Morgan Stanley(MS) - 2023 Q2 - Quarterly Report

Part I. Financial Information Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Morgan Stanley's Q2 2023 financial performance, segment results, liquidity, and capital management are discussed Introduction Morgan Stanley is a global financial services firm operating across Institutional Securities, Wealth Management, and Investment Management - Morgan Stanley operates across three primary business segments: Institutional Securities, Wealth Management, and Investment Management, providing a wide array of financial products and services to corporations, governments, financial institutions, and individuals[12][13][14][16] - Future results may be materially affected by competition, risk factors, and regulatory developments, and other external factors[15] Executive Summary Morgan Stanley reported net revenues of $13.5 billion and net income of $2.2 billion for Q2 2023, with a ROTCE of 12.1% Consolidated Financial Results (Three Months Ended June 30) | Metric | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | Change (%) | |:----------------------------------------|:------------------------|:------------------------|:-----------| | Net Revenues | 13,457 | 13,132 | 2.5 | | Net Income Applicable to Morgan Stanley | 2,182 | 2,495 | (12.5) | | Earnings per Diluted Common Share | 1.24 | 1.39 | (10.8) | | ROTCE | 12.1% | 13.8% | (1.7 pp) | | Expense Efficiency Ratio | 78% | 74% | 4 pp | | Pre-tax Margin | 21% | 25% | (4 pp) | | Effective Tax Rate | 21.0% | 23.6% | (2.6 pp) | Consolidated Financial Results (Six Months Ended June 30) | Metric | YTD 2023 ($ in millions) | YTD 2022 ($ in millions) | Change (%) | |:----------------------------------------|:-------------------------|:-------------------------|:-----------| | Net Revenues | 27,974 | 27,933 | 0.1 | | Net Income Applicable to Morgan Stanley | 5,162 | 6,161 | (16.3) | | Earnings per Diluted Common Share | 2.95 | 3.41 | (13.4) | | ROTCE | 14.5% | 16.8% | (2.3 pp) | | Expense Efficiency Ratio | 75% | 71% | 4 pp | | Pre-tax Margin | 23% | 28% | (5 pp) | | Effective Tax Rate | 20.1% | 20.9% | (0.8 pp) | - Compensation and benefits expenses increased 13% in Q2 2023 (YoY) due to higher expenses related to deferred cash-based compensation plans (DCP) and severance costs, partially offset by lower discretionary incentive compensation[17][21] - Provision for credit losses increased to $161 million in Q2 2023 (YoY $101 million), primarily due to credit deterioration in commercial real estate lending (office sector) and modest loan portfolio growth[18][23] Key Balance Sheet and Capital Ratios (As of June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | Change ($ in millions) | |:----------------------------------------|:------------------------------|:----------------------------------|:-----------------------| | Total Assets | 1,164,911 | 1,180,231 | (15,320) | | Deposits | 348,511 | 356,646 | (8,135) | | Borrowings | 247,973 | 238,058 | 9,915 | | Common Shareholders' Equity | 91,636 | 91,391 | 245 | | Standardized Common Equity Tier 1 Ratio | 15.5% | 15.3% | 0.2 pp | | Tier 1 Leverage Ratio | 6.7% | 6.7% | 0.0 pp | Business Segments The firm's business segments showed mixed performance, with Institutional Securities down, Wealth Management up, and Investment Management down Net Revenues by Segment (Three Months Ended June 30) | Segment | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | Change (%) | |:------------------------|:------------------------|:------------------------|:-----------| | Institutional Securities| 5,654 | 6,119 | (8) | | Wealth Management | 6,660 | 5,736 | 16 |\ | Investment Management | 1,281 | 1,411 | (9) | | Total | 13,457 | 13,132 | 2.5 | Net Income Applicable to Morgan Stanley by Segment (Three Months Ended June 30) | Segment | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | Change (%) | |:------------------------|:------------------------|:------------------------|:-----------| | Institutional Securities| 759 | 1,121 | (32) |\ | Wealth Management | 1,308 | 1,190 | 10 |\ | Investment Management | 127 | 188 | (32) |\ | Total | 2,182 | 2,495 | (12.5) | Pre-tax Margin by Segment (Three Months Ended June 30) | Segment | 2Q 2023 | 2Q 2022 | |:------------------------|:--------|:--------| | Institutional Securities| 17% | 25% |\ | Wealth Management | 25% | 27% |\ | Investment Management | 13% | 18% | Institutional Securities Institutional Securities net revenues decreased 8% due to lower client activity and market volatility Institutional Securities Net Revenues (Three Months Ended June 30) | Revenue Category | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | Change (%) | |:------------------------|:------------------------|:------------------------|:-----------| | Investment Banking | 1,075 | 1,072 | — |\ | Equity | 2,548 | 2,960 | (14) |\ | Fixed Income | 1,716 | 2,500 | (31) |\ | Other | 315 | (413) | 176 |\ | Total Net Revenues | 5,654 | 6,119 | (8) | - Advisory revenues decreased due to fewer completed M&A transactions, while Equity and Fixed Income underwriting revenues increased on higher volumes[44][45] - Equity net revenues decreased 14% due to higher funding