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Morgan Stanley names Mack new CEO

By Michael J. Martinez Ap Business Writer 6 min read

NEW YORK (AP) – Morgan Stanley named former president John Mack as its new chairman and chief executive officer Thursday, replacing Philip Purcell at the head of one of Wall Street’s most storied investment banks. The widely anticipated move ended three months of turbulence that had cost the company some of its most talented employees. The company said Mack will take over immediately from Purcell, who announced his retirement June 13 under pressure from investors and his own board of directors over his leadership style and management of the company.

“I am proud to return home to the world’s premier financial services company and to the most talented team on Wall Street,” Mack said in a statement. “I look forward to working shoulder-to-shoulder with my colleagues old and new, across all of the firm’s businesses.”

Mack said his first key priority would be “to ensure that we have the right people in place,” according to the statement. Wall Street has speculated that Mack would seek to bring back some of the recently departed executives. The move had been rumored for a week, and was expected to be announced Thursday.

“This is obviously very positive,” said Jennifer Chien, equity analyst with PNC Advisors.

“He’s a long-time veteran of the organization, he knows the institutional business very well, and he’ll have a lot of the bankers and traders on board with him.”

Mack, 60, returns to a company he left in 2001 after a power struggle with Purcell, the architect behind Dean Witter & Co.’s 1997 takeover of Morgan Stanley that left Purcell in charge. Mack, who had been president of Morgan Stanley since 1993, could not get Purcell to agree to give him more authority, nor was Purcell willing to step aside for Mack.

Mack went on to run Credit Suisse First Boston as CEO from 2001 through 2004, and was recently named chairman of Pequot Asset Management Inc., a $6.5 billion hedge fund.

Purcell, meanwhile, was ultimately unable to fully integrate Dean Witter, primarily a retail brokerage, with the investment banking and asset management divisions of Morgan Stanley. Purcell’s leadership was widely criticized, and a series of high-profile executive resignations starting in late March encouraged a dissident group of shareholders and former executives to increase their efforts to get him fired.

The dissidents, led by former Morgan Stanley President Robert Scott, had no immediate comment on Mack’s new position. The self-titled “group of eight” had lobbied mutual funds and other major Morgan Stanley shareholders to speak out against Purcell and waged a public relations campaign that helped hasten his departure.

Purcell, 61, said when he announced his retirement that he would remain in his job until a replacement was named, possibly as late as next spring. However, the board moved quickly to name Mack and put the controversy surrounding Purcell behind the company.

There was speculation that Mack’s ascension to the top spot would encourage recently departed executives – who included five of the 14 members of the company’s executive management committee – to return to the firm. Most had left after Purcell appointed Stephen Crawford and Zoe Cruz, considered Purcell loyalists, as co-presidents of the company in late March.

One of the departed employees was Joseph Perella, head of Morgan Stanley’s merger and acquisition operations and a long-time star on Wall Street.

Mack spent 29 years at Morgan Stanley, working his way through the ranks to become president in 1993. As a proponent of mergers as a pathway to growth, he had enthusiastically supported the purchase of Morgan Stanley by Dean Witter & Co. in 1997. Mack left the company after realizing Purcell would not share his authority or give up the CEO post anytime soon.

But Mack still has a following among Morgan Stanley’s institutional bankers and high-profile deal makers – so popular, in fact, that the board of directors essentially overruled board member Charles Knight, who headed up the search and earlier said Mack would not be considered for the job.

“The board conducted an intense and thorough search process and evaluated a number of outstanding candidates,” Knight said in a company statement. “Ultimately, we determined that John’s substantial record of achievement in the financial services industry, his ability to attract and retain world-class people, and his strong ties to Morgan Stanley made him the very best candidate to lead the firm forward.”

Like many Wall Street executives, Mack is known for quick decisions and a take-no-prisoners approach to business – the nickname “Mack the Knife” was not attached to him simply because of the Bobby Darin song. Yet Mack was also known for running a strict meritocracy and rewarding talent.

That could be useful in replacing Purcell, who was accused of not doing enough to retain talent. He was particularly criticized for flying to London to meet with retail brokers – part of the old Dean Witter – after the first of the investment banking executives left in late March.

Mack, known for executing a financial turnaround at CSFB, inherits a Wall Street institution in crisis. He faces low employee morale, poorly performing asset management and retail brokerage businesses, and the decision whether to spin off the Discover credit card business from the rest of the company. The company’s earnings disappointed Wall Street analysts in the second quarter as margins eroded and revenues fell.

“He’s got his work cut out for him in terms of the retail brokerage and asset management businesses,” Chien said. “It’s one thing to turn around one business, another thing to turn around such diverse businesses in an organization where you have morale issues and distrust of the board and senior management. It’s a multi-year project at best.”

Mack will also have to determine whether Discover Financial Services, the company’s credit-card and mortgage lending arm, should be kept or spun off. In April, Morgan Stanley announced the move to make Discover an independently traded company, but the board made no decision on the move at a meeting last week amid concerns that Morgan Stanley would have to pay too much in capital to support Discover’s independence.

In addition, while the Discover division’s performance is somewhat mediocre compared to other credit card brands, it provides Morgan Stanley with strong cash flow that Mack might wish to retain as he cuts costs and restructures the firm.

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On the Net:

www.morganstanley.com

AP-ES-06-30-05 1521EDT

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