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Look Who’s Back

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Before getting into his past, Mack needs a drink. “I would like a very cold beer,” he announces to the waitress at Loi. “The darkest one you have.”

Back when Mack started as a bond trader at Morgan Stanley, in 1972, things were a little different. “There were only 350 people,” he says. “They had $6 million in capital. Any time we priced a deal, every partner at the firm came to the meeting.” is first brush with disaster came during the 1987 stock-market crash. He was running the fixed-income desk, where he found one of his team members crying. “What’s wrong with you?” Mack asked. “He said, ‘I’m going to lose everything I made.’ I said, ‘Well, let me ask you a question: What did you start with?’ He said, ‘I started with nothing.’ ” Mack pauses for dramatic effect. “I said to him, ‘Well, then, make it back.’ ”

Mack was volatile and competitive, but, as one journalist would later point out, the man has been “described as charismatic so regularly that it could be part of his name,” and this quality helped earn him a loyal following as he was promoted through Morgan Stanley’s ranks. “He knows how to make people feel good,” explains a former colleague. Mack’s ascent stalled in 2001, however, after a bitter power struggle with the firm’s CEO, Philip Purcell, resulted in his leaving. He spent a brief period as head of Credit Suisse, until the board balked at his ambitious expansion plans; then he moved on to Pequot Capital, the multibillion-dollar hedge fund, which was in the middle of an SEC insider-trading probe. During the 27 days he spent there, his loyalists were busy orchestrating a coup for him at Morgan Stanley. Despite some initial reservations from the board—who thought Mack was a little too brash, too bold in his risk-taking, for the top job—by 2005, Purcell was out, and Mack was installed as CEO and chairman. “It was worthy of Aïda,” says Wien of the hero’s welcome Mack received at Morgan Stanley. “No elephants, though.” Instead, on his first day back, he was trailed by CNBC’s Maria Bartiromo as he walked around the trading floor, shaking hands.

In a PowerPoint presentation, Mack explicitly laid out his plans for the firm. At the top of his list were two areas he wanted to grow immediately: mortgages and derivatives. He also ratcheted up the firm’s leverage to the point where it was borrowing $32 for every dollar it had. For a while, his strategy worked: By 2006, the firm was neck-and-neck with its rival Goldman Sachs, and Mack took home a reported bonus of $40 million. But a year later, Morgan Stanley reported a trading loss of over $9 billion, the largest in Wall Street history. That was only the beginning. In the short time Mack served as CEO, the firm had swollen into a monster with billions of dollars of debt and a balance sheet full of toxic assets. “In many ways,” Mack tells me, displaying the folksy humility that has helped distinguish him from his peers, “it’s like, you know the old thing, put a frog in cold water, turn the heat up, they never know they’re being boiled to death.”

In the aftermath of the crisis, many of the CEOs of the country’s largest banks tried, when confronted with hostile questions from the press or apoplectic members of Congress, to explain or defend themselves. For his part, Mack instinctively grasped that this was a theatrical production and he had a role to play. While his peers stammered out limp apologies and shrunk from the spotlight, he stayed front and center, offering up a rich array of mea culpas with flattering undertones. “I remember my first year back at Morgan Stanley, we thought about paying ourselves a lot less money,” he tells me at Loi, lifting his eyebrows to form an expression that resembles regret. “And people would say, ‘You’ll be the laughingstock of Wall Street,’ ” he says, his voice rising, as if incensed by the memory. “ ‘You’re trying to make a point and it’s about your ego and you’ll take this money!’ So we paid ourselves a lot of money!” He takes a forceful gulp of beer. “And for the next few years I took no money because our performance sucked and I sucked. I said to my friend and chief administrative officer, ‘This is my fault, and I should have had the resolve to do what I thought was actually right.’ ”

In reality, Mack continued to receive a base salary of $800,000 through 2009 and took home $40 million in stock awards in 2007. But the forthrightness with which he admits mistakes is disarming and has mostly insulated him from the antipathy heaped on his brethren. So has his full-bodied embrace of regulatory reform. “I love it,” Mack announced at a 2009 conference, where he stood up and, like an AA member describing a run-in with his old crowd, related a story in which he claimed to have voluntarily called regulators after passing up an opportunity to finance a leveraged-buyout deal. “We cannot control ourselves,” he said he warned them. “You have to step in and control the Street.”


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