Speaker 1: So, John Mack in your book Up Close and All End,
Speaker 1: you talk about your experience with Morgan Stanley, but also
Speaker 1: a Credit Suite. Right, you had a period of time
Speaker 1: running Credit Suez. You're pretty explicit about some challenges that
Speaker 1: they had a Credit Swees when you were there. Now
Speaker 1: we have Credit Sweets that basically is going out of business,
Speaker 1: going to merge with ubs. What is it about Credit
Speaker 1: Suite that has given them so much difficulty? Oh more
Speaker 1: so much time? Well, I think the transition from being
Speaker 1: a Swiss private bank to a publicly held bank, that
Speaker 1: the rules and reporting have changed. I mean the Swiss banks.
Speaker 1: I remember years ago when I was there, you could
Speaker 1: go down in their vaults. He would see pieces of
Speaker 1: art locked up, things like that, And I think they
Speaker 1: had a real advantage of bank secrecy. They had a
Speaker 1: lot of people around the world who wanted to be protected.
Speaker 1: We put money in there and knowing it would be
Speaker 1: secure or safe and secretive. And the world's changed, and
Speaker 1: that's what they're dealing with because they need to change
Speaker 1: with it. Were you trying to change Credit Swie affair
Speaker 1: amount when you were there and you made a friend
Speaker 1: of changes, but the board didn't always like it. I
Speaker 1: mean they said they had some choice words for you,
Speaker 1: like arrogant. You had some choice words for them as well. Yeah,
Speaker 1: they said I'm the most arrogant person they ever met.
Speaker 1: And I said that the stupidest people I've ever dealt with.
Speaker 1: So we had a great relationship. As soon as my
Speaker 1: contract was up, they shot me. So it was fine.
Speaker 1: But when when you say stupid, what didn't they get
Speaker 1: from your point of view? I mean, you've spent a
Speaker 1: lifetime in banking, you know, banking. What didn't they understand?
Speaker 1: You need to build financial service business built on trust
Speaker 1: and built on not hiding money or putting money in
Speaker 1: different spots. But you need to be opened. You need
Speaker 1: to give a return on the investments or the assets
Speaker 1: someone gives you, and just having bank secrecy is not enough.
Speaker 1: And I don't think they got that. And for years
Speaker 1: the Swiss was a haven for people all over the
Speaker 1: world who wanted to put money away. They did and
Speaker 1: you know, for those who are putting the money in,
Speaker 1: it made a lot of sense. But long term, I
Speaker 1: think it really helped hurt the Swiss banks in a
Speaker 1: competitive way. They weren't as competitive they should have been,
Speaker 1: and they're great banks. They just needed to open up
Speaker 1: a vault a little more and not be so secretive.
Speaker 1: It looks like it we're in for a new era
Speaker 1: now as UBS is slated to take over credit swies
Speaker 1: to purchase at a bargain rate, and Calm Color, somebody
Speaker 1: you know well worked for you, is going to take
Speaker 1: it over. What do you expect Calm Color and UBS
Speaker 1: to do with credit Swies? Well, I think they'll look
Speaker 1: number one or are They're overlaps and there'll be a
Speaker 1: lot of overlaps, and you want to get the best
Speaker 1: people from each institution and still have those lines of businesses,
Speaker 1: but with a better rolodecks of who are the talent
Speaker 1: to people into the two banks. So I see it
Speaker 1: business as usual. But I think it will be a
Speaker 1: smaller institution when they put them together, and I think
Speaker 1: they will focus on performance, not just bank secrecy. You've
Speaker 1: spent a lifetime managing risk, knowing when to take it
Speaker 1: when not to take it right, Well, is it likely
Speaker 1: they'll take less risk? Already? We've had calm callers said
Speaker 1: we want to cut back on the investment bank. We're
Speaker 1: not as interested investment bank. Would you expect to sort
Speaker 1: the sort of profile the bank to shift. Yeah, I do,
Speaker 1: but I think that's universal. I think the big banks
Speaker 1: who've had big trading positions and taken a lot of risk,
Speaker 1: I think they've all dilled that back, and clearly the
Speaker 1: Swiss is going to do that now. When I was there,
Speaker 1: it was first Boston was their investment bank, and the
Speaker 1: amount of risk that we took was really out of
Speaker 1: proportion what we should have been doing. So I think
Speaker 1: all the banks are focused a lot more on risk.
