Speaker 1: M This is Mesters in Business with Very Results on
Speaker 1: Bloomberg Radio this weekend. On the podcast, Boy Do I
Speaker 1: have an extra special guest, John Mac, legendary CEO of
Speaker 1: Morgan Stanley. Man. This is just a master class on leadership,
Speaker 1: on team building, on understanding of business and understanding what
Speaker 1: to do for your clients. So not only that they
Speaker 1: give you business, but they give you their loyalty and
Speaker 1: their ongoing respect. I don't know what else to say
Speaker 1: other than my conversation with Morgan Stanley's John Mac. I've
Speaker 1: been looking forward to this conversation for quite a while.
Speaker 1: As soon as I saw the book came out, I
Speaker 1: was I have to really get the inside dope from John,
Speaker 1: and so let's start with the beginning. You started Smith
Speaker 1: Barney in n was so compelling about a North Carolina
Speaker 1: kid from Duke going to Wall Street. It was pretty simple.
Speaker 1: So I was on a scholarship at Duke, an athletic scholarship,
Speaker 1: and cracked C five in my neck. So my scholarship
Speaker 1: was only valid for four years and I needed one
Speaker 1: class to graduate. I had very little money I thought
Speaker 1: had passed away when I was in college, so I
Speaker 1: needed a job and I went down and knocked on
Speaker 1: the door a company called First Securities of North Carolina,
Speaker 1: and a guy named Bill Vannor said, look, you know
Speaker 1: nothing about the business. I'll put you in the back
Speaker 1: office and you can go to your one class every
Speaker 1: day ahead and you go on your lunch out and
Speaker 1: come back and go to work. So it was me
Speaker 1: and nine women in the back office and they had
Speaker 1: the old IBM computer punch cards. That's how long ago
Speaker 1: it was. So I got a sense and a field
Speaker 1: for the business. And I got to know a lady
Speaker 1: named Fannie Mitchell who ran job placement for Duke University.
Speaker 1: It's when people would come down and say, you know
Speaker 1: Procter and Gamble or IBM, whoever it may be. She
Speaker 1: would say, we've got you got to talk to his
Speaker 1: John mac and I think you know. I would see
Speaker 1: it in the cafeteria and most students would ignore. I'd
Speaker 1: sit down, have a couple of coffee with her, or
Speaker 1: have lunch with her. So that's how I got involved
Speaker 1: with the securities business. And then Smith Barney was in
Speaker 1: town and they were going to open an office in Atlanta,
Speaker 1: and they ended up hiring me to go to their
Speaker 1: Atlanta office. So I come up to New York in
Speaker 1: and I'm working at Smith Parney and they decided because
Speaker 1: of the explosion of volume the New York Stock has
Speaker 1: change stopped all new branches from opening. So I got
Speaker 1: a chance to go into the municipal behind apartment. That's
Speaker 1: what I did. I was a trader salesman, and I
Speaker 1: learned a lot about a risk and also learned a
Speaker 1: lot about drinking at lunch. And you've got to be
Speaker 1: very careful going out with clients having a couple of drinks. Hey,
Speaker 1: you come back to the desk a little uh buzzed?
Speaker 1: What happens? Can't you make a trading mistake that way? Well,
Speaker 1: not only you can. I did. Uh. We went down
Speaker 1: to say Van if you remember that years ago, down
Speaker 1: to Walla Street. It was US Trust was my client,
Speaker 1: a guy named Jimmy Dagnan, and US Trust was the
Speaker 1: adviser for the State Employees of New York, which is
Speaker 1: a huge pension giant. So we sat there and we
Speaker 1: drank for at least three hours. Now, wait, are you
Speaker 1: normally a drink or during lunch or if the client
Speaker 1: is drinking, you gotta keep up. I'm a client guy.
Speaker 1: No one wants to drink alone. So if he's drinking
Speaker 1: or she's drinking, I'm drinking. And I came back and
Speaker 1: I made a mistake, and uh, thank god they didn't
Speaker 1: fire me. And over time we eradicated that and fixed it. Uh,
Speaker 1: And then I learned be very careful when you go
Speaker 1: out to lunch on Wall Street. So tell us a
Speaker 1: little bit about the culture on the street in the
Speaker 1: late sixties and early seventies. What was it like. It
Speaker 1: was a crazy time. The thing of politically correct didn't exist,
Speaker 1: to say the very least. All Right. So I'm I'm
Speaker 1: two years old. I'm at Smith Barney. I'm a municipal trader. Uh.
Speaker 1: Then I go into the corporate behind the market and
Speaker 1: I hear about these crazy parties that Wall Street was
Speaker 1: was throwing. And I only went to one and left.
Speaker 1: I mean it was basically strippers and people getting drunk.
Speaker 1: And you know, I came from a town of about
Speaker 1: twelve thousand people in North Carolina, Baptist religion. Mainly, it
Speaker 1: was a new or for me, but it taught me
Speaker 1: a lot. You gotta pay attention and you've got to
Speaker 1: make sure that you don't get drunk at lunch. And
Speaker 1: you gotta make sure you tell the truth. Telling the
Speaker 1: truth is certainly a key part, and that's a theme
Speaker 1: that comes up again and again in your book. We'll
Speaker 1: get to that in a little bit. You mentioned the
Speaker 1: New York Stock Exchange didn't allow any new branches to
Speaker 1: be open. I have a vague recollection of Wall Street
Speaker 1: being closed on Wednesday days to catch up on the paperwork.