costs and lower gains on inventory and client activity in derivatives and cash equities[48] - Fixed Income net revenues decreased 31% due to decreased client activity and market volatility, particularly in foreign exchange and credit products[49] - Other net revenues swung from a $413 million loss in 2Q 2022 to a $315 million gain in 2Q 2023, driven by lower mark-to-market losses and higher net interest income on corporate loans, as well as gains on DCP investments[50] - Provision for credit losses increased 18% to $97 million in Q2 2023, primarily due to credit deterioration in commercial real estate lending (office sector) and modest loan growth[41][55] Wealth Management Wealth Management net revenues increased 16% driven by DCP investments and higher net interest revenues Wealth Management Key Metrics (Three Months Ended June 30) | Metric | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | Change (%) | |:----------------------------------------|:------------------------|:------------------------|:-----------| | Net Revenues | 6,660 | 5,736 | 16 |\ | Provision for Credit Losses | 64 | 19 | N/M |\ | Compensation and Benefits | 3,503 | 2,895 | 21 |\ | Non-compensation Expenses | 1,412 | 1,301 | 9 |\ | Income before Provision for Income Taxes| 1,681 | 1,521 | 11 |\ | Net Income Applicable to Morgan Stanley | 1,308 | 1,190 | 10 | Wealth Management Client Assets and Flows | Metric | June 30, 2023 ($ in billions) | December 31, 2022 ($ in billions) | Change ($ in billions) | |:----------------------------------------|:------------------------------|:----------------------------------|:-----------------------| | Total Client Assets | 4,885 | 4,187 | 698 |\ | Net New Assets (3 months ended) | 89.5 | 52.9 (prior year quarter) | 36.6 | - Transactional revenues increased significantly (199% YoY) due to mark-to-market gains on DCP investments compared with losses in the prior year quarter[61][68] - Net interest revenues increased 23% (YoY) due to the net effect of higher interest rates, partially offset by lower brokerage sweep deposits[61][69] - Compensation and benefits expenses increased primarily due to higher expenses related to DCP and severance costs associated with employee actions[71] Investment Management Investment Management net revenues decreased 9% due to lower performance-based income and asset management fees Investment Management Key Metrics (Three Months Ended June 30) | Metric | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | Change (%) | |:----------------------------------------|:------------------------|:------------------------|:-----------| | Net Revenues | 1,281 | 1,411 | (9) |\ | Compensation and Benefits | 544 | 605 | (10) |\ | Non-compensation Expenses | 567 | 557 | 2 |\ | Income before Provision for Income Taxes| 170 | 249 | (32) |\ | Net Income Applicable to Morgan Stanley | 127 | 188 | (32) | - Asset management and related fees decreased 3% (YoY) due to lower average AUM from market declines and net outflows in Long-Term AUM[78] - Performance-based income and other revenues decreased 88% (YoY) to $13 million, primarily due to lower accrued carried interest across private funds, partially offset by mark-to-market gains on DCP and public investments[79] Assets Under Management (AUM) Rollforward (June 30, 2023) | Category | March 31, 2023 ($ in billions) | Inflows ($ in billions) | Outflows ($ in billions) | Market Impact ($ in billions) | June 30, 2023 ($ in billions) | |:-------------------------------|:-------------------------------|:------------------------|:-------------------------|:------------------------------|:------------------------------| | Long-Term AUM Subtotal | 900 | 52 | (49) | 38 | 936 |\ | Liquidity and Overlay Services | 462 | 575 | (562) | 4 | 476 |\ | Total | 1,362 | 627 | (611) | 42 | 1,412 | Supplemental Financial Information Supplemental financial details for U.S. Bank Subsidiaries, accounting updates, and critical accounting estimates U.S. Bank Subsidiaries' Key Financials (As of June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 ($ in billions) | December 31, 2022 ($ in billions) | |:----------------------------------------|:------------------------------|:----------------------------------| | Total Investment Securities | 119.3 | 123.3 |\ | Wealth Management Loans (net of ACL) | 144.7 | 146.1 |\ | Institutional Securities Loans (net of ACL)| 64.4 | 60.2 |\ | Total Assets | 385.6 | 391.0 |\ | Deposits | 342.5 | 350.6 | - The firm is evaluating an accounting update on Investments—Tax Credit Structures, effective January 1, 2024, but does not expect a material impact on its financial condition or results of operations[91] - Critical accounting estimates include the fair value of financial instruments, goodwill and intangible assets, legal and regulatory contingencies, and income taxes, which involve a higher degree of judgment and complexity[92] Liquidity and Capital Resources Morgan Stanley manages liquidity and capital, maintaining strong ratios and complying with regulatory requirements - The firm's liquidity and capital policies are established and maintained by senior management with oversight by the Asset/Liability Management Committee