity contracts | 308 | 4,300 | 54 | 4,662 |
Total trading financial assets | 76,319 | 290,587 | 2,947 | 369,853 |
Secured financing: | ||||
Cash collateral on securities borrowed | — | 13,161 | — | 13,161 |
Securities purchased under agreements to resell | — | 89,122 | 711 | 89,833 |
Other secured financing | — | 12,459 | — | 12,459 |
Total secured financing | — | 114,742 | 711 | 115,453 |
Loans and advances - corporate loans | — | 7 | — | 7 |
Investment securities - corporate equities | — | 15 | 12 | 27 |
Trade and other receivables: | ||||
Prepaid OTC contracts | — | 132 | 133 | 265 |
Other | — | 294 | — | 294 |
Total trade and other receivables | — | 426 | 133 | 559 |
Total financial assets measured at fair value | 76,319 | 405,777 | 3,803 | 485,899 |
Trading financial liabilities: | ||||
Government debt securities | 4,625 | 1,529 | 10 | 6,164 |
Corporate and other debt | — | 2,669 | 3 | 2,672 |
Corporate equities | 24,858 | 39 | 5 | 24,902 |
Derivatives: | ||||
Interest rate contracts | 13 | 71,111 | 586 | 71,710 |
Credit contracts | — | 9,799 | 130 | 9,929 |
Foreign exchange and gold contracts | 7 | 136,226 | 714 | 136,947 |
Equity contracts | 636 | 60,166 | 1,098 | 61,900 |
Commodity contracts | 207 | 4,572 | 53 | 4,832 |
Total trading financial liabilities | 30,346 | 286,111 | 2,599 | 319,056 |
Secured borrowing: | ||||
Cash collateral on securities loaned | — | 20,688 | — | 20,688 |
Securities sold under agreements to repurchase | — | 19,198 | — | 19,198 |
Other secured borrowing | — | 26,851 | — | 26,851 |
Total secured borrowing | — | 66,737 | — | 66,737 |
Trade and other payables - prepaid OTC contracts | — | 215 | 133 | 348 |
Debt and other borrowings - issued structured | — | 15,897 | 117 | 16,014 |
| notes | ||||
Total financial liabilities measured at fair value | 30,346 | 368,960 | 2,849 | 402,155 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
126
Quoted prices | Significant | |||
Company | in active | Observable | unobservable | |
2024 | market | inputs | inputs | |
in $ millions | (Level 1) | (Level 2) | (Level 3) | Total |
Trading financial assets: | ||||
Government debt securities | 6,293 | 5,867 | 16 | 12,176 |
Corporate and other debt | — | 6,898 | 783 | 7,681 |
Corporate equities | 68,236 | 300 | 30 | 68,566 |
Derivatives: | — | — | — | — |
Interest rate contracts | 9 | 70,459 | 350 | 70,818 |
Credit contracts | — | 10,286 | 199 | 10,485 |
Foreign exchange and gold contracts | — | 137,251 | 710 | 137,961 |
Equity contracts | 1,473 | 55,009 | 798 | 57,280 |
Commodity contracts | 308 | 4,300 | 54 | 4,662 |
Total trading financial assets | 76,319 | 290,370 | 2,940 | 369,629 |
Secured financing: | ||||
Cash collateral on securities borrowed | — | 13,161 | — | 13,161 |
Securities purchased under agreements to resell | — | 89,122 | 711 | 89,833 |
Other secured financing | — | 12,459 | — | 12,459 |
Total secured financing | — | 114,742 | 711 | 115,453 |
Loans and advances - corporate loans | — | 7 | — | 7 |
Investment securities - corporate equities | — | 14 | 12 | 26 |
Trade and other receivables: | ||||
Prepaid OTC contracts | — | 132 | 133 | 265 |
Other | — | 294 | — | 294 |
Total trade and other receivables | — | 426 | 133 | 559 |
Total financial assets measured at fair value | 76,319 | 405,559 | 3,796 | 485,674 |
Trading financial liabilities: | ||||
Government debt securities | 4,625 | 1,529 | 10 | 6,164 |
Corporate and other debt | — | 2,669 | 3 | 2,672 |
Corporate equities | 24,858 | 39 | 5 | 24,902 |
Derivatives: | ||||
Interest rate contracts | 13 | 71,111 | 586 | 71,710 |
Credit contracts | — | 9,799 | 130 | 9,929 |
Foreign exchange and gold contracts | 7 | 136,226 | 714 | 136,947 |
Equity contracts | 636 | 60,166 | 1,098 | 61,900 |
Commodity contracts | 207 | 4,572 | 53 | 4,832 |
Total trading financial liabilities | 30,346 | 286,111 | 2,599 | 319,056 |
Secured borrowing: | ||||
Cash collateral on securities loaned | — | 20,688 | — | 20,688 |
Securities sold under agreements to repurchase | — | 19,198 | — | 19,198 |
Other secured borrowing | — | 26,851 | — | 26,851 |
Total secured borrowing | — | 66,737 | — | 66,737 |
Trade and other payables - prepaid OTC contracts | — | 215 | 133 | 348 |
Debt and other borrowings - issued structured notes | — | 15,897 | 117 | 16,014 |
Total financial liabilities measured at fair value | 30,346 | 368,960 | 2,849 | 402,155 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
127
Quoted prices | Significant | |||
Group | in active | Observable | unobservable | |
2023 | market | inputs | inputs | |
in $ millions | (Level 1) | (Level 2) | (Level 3) | Total |
Trading financial assets: | ||||
Government debt securities | 4,207 | 4,457 | 61 | 8,725 |
Corporate and other debt | — | 13,584 | 1,338 | 14,922 |
Corporate equities | 74,602 | 838 | 68 | 75,508 |
Derivatives: | ||||
Interest rate contracts | 390 | 79,420 | 753 | 80,563 |
Credit contracts | — | 8,946 | 222 | 9,168 |
Foreign exchange and gold contracts | — | 95,009 | 533 | 95,542 |
Equity contracts | 298 | 45,387 | 785 | 46,470 |
Commodity contracts | — | 5,978 | 17 | 5,995 |
Total trading financial assets | 79,497 | 253,619 | 3,777 | 336,893 |
Secured financing: | ||||
Cash collateral on securities borrowed | — | 14,502 | — | 14,502 |
Securities purchased under agreements to resell | — | 89,363 | 832 | 90,195 |
Other secured financing | — | 15,271 | — | 15,271 |
Total secured financing | — | 119,136 | 832 | 119,968 |
Investment securities - corporate equities | — | — | 126 | 126 |
Trade and other receivables: | ||||
Prepaid OTC contracts | — | 237 | 150 | 387 |
Other | — | 518 | — | 518 |
Total trade and other receivables | — | 755 | 150 | 905 |
Total financial assets measured at fair value | 79,497 | 373,510 | 4,885 | 457,892 |
Trading financial liabilities: | ||||
Government debt securities | 7,249 | 1,107 | 1 | 8,357 |
Corporate and other debt | — | 5,092 | 8 | 5,100 |
Corporate equities | 22,169 | 140 | 12 | 22,321 |
Derivatives: | ||||
Interest rate contracts | 420 | 81,160 | 634 | 82,214 |
Credit contracts | — | 9,318 | 231 | 9,549 |
Foreign exchange and gold contracts | 11 | 90,270 | 452 | 90,733 |
Equity contracts | 265 | 48,668 | 1,237 | 50,170 |
Commodity contracts | — | 6,065 | 29 | 6,094 |
Total trading financial liabilities | 30,114 | 241,820 | 2,604 | 274,538 |
Secured borrowing: | ||||
Cash collateral on securities loaned | — | 22,578 | — | 22,578 |
Securities sold under agreements to repurchase | — | 19,284 | — | 19,284 |
Other secured borrowing | — | 19,513 | — | 19,513 |
Total secured borrowing | — | 61,375 | — | 61,375 |
Trade and other payables - prepaid OTC contracts | — | 245 | 150 | 395 |
Debt and other borrowings - issued structured notes | — | 15,347 | 176 | 15,523 |
Total financial liabilities measured at fair value | 30,114 | 318,787 | 2,930 | 351,831 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
128
Quoted prices | Significant | |||
Company | in active | Observable | unobservable | |
2023 | market | inputs | inputs | |
in $ millions | (Level 1) | (Level 2) | (Level 3) | Total |
Trading financial assets: | ||||
Government debt securities | 4,207 | 4,457 | 61 | 8,725 |
Corporate and other debt | — | 13,366 | 1,307 | 14,673 |
Corporate equities | 74,602 | 838 | 68 | 75,508 |
Derivatives: | ||||
Interest rate contracts | 390 | 79,420 | 753 | 80,563 |
Credit contracts | — | 8,946 | 222 | 9,168 |
Foreign exchange and gold contracts | — | 95,011 | 533 | 95,544 |
Equity contracts | 298 | 45,387 | 785 | 46,470 |
Commodity contracts | — | 5,978 | 17 | 5,995 |
Total trading financial assets | 79,497 | 253,403 | 3,746 | 336,646 |
Secured financing: | ||||
Cash collateral on securities borrowed | — | 14,502 | — | 14,502 |
Securities purchased under agreements to resell | — | 89,297 | 832 | 90,129 |
Other secured financing | — | 15,271 | — | 15,271 |
Total secured financing | — | 119,070 | 832 | 119,902 |
Investment securities - corporate equities | — | — | 125 | 125 |
Trade and other receivables: | ||||
Prepaid OTC contracts | — | 237 | 150 | 387 |
Other | — | 518 | — | 518 |
Total trade and other receivables | — | 755 | 150 | 905 |
Total financial assets measured at fair value | 79,497 | 373,228 | 4,853 | 457,578 |
Trading financial liabilities: | ||||
Government debt securities | 7,249 | 1,107 | 1 | 8,357 |
Corporate and other debt | — | 5,092 | 8 | 5,100 |
Corporate equities | 22,169 | 140 | 12 | 22,321 |
Derivatives: | ||||
Interest rate contracts | 420 | 81,160 | 634 | 82,214 |
Credit contracts | — | 9,318 | 231 | 9,549 |
Foreign exchange and gold contracts | 11 | 90,270 | 452 | 90,733 |
Equity contracts | 265 | 48,668 | 1,237 | 50,170 |
Commodity contracts | — | 6,065 | 29 | 6,094 |
Total trading financial liabilities | 30,114 | 241,820 | 2,604 | 274,538 |
Secured borrowing: | ||||
Cash collateral on securities loaned | — | 22,578 | — | 22,578 |
Securities sold under agreements to repurchase | — | 19,284 | — | 19,284 |
Other secured borrowing | — | 19,513 | — | 19,513 |
Total secured borrowing | — | 61,375 | — | 61,375 |
Trade and other payables - prepaid OTC contracts | — | 245 | 150 | 395 |
Debt and other borrowings - issued structured notes | — | 15,347 | 176 | 15,523 |
Total financial liabilities measured at fair value | 30,114 | 318,787 | 2,930 | 351,831 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
129
The Group’s valuation approach and fair value
hierarchy categorisation for certain significant
classes of financial instruments recognised at fair
value on a recurring basis is as follows:
US Treasury Securities
Valuation Technique:
•
Fair value is determined using quoted market
prices
Valuation Hierarchy Classification:
•
Level 1
Non US Government Obligations
Valuation Technique:
•
Fair value is determined using quoted prices
in active markets when available. When not
available, quoted prices in less-active markets
are used. In the absence of position-specific
quoted prices, fair value may be determined
through
benchmarking
from
comparable
instruments.