Speaker 1: Tell us a little bit about that's correct. They closed
Speaker 1: on Wednesday to catch up on the paperwork. And all
Speaker 1: the firms, whether it was first of all Us and Morgan,
Speaker 1: Stanley going Goldman, Sacks and Morgan at that time didn't
Speaker 1: have a big secondary business. We had to clear up
Speaker 1: the back office. So you'd shut it noon and try
Speaker 1: to figure out these securities go to why, and these
Speaker 1: securities go to Z literally paper certificates and delivering absolutely
Speaker 1: talk about, you know, ancient technology. One of the things
Speaker 1: you mentioned was that by the nine eighties there were
Speaker 1: two key forces driving changes on Wall Street, deregulation and technology.
Speaker 1: Corret tell us about that. Well, the markets were changing,
Speaker 1: they were global, and as they became global and you
Speaker 1: were competing around the world, it was clear that you
Speaker 1: needed to free up our securities business to be more
Speaker 1: active on a global basis. So we got rid of
Speaker 1: a lot of regular sation. We got more oversight, but
Speaker 1: not regulatory control. I mean, clearly reported the sec New
Speaker 1: York Stock Exchange, etcetera. But it wasn't smothering. I mean,
Speaker 1: you know, we were not used to it, but it
Speaker 1: was the right thing for New York Stock Exchange to do.
Speaker 1: There had to be more regulation. And uh, you know,
Speaker 1: as as I said earlier, it's a global market, and
Speaker 1: you wanted to make sure that we represented New York
Speaker 1: Stock ex Change and really America the proper way. And
Speaker 1: it worked, and the UK was much stricter than we were,
Speaker 1: and in Germany they were stricter and we were, and
Speaker 1: clearly the Japanese were stricter than we were. And over
Speaker 1: time all these different regulatory areas from around the world
Speaker 1: came up with a conclusion, we need kind of an
Speaker 1: overall management system for risk and regulatory oversight. So if
Speaker 1: you took a big risk in China and Japan or
Speaker 1: in Europe, you needed to roll that up so the
Speaker 1: US regulator or the UK regulator could see what your
Speaker 1: overall risk was. I think that was a huge and
Speaker 1: very important move. You spent the first part of your
Speaker 1: career primarily in fixed income. First, you mentioned municipals in corporate.
Speaker 1: What was the appeal of the bond side of the business. Well, originally,
Speaker 1: when I joined Smith Barney, I was going to go
Speaker 1: to Atlanta in the retail office and cover Florida and
Speaker 1: other other southern states. And then I got to know
Speaker 1: a guy named George Wilder who had been in the
Speaker 1: municipal bond of business, and a guy named John McDougall
Speaker 1: who was a municipal bond trader, and they convinced me,
Speaker 1: you know, once you stay in New York, you're a
Speaker 1: great salesman and you can sell and trade muntis with us.
Speaker 1: And I like New York, and I like the business,
Speaker 1: and I like the investment world of large pension funds,
Speaker 1: money managers and things like that. So we did a
Speaker 1: combination of things. We covered clients, and then we satisfied
Speaker 1: the desire of retail salesman who wanted to buy UNI's
Speaker 1: in New York state or in California of Florida. So
Speaker 1: that's how I got into the bond business. What was
Speaker 1: it like trying to build a team on a bond
Speaker 1: desk that you described in the book could get a
Speaker 1: little frenetic. Yeah it was, but you know, we built
Speaker 1: it over the long period of time, and we all
Speaker 1: grew up over that period of time. And you learned
Speaker 1: that Number one, you had to be upfront. You had
Speaker 1: to focus on your clients. You couldn't get drunk at lunch,
Speaker 1: which occasionally we all got drunk at lunch and sometimes
Speaker 1: made a mistake. And you learned to focus on your
Speaker 1: client and uh, you know, it became a very personal
Speaker 1: business and you got to know who they were. You
Speaker 1: got to know their families. And I remember when I
Speaker 1: was at Smith Barney invented IF. At Smithers, I was
Speaker 1: given the worst accounts because I went from trading to sale.
Speaker 1: So we'll dump all these accounts on John Mack. Give
Speaker 1: it to the kid. You got it. And uh. There
Speaker 1: was a gentleman named Dick Van Skoye at the Mellon
Speaker 1: Bank who managed and advised that the state employees of
Speaker 1: Pennsylvania teachers and retirement funds. It was huge, but he
Speaker 1: was tough as nails, and you learned very quickly that
Speaker 1: you better be on your toes when you dealt with Dick.
Speaker 1: And I got to know him. He was a great mentor,
Speaker 1: taught me a lot about the business, and I spent
Speaker 1: a lot of time in Pittsburgh, even to the point
Speaker 1: that my wife and I would go out. I mean
Speaker 1: I remember going out to Pittsburgh with these huge funds.
Speaker 1: It was probably it was probably the largest account in
Speaker 1: the country. A Melon Bank at the time, and a
Speaker 1: guy named Jackie Coogler at Solomon Brothers, and Solomon was
Speaker 1: the dominant player in the bond market. They were the
Speaker 1: number one broker banker for the pension funds for the
Speaker 1: state of Pennsylvania, both in teachers and the employees. And
Speaker 1: I just kept digging away, working hard at it, and
Speaker 1: over time I became their number one dealer they dealt with.
Speaker 1: And George Polochick, who came over from the Ukraine after
Speaker 1: the Russians back then took over in World War Two,
Speaker 1: was running it. He had been at sun Life in Canada,
Speaker 1: and I got along with him well, and I did
Speaker 1: a lot of business with the Melon Bank, to the
Speaker 1: point I became their number one broker dealer. And policheck,
Speaker 1: who loved martinis, walked onto the Solumna floor and screamed
Speaker 1: out to Coogler. How does it feel to be number two?
Speaker 1: That's the environment we're in And I'll tell you, I mean,
Speaker 1: I think business it's personal and uh. We got to
Speaker 1: know the people at Melan Bank, whether it was you know,
Speaker 1: Sally's daughter who was in med school, at George policheck
Speaker 1: who was going back over to Europe for a while.