and the Board of Directors[93] Total Assets by Business Segment (As of June 30, 2023 vs. December 31, 2022) | Segment | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | |:------------------------|:------------------------------|:----------------------------------| | Institutional Securities| 784,785 | 789,837 |\ | Wealth Management | 362,627 | 373,305 |\ | Investment Management | 17,499 | 17,089 |\ | Total Assets | 1,164,911 | 1,180,231 | Balance Sheet Total assets remained stable, with substantial liquidity resources, decreased deposits, and slightly increased borrowings - Total assets were $1,165 billion at June 30, 2023, relatively unchanged from $1,180 billion at December 31, 2022[96] Liquidity Resources by Type of Investment (Average Daily Balance for Three Months Ended June 30, 2023) | Type of Investment | Amount ($ in millions) | |:--------------------------------------|:-----------------------| | Cash deposits with central banks | 60,876 |\ | Unencumbered HQLA Securities | 240,832 |\ | Cash deposits with banks (non-HQLA) | 9,016 |\ | Total Liquidity Resources | 310,724 | - Deposits decreased primarily due to a reduction in Brokerage sweep deposits, largely from net outflows to alternative cash-equivalent products, partially offset by an increase in Time deposits and Savings[113] - Borrowings increased slightly to $248 billion as of June 30, 2023, from $238 billion at December 31, 2022[114] Regulatory Requirements Morgan Stanley complies with regulatory capital requirements, maintaining strong ratios and reauthorizing share repurchases - Morgan Stanley and its U.S. Bank Subsidiaries are compliant with the minimum LCR and NSFR requirements of 100% as of June 30, 2023[104] Key Regulatory Capital Ratios (As of June 30, 2023) | Metric | Required Ratio | Actual Ratio (Standardized) | Actual Ratio (Advanced) | |:----------------------------------------|:---------------|:----------------------------|:------------------------| | Common Equity Tier 1 Capital Ratio | 13.3% | 15.5% | 15.8% |\ | Tier 1 Capital Ratio | 14.8% | 17.4% | 17.8% |\ | Total Capital Ratio | 16.8% | 19.9% | 20.1% |\ | Tier 1 Leverage Ratio | 4.0% | 6.7% | N/A |\ | Supplementary Leverage Ratio (SLR) | 5.0% | 5.5% | N/A | - The firm's Stress Capital Buffer (SCB) is expected to be 5.4% from October 1, 2022, through September 30, 2024, resulting in an aggregate Standardized Approach Common Equity Tier 1 ratio of 12.9%[146] - The Board of Directors reauthorized a multi-year common stock repurchase program of up to $20 billion and increased the quarterly common stock dividend to $0.85 per share[147] - The firm is evaluating the Basel III Finalization Proposal and the G-SIB Surcharge Proposal, both proposed on July 27, 2023, for their potential impacts on capital requirements[162][163] Item 3. Quantitative and Qualitative Disclosures about Risk Morgan Stanley's exposure to market, credit, country, operational, model, liquidity, and legal risks is detailed Market Risk Market risk from trading and non-trading activities is measured by VaR and sensitivity analyses - Market risk arises from changes in market factors (prices, rates, spreads, etc.) affecting positions, primarily in Institutional Securities for trading and Wealth/Investment Management for non-trading activities[165] 95%/One-Day Management VaR for the Trading Portfolio ($ in millions) | Risk Category | Period End (June 30, 2023) | Average (3 Months Ended June 30, 2023) | |:----------------------------------|:---------------------------|:---------------------------------------| | Interest rate and credit spread | 36 | 36 |\ | Equity price | 25 | 25 |\ | Foreign exchange rate | 8 | 10 |\ | Commodity price | 12 | 17 |\ | Less: Diversification benefit | (33) | (40) |\ | Primary Risk Categories | 48 | 48 |\ | Credit Portfolio | 23 | 22 |\ | Less: Diversification benefit | (20) | (18) |\ | Total Management VaR | 51 | 52 | - Average Total Management VaR for Q2 2023 decreased from Q1 2023, driven by reduced exposure in the Commodity price risk category and lower market volatility[167] Wealth Management Net Interest Income Sensitivity Analysis (Next 12 Months) | Basis Point Change | At June 30, 2023 ($ in millions) | At March 31, 2023 ($ in millions) | |:-------------------|:---------------------------------|:----------------------------------| | +100 | 532 | 533 |\ | -100 | (596) | (637) | - The Wealth Management business segment balance sheet is asset sensitive, leading to higher net interest income in increasing interest rate scenarios[175] Credit Risk Credit risk from loans and commitments increased due to commercial real estate deterioration and loan growth - Total loans and lending commitments increased by approximately $11 billion since December 31, 2022, primarily due to growth in Secured lending facilities and Corporate lending within Institutional Securities[181] Allowance for Credit Losses (ACL) Rollforward (Six Months Ended June 30, 2023) | Metric | Amount ($ in millions) | |:----------------------------------------|:-----------------------| | Total ACL at December 31, 2022 | 1,343 |\ | Gross Charge-offs | (101) |\ | Provision for Credit Losses | 395 |\ | Other | 6 |\ | Total ACL at June 30, 2023 | 1,643 | - The increase in ACL is primarily related to credit deterioration in commercial real estate lending (mainly the office sector), modest growth in certain loan portfolios, and a deteriorating macroeconomic outlook[184][184] - Over 90% of Institutional Securities' total lending exposure (loans and lending commitments) is investment grade and/or secured by collateral[189] - Wealth Management's lending against commercial real estate totaled $7.0 billion, representing 4.3% of its total exposure, with over 95% of these loans benefiting from guarantees from high or ultra-high net worth clients[201] - The firm is exposed to credit risk from OTC derivatives, with total gross derivative assets of $340.4 billion at June 30, 2023, mitigated by counterparty netting and collateral[207] Country and Other Risks Country, operational, model, liquidity, legal, and climate risks are managed through comprehensive frameworks - Country risk exposure is actively managed through a comprehensive risk management framework combining credit and market fundamentals[208] - Operational risk includes losses from inadequate processes, human factors, or external events like cyber attacks, impacting all business activities[212] - Model risk arises from decisions based on incorrect or misused model outputs, potentially leading to financial loss or poor strategic decisions[213] - Climate risk, encompassing physical and transition risks, is an overarching long-term risk not expected to significantly affect consolidated results or financial condition in the near-term[216] Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP reviewed interim financials, finding no material modifications needed for U.S. GAAP - Deloitte & Touche LLP conducted reviews of Morgan Stanley's interim financial information for the three-month and six-month periods ended June 30, 2023 and 2022[218] - Based on their reviews, no material modifications are deemed necessary for the interim financial information to conform with U.S. GAAP[218] - The condensed consolidated balance sheet as of December 31, 2022, is fairly stated in all material respects in relation to the previously audited consolidated balance sheet[219] Item 1. Consolidated Financial Statements and Notes Unaudited consolidated financial statements and detailed notes on accounting policies and financial instruments Consolidated Income Statement (Unaudited) Q2 2023 net revenues increased slightly to $13.46 billion, while net income decreased to $2.18 billion Consolidated Income Statement Highlights (Three Months Ended June 30) | Metric | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | Change ($ in millions) | |:----------------------------------------|:------------------------|:------------------------|:-----------------------| | Net Revenues | 13,457 | 13,132 | 325 |\ | Provision for Credit Losses | 161 | 101 | 60 |\ | Total Non-interest Expenses | 10,484 | 9,712 | 772 |\ | Income before Provision for Income Taxes| 2,812 | 3,319 | (507) |\ | Provision for Income Taxes | 591 | 783 | (192) |\ | Net Income Applicable to Morgan Stanley | 2,182 | 2,495 | (313) |\ | Earnings per Diluted Common Share | 1.24 | 1.39 | (0.15) | Consolidated Income Statement Highlights (Six Months Ended June 30) | Metric | YTD 2023 ($ in millions) | YTD 2022 ($ in millions) | Change ($ in millions) | |:----------------------------------------|:-------------------------|:-------------------------|:-----------------------| | Net Revenues | 27,974 | 27,933 | 41 |\ | Provision for Credit Losses | 395 | 158 | 237 |\ | Total Non-interest Expenses | 21,007 | 19,868 | 1,139 |\ | Income before Provision for Income Taxes| 6,572 | 7,907 | (1,335) |\ | Provision for Income Taxes | 1,318 | 1,656 | (338) |\ | Net Income Applicable to Morgan Stanley | 5,162 | 6,161 | (999) |\ | Earnings per Diluted Common Share | 2.95 | 3.41 | (0.46) | Consolidated Comprehensive Income Statement (Unaudited) Q2 2023 comprehensive income was $1.54 billion, reflecting net income and other comprehensive loss Consolidated Comprehensive Income Statement Highlights (Three Months Ended June 30) | Metric | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | |:----------------------------------------|:------------------------|:------------------------| | Net Income | 2,221 | 2,536 |\ | Total Other Comprehensive Income (Loss) | (684) | (209) |\ | Comprehensive Income | 1,537 | 2,327 |\ | Comprehensive Income Applicable to Morgan Stanley | 1,593 | 2,376 | Consolidated Comprehensive Income Statement Highlights (Six Months Ended June 30) | Metric | YTD 2023 ($ in millions) | YTD 2022 ($ in millions) | |:----------------------------------------|:-------------------------|:-------------------------| | Net Income | 5,254 | 6,251 |\ | Total Other Comprehensive Income (Loss) | (161) | (2,044) |\ | Comprehensive Income | 5,093 | 4,207 |\ | Comprehensive Income Applicable to Morgan Stanley | 5,115 | 4,242 | Consolidated Balance Sheet (Unaudited at June 30, 2023) Total assets decreased slightly to $1,164.9 billion, with changes in cash, trading assets, and deposits Consolidated Balance Sheet Highlights (As of