Valuation Hierarchy Classification:
•
Level 1 – if actively traded and inputs are
observable
•
Level 2 – if the market is less active or prices
are dispersed
•
Level 3 – in instances where the prices are
Corporate and Other Debt and Corporate
Loans
Mortgage-
and
Asset-backed
Securities
(“MABS”)
Valuation Technique:
•
MABS may be valued based on price or
spread
data
obtained
from
observed
transactions or independent external parties
such as vendors or brokers.
•
When position-specific external price data are
not observable, the fair value determination
may require benchmarking to comparable
instruments, and/or analysing ECL, default
and
recovery
rates,
and/or
applying
discounted cash flow techniques. When
evaluating the comparable instruments for
use in the valuation of each security, security
collateral-specific
attributes,
including
payment priority, credit enhancement levels,
type of collateral, delinquency rates and loss
severity, are considered. In addition, for
RMBS borrowers, Fair Isaac Corporation
scores and the level of documentation for the
loan are considered.
•
Market standard cash flow models may be
utilised
to
model
the
specific
collateral
composition and cash flow structure of each
transaction. Key inputs to these models are
market spreads, forecasted credit losses, and
default and prepayment rates for each asset
category.
•
Valuation levels of RMBS and CMBS indices
are used as an additional data point for
benchmarking purposes or to price outright
index positions.
Valuation Hierarchy Classification:
•
Level 2 – if value based on observable market
data for comparable instruments
•
Level 3 – if external prices or significant
spread inputs are unobservable, or if the
comparability assessment involves significant
subjectivity
related
to
property
type
differences, cash flows, performance or other
inputs
Corporate Bonds
Valuation Techniques
:
•
Fair value is determined using recently
executed
transactions,
market
price
quotations, bond spreads and CDS spreads
obtained from independent external parties,
such as vendors and brokers, adjusted for
any basis difference between cash and
derivative instruments
•
The spread data used are for the same
maturity as the bond. If the spread data do
not reference the issuer, then data that
reference comparable issuers are used.
When position-specific external price data are
not observable, fair value is determined
based on either benchmarking to comparable
instruments or cash flow models with yield
curves, bond or single-name CDS spreads
and recovery rates as significant inputs.
Valuation Hierarchy Classification:
•
Level 2 – if value based on observable market
data for comparable instruments
•
Level 3 – in instances where prices or
significant spread inputs are unobservable or
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
130
if the comparability assessment involves
significant sensitivity
Collateralised Debt Obligations (“CDO”)
Valuation Techniques:
•
The Group holds cash CDOs that typically
reference a tranche of an underlying synthetic
portfolio
of
single
name
CDS
spreads
collateralised by corporate bonds (“credit-
linked notes”) or cash portfolio of asset-
backed
securities/loans
(“asset-backed
CDOs”)
•
Credit correlation, a primary input used to
determine the fair value of credit-linked notes,
is usually unobservable and derived using a
benchmarking technique. Other model inputs,
such as credit spreads, including collateral
spreads, and interest rates are typically
observable
•
Asset-backed CDOs are valued based on an
evaluation of the market and model input
parameters
sourced
from
comparable
instruments as indicated by market activity.
Each asset-backed CDO position is evaluated
independently
taking
into
consideration
available
comparable
market
levels,
underlying collateral performance and pricing,
deal structures and liquidity
Valuation Hierarchy Classification:
•
Level 2 – when either comparable market
transactions
are
observable,
or
credit
correlation input is insignificant
•
Level 3 – when either comparable market
transactions are unobservable, or the credit
correlation input is significant
Loans and Lending Commitments
Valuation Techniques:
•
Fair value of corporate loans is determined
using recently executed transactions, market
price quotations (where observable), implied
yields
from
comparable
debt,
market
observable CDS spread levels obtained from
independent external parties adjusted for any
basis difference between cash and derivative
instruments, along with proprietary valuation
models and default recovery analysis where
such
transactions
and
quotations
are
unobservable
•
Fair value of contingent corporate lending
commitments
is
determined
by
using
executed transactions on comparable loans
and the anticipated market price based on
pricing indications from syndicate banks and
customers. The valuation of loans and lending
commitments also takes into account fee
income that is considered an attribute of the
contract
Valuation Hierarchy Classifications:
•
Level 2 – if value based on observable market
data for comparable instruments
•
Level 3 – in instances where significant
spread inputs are unobservable or if the
comparability assessment involves significant
subjectivity
Corporate Equities and Equity Investments
Valuation Techniques:
•
Exchange
traded
equity
securities
are
generally valued based on quoted prices from
the exchange. To the extent these securities
are actively traded, valuation adjustments are
not applied
•
Unlisted equity securities are generally valued
based on an assessment of each security,
considering rounds of financing and third-
party transactions, discounted cash flow
analyses
and
market-based
information,
including comparable transactions, trading
multiples and changes in market outlook,
among other factors
•
Listed fund units are generally marked to the
exchange-traded price if actively traded or
Net Asset Value (“NAV”) if not. Unlisted fund
units are generally marked to NAV
Valuation Hierarchy Classification
:
•
Level 1 – actively traded exchange-traded
securities and fund units
•
Level 2 – if not actively traded, inputs are
observable, or if undergoing a recent mergers
and acquisitions event or corporate action;
•
Level 3 – if not actively traded, inputs are
observable, or if undergoing an aged mergers
and acquisitions event or corporate action
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
131
Derivatives
Exchange-Traded Derivative Contracts
Valuation Techniques:
•
Exchange-Traded derivatives that are actively
traded are valued based on quoted prices
from the exchange.
•
Exchange-Traded derivatives that are not
actively traded are valued using the same
techniques
as
those
applied
to
OTC
derivatives.
Valuation Hierarchy Classification:
•
Level 1 – when actively traded.
•
Level 2 – when not actively traded.
OTC Derivative Contracts
Valuation Techniques:
•
OTC derivative contracts include forward,
swap and option contacts related to interest
rates, foreign currencies, credit standing of
reference entities, equity prices or commodity
prices
•
Depending on the product and the terms of
the transaction, the fair value of OTC
derivative products can be modelled using a
series of techniques, including closed-form
analytic formulas, such as the Black-Scholes
option-pricing model, simulation models or a
combination thereof. Many pricing models do
not
entail
material
subjectivity
as
the
methodologies employed do not necessitate
significant judgement, since model inputs may
be observed from actively quoted markets, as
is the case for generic interest rate swaps,
many equity, commodity and foreign currency
option contracts and certain credit default
swaps. In the case of more established
derivative products, the pricing models used
by the Group are widely accepted by the
financial services industry.
•
More complex OTC derivative products are
typically
less
liquid
and
require
more
judgement in the implementation of the
valuation
technique
since
direct
trading
activity or quotes are unobservable. This
includes
certain
types
of
interest
rate
derivatives with both volatility and correlation
exposure,
equity,
commodity
or
foreign
currency derivatives that are either longer-
dated
or
include
exposure
to
multiple
underlyings and credit derivatives, including
credit default swaps on certain mortgage or
asset-backed securities, basket CDS. Where
required
inputs
are
unobservable,
relationships to observable data points, based
on historical and/or implied observations, may
be employed as a technique to estimate the
model input values.
Valuation Hierarchy Classification
:
•
Level 2 – when valued using observable
inputs, or where the unobservable input is not
deemed significant
•
Level 3 – if the unobservable input is deemed
significant
Resell and Securities Sold under Agreements
to
Repurchase
and
Cash
Collateral
on
Securities Borrowed and Securities Loaned
and Other Secured Financings and Secured
Borrowings
Valuation Techniques:
•
Fair value is computed using a standard cash
flow discounting methodology
•
The inputs to the valuation include contractual
cash flows and collateral funding spreads,
which are the incremental spread over the
overnight indexed swap (“OIS”) rate for a
specific collateral rate (which refers to the rate
applicable to a specific type of security
pledged as collateral)
Valuation Hierarchy Classification:
•
Level 2 – when the valuation inputs are
observable and supported by market liquidity
•
Level 3 – in instances where the valuation
input is observable but not supported by
market liquidity or if an unobservable inputs
Prepaid OTC Contracts and Issued Structured
Notes
Valuation Techniques:
•
The Group carries structured notes and
prepaid OTC contracts which are primarily
composed of instruments whose payments
and redemption values are linked to the
performance of a specific index, a basket of
stocks, a specific security, a commodity, a
credit exposure or basket of credit exposures,
and instruments with various interest-rate-
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
132
related features including step-ups, step-
downs, and zero coupons
•
Fair value is determined using valuation
models for the derivative and debt portions of
the instruments. These models incorporate
observable inputs referencing identical or
comparable securities, including prices to
which the instruments are linked, interest rate
yield curve, option volatility and currency
rates, and commodity or equity prices
•
Independent, external and traded prices for
the instruments are considered as well as the
impact of the Company’s own credit spreads
which are based on observed secondary
bond market spreads
Valuation Hierarchy Classification:
•
Level 2 – when valued using observable
inputs, or where the unobservable input is not
deemed significant
•
Level
3
–
in
instances
where
the
unobservable inputs are deemed significant
b.