Speaker 1: We really worked at getting to know people in building trust.
Speaker 1: And at the end of the day, it's all about
Speaker 1: trust and it's all about delivering on what you say
Speaker 1: you're gonna do. And with the help of a lot
Speaker 1: of people, that's what we did. And of course my
Speaker 1: partner in all this was Christy macken. As I said earlier,
Speaker 1: my clients say, look, John, we don't we really don't
Speaker 1: care about you. Send Christia your wife. Yeah, she was
Speaker 1: awesome and it is awesome. So you eventually become head
Speaker 1: of the fixed income department. And what was it like
Speaker 1: to go from sales and trading to managing a whole
Speaker 1: team of salespeople and traders. Well, it was very different
Speaker 1: and I learned very quickly, thank God for Dick Fisher,
Speaker 1: that you have to be more balanced and not as um.
Speaker 1: I don't know if the word is aggressive, ruthless, uncouth,
Speaker 1: all of those words. We used to sit in clusters
Speaker 1: of four salespeople together, and we probably had five clusters.
Speaker 1: And one of my rules were that the desk can
Speaker 1: never be empty. You always need one person there because
Speaker 1: you know, if no one's there in the photo rings,
Speaker 1: no one's picking it up. Occasionally you know no one
Speaker 1: was there, and I'd walk in and be really piste
Speaker 1: off about it and reach over and I would just
Speaker 1: clean the desk off everything. And thank God for Dick Fisher.
Speaker 1: I mean, he said, look, John, you got the biggest
Speaker 1: gun in the firm, in that division. Your job has
Speaker 1: never used your gun. So I learned a lot from him,
Speaker 1: and I calmed things down. I wasn't as aggressive, wasn't
Speaker 1: as pushy, but I was still demanding. And look, it's
Speaker 1: a great business with great opportunities, but you gotta pay attention.
Speaker 1: You gotta pay attention to the people around you. Gotta
Speaker 1: pay attention to your clients. And this idea of especially
Speaker 1: at Morgan Stanley, the surest way to be fired at
Speaker 1: Morgan Stanley is that the word got back. You've got
Speaker 1: a client laid somewhere, you're gone, there's no debate, no discussion.
Speaker 1: So we really focused on trying to get close to
Speaker 1: our clients, give them what they needed, introduced them to
Speaker 1: other clients that also had similar asset management responsibilities. And
Speaker 1: Morgan Stanley at the time was really growing from a
Speaker 1: pure investment bank that covered you know, A T and
Speaker 1: t IBM, Southern cal you name it. They had at
Speaker 1: the Government of Japan, and we really worked at imbuing
Speaker 1: that culture of first class business in the first class
Speaker 1: way into the Morgan Stanley sales and trading business. So
Speaker 1: let's talk a little bit about some of the things
Speaker 1: you discussed in the book. You describe how different Wall
Speaker 1: Street is today from when you began. Tell us a
Speaker 1: little bit about the process of finance being institutionalized and
Speaker 1: how the culture has changed. Well, I think the biggest
Speaker 1: changes the markets became so big and global that Wall
Speaker 1: Street had to change. So if you go back and
Speaker 1: when I started the business, basically your client base was
Speaker 1: here in the United States, but over time, as globalization
Speaker 1: took place, your clients would be all over the world.
Speaker 1: And UH, people were more and more focused on what
Speaker 1: are the maximum returns we can make in investing, and
Speaker 1: it got to be a twenty four hours a day
Speaker 1: trading whether you're in in China or Japan, or Europe
Speaker 1: or US. So you had to be on your game,
Speaker 1: and you also had to be available to do business
Speaker 1: at night, and our traders oftentimes would stay up all
Speaker 1: night to satisfy inquiries coming in from China or be
Speaker 1: there early in the morning for London. So globalization was
Speaker 1: the big change, and then technology added to it. Technology
Speaker 1: allowed people to see markets and here we are at Bloomberg.
Speaker 1: They were looking at machines. They could tell you what
Speaker 1: was going on in in Hong Kong or what was
Speaker 1: going on in Europe. So the markets became seven and
Speaker 1: as a result, you had to staff. In my case
Speaker 1: of fixed income division, you needed people around the world
Speaker 1: to be able to satisfy clients who are investors and
Speaker 1: at the same time satisfy clients who are raising money
Speaker 1: through Morgan Stanley. So if a t n T was
Speaker 1: doing a big bond deal, we want to make sure
Speaker 1: that you know the Japanese, the Chinese, and just go
Speaker 1: around the world the Middle East, London and back to
Speaker 1: New York. That all of our clients got a chance
Speaker 1: to see and talk to a salesman who had information
Speaker 1: about the transaction we were doing for a T and T.
Speaker 1: So globalization was the big change. Then add to that
Speaker 1: and here we are at Bloomberg Technology. You know, when
Speaker 1: I got into business, there was no technology. You had
Speaker 1: a little machine that would do uh, interest rates for
Speaker 1: you know, you'd put in a price and it would
Speaker 1: give you what the yield is. But now you go
Speaker 1: into Morgan Stanley, You're going to JP, Morgan or Goal
Speaker 1: makes no difference. Every desks has a box with data
Speaker 1: and information. And if you go back when I got
Speaker 1: in the business in in the early early seventies. Uh,
Speaker 1: matter of fact, in the late sixties, that didn't exist.
Speaker 1: I mean people would go out for lunch and you know,
Speaker 1: take a couple of hours, didn't miss anything. But today
Speaker 1: you don't leave your desk, right, let's say the very least.
Speaker 1: So you helped to build a very special culture at
Speaker 1: Morgan Stanley. What goes into building a competitive investment bank?
