Bloomberg News

Morgan Stanley Chairman Mack to Step Down, Cede Post to Gorman

September 15, 2011

Sept. 16 (Bloomberg) -- John Mack will cede his chairman role at Morgan Stanley to Chief Executive Officer James Gorman on Jan. 1, capping a 35-year career at the firm that included record losses and a government bailout.

Mack, 66, is completing the two years he promised to serve in the job when he ceded the CEO title to Gorman, 53, at the end of 2009. He will leave the board to become a senior adviser, the New York-based company said yesterday in a statement.

Morgan Stanley, the sixth-biggest U.S. bank by assets, more than tripled net income last year, boosted by gains in both the investment bank where Mack spent most of his career and the retail brokerage that Gorman ran when he joined in 2006.

“From the board’s point of view, Gorman has proved himself as an executive,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. who recommends buying Morgan Stanley stock and once served as its treasurer. “He’s embraced both sides of the firm, and the firm doesn’t have the internal dissension issues that existed before.”

Morgan Stanley was the world’s largest securities firm when Mack returned after a four-year absence in June 2005 to replace CEO Philip J. Purcell, who left under pressure from investors and employees. Mack’s efforts to boost trading revenue as well as businesses including private equity and mortgage-bond underwriting backfired when the company posted its first quarterly loss in 2007 and the global credit crunch toppled smaller rival Lehman Brothers Holdings Inc.

Taxpayer Bailout

The company sold stakes to China Investment Corp. and Japanese bank Mitsubishi UFJ Financial Group to raise capital and converted to a bank in 2008. Morgan Stanley also took $107 billion of Federal Reserve emergency loans, more than any other company, during the financial crisis.

“His contributions to the firm are innumerable, but none was more critical than the leadership he provided in guiding Morgan Stanley through a financial crisis that claimed many of our peers,” Gorman said in the statement. “For more than 30 years, he has helped to define the firm’s distinctive culture and build our franchise across the globe.”

Mack said in 2009 that he considers his own greatest accomplishment to be leading the firm through the 2008 crisis, which wiped out Lehman Brothers and led Bear Stearns Cos. and Merrill Lynch & Co. to be sold to larger companies.

“I said to my wife, when things were really crazy, ‘You know, there’s a chance I will lose this firm,’” Mack said in a 2009 interview. “But I would rather be doing this than sitting on a beach reading a book.”

Strategy Shift

Richard Bove, an analyst at Rochdale Securities in Lutz, Florida, said that Mack changed strategy too many times at Morgan Stanley as he reacted to circumstances.

“It created a company which had no clear vision of where it was going,” Bove said. “Overall, I would have to say his tutelage of the company was not effective.”

In giving Gorman the chairman job, Morgan Stanley is ending a two-year experiment in separating the two positions. Bank of America Corp. and Citigroup Inc., the biggest- and third-biggest U.S. banks by assets, have separated the two jobs. JPMorgan Chase & Co. and Goldman Sachs Group Inc., the second- and fifth- largest U.S. banks, have a single executive serving both roles.

The company gained $1.11, or 7.2 percent, to $16.59 in New York Stock Exchange composite trading at 4:15 p.m. and was the second biggest gainer in the 81-company Standard & Poor’s 500 Financials Index after Lincoln National Corp. Morgan Stanley stock is still down more than 40 percent this year.

“I don’t know what his legacy will be,” said Kenneth Crawford, a senior portfolio manager at Argent Capital Management LLC in St. Louis, which oversees about $1.2 billion and doesn’t own Morgan Stanley stock. Mack “came back and then allegedly resurrected Morgan Stanley and then took enough risk that his company was on the brink.”

--Editors: Steve Dickson, David Scheer

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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