Morgan Stanley Chairman John Mack: Q&A

NEW YORK ( TheStreet) -- Morgan Stanley ( MS) Chairman John Mack, has long been one of Wall Street's most charismatic CEOs, despite his perhaps inevitable nickname, "Mack the Knife." Mack, 66, started at the investment bank as a bond salesman in 1972, working his way up the ranks before leaving after he lost a very public battle with CEO Phil Purcell in 2001.
Morgan Stanley Chairman John Mack

Mack was soon tapped to run Credit Suisse ( CS)'s investment bank. He eventually became co-CEO of the Swiss institution, though efforts to merge Credit Suisse with another investment bank led to a falling out with the board, according to several news reports.

Mack returned to Morgan Stanley in 2005, taking over the top job after Purcell was pushed out by the board. He ratcheted up risk-taking at the company--a strategy that led to billions in fixed income losses in late 2007. Mack nonetheless helped Morgan Stanley stave off a collapse by securing a $9 billion from Mitsubishi UFJ Financial Group in Sept. 2008, some two weeks after Lehman Brothers filed for bankruptcy.

Mack, who ceded the CEO position to James Gorman at the start of 2010, has announced he will hand over the chairmanship to Gorman as well at the end of the year. TheStreet interviewed Mack by telephone Oct. 5. The interview has been edited.

TheStreet: Has the 2008 crisis changed the investment banking business forever?

John Mack: It's changed it for a long time. Forever is a long--is infinity--but it's clearly changed it. There's no question about it. We're in flux. We're still trying to understand what this new regulatory world is. We need to understand what is Basel III and the impact of it. So clearly for the next--I was talking to one of my CEO friends at another major firm and he said "what do you think, another five or six years and this'll pass?' I said you know it took the Korean War for people to get over the Depression and how they felt about banks so I mean things will change over time but we're in this for a long, long time.

TheStreet: Corporations have been sitting on piles of cash for several years now. Everyone's been talking about this endlessly. You are very good at getting corporations to spend money. What is it going to take to get them to finally start spending?

Mack: Confidence. Confidence.

TheStreet: In what?

Mack: In the leadership. Not just here in the United States, but overseas. So they're going to sit on cash until they get some sense that we're going to deal with some of these issues, whether it's the banking problems and some of the country problems in Europe or the problems we have here with unemployment.

TheStreet:Will the European crisis get worse before it gets better?

Mack : I wish I knew. I could make a lot of money, so could you. I don't know. I mean anything I would say would be just guessing. I don't know. I think at the end of the day, reasonable people who are informed and smart will make the right decision, just as Paulson, Bernanke, Bush, Obama and others did during the financial crisis here.

TheStreet: Morgan Stanley has been under a lot of pressure lately both in the stock and credit markets. What's the reason for that?

Mack: There's a view that we have too much European exposure, but they just look at the net exposure they don't look at our collateral they don't look at our hedges.

TheStreet: How do you change the perception?

Mack: You've got to go out and make sure people understand what your positions are and be as open as you're possibly going to be. The difficult thing here is that we've been in a quiet period ahead of Tuesday's third quarter earning report. You really can't go out and say too much, so leadership here has referred a lot of these questions to some of the research analysts who cover our company, and I think that's the best way to get that information.

TheStreet: The analysts say you're hedged--that people are looking at your gross exposure to Europe when they should be looking at net exposure, because you've got hedges in place. Still, a lot of hedges don't work out, so isn't the gross exposure important?

Mack: Yeah, but you've got to look at the whole picture; you can't look at just one aspect of it.

TheStreet:But if you just say 'well, our net exposure is much smaller,' is that enough to answer the critics?

Mack:Well, unfortunately being the chairman one of the decisions I made was to not be involved directly in any of these things so I'm going to have to refer you to either (chief spokeswoman) Jeanmarie McFadden or James Gorman.

TheStreet: Okay, I won't pursue this line of questioning any more, but I want to know what your plans are for next year.

Mack: We're still working those out. I've had some approaches to do a number of different things. I want to stay very close to Morgan Stanley I feel very attached to it and anything I can do to help James I'd like to do. But at the same time there are things I want to pursue and there was one specific thing that came across my desk that I had to turn down because it put it in direct conflict with something the firm was trying to do. So I just want the freedom the next eight to 10 years to kind of do what I'd like to do and I don't know what that is yet but I'm sure things will happen that will give me an opportunity to take advantage of my many years in the business.

TheStreet: You're on John Hunstman's campaign team. Why are you supporting him?

Mack: I've met him as Ambassador on a couple of occasions in China and I've met him two or three times here with Christy my wife and that's someone I want to back and help.

TheStreet:So it's based on your personal relationship?

Mack: No, it's based on what he's done.

TheStreet:And you still feel like he has a shot?

Mack: Look ,you know more about this than I do. You go back to the Iowa (straw poll) Bachman was the hot item. I think she's disappeared. There was a time when Pawlenty--they thought he had the money and organization--he's disappeared. Mitch Daniels decided not to run. Just from what I read and see it looks like Perry's under a lot of pressure. I think as the field thins out, John Huntsman has a better chance of telling his story and what he'd do and what he's done in the past. I mean did you think Obama had a chance four years ago?

TheStreet: Would you ever consider working for the government?

Mack: That would depend on what the job is. I have a lot of respect for Secretary Clinton and if there's anything I could do to help her I would consider that.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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