Speaker 1: How do you create and sustain that culture? Well, I
Speaker 1: think by and large, people who come into the business
Speaker 1: are competitive, They want to achieve and they want to
Speaker 1: do well. What I was trying to do was to
Speaker 1: take all this um I guess courage is the wrong word.
Speaker 1: This aggressiveness, this ability to build business, and how do
Speaker 1: you make it into a one firm versus the guys
Speaker 1: in San Francisco they get an order, don't share it
Speaker 1: with New York. If we do it, you know, we'll
Speaker 1: get more more of a commission. So what I was
Speaker 1: trying to do when I took over the fixed income
Speaker 1: division is to create a one firm entity. I call
Speaker 1: it the one firm firm. And I brought in a
Speaker 1: guy named Tom DeLong, who I had met on an airplane.
Speaker 1: So Christie and I were out in Utah. We were
Speaker 1: looking at buying a house because we started picking up skin.
Speaker 1: And by the way, I'm a terrible skier. Um, So
Speaker 1: I'm talking to this guy on the plane, and I said,
Speaker 1: what do you do. We said, I'm a professor at
Speaker 1: b y U and I'm coming back to talk to
Speaker 1: A T and T and their management group about you know,
Speaker 1: managing people and evaluations, etcetera. And I said, well, look,
Speaker 1: I'd like you to come in and see me when
Speaker 1: you have time. I'd like to talk to you. So
Speaker 1: Tom comes in and by the way, now Tom was
Speaker 1: a professor at Harvard University, so Tom comes in and
Speaker 1: he interviews my senior group. And he comes in. He said, well,
Speaker 1: here's what people think. To get ahead at this division.
Speaker 1: They have to be your friends exactly, that's right, and
Speaker 1: if they're not your friend, they don't make it. And
Speaker 1: he said that may not be reality, but that's what
Speaker 1: they all believe. So he said, what you should do
Speaker 1: is set up in an independent group of people, let
Speaker 1: them make a presentation to you of the talent it
Speaker 1: should be promoted. And you know, if you have a
Speaker 1: strong objection, you can say that, but by large you
Speaker 1: should accept what they put in front of you. So
Speaker 1: that's exactly what they did. They took me picking who's
Speaker 1: going to be promoted, and there was a promotion committee
Speaker 1: and also a compensation committee, and then they would come
Speaker 1: to me and make recommendations. And so you didn't favor
Speaker 1: one person. You had somewhere between four and eight people
Speaker 1: on these committees. And when they brought it to me,
Speaker 1: unless I had something very specific that I'd say, well,
Speaker 1: let me tell you why I disagree, I accepted their recommendation.
Speaker 1: And that move really changed the culture of the division
Speaker 1: and it came into you know, you don't have to
Speaker 1: be Max's friend or anyone else. Is about being professional,
Speaker 1: direct and honest. And your peers would do the evaluation
Speaker 1: on how you're doing, what you're doing, and what you
Speaker 1: should be doing. This is the full three and the
Speaker 1: peers would all so anonymously review their managers absolutely and
Speaker 1: what was the results from those sort of things. Well,
Speaker 1: in some cases we found that managers were not setting
Speaker 1: the right tone as far as being energetic and working
Speaker 1: with them. Uh, they were reluctance oftentimes to go out
Speaker 1: with salesman and help them entertain with the clients or
Speaker 1: spend time with clients. So we really put more pressure
Speaker 1: on managers to be involved and not just sit in
Speaker 1: an office or on a training desk at the far
Speaker 1: end and just you know, take advantage of people working
Speaker 1: hard but they're not involved. So it got it more involved,
Speaker 1: and it also got us to eliminate some of the
Speaker 1: managers when you saw these three sixty reviews and some
Speaker 1: of the data, and then you you would dive into
Speaker 1: it and find out they're right, We're not going to
Speaker 1: have people like that at this firm. So not a
Speaker 1: lot of reduction at head counts, but a few people
Speaker 1: we asked to leave and you talk about um the
Speaker 1: willingness of senior management to assist with clients. You seem
Speaker 1: to be ready to jump on a plane to go
Speaker 1: anywhere in the world, China to Tokyo, and it didn't
Speaker 1: matter if you could help close a deal. Uh, you
Speaker 1: were there, that's true. I mean number one, I love
Speaker 1: the business. I mean to go to China and build
Speaker 1: the relationships we built in China and go to Europe
Speaker 1: or it didn't make any difference where I went. I
Speaker 1: loved the business. And you know, China was just opening up.
Speaker 1: And one of the guys who used to be at
Speaker 1: the World Bank said, you know, John, what China really
Speaker 1: needs I think it was ed limb. It needs an
Speaker 1: investment bank. So we formed a small investment bank owned
Speaker 1: mainly by the Chinese, but Morgan Stanley on of it,
Speaker 1: and we built a securities business with it with the
Speaker 1: Chinese in China and why and she Sean who was
Speaker 1: the vice premier, He was the gentleman I worked with
Speaker 1: and Uh. It took a lot of time, but the
Speaker 1: Chinese wanted to create their own capital markets. They wanted
Speaker 1: to be independent, and they wanted the ability to go
Speaker 1: around the world raise money. Because we do any American
Speaker 1: infestment bank. And I tell one of the things that
Speaker 1: really touched me. Uh, we're talking about China, but let's
Speaker 1: say China communists, we're talking about die hard communists. Why
Speaker 1: don't she Sean who was running the Central Bank at
Speaker 1: the time, and then he was given the responsibility by
Speaker 1: gron Gi to build a securities business. And I'm working
Speaker 1: with him to do this joint venture. And he flies
Speaker 1: over to New York and we're sitting in my office
Speaker 1: on whatever floor at Morgan Stanley and we're never about
Speaker 1: an hour and a half. We're making zero progress. We're
Speaker 1: not getting anywhere. And i'd been in Europe with him
Speaker 1: and talked to him over there. We're making progress there.