June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | Change ($ in millions) | |:----------------------------------------|:------------------------------|:----------------------------------|:-----------------------| | Cash and Cash Equivalents | 104,994 | 128,127 | (23,133) |\ | Trading Assets at Fair Value | 328,454 | 301,315 | 27,139 |\ | Investment Securities | 151,792 | 159,931 | (8,139) |\ | Loans (net of ACL) | 200,528 | 198,997 | 1,531 |\ | Goodwill | 16,652 | 16,652 | 0 |\ | Total Assets | 1,164,911 | 1,180,231 | (15,320) |\ | Deposits | 348,511 | 356,646 | (8,135) |\ | Trading Liabilities at Fair Value | 147,043 | 154,438 | (7,395) |\ | Borrowings | 247,973 | 238,058 | 9,915 |\ | Total Liabilities | 1,063,550 | 1,079,000 | (15,450) |\ | Total Morgan Stanley Shareholders' Equity| 100,386 | 100,141 | 245 |\ | Total Equity | 101,361 | 101,231 | 130 | Consolidated Statement of Changes in Total Equity (Unaudited) Total equity increased slightly to $101.36 billion, reflecting net income, dividends, and repurchases Consolidated Statement of Changes in Total Equity Highlights (Six Months Ended June 30) | Metric | YTD 2023 ($ in millions) | YTD 2022 ($ in millions) | |:----------------------------------------|:-------------------------|:-------------------------| | Beginning Balance (Total Equity) | 101,231 | 102,662 |\ | Net Income Applicable to Morgan Stanley | 5,162 | 6,161 |\ | Preferred Stock Dividends | (277) | (228) |\ | Common Stock Dividends | (2,597) | (2,473) |\ | Repurchases of Common Stock | (3,305) | (6,518) |\ | Net Change in Accumulated Other Comprehensive Income (Loss) | (47) | (1,919) |\ | Ending Balance (Total Equity) | 101,361 | 102,662 | Consolidated Cash Flow Statement (Unaudited) Net cash used for operating activities was $19.53 billion, leading to a $23.13 billion decrease in cash Consolidated Cash Flow Statement Highlights (Six Months Ended June 30) | Cash Flow Category | YTD 2023 ($ in millions) | YTD 2022 ($ in millions) | |:----------------------------------------|:-------------------------|:-------------------------| | Net Cash Provided by (Used for) Operating Activities | (19,531) | 15,152 |\ | Net Cash Provided by (Used for) Investing Activities | 5,200 | (8,369) |\ | Net Cash Provided by (Used for) Financing Activities | (8,781) | 1,306 |\ | Net Increase (Decrease) in Cash and Cash Equivalents | (23,133) | 3,561 |\ | Cash and Cash Equivalents, End of Period | 104,994 | 131,286 | - The significant shift in operating cash flow was primarily driven by changes in trading assets/liabilities, securities borrowed/loaned, and customer receivables/payables[226] - Investing activities were positively impacted by proceeds from sales and maturities of AFS and HTM securities, partially offset by payments for premises, equipment, and software[226] - Financing activities were negatively impacted by payments for borrowings, common stock repurchases, and cash dividends, partially offset by proceeds from issuance of borrowings[226] Notes to Consolidated Financial Statements (Unaudited) Detailed notes support financial statements, covering segments, policies, fair values, and regulatory requirements 1. Introduction and Basis of Presentation Morgan Stanley's business segments and U.S. GAAP financial statement preparation are outlined - Morgan Stanley operates through Institutional Securities, Wealth Management, and Investment Management segments, providing diverse products and services to a broad client base[228][229][230] - Financial statements are prepared under U.S. GAAP, requiring estimates and assumptions for valuations of financial instruments, goodwill, intangible assets, legal/tax matters, deferred tax assets, and allowance for credit losses (ACL)[231] - The financial statements include consolidated accounts of the firm, its wholly-owned subsidiaries, and other entities where it has a controlling financial interest, including certain Variable Interest Entities (VIEs)[233] 2. Significant Accounting Policies No significant accounting policy updates, except for the Financial Instruments—Credit Losses adoption - No significant updates to the firm's accounting policies occurred during the six months ended June 30, 2023, except for the adoption of the Financial Instruments—Credit Losses accounting update[235] - The Financial Instruments—Credit Losses accounting update, adopted January 1, 2023, eliminated accounting guidance for troubled debt restructurings (TDRs) and requires new disclosures for certain loan modifications and current period gross charge-offs by year of origination[236] 3. Cash and Cash Equivalents Cash and cash equivalents decreased to $104.99 billion, primarily interest-bearing deposits Cash and Cash Equivalents (As of June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | |:-------------------------------------|:------------------------------|:----------------------------------| | Cash and Due from Banks | 5,690 | 5,409 |\ | Interest Bearing Deposits with Banks | 99,304 | 122,718 |\ | Total Cash and Cash Equivalents | 104,994 | 128,127 |\ | Restricted Cash | 32,785 | 35,380 | 4. Fair Values Fair value measurements of assets and liabilities are detailed, including Level 3 rollforwards