Morgan Stanley’s Mack Proposes Single Global Bank Regulator

From Bloomberg:

By Dakin Campbell


Sept. 30 (Bloomberg) — Morgan Stanley Chief Executive Officer John Mack, who struggled to return the bank to profitability amid the financial crisis, said a single regulator should oversee financial institutions worldwide.

“A better system would be one uber-regulator,” Mack said in an interview in New York for Bloomberg Television’s “Conversations with Judy Woodruff,” parts of which will air today. “We do need an overall systemic-risk management that everyone buys into. It’s not a U.S. systemic boundary — it’s a global systemic risk manager.”

A global regulator would ensure that U.S. banks aren’t subject to tighter regulations than the rest of the world, Mack said. A push for regulation during the financial crisis has weakened as the administration of President Barack Obama pursues other tasks, he said.

Morgan Stanley and Goldman Sachs Group Inc. converted to bank holding companies one week after Lehman Brothers Holdings Inc., Merrill Lynch & Co. and American International Group Inc. collapsed or were rescued in September of last year. Less than a month later, Morgan Stanley took $10 billion from the U.S. government as part of the Troubled Asset Relief Program. It has since paid back the government.

“I think the crisis is over,” Mack said in yesterday’s interview. “What I worry about is that we lose momentum with some of the regulatory changes that we need to go through.”

No Job Growth

While the financial crisis has subsided, economic recovery and job growth may take longer to return, Mack said. Confidence among U.S. consumers unexpectedly fell in September as a rising unemployment rate weighed on households, the New York-based Conference Board said. U.S. unemployment climbed to 9.7 percent in August.

“We’re a ways off in creating jobs and I do think that this is going to be a very slow recovery,” Mack said. “In the developed countries, Western Europe, the United States, I don’t see a lot of growth.”

Mack said in an interview earlier this month that he considers his greatest accomplishment to be leading Morgan Stanley through last year’s crisis. While the firm survived, it has lost money since the third quarter of 2008 and reined in trading as Goldman Sachs earnings surged to a record.

Mack has sought to improve profit and repair divisions that appeared under former CEO Philip Purcell. His strategy of boosting trading risks backfired in 2007 when bad bets led to the firm’s first quarterly loss.

Investing Again

“Whether it was in a much broader sales force or more robust trading groups, there was a time when this firm did not invest in the business,” Mack said in the Woodruff interview. “That’s one of the things we’re doing and we’re doing it now.”

Mack, 64, will step down as CEO at New York-based Morgan Stanley and hand over his title to co-President James Gorman, 51, at the end of the year, he announced earlier this month. Mack will remain chairman for at least two more years.

“For the first six months of the new year, I will not come to any management committee meetings,” Mack said, referring to a pledge he made to Gorman. “I don’t want anyone looking at me and looking at him. They just look at him.”

Morgan Stanley has responded to calls for curbs on compensation amid the crisis by instituting so-called clawback provisions, Mack said. They would allow pay to be clawed back if losses occur later.

Ways to Be Paid

“Wall Street has to be extremely careful on how they compensate people,” Mack said. “What firms need to understand, there are a number of ways you could be paid. You can pay a lot of money in cash or you can leave a lot of that in retained earnings.”

Mack worked his way up in fixed-income sales and trading at Morgan Stanley before becoming president under CEO Richard Fisher in 1993. He encouraged Fisher to sell the firm to Dean Witter Discover & Co., the brokerage firm led by Purcell, only to leave in 2001 after Purcell refused to relinquish power.

Mack helped run Zurich-based Credit Suisse Group AG for three years, leaving after a clash with the board. When Morgan Stanley shareholders and employees helped to oust Purcell in 2005, they turned to Mack.

The full interview will be shown on Bloomberg Television at 6 p.m. New York time on Oct. 2.


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