Speaker 1: Now here he is in New York and it's like
Speaker 1: there's like a big heavy stone on him. And I
Speaker 1: look at him and I finally figure out he's a
Speaker 1: chain smoker. I said, she Sean, light him up. He said,
Speaker 1: I can't do that. I said, what do you mean
Speaker 1: you can't do that? He said, in New York, he
Speaker 1: can't smoke inside. I said to my office, you can
Speaker 1: do anything you want to light them up? And he smoked, Luckies,
Speaker 1: can you imagine smoking Luckies. He smoked Luckies, he lit
Speaker 1: him up. We got the deal filter right, no filter,
Speaker 1: We got the deal done. And I keep reflecting back,
Speaker 1: you gotta pay attention to the person who's in the
Speaker 1: room with you. But I'm impressed that he knows the
Speaker 1: local rules and customs in New York. Very respectful. That's
Speaker 1: really impressive. So you opened this joint venture in China.
Speaker 1: Is Morgan Stanley the first US bank to open a
Speaker 1: joint venture and it was I know, the UK banks
Speaker 1: Hong Kong Bank at a UK ownership, but we were
Speaker 1: the first bank. But you know, I'm sure JP Morgan
Speaker 1: had some kind of outlet there, but more for banking
Speaker 1: and taking deposits and doing traditional banking business, but from
Speaker 1: a trading point of view, securities business. Thanks to Ed Limb,
Speaker 1: who as I said, had worked at the U N said,
Speaker 1: you know, China really needs capital markets and needs investment
Speaker 1: banking business, and with his help, we started a small
Speaker 1: investment bank there which continued to grow. So not just
Speaker 1: the division in China grew, but all of Morgan Stanley grew,
Speaker 1: and eventually you came to realize, hey, we have all
Speaker 1: this investment banking and trading experience, but we don't have
Speaker 1: a retail force the way somebody like Merrill Lynch does,
Speaker 1: and lo and behold the long comes Dean Winner potentially
Speaker 1: um a great merger candidate. Tell us a little bit
Speaker 1: about why that seemed like a good idea at the time. Sure, well,
Speaker 1: what we saw Mary Lynch, which traditionally had been a
Speaker 1: pure retail firm because of their huge network. Number one,
Speaker 1: they had better information not only from what's going on
Speaker 1: in the retail market, but also from institutions. You know,
Speaker 1: if you're in Des Moines, Iowa, and you knew the
Speaker 1: local president of the First Bank of Iowa, you've got
Speaker 1: better information. And if they were going to buy treasury
Speaker 1: securities I medicipals, you got that order. So we saw
Speaker 1: that we were getting limited information. And then um Sears
Speaker 1: who had bought Dean Winter I think it was Ed
Speaker 1: Brennan and Phil Purcell had been a management consultant I
Speaker 1: think for Mackenzie, but not sure that. And he he
Speaker 1: convinced ed Brennan that you know, if you really are
Speaker 1: going to be in retail, you have Sears stores everywhere
Speaker 1: every city of a hundred thousand people. There was a
Speaker 1: Senior's store, and he said, you know, we ought to
Speaker 1: open up Dean Winter offices and all these these serious stores.
Speaker 1: And that's what they did, and it grew and grew,
Speaker 1: and then they came to the point that Priscella convinced Sears,
Speaker 1: let's spin it out and take this company public. So
Speaker 1: Morgan Stanley was chosen to be the lead underwriter on
Speaker 1: the spin out of Dean Winter from Sear US. So
Speaker 1: if Dick Fisher calls me in, I meet priscell who
Speaker 1: I liked, and I looked at their business and the
Speaker 1: information they were getting from clients versus what we were getting.
Speaker 1: They were in every well how many serious stores are there,
Speaker 1: They were everywhere. At their peak, I think it was
Speaker 1: like three, so they had better information. So UH, you know,
Speaker 1: we talked, h and talked, and finally we came to
Speaker 1: the conclusion on the handshake to do the deal. UH.
Speaker 1: Sears and Dean Winter was much larger in market cap
Speaker 1: than Morgan Stanley, so it was agreed upon. UH, and
Speaker 1: he wouldn't do it without being uh the CEO. And
Speaker 1: UH we had a couple of dinners in New York
Speaker 1: with Dick Fisher and in him UH Ed Brennan and
Speaker 1: to get the deal done, he had to be the CEO.
Speaker 1: So Fisher says to me in a private meet in
Speaker 1: his office, I'm not gonna let you do this trip
Speaker 1: or do this management training. I said, well, Dick, no
Speaker 1: one's on our firm, his shareholders firm. And for me
Speaker 1: to say that, Dick Fisher, it was kind of ridiculous
Speaker 1: because he was always teaching me about the business and
Speaker 1: he was a wonderful man and a smart man. So
Speaker 1: I said, look, this is what makes sense for shareholders.
Speaker 1: I'll take the number two job. Feels a good guy.
Speaker 1: I'll get along with him, and let's do this merger.
