Morgan Stanley Gets Its Mack


Emily Thornton It's now official. Mack is back. On June 30, Morgan Stanley (MWD) made a much anticipated announcement that John Mack, its ex-president, will return to run one of Wall Street's most prestigious investment banks. Mack will replace CEO Philip J. Purcell, who on June 13 announced his plans to retire. Purcell had been criticized for months by investors and former executives for mishandling the management of the firm.

Mack is one of the few people research analysts and investors believe can put Morgan Stanley firmly back ahead of the pack on Wall Street. Analysts hope the legendary dealmaker's star power will woo back many of the top bankers who have left since Purcell carried out a controversial management shakeup in March.

During his stint as Morgan Stanley's president, Mack was very popular with the troops in part because he was a charismatic, hands-on leader who often walked the trading floors. And on June 30, he was greeted with standing ovations and cheering as he toured those floors greeting people. He gave a short speech, and at one point he was teary-eyed upon returning to the firm where he had worked for nearly 30 years previously, according to one person who was there.

FOUR PRIORITIES. Some investors are counting on Mack to make the firm's retail brokerage, asset management, and Discover credit-card businesses as preeminent as the investment bank's franchise -- or to get out of the businesses altogether.

Mack said in a public conference call that he had four priorities for the firm he left in 2001 after a dispute over leadership with Purcell. He wants to get "the right people." And he wants to make sure the firm has the "right strategy" to enhance profitability in the face of intense global competition. On top of that, Mack wants employees to focus on clients and to work well with regulators.

When asked if he had the support of the board of directors, which has been criticized as being packed with Purcell loyalists, Mack said he was "100% comfortable" and had the "right of way." Morgan Stanley's lead director Miles L. Marsh said the board decided to bring Mack back because it came to "the inescapable conclusion that he is uniquely qualified to assume the leadership of Morgan Stanley, bring together the people of this firm, and improve profitability."

A SOLID HAND. Mack acknowledged that he has contacted some of the star bankers who have left Morgan Stanley since Purcell's management shakeup. He said he would like for Vikram Pandit, former head of institutional securities, and legendary dealmaker Joseph Perella to return if "there is common ground." But Mack added that he plans to try to recruit not only people who have left but also other talented people on Wall Street.

With regard to strategy, Mack said he wanted to take some time before deciding on the firm's future course. But he said he believed Morgan Stanley's merger with DeanWitter & Discover & Co. in 1997 was not a mistake and that financial-services firms with large footprints make sense. "A narrowly focused business could be profitable, but I don't think it's sustainable," Mack said. "I don't think at Morgan Stanley there's urgency to do anything. I think the cards this firm has can work."

Still, he acknowledged that recent reforms raise questions about the viability of some businesses, such as whether firms should still both manage and distribute mutual funds.

How tough will it be for Mack to do get Morgan humming again? For more about his challenges, see "How Purcell Lost His Way"). Thornton is an associate editor for BusinessWeek in New York


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