Speaker 1: I think their regulators are better at defining and seeing
Speaker 1: the risk. But I think banks have to maintain confidence
Speaker 1: in their institution, and when you have big swings, when
Speaker 1: you take a huge loss on some risk position, it
Speaker 1: hurts their credibility and it hurts the trust that people
Speaker 1: have in them. So I think most of these banks
Speaker 1: are going to be much more conservative and the risk
Speaker 1: they take, which brings us back to the United States
Speaker 1: to some extent, we have our own problems with banks
Speaker 1: right in the United States, starting with Silicon Valley Bank
Speaker 1: going beyond that. At the same time, is this similar
Speaker 1: to what you saw in twenty eight, two and nine,
Speaker 1: again you were running Morgan Stanley. The banks, including Morgan
Speaker 1: Stanley had taken a lot of risk on there's a
Speaker 1: lot of leverage in the respect retrospect didn't work out
Speaker 1: so well. Do we have a similar issue now, you know, David,
Speaker 1: I don't think so. I think the banking issue at
Speaker 1: Silicon Bank is pretty straightforward. What they were doing, who
Speaker 1: they were underwriting, who they were lending money to. I
Speaker 1: think you go back to the crisis here in New
Speaker 1: York and the markets we're really volatile. We were just
Speaker 1: taking market risk. We were not taking tremendous credit risk,
Speaker 1: either with companies or with individuals. So when you look
Speaker 1: at Wall Street back then, a lot of our risker
Speaker 1: and government securities and just loading up the balance sheet
Speaker 1: saying there's making a bet on interest rates, not on credit.
Speaker 1: So I think the difference today is the credit risk,
Speaker 1: not so much the interest rate risk. But we have
Speaker 1: interest rate risk now all the time. They have interest
Speaker 1: rate risk well, and the feed is meeting just this
Speaker 1: week and it's we don't know if it's going to
Speaker 1: raise rates again or not. There are a lot of institutions,
Speaker 1: banks as well as the corporations that maybe have based
Speaker 1: their whole theory on low interest rates forever, which we're
Speaker 1: not going to have. So how much risk is there
Speaker 1: in terms of interest rate risk in the system, do
Speaker 1: you think? I don't think as much as we've seen
Speaker 1: in the past. I mean I don't. I just don't
Speaker 1: see banks, and again I've been retired for a while.
Speaker 1: I don't see them taking all that kind of risk
Speaker 1: to try to get earnings up. They're all always that
Speaker 1: it's going to be a risk in the marketplace. There's
Speaker 1: always interest rate risk. But I think all the banks
Speaker 1: are much more discipline and the kind of risk they want.
Speaker 1: I also think the Federal Reserve and regulators are much
Speaker 1: more astute at looking at these balance sheets and the
Speaker 1: risk they're taking. The risk should be in helping build businesses,
Speaker 1: not speculating in the market. If you want to speculate
Speaker 1: in the market, divine or define a certain amount of
Speaker 1: capital you want to put on the trading desk and
Speaker 1: take a risk that way. But in the risk of
Speaker 1: making these big loans and taking a lot of exposure
Speaker 1: if the markets change in these companies, I think that
Speaker 1: has really been dialed back. Is the big banking business
Speaker 1: in it says as interesting as it was when you
Speaker 1: were in it. In this sense, a lot of the
Speaker 1: business is going into credit. The prior to credit. Now
Speaker 1: it's gone out from the regulatory part right, and the
Speaker 1: big money center banks, as you say, have gotten a
Speaker 1: lot more conservative. You built a career actually and taking risk. Yeah,
Speaker 1: some would argue we took too much risk, and thank
Speaker 1: God for the Chinese and the Japanese who helped us
Speaker 1: get through all that. Yeah. I think given the crisis
Speaker 1: that we all went through years ago, I think bank
Speaker 1: boards are much more astute, much more involved, and I
Speaker 1: think the CEOs and treasures of the institutions are really
Speaker 1: concerned about how much risk are we taking and how
Speaker 1: much can we afford? John famous story in your book
Speaker 1: Up Close and All End actually is when you had
Speaker 1: Tim Geitner and Hank Paulson and Ben Burnanky on the
Speaker 1: phone saying you got to sell to Jamie Diamond as
Speaker 1: I recall at a discount price, and you stood up
Speaker 1: to them. There are some bank leaders right now having
Speaker 1: similar conversations in Switzerland, in Washington with bank regulators. How
Speaker 1: did you have the courage it was required to stand
Speaker 1: up to Hank Poulson and Tim Geitner. Well, I guess
Speaker 1: the courage came from if we had listened to them.
Speaker 1: Morgan Stanley wouldn't exist now, and my gut feel was
Speaker 1: that we were going to get through this. I believe
Speaker 1: that Japanese We're going to put money in. We had
Speaker 1: a great relationship with the Japanese and that came from
Speaker 1: years of doing business in Japan and we used to
Speaker 1: bring in When I joined Morgan Stanley, there were always
Speaker 1: two to five Japanese employees of the banks from Japan
Speaker 1: as trainees, and the Japanese had remembered the culture and
Speaker 1: they really adopted the culture. And when we were in trouble,
Speaker 1: the reason the Japanese stepped up they knew our culture.
Speaker 1: And God bless the founding partners of Morgan Stanley of
Speaker 1: having that kind of relationship and the foresight to bring
Speaker 1: people from all over the world, but especially from China
Speaker 1: and from Japan to see the culture. How we manager is,
Speaker 1: how we built a business, how we built relationships, and
Speaker 1: the Japanese clearly had a lot of respect for that
Speaker 1: and admiration for it. So that's why they stood up
Speaker 1: and said, we'll put the money in. How would the
Speaker 1: world of look, the financial world look different if, in fact,
Speaker 1: JP Morgan had bought Morgan Stanley and you didn't have
Speaker 1: a Morganstown anymore. What would it have meant for the
Speaker 1: overall economy and the financial world. Well, look, I think
Speaker 1: to have broad based investment banking community gives you better ideas,
Speaker 1: creative ideas, and also it dissipates risk over a much
Speaker 1: larger platform. So I think concentration too much concentrations a negative.