Speaker 1: And we did. And what we also inherited when we
Speaker 1: did that merger was Discover Card, which was also a
Speaker 1: money machine. It was a money machine, but you know,
Speaker 1: we clashed, and we clashed in the sense like I said,
Speaker 1: I think earlier, if I were out in Sacramento seeing
Speaker 1: the state funds of California and I had an extra hour,
Speaker 1: I would drop by, you know, the local office of
Speaker 1: the Morgan Stanley Dean Wood her office and go in
Speaker 1: talk to a salesman. And clearly, you know, salesman who
Speaker 1: are on commission by large do a good job, but
Speaker 1: always have complaints. And I heard the complaints, came back
Speaker 1: and I talked with the manager of All Retail, and
Speaker 1: I talked to Purcell, and then Purcell said to me,
Speaker 1: you know, Johnny can't do that. I said, what do
Speaker 1: you mean, I can't do that. You can't just drop
Speaker 1: into the office and talk to him. I said, well,
Speaker 1: last time I checked. You know, you're the CEO, but
Speaker 1: I'm preasling the firm. I'm in Sacramento seeing Safeway stores
Speaker 1: and you're telling me I can't go into the office
Speaker 1: and talk to him. He said, well, you know Ed
Speaker 1: Brennan would never do that at serious And I said,
Speaker 1: you know this is not serious, and uh so, right
Speaker 1: then we knew we had an issue. Right He was
Speaker 1: very risk averse and you were very hands on. It
Speaker 1: seems like from day one a clash of the Titans
Speaker 1: was teeing up. Yeah, but not from day one. I mean, look,
Speaker 1: they had built a great business in retail. Uh at
Speaker 1: Dean Winter they had brokers all over the country doing business.
Speaker 1: They didn't have an international business. I think they thought
Speaker 1: international was going to Canada. Um, it was just two
Speaker 1: different cultures and no one challenged or spoke up either
Speaker 1: two a guy named Jimmy who ran the the the
Speaker 1: retail business are clearly per sale who ran both retail
Speaker 1: institutional the credit card business, and my view at Morgan Stanley.
Speaker 1: And I did this with Dick Fisher, and people did
Speaker 1: it with me in my office. I don't care what
Speaker 1: you say to me, I want to hear it. And
Speaker 1: a Dean win or you didn't do that, and that
Speaker 1: that was the big cultural change. So given the sort
Speaker 1: of head to head in terms of culture, Purcel's team,
Speaker 1: at least for a while, seemed to have won. You
Speaker 1: eventually came to realize he was reducing your authority step
Speaker 1: by step and at a certain point you're like, I
Speaker 1: don't want to just be a figure head, and so
Speaker 1: you you resigned. Tell us what that was like to
Speaker 1: You've been at Morgan Stanley for quite a while. Yeah,
Speaker 1: well it was difficult. But I couldn't stay there, um
Speaker 1: under a philosophy or a management style where uh, you're
Speaker 1: not allowed to go to your boss and tell him
Speaker 1: you know, I think you're a jerk. And I had
Speaker 1: a number of people say that to me, and I
Speaker 1: didn't get even with him. I just changed some of
Speaker 1: the things. Sometimes they were right. I wasn't jerk um.
Speaker 1: Just two different cultures. I mean, Morgan Stanley built it's
Speaker 1: it's business on telling clients exactly what they thought. They
Speaker 1: didn't sugarcoat it, they didn't try to say, you know,
Speaker 1: maybe a little of this, a little that. They told
Speaker 1: the client these are the issues. And that's the way
Speaker 1: I grew up and that's the way Dick Fisher was.
Speaker 1: So as much as I tried to change, I just
Speaker 1: I was miserable. I couldn't do it. And uh he
Speaker 1: put me in charge of the retail system, but everything
Speaker 1: was bounced through him before I could make any decisions. Look,
Speaker 1: it's their style. They had been successful. The retail business
Speaker 1: was important to the firm, and by putting retail and
Speaker 1: institutional together we had tremendous cloud. But from a managerial
Speaker 1: point of view, it's not a culture I wanted to
Speaker 1: be in. Let's talk a little bit about a period
Speaker 1: where you were just bored golfing. You leave Morgan Stanley,
Speaker 1: you're really not sure what the next chapter in your
Speaker 1: life is going to be, and then you get a
Speaker 1: phone call about the mess that was credit Swiss. What
Speaker 1: made you attracted to coming in and trying to clean
Speaker 1: up Credit Swiss first Boston. Well, I got a call
Speaker 1: from Lionel Pinkus and I assume they had a big
Speaker 1: investment with the Swiss and they were not happy what
Speaker 1: was going on. So I met with him, and um,
Speaker 1: you know, I met some of the other people who
Speaker 1: in the management of Credit Sweet and I said to Christie,
Speaker 1: I would rather do this job and regret it then
Speaker 1: not do this job and regret it. So that's how
Speaker 1: I made the decison regret minimization framework exactly a good
Speaker 1: way to think about it. We should talk more about
Speaker 1: your wife because it seems like she regularly gives you
Speaker 1: good advice and send you off to apologize for something
Speaker 1: you said. And you talked about that in the book. Well,
Speaker 1: we'll circle back to that later. So I'm amused by
Speaker 1: the headline Wall Street fears big Mac attack. What was
Speaker 1: the expectation post Morgan Stanley? What what did the Street
Speaker 1: think You're gonna come in and do a Credit Swiss?
Speaker 1: Well and Morgan Stanley, when I thought, especially in the
Speaker 1: Thicks income division at that time, and somebody thinking Iran
Speaker 1: that we we were too too fat, you know, we
Speaker 1: need to do reduction. So I did. And this isn't
Speaker 1: just head count. This is you describe some pretty egregious
Speaker 1: spending going on a credit Swiss, Well, it was. It
Speaker 1: was totally out of control. And no, the Swiss were
Speaker 1: were kind of absentee landlords and they were used to
Speaker 1: getting all this money on a Swiss bank account and
Speaker 1: a lot of money coming I assumed from other parts
Speaker 1: of the world. Said it was pretty easy when I
Speaker 1: got there that we had to do some head count reduction.
