MORGAN STANLEY

Red flags

• Total loans grew 16.7% year over year to $279.226 billion, with securities-based lending and other loans rising 17.7% to $113.014 billion, increasing exposure to market-backed collateral and forced deleveraging risk.
• Residential real estate loans were $72.408 billion and secured lending facilities were $70.966 billion; collateral values could deteriorate rapidly in a market or property downturn.
• The allowance for credit losses was $1.132 billion against $279.226 billion of total loans, approximately 0.41%, leaving earnings sensitive to deterioration in collateral, borrowers or counterparties.
• Loans to non-U.S. borrowers increased to $38.154 billion from $28.098 billion, approximately 35.8% year over year, adding geographic and cross-border credit exposure.
• Morgan Stanley states that large concentrated positions in market-making, investing, underwriting and lending can produce outsized losses, while severe market events may overwhelm hedging and risk-management systems.