Mack to Leave Morgan Stanley?

During Morgan Stanley’s annual meeting in May, the firm’s chairman and defining executive for the past decade, John Mack, was seated next to man he pick to succeed him as chief executive officer, James Gorman, letting the investing world know he is still a presence at the big Wall Street firm.

Next year is likely to be different.

The FOX Business Network has learned that Mack is telling friends that he will likely leave the firm at the end of the year. People at Morgan Stanley (MS) confirm to FOX Business that while they would like him to remain in some capacity, possibly as chairman emeritus or as a senior adviser, his career as a day-to-day executive is coming to an end.

An announcement on the move could come as early as this summer.

The retirement of Mack, 65, comes at a difficult time for Morgan Stanley. Not quite three years after being bailed out with the rest of the street during the 2008 financial crisis, Morgan under Gorman is shifting its business model to one focused on handling brokerage
accounts of small investors.

The results so far have been middling at best. Some analysts question if a business model that focuses largely on small investors and Morgan’s long-time expertise in advising large companies on deals can produce sizable enough earnings.

While risk-taking by trading bonds and hoarding complex securities on bank balance sheets produced the huge losses that set off the 2008 financial collapse, such activities also provided firms like Goldman Sachs (GS) with big profits in its aftermath, while profits at Morgan have lagged.

Morgan is expected to post weak second quarter profits and its stock has fallen more than 22% since the beginning of the year. One analyst recently opined that the firm would be worth more broken up than as a unified entity.

A spokeswoman for Morgan had no comment other than to point out that when Mack relinquished the CEO title to Gorman in 2010 he did so with the understanding that he would serve as chairman for two years.

Sources close to Morgan say the firm’s board could also ask Mack to remain in his current job, but that is unlikely; Gorman a former Merrill Lynch brokerage chief and McKinsey & Co., management consultant is considered one of Wall Street smartest minds when it comes to running brokerage operations.

Mack’s retirement from Morgan Stanley would bring to an end one of the most storied careers on Wall Street, and one that wasn’t without its fair share of controversy. He joined Morgan in 1972 as a salesman in the firm’s municipal bond department, and rose through the ranks to eventually become president in 1993, running its day-to-day operations under then CEO Dick Fisher. After leaving the company for a time, he returned in triumph as CEO amid a power struggle, but his decision to adopt a business model based on trading and risk taking cost Morgan dearly during the financial crisis.

Still, Mack’s leadership during those difficult times is credited with helping the firm –which traces its roots to the old House of Morgan — survive the crisis, and become the largest brokerage house on Wall Street with its acquisition of Smith Barney in 2009.

“He was a brilliant leader of the troops,” said Brad Hintz, an analyst at Sanford C Bernstein and a former senior executive at Morgan. “John built fixed income at Morgan Stanley. He pulled Morgan Stanley back from the brink in 2009. John brought peace back to Morgan Stanley after near civil war within the firm. For this the partners and shareholders of the firm are grateful, but John made his share of mistakes. It was Mack who pursued the prop trading at Morgan Stanley with such unfortunate results.”

Born to Lebanese immigrants who settled in North Carolina, Mack attended Duke University on a football scholarship but settled on a career in finance after an injury. During Mack’s nearly 40 year career on Wall Street, he was known as “Mack the Knife” for both his cost-cutting prowess and his board room decisiveness. In 1997, he broke new ground on Wall Street by pushing hard to merge Morgan Stanley, and investment bank that handed deals for the world’s largest companies, with brokerage firm Dean Witter, which catered to the needs of individual investors.

Mack believed “the supermarket model,” which combined various investment banking, brokerage and eventually even commercial banking services under a single corporate umbrella, was the future of Wall Street and he was right; Morgan Stanley was among the first firms on Wall Street to embrace a business model that would transform banking for years to come.

But it came at a large personal cost to Mack who agreed to give up the title of CEO of the newly combined company to Dean Witter chief Phil Purcell under the condition that he would get to run the new firm in a few years. Mack left Morgan Stanley In 2001 after Purcell refused to relinquish power. He would become CEO of Credit Suisse First Boston and later a senior partner at a large hedge fund, Pequot Capital, which has since been shut down.

But Mack wasn’t away from Morgan very long. In 2005, Purcell came under tremendous shareholder pressure for the firm’s poor operating results. A group of outside former Morgan Stanley partners pushed the board for Purcell’s ouster in one of the most dramatic board room battles Wall Street has ever seen. After the board relented, it finally settled on Mack as Purcell’s replacement.

In 2005, Mack’s dream of running Morgan finally came true; he vowed to make Morgan as profitable as its long-time rival, Goldman Sachs, and for a time, Morgan was one of Wall Street’s most profitable companies.

But the profits came as Mack decided to adopt business model that embraced risk taking such as trading complex bonds and derivatives, and in 2007 and 2008, the firm began to implode with the rest of Wall Street as it lost money trading bonds tied to the housing market.

While Mack can be criticized with other CEOs for Morgan’s the risk taking, he is also widely credited with saving the firm by cutting a deal with Japanese bank Mitsubishi that provided Morgan with much needed capital.

Morgan ultimately survived the 2008 financial collapse through a combination of government bailout money and outside capital, and then went back to basics, once again adopting the business model based on hammering out corporate deals, and dispensing advice to small investors.

To carry out that mission, Mack chose Gorman, a top executive at Merrill with an expertise in running its brokerage operations, as his heir apparent. Gorman’s first move was to expand the old Dean Witter brokerage force through the purchase of Citigroup’s (C) Smith Barney brokerage operations making Morgan the largest brokerage firm in the country with close to 18,000 financial advisers.