Transfers Between Level 1 and Level 2 of
the Fair Value Hierarchy for Financial
Assets and Liabilities Recognised at Fair
Value on a Recurring Basis
During the year, the Group and Company
reclassified approximately $330 million (2023:
$673 million) of government debt securities
liabilities from Level 2 to Level 1. These
reclassifications were due to increased trading
activity in these instruments. The Group and
Company reclassified approximately $519 million
(2023: $nil) of European government debt assets
from Level 1 to Level 2 .These reclassifications
were due to decreased trading activity in these
instruments.
c.
Changes in Level 3 Financial Assets and
Liabilities Recognised at Fair Value on a
Recurring Basis
The following tables present the changes in the
fair value of the Group’s Level 3 financial assets
and financial liabilities for the years ended
31 December 2024 and 31 December 2023.
Level 3 instruments may be hedged with
instruments classified in Level 1 and Level 2. The
realised and unrealised gains/(losses) for assets
and liabilities within the Level 3 category
presented in the following tables do not reflect
the related realised and unrealised gains/
(losses) on hedging instruments that have been
classified by the Group within the Level 1 and/or
Level 2 categories.
Except for ‘Corporate and other debt’ of $7
million owned by the Company’s subsidiary
undertaking,
there
were
no
differences
at
31 December 2024 or 31 December 2023
between Group and Company in respect of the
table below.
Unrealised gains/(losses) during the year for
assets and liabilities within the Level 3 category
presented in the following tables herein may
include changes in fair value during the period
that were attributable to both observable and
unobservable inputs.
The Morgan Stanley Group operates a number of
intra-group
policies
to
ensure
that,
where
possible,
revenues
and
related
costs
are
matched. Where the trading positions included in
the below table are risk managed using financial
instruments held by other Morgan Stanley Group
undertakings, these policies potentially result in
the recognition of offsetting gains or losses in the
Group.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
133
in $ millions | 2024 | 2023 |
TRADING FINANCIAL ASSETS | ||
Government debt securities | ||
Beginning balance | 61 | 133 |
Total gains/(losses) recognised in the | ||
consolidated income statement (1) | (6) | 5 |
Purchases | 1 | 21 |
Sales | (5) | (65) |
Gross transfers in | 2 | 4 |
Gross transfers out | (37) | (37) |
Ending balance | 16 | 61 |
Unrealised gains/(losses) (3) | (3) | 3 |
Corporate and other debt | ||
Beginning balance | 1,338 | 1,115 |
Total losses recognised in the | ||
consolidated income statement (1) | (279) | (20) |
Purchases | 492 | 522 |
Sales | (247) | (356) |
Gross transfers in | 138 | 521 |
Gross transfers out | (652) | (444) |
Ending balance | 790 | 1,338 |
Unrealised losses (3) | (150) | (9) |
Corporate equities | ||
Beginning balance | 68 | 31 |
Total gains/(losses) recognised in the | ||
consolidated income statement (1) | (65) | 41 |
Purchases | 20 | 19 |
Sales | (7) | (39) |
Gross transfers in | 34 | 21 |
Gross transfers out | (20) | (5) |
Ending balance | 30 | 68 |
Unrealised gains/(losses) (3) | — | 44 |
Net derivative contracts (4) | ||
Beginning balance | (273) | 264 |
Total (losses)/gains recognised in the | ||
consolidated income statement (1) | (127) | (204) |
Purchases | 321 | 118 |
Issuances | (541) | (272) |
Settlements | 194 | (164) |
Gross transfers in | 36 | 10 |
Gross transfers out | (80) | (25) |
Ending balance | (470) | (273) |
Unrealised (losses)/gains (3) | 39 | (468) |
in $ millions | 2024 | 2023 |
SECURED FINANCING | ||
Securities purchased under | ||
agreements to resell | ||
Beginning balance | 832 | 962 |
Purchases | 711 | 832 |
Sales | (832) | (962) |
Gross transfers in | ||
Gross transfers out | ||
Ending balance | 711 | 832 |
INVESTMENT SECURITIES | ||
Corporate equities | ||
Beginning balance | 126 | 142 |
Total losses recognised in the | ||
consolidated income statement (1) | — | (20) |
Purchases | 2 | 26 |
Sales | (116) | (22) |
Gross transfers in | — | — |
Gross transfers out | — | — |
Ending balance | 12 | 126 |
Unrealised losses (3) | — | (20) |
TRADE AND OTHER RECEIVABLES | ||
Prepaid OTC contracts | ||
Beginning balance | 150 | 192 |
Total gains/(losses) recognised in the | ||
consolidated income statement (1) | (69) | — |
Purchases | 52 | — |
Sales | — | (38) |
Gross transfers in | — | — |
Gross transfers out | — | (4) |
Ending balance | 133 | 150 |
Unrealised gains/(losses) (3) | (69) | — |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
134
in $ millions | 2024 | 2023 |
TRADING FINANCIAL LIABILITIES | ||
Government debt securities | ||
Beginning balance | 1 | 2 |
Total gains recognised in the | ||
consolidated income statement (1) | (3) | — |
Total (gains)/losses recognised in | ||
consolidated statement of | — | — |
comprehensive income (1) | ||
Purchases | — | (1) |
Sales | 9 | — |
Gross transfers in | 3 | — |
Gross transfers out | — | — |
Ending balance | 10 | 1 |
Unrealised gains (3) | (3) | — |
Corporate and other debt | ||
Beginning balance | 8 | 3 |
Total losses recognised in the | ||
consolidated income statement (1) | — | (4) |
Purchases | (3) | (2) |
Sales | 1 | 11 |
Gross transfers in | — | 1 |
Gross transfers out | (3) | (1) |
Ending balance | 3 | 8 |
Unrealised losses (3) | — | (4) |
Corporate equities | ||
Beginning balance | 12 | 19 |
Total losses recognised in the | ||
consolidated income statement (1) | (5) | (3) |
Purchases | (3) | (13) |
Sales | 5 | 3 |
Gross transfers in | 1 | 19 |
Gross transfers out | (5) | (13) |
Ending balance | 5 | 12 |
Unrealised (losses)/gains (3) | (4) | (2) |
TRADE AND OTHER PAYABLES | ||
Prepaid OTC contracts | ||
Beginning balance | 150 | 188 |
Total losses recognised in the | ||
consolidated income statement (1) | (69) | (37) |
Issuances | 52 | — |
Settlements | — | (1) |
Gross transfers in | — | |
Gross transfers out | — | |
Ending balance | 133 | 150 |
Unrealised losses (3) | (69) | (37) |
in $ millions | 2024 | 2023 |
DEBT AND OTHER BORROWINGS | ||
Issued structured notes | ||
Beginning balance | 176 | 77 |
Total gains/(losses) recognised in the | ||
consolidated income statement (1) | (11) | 25 |
Total gains/(losses) recognised in | ||
consolidated statement of | 1 | 2 |
comprehensive income (1) | ||
Issuances | 105 | 121 |
Settlements | (47) | (32) |
Gross transfers in | 22 | 48 |
Gross transfers out | (129) | (65) |
Ending balance | 117 | 176 |
Unrealised gains/(losses) | (19) | 8 |
(1)
The total gains or losses are recognised in the consolidated
income statement as detailed in the financial instruments
accounting policy (note 3c).
(2)
For financial assets and financial liabilities that were transferred
into or out of Level 3 during the year, gains or (losses) are
presented as if the assets or liabilities had been transferred into
or out of Level 3 as at the beginning of the year.
(3)
Amounts represent unrealised gains or (losses) for the year
ended 31 December 2024 related to assets and liabilities still
outstanding at 31 December 2024. The unrealised gains or
(losses) are recognised in the consolidated income statement or
consolidated statement of comprehensive income as detailed in
the financial instruments accounting policy (note 3c)
(4)
Net derivative contracts represent trading financial liabilities
derivative contracts net of trading financial assets - derivative
contracts.
During the year, the Group and Company
reclassified $652 million of Corporate and other
debt securities from Level 3 to Level 2 (2023: no
material transfers from Level 3 to Level 2). These
reclassifications were due to increased trading
activity in these instruments.
There were no
material transfers from Level 2 to Level 3 (2023:
no material transfers from Level 2 to Level 3).
d.
Valuation of Level 3 Financial Assets and
Liabilities Recognised at Fair Value on a
Recurring Basis
The following disclosures provide information on
the sensitivity of fair value measurements to key
inputs and assumptions.
i.
Quantitative
Information
about
and
Qualitative
Sensitivity
if
Significant
Unobservable Inputs
The following table provides information on the
valuation techniques, significant unobservable
inputs and their ranges and averages for each
material
category
of
assets
and
liabilities
measured at fair value on a recurring basis.
The level of aggregation and breadth of products
cause the range of inputs to be wide and not
evenly distributed across the inventory. Further,
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
135
the range of unobservable inputs may differ
across groups in the financial services industry
because of diversity in the types of products
included in each group’s inventory. The following
disclosures also include qualitative information
on the sensitivity of the fair value measurements
to changes in the significant unobservable inputs.
There are no predictable relationships between
multiple
significant
unobservable
inputs
attributable to a given valuation technique. A
single amount is disclosed when there is no
significant difference between the minimum,
maximum and average (weighted average or
similar average/median).
