There used to be a quaint little saying about how it will rain sulfuric acid in the canyons of Wall Street before a House of Morgan was run by communists. Well, you can
read here all about how CEO John Mack is now Great Leader of the People's Republic of Morgan. And when you go outside today, don't forget your umbrella. But what The Business Press Maven is more concerned with this morning is Chairman Mack's claim that but for one particular trade, Morgan would be just fine and would, presumably, not have fallen into the hands of Red China, making it the latest investment-banking domino to do so. Because some of the same business media that are busy portraying him as valiant and altruistic in not granting himself untold millions in bonuses after a year featuring untold billions in losses, are simply passing along his claim that but for one trade, everything would be fine inside Mainland Morgan. The Financial Times is a prime example of this subprime thinking. First off, after announcing larger-than-expected writedowns of nearly $10 billion (which is a lot of money, more than The Business Press Maven makes in two entire years), the FT was content to frame the reach-out to China as something done from a position of strength: "John Mack, chairman and chief executive, said the $5bn capital injection from China Investment Corporation would bolster its already strong balance sheet and strengthen its deep ties in China."
But who can be content passing along one self-serving stance from Great Leader Mack when you can pass along two? Or, if you include a plug by a lackey to save the Great Leader's job, three. Anyhow, here is the press release from the People's Republic of Morgan. Whoops, my bad. I mean the article from The Financial Times: "The losses were largely related to one proprietary trading bet against subprime which went disastrously wrong." Then came an expansion on this thought, plus a job plug from underlings: "Colm Kelleher, chief financial officer, said there was a definable chain of command and people had been held accountable. 'This was an isolated event. You can't hold the CEO accountable for every single trade that is done.' " Another senior executive said there was an important difference between Morgan Stanley and other troubled banks such as Citigroup ( C) and UBS ( UBS). "John has unbelievable support in the firm. He is not perceived to have failed other than by not choosing the right people and maybe sticking by them for too long." Then meaningless forward-looking rhetoric from the Grand Leader was passed along: "Mr Mack said the group would be 'much more cautious on some of these larger risks' at least until his overhaul of risk management had bedded down. 'We were sprinting and we will be kind of jogging for a while.'"
Call The Business Press Maven a killjoy if you wish, but I say that investor's understanding of the People's Republic of Morgan and Chairman Mack could have been expanded if The Financial Times stopped taking dictation from the Gang of Three at Morgan and started taking their marching orders from The Wall Street Journal. In an article called "
Loss Pressures Morgan Stanley CEO," more than one mistake at the company is laid bare. The entire ethos he gave to the firm, for example, was one of risk, thanks to Chairman Mack. In 2005, he famously brought a Cultural Revolution to Morgan, when he admonished the company to take more chances by shaming them about having no "swagger." And above and beyond the subprime losses, as this article points out, he stood by an old crony who played a big role in the losses. The Journal continued with its criticisms, which certainly went beyond one unlucky trade: "In addition, under Mr. Mack's watch, Morgan Stanley in February 2006 paid $1.76 billion for a credit-card company, Goldfish, only to see its value written down by $422 million a few weeks ago. He acquired a subprime-mortgage company, Saxon Capital Inc., for $706 million last December, even as warnings about the subprime storm were being sounded." And rather than quoting subordinates, who spring to his defense, the Journal quotes the best sort of analyst: the retired kind, who can speak his mind without losing access: "He's a chronic destroyer of value," said Kevin Murphy, a former Morgan Stanley airline analyst who is now retired and recently sold his stock. "He's a nice person, but you put this guy in the corner office and there's an X-factor where he hurts himself." Indeed.