and NAV Assets at Fair Value on a Recurring Basis (As of June 30, 2023) | Category | Level 1 ($ in millions) | Level 2 ($ in millions) | Level 3 ($ in millions) | Netting ($ in millions) | Total ($ in millions) | |:----------------------------------------|:------------------------|:------------------------|:------------------------|:------------------------|:----------------------| | Trading Assets | 191,448 | 160,293 | 10,094 | (38,909) | 322,926 |\ | Investment Securities—AFS | 47,973 | 31,594 | — | — | 79,567 |\ | Securities Purchased Under Agreements to Resell | — | 9 | — | — | 9 |\ | Total Assets at Fair Value | 239,421 | 191,896 | 10,094 | (38,909) | 402,502 | Liabilities at Fair Value on a Recurring Basis (As of June 30, 2023) | Category | Level 1 ($ in millions) | Level 2 ($ in millions) | Level 3 ($ in millions) | Netting ($ in millions) | Total ($ in millions) | |:----------------------------------------|:------------------------|:------------------------|:------------------------|:------------------------|:----------------------| | Deposits | — | 5,945 | 36 | — | 5,981 |\ | Trading Liabilities | 104,148 | 85,913 | 2,958 | (45,977) | 147,042 |\ | Securities Sold Under Agreements to Repurchase | — | 675 | 454 | — | 1,129 |\ | Other Secured Financings | — | 5,448 | 90 | — | 5,538 |\ | Borrowings | — | 86,038 | 1,787 | — | 87,825 |\ | Total Liabilities at Fair Value | 104,148 | 184,019 | 5,325 | (45,977) | 247,515 | - The firm's investments in private equity, real estate, and hedge funds are measured based on Net Asset Value (NAV), totaling $5.53 billion at June 30, 2023[252] 5. Fair Value Option Fair value option for borrowings totaled $87.83 billion, with Q2 2023 net revenues showing a loss - The firm uses the fair value option for instruments risk-managed on a fair value basis to mitigate income statement volatility and simplify accounting[260] Borrowings Measured at Fair Value Option (As of June 30, 2023 vs. December 31, 2022) | Business Unit Responsible for Risk Management | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | |:----------------------------------------------|:------------------------------|:----------------------------------| | Equity | 44,901 | 38,945 |\ | Interest Rates | 28,097 | 26,077 |\ | Commodities | 11,274 | 10,717 |\ | Credit | 2,048 | 1,564 |\ | Foreign Exchange | 1,505 | 1,417 |\ | Total | 87,825 | 78,720 | Net Revenues from Borrowings under Fair Value Option (Three Months Ended June 30) | Metric | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | |:-------------------|:------------------------|:------------------------| | Trading Revenues | (513) | 7,672 |\ | Interest Expense | 119 | 64 |\ | Net Revenues | (632) | 7,608 | 6. Derivative Instruments and Hedging Activities Derivative instruments and hedging activities are detailed, including fair values and potential collateral calls Fair Values of Derivative Contracts (Assets at June 30, 2023) | Type of Derivative | Bilateral OTC ($ in millions) | Cleared OTC ($ in millions) | ExchangeTraded ($ in millions) | Total ($ in millions) | |:-------------------|:------------------------------|:----------------------------|:-------------------------------|:----------------------| | Designated as Accounting Hedges | 220 | 43 | — | 263 |\ | Not Designated as Accounting Hedges | 268,604 | 71,501 | 37,596 | 377,701 |\ | Total Gross Derivatives | 268,824 | 71,544 | 37,596 | 377,964 |\ | Amounts Offset (Netting) | (228,681) | (71,027) | (35,352) | (335,060) |\ | Total in Trading Assets | 40,143 | 517 | 2,244 | 42,904 | Fair Values of Derivative Contracts (Liabilities at June 30, 2023) | Type of Derivative | Bilateral OTC ($ in millions) | Cleared OTC ($ in millions) | ExchangeTraded ($ in millions) | Total ($ in millions) | |:-------------------|:------------------------------|:----------------------------|:-------------------------------|:----------------------| | Designated as Accounting Hedges | 526 | 40 | — | 566 |\ | Not Designated as Accounting Hedges | 263,256 | 72,106 | 36,963 | 372,325 |\ | Total Gross Derivatives | 263,782 | 72,146 | 36,963 | 372,891 |\ | Amounts Offset (Netting) | (234,699) | (72,077) | (35,352) | (342,128) |\ | Total in Trading Liabilities | 29,083 | 69 | 1,611 | 30,763 | Incremental Collateral/Termination Payments upon Potential Future Ratings Downgrade (As of June 30, 2023) | Downgrade Scenario | Amount ($ in millions) | |:-------------------|:-----------------------| | One-notch downgrade| 504 |\ | Two-notch downgrade| 350 |\ | Bilateral downgrade agreements included | 749 | 7. Investment Securities Investment securities (AFS and HTM) totaled $141.53 billion, with details on unrealized losses and ACL AFS and HTM Securities (As of June 30, 2023) | Security Type | Amortized Cost ($ in millions) | Gross Unrealized Gains ($ in millions) | Gross Unrealized Losses ($ in millions) | Fair Value ($ in millions) | |:--------------------------|:-------------------------------|:---------------------------------------|:----------------------------------------|:---------------------------| | AFS Securities | 84,401 | 80 | 4,914 | 79,567 |\ | U.S. Treasury securities | 49,615 | 34 | 1,676 | 47,973 |\ | U.S. agency securities | 26,778 | 1 | 2,733 | 24,046 |\ | Agency CMBS | 5,859 | 2 | 467 | 5,394 |\ | State and municipal securities | 1,099 | 43 | 9 | 1,133 |\ | FFELP student loan ABS | 1,050 | — | 29 | 1,021 |\ | HTM Securities | 72,225 | — | 10,263 | 61,962 |\ | U.S. Treasury securities | 26,845 | — | 1,718 | 25,127 |\ | U.S. agency securities | 42,494 | — | 8,225 | 34,269 |\ | Agency CMBS | 1,692 | — | 155 | 1,537 |\ | Non-agency CMBS | 1,194 | — | 165 | 1,029 |\ | Total Investment Securities | 156,626 | 80 | 15,177 | 141,529 | - The firm believes there are no AFS securities in an unrealized loss position that have credit losses, and it does not intend or is not likely to be required to sell these securities prior to recovery of the amortized cost basis[287] - HTM securities reflect an ACL of $39 million at June 30, 2023, predominantly related to Non-agency CMBS[288] Gross Realized Gains (Losses) on Sales of AFS Securities (Three Months Ended June 30) | Metric | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | |:------------------------|:------------------------|:------------------------| | Gross Realized Gains | 7 | 24 |\ | Gross Realized (Losses) | (17) | (6) |\ | Total | (10) | 18 | 8. Collateralized Transactions Collateralized transactions, including securities financing and netting agreements, are detailed Offsetting of Certain Collateralized Transactions (Assets at June 30, 2023) | Asset Category | Gross Amounts ($ in millions) | Amounts Offset ($ in millions) | Balance Sheet Net Amounts ($ in millions) | Amounts Not Offset ($ in millions) | Net Amounts ($ in millions) | |:----------------------------------------------|:------------------------------|:-------------------------------|:------------------------------------------|:-----------------------------------|:----------------------------| | Securities Purchased Under Agreements to Resell | 209,804 | (111,890) | 97,914 | (94,398) | 3,516 |\ | Securities Borrowed | 156,774 | (17,648) | 139,126 | (135,147) | 3,979 | Offsetting of Certain Collateralized Transactions (Liabilities at June 30, 2023) | Liability Category | Gross Amounts ($ in millions) | Amounts Offset ($ in millions) | Balance Sheet Net Amounts ($ in millions) | Amounts Not Offset ($ in millions) | Net Amounts ($ in millions) | |:----------------------------------------------|:------------------------------|:-------------------------------|:------------------------------------------|:-----------------------------------|:----------------------------| | Securities Sold Under Agreements to Repurchase | 168,253 | (111,890) | 56,363 | (52,023) | 4,340 |\ | Securities Loaned | 31,017 | (17,648) | 13,369 | (13,261) | 108 | Fair Value of Collateral Received with Right to Sell or Repledge | Metric | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | |:----------------------------------------|:------------------------------|:----------------------------------| | Collateral received with right to sell or repledge | 674,314 | 637,941 |\ | Collateral that was sold or repledged | 515,526 | 486,820 | 9. Loans, Lending Commitments and Related Allowance for Credit Losses Loan portfolios and ACL are detailed, with increases due to commercial real estate deterioration Loans by Type (As of June 30, 2023 vs. December 31, 2022) | Loan Type | HFI Loans (June 30, 2023, $ in millions) | HFS Loans (June 30, 2023, $ in millions) | Total Loans (June 30, 2023, $ in millions) | |:--------------------------------|:-----------------------------------------|:-----------------------------------------|:-------------------------------------------| | Corporate | 6,835 | 11,226 | 18,061 |\ | Secured Lending Facilities | 37,795 | 3,597 | 41,392 |\ | Commercial Real Estate | 8,674 | 436 | 9,110 |\ | Residential Real Estate | 57,215 | 24 | 57,239 |\ | Securities-based Lending and Other Loans | 91,090 | 1 | 91,091 |\ | Total Loans | 201,609 | 15,284 | 216,893 | Allowance for Credit Losses (ACL) Rollforward (Loans, Six Months Ended June 30, 2023) | Metric | Corporate ($ in millions) | Secured Lending Facilities ($ in millions) | CRE ($ in millions) | Residential Real Estate ($ in millions) | SBL and Other ($ in millions) | Total ($ in millions) | |:----------------------------------------|:--------------------------|:-------------------------------------------|:--------------------|:----------------------------------------|:------------------------------|:----------------------| | December 31, 2022 | 235 | 153 | 275 | 87 | 89 | 839 |\ | Gross Charge-offs | (30) | — | (69) | — | (2) | (101) |\ | Provision (release) | 50 | 3 | 178 | 25 | 83 | 339 |\ | Other | 2 | — | 1 | — | 1 | 4 |\ | June 30, 2023 | 257 | 156 | 385 | 112 | 171 | 1,081 | - The ACL for loans and lending commitments increased primarily due to credit deterioration in commercial real estate lending (office sector), modest growth in certain loan portfolios, and a deteriorating macroeconomic outlook[318][319] Nonaccrual Loans Held for Investment (Before Allowance, As of June 30, 2023 vs. December 31, 2022) | Loan Type | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | |:--------------------------------|:------------------------------|:----------------------------------| | Corporate | 121 | 71 |\ | Secured Lending Facilities | 8 | 94 |\ | Commercial Real Estate | 348 | 209 |\ | Residential Real Estate | 113 | 118 |\ | Securities-based Lending and Other Loans | 58 | 10 |\ | Total | 648 | 502 | 10. Other Assets—Equity Method Investments Equity method investments totaled $1.87 billion, with Q2 2023 income of $61 million Equity Method Investments (As of June 30, 2023 and Three Months Ended June 30) | Metric | June 30, 2023 ($ in millions) | 2Q 2023 Income (Loss) ($ in millions) | |:----------------------------------------|:------------------------------|:--------------------------------------| | Investments | 1,870 | 61 | Income from Japanese Securities Joint Venture (MUMSS) (Three Months Ended June 30) | Metric | 2Q 2023 ($ in millions) | 2Q 2022 ($ in millions) | |:----------------------------------------|:------------------------|:------------------------| | Income (loss) from investment in MUMSS | 63 | 14 | 11. Deposits Deposits decreased to $348.51 billion, with details on types and FDIC insurance status Deposits (As of June 30, 2023 vs. December 31, 2022) | Deposit Type | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | |:----------------------------------|:------------------------------|:----------------------------------| | Savings and Demand Deposits | 286,050 | 319,948 |\ | Time Deposits | 62,461 | 36,698 |\ | Total | 348,511 | 356,646 |\ | Deposits Subject to FDIC Insurance| 270,042 | 260,420 |\ | Deposits Not Subject to FDIC Insurance | 78,469 | 96,226 | Time Deposit Maturities (As of June 30, 2023) | Year | Amount ($ in millions) | |:-----|:-----------------------| | 2023 | 18,234 |\ | 2024 | 25,185 |\ | 2025 | 8,321 |\ | 2026 | 4,040 |\ | 2027 | 3,187 |\ | Thereafter | 3,494 |\ | Total | 62,461 | 12. Borrowings and Other Secured Financings Borrowings increased to $247.97 billion, with a weighted average maturity of 6.8 years Borrowings (As of June 30, 2023 vs. December 31, 2022) | Borrowing Type | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | |:----------------------------------------|:------------------------------|:----------------------------------| | Original maturities of one year or less | 4,153 | 4,191 |\ | Senior (original maturities > 1 year) | 231,706 | 221,667 |\ | Subordinated (original maturities > 1 year) | 12,114 | 12,200 |\ | Total Borrowings | 247,973 | 238,058 |\ | Weighted Average Stated Maturity (years)| 6.8 | 6.7 | Other Secured Financings (As of June 30, 2023 vs. December 31, 2022) | Metric | June 30, 2023 ($ in millions) | December 31, 2022 ($ in millions) | |:----------------------------------------|:------------------------------|:----------------------------------| | Original maturities: One year or less | 1,235 | 944 |\ | Original maturities: Greater than one year | 7,059 | 7,214 |\ | Total | 8,294 | 8,158 |\ | Transfers of assets accounted for as secured financings | 1,936 | 1,119 | - Other secured financings include liabilities related to collateralized notes, transfers of financial assets accounted for as financings, and consolidated VIEs where the firm is the primary beneficiary[331] 13. Commitments, Guarantees and Contingencies Commitments, guarantees, and legal contingencies, including ongoing tax and block trading matters Commitments by Years to Maturity (As of June 30, 2023) | Commitment Type | Less than 1 Year ($ in millions) | 1-3 Years ($ in millions) | 3-5 Years ($ in millions) | Over 5 Years ($ in millions) | Total ($ in millions) | |:----------------------------------------|:---------------------------------|:--------------------------|:--------------------------|:-----------------------------|:----------------------| | Lending | 38,060 | 43,890 | 59,773 | 3,855 | 145,890 |\ | Forward-starting secured financing receivables | 61,949 | — | — | — | 61,949 |\ | Central Counterparty | 300 | — | — | 8,464 | 8,764 |\ | Underwriting | 394 | — | — | — | 394 |\ | Investment Activities | 1,739 | 194 | 110 | 289 | 2,332 |\ | Letters of Credit and Other Financial Guarantees | 106 | 35 | — | 10 | 151 |\ | Total | 102,548 | 44,119 | 60,206 | 12,607 | 219,480 | Guarantees: Maximum Potential Payout/Notional (As of June 30, 2023) | Guarantee Type | Less than 1 Year ($ in millions) | 1-3 Years ($ in millions) | 3-5 Years ($ in millions) | Over 5 Years ($ in millions) | Total ($ in millions) | |:----------------------------------------|:---------------------------------|:--------------------------|:--------------------------|:-----------------------------|:----------------------| | Non-credit Derivatives | 1,310,340 | 1,228,197 | 321,208 | 694,877 | 3,554,622 |\ | Standby Letters of Credit and Other Financial Guarantees | 1,435 | 701 | 1,459 | 2,800 | 6,395 |\ | Securitization Representations and Warranties | — | — | — | 78,650 | 78,650 |\ | General Partner Guarantees | 366 | 20 | 136 | 41 | 563 | - The firm is involved in ongoing legal actions and regulatory investigations, including a challenge by the Dutch Tax Authority and investigations into its block trading business[339][340][344][347] - Legal expenses were $45 million in Q2 2023, significantly lower than $262 million in Q2 2022[342](in