Fair value | Predominant valuation techniques/ | ||
31 December 2024 | $ millions | Significant unobservable inputs | Range (Average) (1) |
ASSETS | |||
Trading financial assets: | |||
Government debt securities | 16 | Comparable pricing | |
Comparable bond price | N/M(N/M) | ||
Corporate and other debt: | |||
Mortgage and asset-backed securities | 86 | Comparable pricing | |
Comparable bond price | 0 to 81 pts (33 pts) | ||
Corporate bonds | 547 | Comparable pricing | |
Comparable bond price | 1 to 153 pts (66 pts) | ||
Loans and lending commitments | 154 | Comparable pricing | |
Comparable loan price | 50 to 121 pts (88 pts) | ||
Other Debt | 3 | Comparable pricing | |
Comparable bond price | N/M(N/M) | ||
Corporate equities | 30 | Comparable pricing | |
Comparable equity price | 100%(100%) | ||
Investment securities: | |||
Corporate equities | 12 | Comparable pricing | |
Comparable equity price | 100% to 100% (100%) | ||
Discounted Cash Flow | |||
Implied Weighted Average Cost | |||
of Capital ('WACC') | 16% (16%) | ||
Secured financing | |||
Securities purchased under agreements | |||
to resell | 711 | ||
Discounted cash flows | |||
Funding spread | 32 bps to 107 bps (67 bps) | ||
Trade and other receivables: | |||
Prepaid OTC contracts | 133 | Discounted cash flows | |
Loss Given Default | 54%-84% (68%/54%) |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
136
Fair value | Predominant valuation techniques/ | ||
31 December 2024 | $ millions | Significant unobservable inputs | Range (Average) (1) |
LIABILITIES | |||
Trading financial liabilities | |||
Net derivatives contracts: (2) | |||
Interest rate | (236) | Option Model | |
Inflation Volatility | 30% to 68% (44%/38%) | ||
Interest Rate Curve Correlation | 23% to 94% (76%/81%) | ||
Interest rate Volatility Skew | 59% to 86% (69%/67%) | ||
Currency Basis | N/M(N/M) | ||
Deal Contingent Probability | N/M(N/M) | ||
Bond Volatility | 78% to 148% (92%/92%) | ||
Credit | 69 | Credit default swap model | |
Credit spread | 2 to 299 bps (102 bps) | ||
Comparable pricing | |||
Comparable bond price | 1 to 91 pts (46 pts) | ||
Discounted cash flows | |||
Funding spread | 99 to 113 bps (112 bps) | ||
Foreign exchange and gold (3) | (4) | Option model | |
Deal execution probability | 90% to 95% (95%/95%) | ||
Currency basis | 5% to 10% (8%/8%) | ||
Equity | (300) | Option model | |
Equity volatility | 1% to 73% (18%) | ||
Equity volatility skew | -3% to 1% (-1%) | ||
Equity correlation | 15% to 100% (60%) | ||
Equity FX correlation | -68% to 60% (-29%) | ||
Debt and other borrowings: | |||
Issued structured notes | (117) | Option model | |
Equity volatility | 14% to 71% (26%) | ||
Equity volatility skew | -2% to 0% (-1%) | ||
Equity correlation | 38% to 85% (61%) | ||
Equity FX correlation | -52% to -1% (-11%) | ||
Trade and other payables: | |||
Prepaid OTC contracts | (133) | Discounted cash flow | |
Loss Given Default | 54%-84% (62%/54%) |
N/M - Not Material
(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, respectively, are provided when more
relevant.
(2)
Net derivative contracts represent trading financial liabilities – derivative contracts net of trading financial assets – derivative contracts
(3)
Includes derivative contracts with multiple risks (i.e. hybrid products)
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
137
Fair value | Predominant valuation techniques/ | ||
31 December 2023 | $ millions | Significant unobservable inputs | Range (Average) (1) |
ASSETS | |||
Trading financial assets: | |||
Government debt securities | 61 | Comparable pricing | |
Comparable bond price | 50 to 199 pts (91 pts) | ||
Corporate and other debt: | |||
Mortgage and asset-backed securities | 344 | Comparable pricing | |
Comparable bond price | 30 to 100 pts (76 pts) | ||
Corporate bonds | 797 | Comparable pricing | |
Comparable bond price | 38 to 138 pts (81 pts) | ||
Loans and lending commitments | 139 | Comparable pricing | |
Comparable loan price | 27 to 100 pts (75 pts) | ||
Other Debt | 58 | Comparable pricing | |
Comparable bond price | 101 to 101 pts (101 pts) | ||
Corporate equities | 68 | Comparable pricing | |
Comparable equity price | 100%(100%) | ||
Investment securities: | |||
Corporate equities | 126 | Comparable pricing | |
Comparable equity price | 95% to 100% (98%) | ||
Discounted Cash Flow | |||
Implied Weighted Average Cost | |||
of Capital ('WACC') | 16%(16%) | ||
Secured financing | |||
Securities purchased under agreements | |||
832 | Discounted cash flows | ||
to resell | |||
Funding spread | 32 bps to 104 bps (63 bps) | ||
Trade and other receivables: | |||
Prepaid OTC contracts | 150 | Discounted cash flows | |
Loss Given Default | 54%-84% (62%/54%) | ||
LIABILITIES | |||
Trading financial liabilities | |||
Net derivatives contracts: (2) | |||
Interest rate | 120 | Option Model | |
Inflation Volatility | 27% to 70% (43%/39%) | ||
Interest rate - Foreign | |||
exchange correlation | N/M(N/M) | ||
Interest Rate Curve Correlation | 70% to 93% (76%/77%) | ||
Inflation Curve | N/M(N/M) | ||
Interest rate Volatility Skew | 74% to 90% (79%/81%) | ||
Currency Basis | 4% to 4% (1%/1%) | ||
Deal Contingent Probability | 95% to 95% (95%/95%) | ||
Bond Volatility | 84% to 152% (108%/103%) | ||
Credit | (10) | Credit default swap model | |
Credit spread | 1 to 262 bps (89 bps) | ||
Comparable pricing | |||
Comparable bond price | 7 to 99 pts (58 pts) | ||
Discounted cash flows | |||
Funding spread | 90 to 126 bps (118 bps) |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
138
Fair value | Predominant valuation techniques/ | ||
31 December 2024 | $ millions | Significant unobservable inputs | Range (Average) (1) |
Foreign exchange and gold (3) | 81 | Option model | |
Interest rate - Foreign | N/M(N/M) | ||
exchange correlation | |||
Interest rate volatility skew | N/M(N/M) | ||
Deal execution probability | 95% to 95% (95%/95%) | ||
Foreign exchange volatility | |||
| skew | N/M(N/M) | ||
Currency basis | -4% to -26% (5%/0%) | ||
Equity | (452) | Option model | |
Equity volatility | 4% to 71% (16%) | ||
Equity volatility skew | -3% to 0% (0%) | ||
Equity correlation | 17% to 99% (65%) | ||
Equity FX correlation | -74% to 40% (-26%) | ||
Debt and other borrowings: | |||
Issued structured notes | 176 | Option model | |
Equity volatility | 6% to 72% (21%) | ||
Equity volatility skew | -1.3% to 0% (-0.5%) | ||
Equity correlation | 41% to 97% (66%) | ||
Equity FX correlation | -65% to 40% (-35%) | ||
Trade and other payables: | |||
Prepaid OTC contracts | 150 | Discounted cash flow | |
Loss Given Default | 54%-84% (62%/54%) |
(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, respectively, are provided when more
relevant.
(2)
Net derivative contracts represent trading financial liabilities – derivative contracts net of trading financial assets – derivative contracts
(3)
Includes derivative contracts with multiple risks (i.e. hybrid products)
Significant
Unobservable
Inputs
–
Description and Sensitivity
During 2024, there were no significant revisions
made to the descriptions of the significant
unobservable inputs.
An increase/(decrease) to the following inputs
would generally result in a higher/(lower) fair
value:
•
Comparable Bond or Loan Price:
A pricing
input used when prices for the identical
instrument are not available for comparable
instruments. Significant subjectivity may be
involved when fair value is determined using
pricing
data
available
for
comparable
instruments.
Valuation
using
comparable
instruments can be done by calculating an
implied
yield
(or
spread
over
a
liquid
benchmark) from the price of a comparable
bond or loan, then adjusting that yield (or
spread) to derive a value for the bond or loan.
The adjustment to yield (or spread) should
account for the relevant differences in the
bonds or loans such as maturity or credit
quality. Alternatively, a price-to-price basis can
be
assumed
between
the
comparable
instrument and the bond being valued in order
to establish the value of the bond or loan.
•
Comparable Equity Price:
A price derived
from equity raises, share buybacks and
external bid levels, etc. A discount or premium
may be included in the fair value estimate.
•
Contingency
Probability:
Probability
associated
with
the
realization
of
an
underlying event upon which the value of an
asset is contingent.
•
Loss Given Default:
Amount expressed as a
percentage of par that is the expected loss
when a credit event occurs.
•
WACC.
WACC represents the theoretical rate
of
return
required
to
debt
and
equity
investors. The WACC is used in a discounted
cash flow model that calculates the value of
the equity. The model assumes that the cash
flow assumptions, including projections, are
fully reflected in the current equity value,
while the debt to equity ratio is held constant.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
139
An increase/(decrease) to the following inputs
would generally result in a lower/(higher) fair
value:
•
Credit Spread:
The credit spread reflects the
additional net yield an investor can earn from
a security with more credit risk relative to one
with less credit risk. The credit spread of a
particular security is often quoted in relation to
the yield on a credit risk-free benchmark
security or reference rate.
•
Funding Spread:
The cost of borrowing
defined as the incremental spread over the
OIS rate for a specific collateral rate (which
refers to the rate applicable to a specific type
of security pledged as collateral).