Likely would like him to remain in some capacity, possibly as chairman emeritus or as a senior adviser, his career as a day-to-day executive is coming to an end.

An announcement on the move could come as early as this summer.

The retirement of Mack, 65, comes at a difficult time for Morgan Stanley. Not quite three years after being bailed out with the rest of the street during the 2008 financial crisis, Morgan under Gorman is shifting its business model to one focused on handling brokerage
accounts of small investors.

The results so far have been middling at best. Some analysts question if a business model that focuses largely on small investors and Morgan’s long-time expertise in advising large companies on deals can produce sizable enough earnings.

While risk-taking by trading bonds and hoarding complex securities on bank balance sheets produced the huge losses that set off the 2008 financial collapse, such activities also provided firms like Goldman Sachs (GS: 130.00, -0.91, -0.70%) with big profits in its aftermath, while profits at Morgan have lagged.

Morgan is expected to post weak second quarter profits and its stock has fallen more than 22% since the beginning of the year. One analyst recently opined that the firm would be worth more broken up than as a unified entity.

A spokeswoman for Morgan had no comment other than to point out that when Mack relinquished the CEO title to Gorman in 2010 he did so with the understanding that he would serve as chairman for two years.

Sources close to Morgan say the firm’s board could also ask Mack to remain in his current job, but that is unlikely; Gorman a former Merrill Lynch brokerage chief and McKinsey & Co., management consultant is considered one of Wall Street smartest minds when it comes to running brokerage operations.

Mack’s retirement from Morgan Stanley would bring to an end one of the most storied careers on Wall Street, and one that wasn’t without its fair share of controversy. He joined Morgan in 1972 as a salesman in the firm’s municipal bond department, and rose through the ranks to eventually become president in 1993, running its day-to-day operations under then CEO Dick Fisher. After leaving the company for a time, he returned in triumph as CEO amid a power struggle, but his decision to adopt a business model based on trading and risk taking cost Morgan dearly during the financial crisis.

Still, Mack’s leadership during those difficult times is credited with helping the firm –which traces its roots to the old House of Morgan — survive the crisis, and become the largest brokerage house on Wall Street with its acquisition of Smith Barney in 2009.

“He was a brilliant leader of the troops,” said Brad Hintz, an analyst at Sanford C Bernstein and a former senior executive at Morgan. “John built fixed income at Morgan Stanley. He pulled Morgan Stanley back from the brink in 2009. John brought peace back to Morgan Stanley after near civil war within the firm. For this the partners and shareholders of the firm are grateful, but John made his share of mistakes. It was Mack who pursued the prop trading at Morgan Stanley with such unfortunate results.”

Born to Lebanese immigrants who settled in North Carolina, Mack attended Duke University on a football scholarship but settled on a career in finance after an injury. During Mack’s nearly 40 year career on Wall Street, he was known as “Mack the Knife” for both his cost-cutting prowess and his board room decisiveness. In 1997, he broke new ground on Wall Street by pushing hard to merge Morgan Stanley, and investment bank that handed deals for the world’s largest companies, with brokerage firm Dean Witter, which catered to the needs of individual investors.

Mack believed “the supermarket model,” which combined various investment banking, brokerage and eventually even commercial banking services under a single corporate umbrella, was the future of Wall Street and he was right; Morgan Stanley was among the first firms on Wall Street to embrace a business model that would transform banking for years to come.

But it came at a large personal cost to Mack who agreed to give up the title of CEO of the newly combined company to Dean Witter chief Phil Purcell under the condition that he would get to run the new firm in a few years. Mack left Morgan Stanley In 2001 after Purcell refused to relinquish power. He would become CEO of Credit Suisse First Boston and later a senior partner at a large hedge fund, Pequot Capital, which has since been shut down.

But Mack wasn’t away from Morgan very long. In 2005, Purcell came under tremendous shareholder pressure for the firm’s poor operating results. A group of outside former Morgan Stanley partners pushed the board for Purcell’s ouster in one of the most dramatic board room battles Wall Street has ever seen. After the board relented, it finally settled on Mack as Purcell’s replacement.

In 2005, Mack’s dream of running Morgan finally came true; he vowed to make Morgan as profitable as its long-time rival, Goldman Sachs, and for a time, Morgan was one of Wall Street’s most profitable companies.

But the profits came as Mack decided to adopt business model that embraced risk taking such as trading complex bonds and derivatives, and in 2007 and 2008, the firm began to implode with the rest of Wall Street as it lost money trading bonds tied to the housing market.

While Mack can be criticized with other CEOs for Morgan’s the risk taking, he is also widely credited with saving the firm by cutting a deal with Japanese bank Mitsubishi that provided Morgan with much needed capital.

Morgan ultimately survived the 2008 financial collapse through a combination of government bailout money and outside capital, and then went back to basics, once again adopting the business model based on hammering out corporate deals, and dispensing advice to small investors.

To carry out that mission, Mack chose Gorman, a top executive at Merrill with an expertise in running its brokerage operations, as his heir apparent. Gorman’s first move was to expand the old Dean Witter brokerage force through the purchase of Citigroup’s Smith Barney brokerage operations making Morgan the largest brokerage firm in the country with close to 18,000 financial advisers.

About Charlie Gasparino 37 Articles

Affiliation: Fox Business Network

Charlie Gasparino is a senior correspondent for Fox Business Network.

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