Speaker 1: And if we'd have lost Morgan Stanley and I remember
Speaker 1: Paulson colony and saying Saint John, you got to hang
Speaker 1: on because if you go down, we're right behind you,
Speaker 1: and it would have eroded. I think the investment banking business,
Speaker 1: which I believe really diversifies risk, also is very creative,
Speaker 1: a global business, and I think helps liquidity in the market.
Speaker 1: Plus also hiring a lot of people who do really
Speaker 1: well and helping companies. So it would have been a
Speaker 1: disaster if we had gone down, and I think it
Speaker 1: would have been a domino effect. And thank God for
Speaker 1: Hank Paulson. And when you talk about heroes, Hank Paulson's
Speaker 1: a hero. He really stood up. When you talk about
Speaker 1: hiring people, You've made it clear in your book that
Speaker 1: people are really what it's all about. Getting the right
Speaker 1: people getting the right places. You have a couple that
Speaker 1: you had working for you, we're gone on. We have,
Speaker 1: of course James Gorman running Morgan Stanley, who's done a
Speaker 1: pretty good job by all the great job, and Calm
Speaker 1: Color now who's back in the spotlight running Ubs, which
Speaker 1: is going to take over credit Sueez. What do you
Speaker 1: think about Calm Color as a leader? I think as
Speaker 1: a first class leader. Clearly he's very smart, and I
Speaker 1: think working together through the crisis, it showed that he
Speaker 1: was able to keep his financial team on board. In
Speaker 1: other words, people were close to panicking and he calmed
Speaker 1: them down. And I gave him a little bit of
Speaker 1: help on that, but he did it. Says a natural leader,
Speaker 1: and I think he's a natural for what he's going
Speaker 1: to do in Switzerland. Finally, what does it take to
Speaker 1: become in the middle of a crisis? You didn't with
Speaker 1: respect to the pressure, but Morgan stun You just talk
Speaker 1: about Colm Color hurt in the crisis. You were there
Speaker 1: and in some really difficult times. What separates the people
Speaker 1: who can handle that from the ones who can't? I
Speaker 1: want to say stupidity. I knew if I cracked, they
Speaker 1: all cracked. So I had to put on a face
Speaker 1: that you know, I'll never forget Tom, and I'd say
Speaker 1: to me, you know, you act like nothing's going on. Well,
Speaker 1: what they didn't know I was shut my office door
Speaker 1: and just try to pull myself together. Couldn't. I couldn't
Speaker 1: show the stress of fear that we were under. And
Speaker 1: I'll never forget Colin, Christie my wife and saying, Christie,
Speaker 1: I don't know if I can get this done. And
Speaker 1: you turn to people you can trust and people who
Speaker 1: know you well and people who are not going to leak. Oh, guy,
Speaker 1: John Mack is really frightened about the crisis. And for me,
Speaker 1: the best person was Christie. And then I had other
Speaker 1: people like Tom Knigs, who's a close friend, various stute,
Speaker 1: and he was one of the few people who would
Speaker 1: constantly come to my office and say, stupid, you can't
Speaker 1: do that, and you need someone to put a mirror
Speaker 1: in front of you and challenging. Tom did that. Colin
Speaker 1: did that. And I had great talent and James Gorman
Speaker 1: was unbelievable and so cool given what we were going through.
Speaker 1: So the leadership team remained very calm, and I you know,
Speaker 1: I give Tom Knigs credit I give Colum credit, Gorman credit,
Speaker 1: and I just listened to the people out there in
Speaker 1: the business. If they did say, John, you need to
Speaker 1: get on a plane and fly to London, I was gone.
Speaker 1: I would do whatever they asked me to do. They
Speaker 1: were more in contact with people and issues than I was,
Speaker 1: and also made it a point to be seen. I'd
Speaker 1: get out and walk the trading floor, walk investment banking floor,
Speaker 1: and people looked at me. I'd be joking on the
Speaker 1: trading floor. They'd say it cut. Max seems to be
Speaker 1: really relaxed about this, and it kind of let some
Speaker 1: of their air out of tension, just kind of went
Speaker 1: out of their bodies and they said, no, we're going
Speaker 1: to be all right. And you know, I really believed
Speaker 1: we weren't going to be all right, and the worst
Speaker 1: thing we could have done was panicked, and we didn't.
Speaker 1: And I had a team in place, is starting with
Speaker 1: people like Tom Nds and James Gorman and Colum callaher
Speaker 1: who really got us through that. So I was lucky
Speaker 1: in many ways that it wasn't me. It was the
Speaker 1: team that's who got us through it.