An increase/(decrease) to the following inputs
would generally result in an impact to the fair
value, but the magnitude and direction of the
impact would depend on whether the Group is
long or short the exposure:
•
Correlation:
A pricing input where the payoff is
driven by more than one underlying risk.
Correlation is a measure of the relationship
between the movements of two variables (i.e.
how the change in one variable influences a
change in the other variable).
•
Interest rate curve:
The term structure of
interest rates (relationship between interest
rates and the time to maturity) and a market’s
measure of future interest rates at the time of
observation. An interest rate curve is used to
set
interest
rate
and
foreign
exchange
derivative cash flows and is a pricing input
used in the discounting of any OTC derivative
cash flow.
•
Volatility
: The measure of the variability in
possible returns for an instrument given how
much that instrument changes in value over
time. Volatility is a pricing input for options,
and, generally, the lower the volatility, the less
risky the option. The level of volatility used in
the valuation of a particular option depends
on a number of factors, including the nature of
the risk underlying that option, the tenor and
the strike price of the option.
•
Volatility skew
: The measure of the difference
in implied volatility for options with identical
underliers and expiry dates but with different
strikes.
•
Currency Basis:
Cross-currency basis reflects
the difference between the interest paid to
borrow one currency by swapping it against
another currency in relation to the rate of
directly
borrowing
this
currency
in
the
respective cash market.
ii. Sensitivity of Fair Values to Changing
Significant Assumptions to Reasonably
Possible Alternatives
As detailed in note 3, the valuation of Level 3
financial instruments requires the application of
critical
accounting
judgement,
involving
estimations and assumptions and it is recognised
that there could be a range of reasonably-
possible alternative values.
The Group has reviewed the unobservable
parameters to identify those which would change
the fair value measurement significantly if
replaced by a reasonably possible alternative
assumption.
In
estimating
the
potential
variability,
the
unobservable
parameters
were
varied
individually using statistical techniques and
historic data. The potential variability estimated is
likely to be greater than the actual uncertainty
relating to the financial instruments, as any
diversification effect has been excluded.
The following table presents the potential impact
of both favourable and unfavourable changes,
both of which would be reflected in the income
statement.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
140
31 December 2024 |
31 December 2023 |
|||
Favourable |
Unfavourable |
Favourable |
Unfavourable |
|
in $ millions |
changes |
changes |
changes |
changes |
Trading financial assets: |
||||
Government debt securities |
— |
— |
||
Corporate and other debt |
25 |
(23) |
36 |
(34) |
Corporate equities |
26 |
(26) |
23 |
(23) |
Net derivative contracts (1) |
180 |
(193) |
126 |
(135) |
Secured Financing: |
||||
Securities purchased under agreements |
— |
— |
1 |
(1) |
to sell |
||||
Investment securities: |
||||
Corporate equities |
5 |
(3) |
11 |
(12) |
Debt and other borrowings: |
||||
Issued structured notes |
1 |
(2) |
1 |
(1) |
237 |
(247) |
198 |
(206) |
|
(1)
Net derivative contracts represent trading financial assets – derivative contracts net of trading financial liabilities – derivative contracts.
e.
Financial
Instruments
Valued
using
Unobservable Market Data
The amounts not recognised in the consolidated
income statement relating to the difference
between the fair value at initial recognition (the
transaction price) and the amounts determined at
initial recognition using valuation techniques are
as follows:
$ millions |
2024 |
2023 |
At 1 January |
463 |
473 |
New transactions |
226 |
243 |
Amounts recognised in the consolidated |
||
| income statement during the year |
(252) |
(253) |
At 31 December |
437 |
463 |
The balance above predominately relates to
derivatives. The Group has financial instruments
valued using unobservable market data of $89
million (2023: $66 million) related to other
Morgan Stanley Group undertakings.
f.
Assets and Liabilities Measured at Fair
Value on a Non-recurring Basis
Non-recurring fair value measurements of assets
and liabilities are those which are required or
permitted in the consolidated statement of
financial position in particular circumstances.
There were no assets or liabilities measured at
fair value on a non-recurring basis during the
MEASURED AT FAIR VALUE
For all financial instruments not measured at fair
value, the carrying amount is considered to be a
reasonable approximation of fair value as at
31 December 2024, owing to their short-term
nature, with the exception of $5,098 million
(2023: $5,096 million) of subordinated debt for
which the fair value is $5,395 million (2023:
$5,243 million) which is included in Level 2 of the
fair value hierarchy. The fair value of the
subordinated debt has been determined based
Morgan Stanley maintains various equity-settled
share-based compensation plans for the benefit
of employees. Awards under these plans are
generally granted in January following the
performance year.
Equity-settled
Share-based
Compensation
Plans
Morgan Stanley has granted RSU awards
pursuant to several equity-based compensation
plans.
The plans provide for the deferral of a
portion
of
certain
employees’
incentive
compensation, with awards made in the form of
restricted common stock.
Awards under these
plans are subject to vesting over time, generally
six months to seven years, and are generally
contingent upon continued employment and
subject to restrictions on sale, transfer or
assignment until conversion to common stock.
All, or a portion of, an award may be forfeited if
employment is terminated before the end of the
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
141
relevant vesting period or cancelled after the
vesting period in certain situations.
Recipients of
equity-based awards may have voting rights, at
Morgan
Stanley’s
discretion,
and
generally
receive dividend equivalents if the award vests,
unless this is prohibited by regulation.
Group:
During
the
year,
Morgan
Stanley
granted
2,723,397 RSUs (2023: 2,473,366 RSUs) to
employees of the Group with a weighted average
fair value per unit of $78.76 (2023: $90.57),
based on the market value of Morgan Stanley
common stock at grant date.
Equity-based compensation expense of $184
million (2023: $218 million) was recognised
within ‘Direct staff costs’.
The related liability due to Morgan Stanley at the
end of the year, reported within ‘Trade and other
payables’ in the consolidated statement of
financial
position,
is
$319
million
(2023:
$345 million) of which $134 million (2023:
$173 million) is expected to be settled wholly
within
one
year
and
$185
million
(2023:
$172 million) thereafter.
The unrecognised compensation cost related to
unvested equity-based awards is shown in the
table below:
in $ millions |
Unvested awards granted: |
||
To 31 |
|||
December |
In January |
||
2024 |
2025 |
Total |
|
Expense expected to |
|||
be recognised in: |
|||
2025 |
53 |
205 |
258 |
2026 |
20 |
43 |
63 |
2027 |
6 |
21 |
27 |
Thereafter |
1 |
7 |
8 |
80 |
276 |
356 |
|
Amounts
above
do
not
reflect
forfeitures,
cancellations or accelerations.
Company:
During
the
year,
Morgan
Stanley
granted
2,721,461 RSUs (2023: 2,471,033 RSUs) to
employees of the Company with a weighted
average fair value per unit of $78.76 (2023:
$90.57), based on the market value of Morgan
Stanley common stock at grant date.
The equity-
based compensation expense recognised in the
year is $183 million (2023: $217 million).
The related liability due to Morgan Stanley at the
end of the year, reported within ‘Trade and other
payables’ in the statement of financial position, is
$318 million (2023: $344 million) of which
$133 million (2023: $173 million) is expected to
be
settled
wholly
within
one
year
and
$185 million (2023: $171 million) thereafter.
Management Charges
As described in note 7, the Group and Company
utilise the services of staff who are employed by
other
Morgan
Stanley
Group
undertakings.
Management charges are incurred in respect of
these employee services which may include the
cost of equity-settled share-based and deferred
Defined Contribution Plans
The Group operates several Morgan Stanley
defined
contribution
plans,
which
require
contributions to be made to funds held in trust,
separate from the assets of the Group.
The defined contribution plans are as follows:
•
MSII Offshore Retirement Benefit Plan IV,
Dubai Section;
•
Morgan Stanley DIFC Workplace Savings
Scheme (Dubai and Abu Dhabi);
•
Morgan Stanley Asia Limited Retirement
Benefit Plan (Taiwan);
•
Morgan Stanley & Co. International plc, Seoul
Branch Defined Contribution Plan; and
•
Morgan Stanley & Co. International plc Zurich
Branch Top-up Plan
The Group pays fixed contributions to the plans,
with no legal or constructive obligation to pay
further contributions.
The defined contribution pension charge in
relation to the above plans recognised within
‘Direct staff costs’ in ‘Operating expense’ in the
consolidated income statement was $4 million for
the year (2023: $4 million) of which $nil was
accrued at 31 December 2024 (2023: $nil).
Defined Benefit Plans
The Group also operates several Morgan Stanley
defined benefit plans, which provide post-
employment benefits that are based on length of
service and salary.
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
142
The defined benefits plans are as follows:
•
Morgan
Stanley
Asia
(Taiwan)
Limited
Retirement Scheme;
•
Morgan Stanley Asia (Taiwan) Limited Book
Reserve Plan;
•
Morgan
Stanley
Asia
(Taiwan)
Limited
Grandfather Plan;
•
Morgan Stanley & Co. International plc Zurich
Branch Base Plan;
•
Morgan Stanley & Co. International plc Dubai
Branch End of Service Gratuity;
•
Morgan Stanley & Co. International plc Qatar
Branch End of Service Gratuity; and
The Group’s cumulative amount of actuarial
gains and losses recognised in the consolidated
statement
of comprehensive income is a $1
million loss (2023: $1 million loss).
A liability of
$5 million (2023: $4 million liability) is recognised
in the Group’s consolidated statement of financial
position in respect of these plans.
Plans Operated by Fellow Morgan Stanley
Undertakings
In addition to the above, the Group incurs direct
expenses and management charges from fellow
Morgan
Stanley
undertakings
for
post-
employment benefit costs related to the Morgan
Stanley UK Group Pension Plan ("the Plan”)
operated
by
Morgan
Stanley
UK
Limited
(“MSUKL”). The Plan is a defined contribution
scheme with a closed defined benefit section.
Defined Contribution Section of the Plan
MSUKL pays fixed contributions to the plan, with
no legal or constructive obligation to pay further
contributions.
