Morgan Stanley's (MS) chairman and former chief executive, John Mack, will step down from the company's board at the end of the year, the firm said. Mack's decision will end a two-year power-sharing agreement with Morgan Stanley CEO James Gorman, who will become the New York company's chairman when the 66-year-old Mack steps down. Morgan Stanley's board voted on the move Thursday morning.
(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)
Mack hired Gorman from Merrill Lynch in 2005, shortly after Mack, a Morgan Stanley veteran, rejoined his old firm after stints at Credit Suisse Group (CS, CSGN.VX) and Pequot Capital Management. Gorman took over for Mack as CEO at the end of 2009.
A North Carolina native of Lebanese descent, Mack rose at Morgan Stanley as a bond salesman in the 1970s and 1980s before becoming president of the firm in 1993. He helped engineer a merger between the white-shoe Morgan Stanley and brokerage firm Dean Witter, Discover & Co. in 1997, but left the firm in 2001 after Dean Witter chairman and CEO Philip Purcell won a power struggle to stay at the merged firm's top spot.
After Morgan Stanley shares lagged behind peers in 2005, Purcell was forced out and Mack returned with a promise to bring back Morgan's "swagger." Television cameras rolled as traders applauded his return to Morgan's Times Square headquarters.
Mack soon pushed traders to take more risk and sell more esoteric, but profitable, mortgage products. In 2006, the firm enjoyed record results, but in 2007, the firm lost $9 billion on a proprietary mortgage bet.
In 2008, Mack started reducing risk on various trading desks, but it wasn't enough to keep Morgan Stanley from enduring a run on the bank after Lehman Brothers filed for bankruptcy that September. Mack scrambled to find capital and was able to convince Mitsubishi UFJ Financial Group to invest $9 billion in the firm, which meant Morgan would avoid the distressed sale that several peers were forced into the same year.
Mack announced he'd step down as CEO to make room for Gorman in 2009, a year in which Morgan Stanley's bond-trading results dragged down its relative performance. Mack during 2010 and 2011 has visited key Morgan Stanley clients, but hasn't been involved in the day-to-day management of the firm, people familiar with the matter said.
Gorman, 53 years old, has no plans to appoint a president under him, a person familiar with his thinking said. Some observers had speculated that the Morgan Stanley CEO might use Mack's retirement as an opportunity to elevate one or more of his key lieutenants to that role.
For Gorman, the elevation to chairman is a vote of confidence at a time when his firm's stock price has suffered along with the broader decline in banking shares. Gorman bought 100,000 shares of the company last month when they were trading at about $20. On Thursday, Morgan Stanley shares were trading higher by 75 cents, to $16.23.
Gorman has been working on rebuilding Morgan Stanley's bond trading desk as a more consistent performer and integrating a brokerage joint venture with Citigroup Inc. (C) that Morgan Stanley controls. Next year, Morgan Stanley has the option of boosting its stake in the wealth management project--which would be a high-profile bet by Gorman, a former McKinsey consultant who ran brokerage operations at Merrill Lynch and Morgan Stanley before he was promoted by Mack to become Morgan Stanley's co-president in late 2007.
Mack is working on a book about his career and leadership that may be published by the fall of 2012. He has also started doing some fundraising for the Jon Huntsman presidential campaign.
He will serve as a senior adviser for Morgan Stanley, which isn't a full-time position. He may look to join other boards, said a person familiar with his thinking.
WSJ
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