Speaker 1: When I got there, three of my bankers who would
Speaker 1: work for me at Morgan Stanley, Um, we're big in technology,
Speaker 1: Frank Watron and his team, and uh, when I saw
Speaker 1: what kind of money they were making, it was it
Speaker 1: was mind boggling. So uh, I flew out to see
Speaker 1: them and uh, I said, look, guys, I'll pay you
Speaker 1: a lot of money, There's there's no question about that.
Speaker 1: But what you're doing and the amount of money you're
Speaker 1: making now versus the rest of the firm and using
Speaker 1: the balance use of the firm is unacceptable. So we're
Speaker 1: gonna have to figure out a way. I want you
Speaker 1: to make a lot of money. I think as a
Speaker 1: great motivator, but this is totally out of control, and
Speaker 1: I wish I could remember exactly some of the numbers,
Speaker 1: but there were numbers like I've never seen before. It
Speaker 1: was order of nacktitude's larger than than the rest of
Speaker 1: the strip. They got a piece of every deal they
Speaker 1: did personally, personally, so you know who. One of them says, uh,
Speaker 1: you know, John, this is in our contract, but I
Speaker 1: think this compensation is way out of kilter. And just
Speaker 1: to add a little color to this, when I said
Speaker 1: to them, I want to come out and I want
Speaker 1: you to come to New York and we got to
Speaker 1: talk about these contracts and this is after not eleven,
Speaker 1: and they said, well, we're afraid to do that. I said,
Speaker 1: well tell me you want Well after not eleven, we
Speaker 1: don't go to New York. I said, okay, pick a city.
Speaker 1: I'll meet you in the city. So I met him
Speaker 1: in Denver. I think about that, how absurd that is.
Speaker 1: So I flew out to Denver and I took Steve Volk,
Speaker 1: who had been at Sherman and Sterling as the lead lawyer,
Speaker 1: lead partner. He had joined me to help clean up
Speaker 1: credits fees. So I sit with George Buttress uh trone
Speaker 1: and I think a guy named Brady, and I said, look, guys,
Speaker 1: I want you to make a lot of money. I
Speaker 1: don't have any issue with that, but this is craziness
Speaker 1: and I can't do that. And they said, well, look
Speaker 1: at maybe craziness, but that's our contract. I said, it
Speaker 1: may be your contract, and uh, I'll see you in
Speaker 1: court and we'll fight it out. And they gave up
Speaker 1: a contracts but I still paid them a line of money.
Speaker 1: But you can't you can't create a culture when you
Speaker 1: have one offs doing whatever they want to do. You
Speaker 1: described it as anyone with a personal fiefdom is a
Speaker 1: terrible idea for a firm. Absolutely, And they're good, they
Speaker 1: were smart. You would you would like a room full
Speaker 1: of Frank Latron's. You gotta be managed, You've gotta be
Speaker 1: a team player. So someone said to you around this time, Hey,
Speaker 1: we're giving up a lot of money. What about you, John,
Speaker 1: what are you giving up? And what was your response?
Speaker 1: Gave up the contract? So you gave up about a
Speaker 1: third of yourself. That's a big chunk of cash. But
Speaker 1: if you're going to ask people to go up their contract,
Speaker 1: you can't be different than them. This term that I
Speaker 1: run from from time to long, it's a one firm firm.
Speaker 1: We all have to be in it together. So for
Speaker 1: me to keep the contract, it's just not the right
Speaker 1: thing to do. And also I learned so much from
Speaker 1: Dick Fisher. I'm I'm looking way down the road. I'm
Speaker 1: not looking about what's going to happen next week or
Speaker 1: two weeks from now. Well, that's that's a good strategy
Speaker 1: and investing. To say, Harry, the very least you wrote
Speaker 1: in the book, the Swiss and Swiss bankers were unlike
Speaker 1: any other bankers you work with in the UK and
Speaker 1: China and Japan. What made the Swiss so much of
Speaker 1: a one off? Well, they were very independent. Uh, they
Speaker 1: had a lock on certain clients, whether it was leaders
Speaker 1: out of the Middle East or out of oligarchs in Russia.
Speaker 1: They got a lot of money coming in because they
Speaker 1: were Swiss. They had a great franchise and they really
Speaker 1: lived off their private banking business and in their investment
Speaker 1: banking business. They had a guy who was very talented,
Speaker 1: very smart, named Alan Wheat, and they had other people
Speaker 1: that come in, but everyone was running it for their
Speaker 1: own returned into their own pocket. And um, so when
Speaker 1: I got there, I cut commissions. I got Frank and
Speaker 1: his guys to give up some of their money. Um,
Speaker 1: and someone said, you know, we're cutting commissions and getting
Speaker 1: less when you give up your contract, and I did
Speaker 1: so it just wouldn't being managed. And the Swiss, uh,
Speaker 1: you know, they make a lot of money because they
Speaker 1: get money from all the places that maybe J. P.
Speaker 1: Moorey none others wouldn't take. They did a lot of
Speaker 1: investing with that money. They got to carry on some
Speaker 1: of it. Uh. It's a great it's a great um
Speaker 1: system for running very profitable business. But the world was
Speaker 1: changing and disclosure was becoming more and more open. People
Speaker 1: want to know, you know, who has the money, where
Speaker 1: is it going, how's money being transferred? And we finally
Speaker 1: got that to start moving and changing in Switzerland. And uh,
Speaker 1: I was pretty tough on them, and of course they
Speaker 1: thought I was the most arrogant person they ever met.
Speaker 1: I thought they were the dumbest people ever. And you
Speaker 1: in the book you described actually saying that to their face.
Speaker 1: Given how secretive they are and how less than team
Speaker 1: focused they were, you knew this match wasn't gonna last forever.