The defined contribution pension charge, in
relation to this plan, recognised within ‘Direct
Staff costs’ in ‘Operating expense’ in the income
statement was $24 million for the year (2023:
$24 million) of which $nil was accrued at
31 December 2024 (2023: $nil).
As described in note 7, the Group utilises the
services of staff who are employed by other
Morgan
Stanley
Group
undertakings.
Management charges are incurred in respect of
the services of these employees which include
the cost of the Plan.
Defined Benefit Section of the Plan (“DB
Plan”)
Under
contractual
group
recharging
arrangements, a material proportion of the net
defined benefit cost for the DB Plan as a whole,
whether recognised in the profit or loss for the
year
or
other
comprehensive
income,
is
recharged to the Group. Information on the DB
plan is provided below.
The DB Plan has been closed to new members
and future accrual since 1996. The DB Plan was
previously open to permanent employees of the
Morgan Stanley Group employed in the UK, and
with the consent of the Trustees, other Morgan
Stanley employees located outside of the UK
who had previously been employed in the UK
and who at some point had been members of the
DB Plan.
The DB Plan provides post-employment benefits
to members on retirement which are dependent
on years of service and salary at the time of
closure of the DB Plan in 1996.
Additionally, the
DB Plan also includes a Guaranteed Minimum
Pension (“GMP”) underpin in respect of certain
defined contribution members who transferred
their benefits from the defined benefit section in
the past.
Under the GMP underpin, if the value
of each member’s investment at retirement is
less than the amount needed to secure the GMP
benefits that accrued under the defined benefit
section, the shortfall must be covered by the DB
Plan.
The DB Plan is administered by the Trustees and
the assets are held in a fund which is legally
separate from MSUKL. The Trustees of the fund
are required by law to act in the interest of the
fund and of all relevant stakeholders in the
scheme.
The Trustees of the scheme are
responsible
for
the
investment
policy
with
regards to the scheme assets.
The DB Plan exposes MSUKL to actuarial risks
such as: investment risk, interest rate risk,
inflation risk, longevity risk, liquidity risk and
credit risk. As a result of the DB Plan's
investment strategy outlined below the interest
rate and inflation risks are largely hedged for the
majority of the defined benefit liabilities on a
funding basis as described below. The GMP
underpin liabilities are volatile because they
represent the difference between a defined
benefit liability and the value of members'
defined contribution assets which are dependent
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
143
upon
each
individual
member’s
investment
options and are only approximately hedged.
As required by the UK regulatory framework, a
full actuarial valuation of the DB Plan is
conducted at least every three years and
updated annually between full triennial valuations
to determine the position of the DB Plan on a
funding
basis.
The
funding
basis
uses
assumptions reflective of the cost of securing the
benefits built up in the DB Plan with an insurance
company and is reviewed each year as part of
the annual funding update. The most recent full
actuarial valuation of the DB Plan, carried out at
31 December 2021, showed a surplus of scheme
assets over liabilities. The 31 December 2024
valuation
will
be
available
later
in
2025.
Accordingly, no new schedule of contributions
was agreed and there were no contributions
payable to the DB Plan during 2024 (2023: $nil).
In addition, an actuarial valuation of the DB Plan
is carried out annually on an accounting basis by
a qualified actuary. Under the accounting basis,
the obligations are measured by discounting the
best estimate of future cash flows to be paid out
by the DB Plan using the projected unit credit
method. As accrual of future benefits ceased in
1996, no benefit has been attributed to service
during subsequent reporting periods and the
accumulated benefit obligation is an actuarial
measure of the present value of benefits for
service already rendered.
On an accounting basis, the DB Plan has a
surplus of scheme assets over liabilities.
The following table provides a summary of the
present value of the defined benefit obligation
and fair value of DB Plan assets included in the
statement of financial position of MSUKL:
in $ millions | 2024 | 2023 |
Present value of the defined | (142) | (151) |
benefit obligation | ||
Fair value of plan assets | 210 | 232 |
Plan surplus | 68 | 81 |
Impact of asset ceiling | (56) | (68) |
Net DB Plan Asset | 12 | 13 |
The surplus recognised in the MSUKL statement
of financial position is limited to the amount of
future economic benefits available to the entity in
the form of reduced contributions.
Of the defined benefit obligation, $129 million
(2023: $140 million) relates to deferred members
and $13 million (2023: $11 million) relates to
retired members.
Upon reaching retirement, up
until 31 December 2018, most retiring members
were settled through the purchase of an annuity
contract in the name of the member, with MSUKL
having no further obligation. A High Court ruling
on 26 October 2018 confirmed that pension
schemes are required to equalise male and
female
members’
GMP
benefits
(“GMP
equalisation”). The Trustee has temporarily
suspended the practice of individually buying out
members’ benefits until the legal position and
benefit
entitlements
with
respect
to
GMP
equalisation are clearer. Since the end of 2018,
individuals who have reached benefit age have
been retained as members in the DB Plan.
The weighted average duration of the defined
benefit obligation at 31 December 2024 is 21
years (2023: 21 years).
Movement in the Net Defined Benefit Asset
and Impact of Asset Ceiling
The following tables provide a summary of the
present value of the obligation, the fair value of
the DB Plan assets and the impact of the asset
ceiling recognised by MSUKL:
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
144
2024 | |||||
Present value | Fair value of | Impact of | |||
in $ millions | of obligation | plan assets | Total | asset ceiling | Total |
At 1 January 2024 | (151) | 232 | 81 | (68) | 13 |
Net interest (expense)/income | (7) | 10 | 3 | (3) | — |
Amounts recognised in the income | (7) | 10 | 3 | (3) | — |
statement | |||||
Remeasurements: | |||||
The return on scheme assets (excluding | |||||
| amounts included in net interest expense) | — | (26) | (26) | — | (26) |
Actuarial gain arising from changes in | |||||
| demographic assumptions | 1 | — | 1 | — | 1 |
Actuarial gain arising from changes in | 8 | — | 8 | — | 8 |
financial assumptions | |||||
Actuarial gain arising from experience | 2 | — | 2 | — | 2 |
adjustments | |||||
Adjustments for restrictions on the defined | |||||
| benefit asset | — | — | — | 14 | 14 |
Amounts recognised in the statement of | |||||
| comprehensive income | 11 | (26) | (15) | 14 | (1) |
Foreign exchange rate changes | 3 | (4) | (1) | 1 | — |
Benefit payments | 2 | (2) | — | ||
At 31 December 2024 | (142) | 210 | 68 | (56) | 12 |
2023 | |||||
Present value | Fair value of | Impact of | |||
in $ millions | of obligation | plan assets | Total | asset ceiling | Total |
At 1 January 2023 | (142) | 215 | 73 | (61) | 12 |
Net interest (expense)/income | (7) | 11 | 4 | (3) | 1 |
Amounts recognised in the income | (7) | 11 | 4 | (3) | 1 |
statement | |||||
Remeasurements: | |||||
The return on scheme assets (excluding | — | (4) | (4) | — | (4) |
amounts included in net interest expense) | |||||
Actuarial gain arising from changes in | |||||
| demographic assumptions | 1 | — | 1 | — | 1 |
Actuarial gain arising from changes in | |||||
| financial assumptions | 4 | — | 4 | — | 4 |
Actuarial loss arising from experience | (1) | — | (1) | — | (1) |
adjustments | |||||
Adjustments for restrictions on the defined | — | — | — | (1) | (1) |
benefit asset | |||||
Amounts recognised in the statement of | |||||
| comprehensive income | 4 | (4) | — | (1) | (1) |
Foreign exchange rate changes | (8) | 12 | 4 | (3) | 1 |
Benefit payments | 2 | (2) | — | — | — |
At 31 December 2023 | (151) | 232 | 81 | (68) | 13 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
145
Actuarial Assumptions
The
following
table
presents
the
principal
actuarial assumptions used in the valuation of
the DB Plan:
2024 | 2023 | |
% | % | |
Pre-retirement discount rate | 5.1% | 4.5% |
Post-retirement discount rate | ||
(RPI) | 4.8% | 4.6% |
Inflation (RPI) | 3.2% | 3.1% |
Revaluation in deferment - | ||
inflation(CPI) | 2.7% | 2.5% |
The
mortality
assumptions
used
give
the
following life expectancy:
Life expectancy at | ||||
Life expectancy at | age 65 for a | |||
age 65 for a male | female member | |||
member currently: | currently: | |||
Aged 65 | Aged 45 | Aged 65 | Aged 45 | |
At 31 December | ||||
2024 | ||||
UK | 88.1 | 90.1 | 89.2 | 90.7 |
At 31 December | ||||
2023 | ||||
UK | 88.1 | 90.1 | 89.1 | 90.7 |
The
sensitivities
regarding
the
principal
assumptions used to measure the defined benefit
obligation are as follows:
2024 | ||
Assumption | Change in | Impact on scheme |
assumption | liabilities | |
Discount rate | Increase/decrease | Decrease/ increase |
by 0.25% | by 4.99%/5.31% | |
Inflation | Increase/decrease | Increase/ decrease |
assumption | by 0.25% | by 0.85%/0.90% |
Life expectancy | Increase/decrease | Increase/ decrease |
by 1 year | 3.05%/3.11% |
2023 | ||
Assumption | Change in | Impact on scheme |
assumption | liabilities | |
Discount rate | Increase/decrease | Decrease/ increase |
by 0.25% | by 5.10%/5.42% | |
Inflation | Increase/decrease | Increase/ decrease |
assumption | by 0.25% | by 0.87%/0.83% |
Life expectancy | Increase/decrease | Increase/ decrease |
by 1 year | by 3.16%/3.22% |
The sensitivity analysis presented above has
been determined based on reasonably possible
changes
of
the
assumptions
occurring
at
31 December 2024 and 31 December 2023,
assuming that all other assumptions are held
constant. The methods and types of assumptions
used in preparing the sensitivity analysis did not
change compared to the prior year.
DB Plan Assets
The
Plan’s
Trustee,
having
considered
professional
advice
from
its
independent
investment consultant and the Plan’s actuary,
determines the asset allocation targets based on
its assessment of a range of relevant factors,
such as expected long-term financial conditions,
demographic data and trends, current funding
position and other related risk factors.
The
Trustee consults with MSUKL on any changes to
the investment strategy.
The overall primary
investment objective is to minimise the volatility
of the Plan’s surplus or deficit through asset-
liability matching.
The investment strategy is
considered to be low risk.
Specific risks which are managed through the
asset allocation targets include:
•
Interest rate and inflation risk
•
Asset volatility
•
Credit risk
•
Liquidity risk
•
Longevity risk
The Trustee conducts a full asset-liability review
every three years.
The last review was
conducted
during
2022
with
underlying
investments updated in December 2022.
The
next scheduled review is due to take place in
2025. These studies are used to assist the
Trustee in determining the optimal long-term
asset allocation with regards to the structure of
liabilities within the Plan.
The main investment strategies formulated in the
actuarial and technical policy documents of the
Plan are to invest Plan assets in the following:
•
Debt instruments, such as gilts, to
reduce interest rate sensitivity caused by
the duration of the defined benefit
obligation;
•
AAA asset-backed securities, to provide
a level of return above cash whilst
remaining stable
•
Cash to provide liquidity to fund ongoing
transaction costs
In line with the investment objective, the DB Plan
holds
investments
in
a
range
of
pooled
investment
vehicles
of
varying
maturities
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
146
intended to broadly reflect the expected liability
profile of the DB Plan. The pooled fund nature of
the investments provides liquidity as Plan assets
can be disinvested readily. The major categories
and fair values of scheme assets at the end of
the reporting period are set out below.
| Fair value of Plan assets |
||||||
| 2024 |
2023 |
|||||
Quoted |
Quoted |
|||||
in $ |
in an |
in an |
||||
| millions |
active |
Other |
Total |
active |
Other |
Total |
market |
market |
|||||
Cash and |
||||||
Asset |
||||||
backed |
— |
36 |
36 |
— |
17 |
17 |
securities |
||||||
Corporate |
||||||
bonds |
— |
— |
— |
31 |
— |
31 |
Government |
||||||
bonds |
174 |
— |
174 |
184 |
— |
184 |
174 |
36 |
210 |
215 |
17 |
232 |
|
Parent and Subsidiary Relationships
Parent and ultimate controlling entity
For information on the Group’s parent and
ultimate controlling entity, refer to note 1.
Key management personnel are defined as those
persons having authority and responsibility for
planning, directing and controlling the activities of
the Group.
The
Morgan
Stanley
Group’s
corporate
governance framework gives consideration to
legal, geographical and business lines through a
combination of boards of directors, and regional
and
global
management
committees.
Accordingly, in addition to the Directors of the
Company, key management personnel of the
Group is considered to include: the boards of
Directors of certain parent companies, including
that of Morgan Stanley, certain members of key
Morgan Stanley Group management committees,
those designated as senior managers under the
UK’s
Senior
Manager
regime
and
certain
executive officers of Morgan Stanley.
The boards of the Group’s parent companies, the
management committees and the executive
officers cover the full range of the Morgan
Stanley Group’s business activities. Only those
members with responsibility for the Institutional
Securities
business,
being
the
reportable
operating segment of the Group, are considered
to be key management personnel of the Group.
The aggregate compensation below represents
the proportion of compensation paid to these key
management personnel, including the Directors
of the Company, in respect of their services to
the Group.
Key management personnel compensation in
respect of their services rendered to the Group
comprised the following:
in $ millions |
2024 |
2023 |
Short-term employee benefits |
72 |
59 |
Share-based payments |
49 |
41 |
Other long-term employee |
— |
1 |
benefits |
||
121 |
101 |
The share-based payment costs disclosed above
reflect the amortisation of equity-based awards
granted to key management personnel and are
therefore not directly aligned with other staff
costs in the current year.
Key management personnel compensation is
borne directly by the Group as well as other
Morgan Stanley Group undertakings in the
current year. Management recharges in respect
of key management personnel compensation
borne
by
other
Morgan
Stanley
Group
undertakings
are
included
in
‘Management
charges from other Morgan Stanley Group
undertakings
relating
to
staff
costs’
within
‘Operating expense’, as disclosed in note 7.
Directors' Remuneration
in $ millions |
2024 |
2023 |
Total remuneration of all |
||
Directors: |
||
Aggregate remuneration |
21 |
18 |
Long term incentive schemes |
2 |
1 |
23 |
19 |
|
Disclosures in respect of the |
||
highest paid Director: |
||
Aggregate remuneration |
6 |
5 |
6 |
5 |
Directors’ remuneration has been calculated as
the sum of cash, bonuses and benefits in kind.
All Directors who are employees of the Morgan
Stanley Group are eligible to receive shares of
the parent company, Morgan Stanley, awarded
under the Morgan Stanley Group’s equity-based
long term incentive schemes. In accordance with
Schedule 5 paragraph 1(3)(a) of The Large and
Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008, the above
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
147
disclosures do not include the value of shares
awarded.
During
the
year,
eight
Directors
received awards under the Morgan Stanley
Group’s
equity-based
long
term
incentive
schemes in respect of qualifying services (2023:
nine).
The value of assets (other than shares) awarded
under other long term incentive schemes has
been included in the above disclosures when the
awards vest, which is generally within one to
seven years from the date of the award.
Two directors are members of non-UK defined
benefit schemes, which are now closed to new
entrants and no longer accruing future benefits
(2023: three). In addition, no Directors have
benefits
accruing
under
the
Alternative
Retirement Plan, a defined benefit scheme,
operated by MSUKL (2023: one).
The Morgan Stanley Group operates a defined
contribution
pension
scheme,
the
Morgan
Stanley UK Group Pension Plan. There are
seven Directors to whom retirement benefits are
accruing under this scheme (2023: nine). One
Director has benefits accruing under a non-UK
defined contribution scheme (2023: one).
The Group has not provided any loans or other
credit advances to its Directors during the year
Transactions with Related Parties
The Morgan Stanley Group conducts business
for clients globally through a combination of both
functional
and
legal
entity
organisational
structures. Accordingly, the Group is closely
integrated with the operations of the Morgan
Stanley Group and enters into transactions with
other Morgan Stanley Group undertakings on an
arm’s length basis for the purposes of utilising
financing, trading and risk management, and
infrastructure services. The nature of these
relationships along with information about the
transactions and outstanding balances is given
below. The Group has not recognised any
expense
and
has
made
no
provision
for
impairment relating to the amount of outstanding
balances from related parties (2023: $nil).
Cash
The Group places cash with other Morgan
Stanley
Group
undertakings.
All
such
transactions are entered into on an arm’s length
basis.
2024 |
2023 |
|||
in $ millions |
Interest |
Balance |
Interest |
Balance |
Amounts due from |
||||
other Morgan |
36 |
1,112 |
18 |
1,115 |
Stanley Group |
||||
undertakings |
||||
Funding
The Group receives funding from and provides
funding
to
other
Morgan
Stanley
Group
undertakings in the following forms:
General Funding
General funding is undated, unsecured, floating-
rate lending, other than certain funding which is
dated on a rolling 60, 190 or 395 day term.
Funding may be received or provided for specific
transaction related funding requirements, or for
general operational purposes. The interest rates
are established by the Morgan Stanley Group
Treasury function for all entities within the
Morgan Stanley Group and approximate the
market rate of interest that the Morgan Stanley
Group incurs in funding its business.
Details of the outstanding balances on these
funding arrangements and the related interest
income
or
expense
recognised
in
the
consolidated income statement during the year
are shown in the table below:
2024 |
2023 |
|||
in $ millions |
Interest |
Balance |
Interest |
Balance |
Undated |
||||
Amounts due |
||||
from the Group’s |
||||
direct and |
— |
80 |
— |
6 |
indirect parent |
||||
undertakings |
||||
Amounts due |
||||
from other |
||||
Morgan Stanley |
3 |
122 |
1 |
252 |
Group |
||||
undertakings |
||||
3 |
202 |
1 |
258 |
|
Rolling 395 day |
||||
term |
||||
Amounts due |
||||
from the Group’s |
||||
direct and |
— |
— |
— |
— |
indirect parent |
||||
undertakings |
||||
Amounts due |
||||
from other |
||||
Morgan Stanley |
3 |
57 |
6 |
42 |
Group |
||||
undertakings |
||||
3 |
57 |
6 |
42 |
|
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
148
2024 | 2023 | |||
in $ millions | Interest | Balance | Interest | Balance |
Undated | ||||
Amounts due to | ||||
the Group’s | ||||
direct and | — | 317 | — | 453 |
indirect parent | ||||
undertakings | ||||
Amounts due to | ||||
other Morgan | ||||
Stanley Group | 7 | 441 | 6 | 438 |
undertakings | ||||
7 | 758 | 6 | 891 | |
60 day termed | ||||
Amounts due to | ||||
the Group’s | ||||
direct and | (761) | 970 | (500) | 7,648 |
indirect parent | ||||
undertakings | ||||
190 day termed | ||||
Amounts due to | ||||
the Group’s | ||||
direct and | 32 | 1 | — | 1 |
indirect parent | ||||
undertakings | ||||
Rolling 395 day | ||||
term | ||||
Amounts due to | ||||
the Group’s | ||||
direct and | 1,479 | 22,250 | 1,264 | 24,445 |
indirect parent | ||||
undertakings | ||||
Amounts due to | ||||
other Morgan | 16 | 284 | 14 | 247 |
Stanley Group | ||||
undertakings | ||||
1,495 | 22,534 | 1,278 | 24,692 | |
Subordinated Debt
The Group received subordinated debt and
senior subordinated debt from another Morgan
Stanley Group undertaking. Details of the terms
of these loans, including the contractual maturity
and the interest rate are shown in note 16.
2024 | 2023 | |||
in $ millions | Interest | Balance | Interest | Balance |
Subordinated debt liabilities | ||||
Amounts due to | ||||
the Group’s | ||||
direct parent | ||||
undertaking | 377 | 5,098 | 573 | 5,096 |
Senior subordinated debt liabilities | ||||
Amounts due to | ||||
the Group’s | ||||
direct parent | ||||
undertaking | 452 | 6,700 | 300 | 6,700 |
Trading and Risk Management
In the course of funding its business, the Group
enters into collateralised financing transactions
with other Morgan Stanley Group undertakings.
All such transactions are entered into on an
arm’s length basis.
Details of the outstanding on such transactions
and
the
related
interest
income/expense
recognised in the consolidated income statement
during the year are shown in the table below:
2024 | 2023 | |||
in $ millions | Interest | Balance | Interest | Balance |
Financial assets measured at fair value | ||||
Amounts due from | ||||
the Group’s direct | ||||
16 | 109 | 9 | 110 | |
and indirect parent | ||||
undertakings | ||||
Amounts due from | ||||
other Morgan | ||||
4,399 | 74,841 | 3,281 | 72,654 | |
Stanley Group | ||||
undertakings | ||||
4,415 | 74,950 | 3,290 | 72,764 | |
Financial liabilities measured at amortised cost | ||||
Amounts due to | ||||
other Morgan | ||||
308 | (880) | 400 | 2,101 | |
Stanley Group | ||||
undertakings | ||||
Financial liabilities measured at fair value | ||||
Amounts due to | ||||
the Group’s direct | ||||
67 | 2,395 | 31 | 1,251 | |
and indirect parent | ||||
undertakings | ||||
Amounts due to | ||||
other Morgan | ||||
2,432 | 27,478 | 1,660 | 28,099 | |
Stanley Group | ||||
undertakings | ||||
2,499 | 29,873 | 1,691 | 29,350 | |
The Group enters into purchases and sales of
securities and derivative transactions with other
Morgan Stanley Group undertakings to facilitate
the provision of financial services to clients on a
global basis and to manage the market risks
associated with such business. The Group also
enters into derivative transactions with other
Morgan Stanley Group undertakings to manage
the market risks associated with certain of its
compensation plans. All such transactions are
entered into on an arm’s length basis.
The total
amounts receivable and payable from such
transactions not yet settled and the fair value of
such derivatives contracts outstanding at the
year end were as follows:
in $ millions | 2024 | 2023 |
Amounts due from the Group’s direct | ||
and indirect parent undertakings on | 1,888 | 1,619 |
securities and derivative transactions | ||
Amounts due from other Morgan | ||
Stanley Group undertakings on | 157,188 | 116,001 |
securities and derivative transactions | ||
159,076 | 117,620 | |
Amounts due to the Group’s direct and | ||
indirect parent undertakings on | 1,927 | 1,596 |
securities and derivative transactions | ||
Amounts due to other Morgan Stanley | ||
Group undertakings on securities and | 157,595 | 116,539 |
derivative transactions | ||
159,522 | 118,135 |
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2024
149
The Group has received collateral of $216 million
(2023: $984 million) from the Group’s direct and
indirect parent undertaking and $11,258 million
(2023: $7,786 million) from other Morgan Stanley
Group undertakings. The Group has pledged
collateral of $952 million (2023: $nil) to the
Group’s direct and indirect parent undertakings
and $31,057 million (2023: $28,484 million) to
other Morgan Stanley Group undertakings. The
Group has received and pledged collateral to
mitigate credit risk on exposures arising under
derivatives contracts between the Group and
other Morgan Stanley Group undertakings.
In addition, the management and execution of
business strategies on a global basis results in
many Morgan Stanley transactions impacting a
number of Morgan Stanley Group entities. The
Morgan Stanley Group has Global Transfer
Pricing Policies in place among the Ultimate
Parent and its consolidated subsidiaries to
ensure arm’s length pricing. These policies are
consistent with the 2022 OECD Transfer Pricing
Guidelines for Multinational Enterprises and Tax
Administrations. The Morgan Stanley Group has
also engaged in negotiations of Advanced Pricing
Agreements with selected tax authorities in
respect of its key transfer pricing methodologies.
Negotiations
may
result
in
changes
to
methodologies or inputs that could have an
impact on the Group’s revenues in the future.
For the year ended 31 December 2024, a net
amount of $1,540 million was transferred to other
Morgan Stanley Group undertakings relating to
such revenue transfer pricing policies and
recognised in the consolidated income statement
arising from such policies (2023: net transfer to
other Morgan Stanley Group undertakings of
$1,188 million).
Infrastructure Services
The Group receives and incurs management
charges to and from other Morgan Stanley Group
undertakings for infrastructure services, including
the provision of staff and office facilities.
Management recharges received and incurred
during the year are as follows:
2024 |
2023 |
|||
Staff |
Other |
Staff |
Other |
|
in $ millions |
costs |
services |
costs |
services |
Amounts recharged |
||||
from the Group’s |
||||
4 |
— |
4 |
— |
|
direct and indirect |
||||
parent undertakings |
||||
Amounts recharged |
||||
from other Morgan |
||||
600 |
1,747 |
610 |
1,687 |
|
Stanley Group |
||||
undertakings (1) |
||||
604 |
1,747 |
614 |
1,687 |
|
(1)
Amounts related to Other services include expenses reported as
'Commission and other similar arrangements' of $255 million
Docusign Envelope ID: F968BE6C-559E-4715-BFB9-954E573BBEEC
Table of contents
MORGAN STANLEY & CO. INTERNATIONAL plc
Year ended
31 December 2024
List of subsidiaries, including indirect subsidiaries, as at 31 December 2024 and 31 December 2023:
Proportion of shares | ||||
held by the Group (1)(2) | ||||
Address of undertaking’s registered | ||||
Name of Company | office/ principal place of business | 2024 | 2023 | Nature of Business |
83F.& 83F-1. No.7, Xinyi Rd., Sec. 5 | ||||
Morgan Stanley Taiwan Limited | 100% | 100% | Financial Services | |
Taipei City 110, Taiwan | ||||
20 Bank Street, Canary Wharf, | ||||
Morgan Stanley Strategic Investments | ||||
London , E14 4AD , UNITED | 100% | 100% | Financial Services | |
Limited | ||||
KINGDOM | ||||
Grosse Gallusstrasse 18, 60312, | ||||
Morgan Stanley Havel GmbH | 100% | 100% | Holding company | |
Frankfurt am Main, Germany | ||||
Maples Corporate Services Limited, | ||||
Morgan Stanley Equity Investments | ||||
PO Box 309, Ugland House, Grand | 100% | 100% | Financial Services | |
(UK) Limited | ||||
Cayman, KY1-1104, Cayman Islands | ||||
Morgan Stanley Derivative Products | Luna Arena, Herikerbergweg 238, | |||
100% | 100% | Financial Services | ||
(Netherlands) B.V. | 1101 CM, Amsterdam , Netherlands | |||
20 Bank Street, Canary Wharf, | ||||
Morgan Stanley Longcross Limited | London , E14 4AD , UNITED | 100% | 100% | Holding company |
KINGDOM | ||||
Morgan Stanley Derivative Products | ||||
Serrano 55, 28006, Madrid, Spain | 100% | 100% | Financial Services | |
Spain S.L. | ||||
Custom House, Plaza Block 6, , | ||||
Morgan Stanley Equity Investments | ||||
International Financial Services | 100% | 100% | Holding company | |
Unlimited Company | ||||
Centre, Dublin, DUBLIN 1, Ireland | ||||
20 Bank Street, Canary Wharf, | ||||
Morgan Stanley Langton Limited | London , E14 4AD , UNITED | 100% | 100% | Holding company |
KINGDOM | ||||
SmartCity Malta, SCM 01 TMF Group | ||||
Morgan Stanley Equity Finance | ||||
(Malta) 401, Ricasoli, Kalkara SCM | 100% | 100% | Financial Services | |
(Malta) Limited | ||||
1001, Malta | ||||
Maples Corporate Services Limited, | ||||
Drake II Investments Limited | PO Box 309, Ugland House, Grand | 100% | 100% | Financial Services |
Cayman, KY1-1104, Cayman Islands | ||||
46A, Avenue J.F. Kennedy, L-1855, | ||||
Morgan Stanley Grund S.a.r.L | 100% | 100% | Financial Services | |
Luxembourg | ||||
Custom House, Plaza Block 6, | ||||
Morgan Stanley Corporate Holdings | ||||
International Financial Services | 100% | 100% | Holding company | |
Unlimited Company | ||||
Centre, Dublin, DUBLIN 1, Ireland | ||||
Custom House, Plaza Block 6, | ||||
Morgan Stanley Heythorp | ||||
International Financial Services | 100% | 100% | Holding company | |
Investments Unlimited Company | ||||
Centre, Dublin, DUBLIN 1, Ireland | ||||
Morgan Stanley Equity Holding | Luna Arena, Herikerbergweg 238, | |||
100% | 100% | Financial Services | ||
(Netherlands) B.V. | 1101 CM, Amsterdam, Netherlands | |||
25 Cabot Square, Canary Wharf, | ||||
Morstan Nominees Limited | 100% | 100% | Nominee company | |
London, E14 4QA, United Kingdom | ||||
De Lairessestraat 145, 1075 HJ | ||||
Global Equity High Yield Fund B.V. | 100% | 100% | Financial Services | |
Amsterdam, Netherlands | ||||
Morgan Stanley Client Securities | 25 Cabot Square, Canary Wharf, | |||
100% | 100% | Nominee company | ||
Nominees Limited | London, E14 4QA, United Kingdom | |||
Custom House, Plaza Block 6, | ||||
Morgan Stanley Euro Financing | ||||
International Financial Services | 100% | 100% | Holding company | |
Unlimited Company | ||||
Centre, Dublin, DUBLIN 1, Ireland | ||||
(1)
The proportion of voting rights held by the Group is the same as the proportion of shares held by the Group unless otherwise stated.
(2)
150