Speaker 1: How long did you last? The credits West, I think
Speaker 1: I lasted at least two years, maybe three, long enough
Speaker 1: to start showing a profit. We started making money. It
Speaker 1: was great. I mean I remember the only on group
Speaker 1: out of the Middle East said to me, and they
Speaker 1: were a huge investor in credit. So he's Johnny doing
Speaker 1: a great job. We're finally making money again. But I
Speaker 1: can't take people telling me, you know, you don't have
Speaker 1: access for this, you don't have access for that. My view,
Speaker 1: which drove him crazy, was to open up their vault
Speaker 1: and let the European Jews come in and see how
Speaker 1: much money Credit Swiez took when World War two started? Right?
Speaker 1: You know, how about the paintings they had? What's a
Speaker 1: bank doing with our ren Wirin's in a safe? What
Speaker 1: was the response to that? They didn't like it? I
Speaker 1: can't imagine. So you end up leaving Credit Swiss not
Speaker 1: long after. Well, they wouldn't renew my contract, right, So
Speaker 1: it wasn't like you were out and I fired. It
Speaker 1: was after your your contract ended. I was fired. So
Speaker 1: so non renewal And what was the firing like? Tell
Speaker 1: us a little bit about that. Was it relatively polite
Speaker 1: and pleasant? The swisser they're not quite German they're not
Speaker 1: quite French. Their customs are a little bit different than
Speaker 1: the rest of Europe. Well, um, when I went, I
Speaker 1: said I could pick someone that I liked and trusted
Speaker 1: a friend to go on the board. And I asked
Speaker 1: a guy named Tom Bell, who was a close friend
Speaker 1: of mine. He used to run why in our advertising
Speaker 1: agency and then he ran Cousins Properties in Atlanta to
Speaker 1: go on the board. And he called me after there
Speaker 1: means that John be prepared. They're gonna fire you tomorrow,
Speaker 1: and I said, well thanks, so heads up. So I
Speaker 1: went in they fired me, and uh, I sat and said,
Speaker 1: you know, Walter or what do you think of this?
Speaker 1: Trying to get them to talk that they didn't want
Speaker 1: any part of talking. And look, you know, I don't
Speaker 1: I don't have any issue with I don't have an
Speaker 1: issue with him fire. But I was. I guess you
Speaker 1: could say I was aggressive or obnoxious one or the other.
Speaker 1: But we turned the place around, we started making money.
Speaker 1: But um, look, I don't think in general, we have
Speaker 1: to ask my friends and people who know me. I
Speaker 1: don't think I'm arrogant, but clearly I came across as
Speaker 1: arrogant know what all? And they shot me. So, you know,
Speaker 1: but you have done a good job there. Let's let's
Speaker 1: talk a bit about Mac and NiFe, right, So there's
Speaker 1: chainsaw Al, there's Neutron Jack. I don't get the sense
Speaker 1: that you were as blase about having to reduce headcounts
Speaker 1: as some other CEO s were. It struck me that
Speaker 1: Mac the Knife sort of rankled you a little bit,
Speaker 1: and at least that's how it comes across in the book. Yeah,
Speaker 1: I didn't mind it. I mean, being nuns back the Knife.
Speaker 1: It kind of built a reputation for me. And you know,
Speaker 1: people would I'd go to a bar somewhere, I'd go
Speaker 1: to a Christmas party with a lot of wallster you guys,
Speaker 1: and early someone to be pointing sis Mac the Knife.
Speaker 1: You know, I kind of I have an ego. I
Speaker 1: like that I am Mac the Knife. That's uh, that's
Speaker 1: pretty good. So now you you get fired at Credit Swiss.
Speaker 1: And meanwhile Morgan Stanley, run by the somewhat risk averse
Speaker 1: Phil Purcell, starts falling behind all their competitors, and lo
Speaker 1: and behold there is an agitation to uh have some
Speaker 1: change at at Morgan Stanley. Dean Witter tell us what
Speaker 1: happens next. Well, I'm at pe Quat, which is a
Speaker 1: hedge fund, with Sam Mark Sandberg and having a good
Speaker 1: time and Morgan Stanley is falling by, and then Parker Gilbert,
Speaker 1: who had been the chairman of the firm, and I think,
Speaker 1: going all the way back, his stepfather was one of
Speaker 1: the original partners at JP Morgan spun out and started Morgan.
Speaker 1: Wasn't he related to Henry Morgan? Also, I mean, Dad,
Speaker 1: I don't know. I don't think so, but I don't
Speaker 1: know that Charles Morgan was related to Henry Morgan, who
Speaker 1: was not on the management committee. But there was a
Speaker 1: relationship going all the way back to the Morgan's. Uh
Speaker 1: So Parker got together with a number of retired partners
Speaker 1: who owned a tremendous amount of Morgan Stanley slash Dean
Speaker 1: with a stock now and they went on a campaign
Speaker 1: to force Purcell out and at the end of the
Speaker 1: day they were successful. And you get the phone call again.
Speaker 1: Briefly thought about it. What does your wife stadium m Well,
Speaker 1: she said, I had to do it, She said, John,
Speaker 1: that firm is part of you, and you've done so much,
Speaker 1: you've got to go back and do this. So the
Speaker 1: two you return your first day of work, you walk
Speaker 1: into the trading room to deliver just hey, I'm back.
Speaker 1: What is that experience like? Well, I think, um, Christie
Speaker 1: would say, who's my wife would say, other than having
Speaker 1: our kids, it was the happiest moment of her life.
Speaker 1: She would say that John, we grew up at More
Speaker 1: in Stanley, we knew the culture. And to come back
Speaker 1: and to have people just running to get to the
Speaker 1: door to welcome us in, it was emotional. It was Um,
Speaker 1: I guess a lot of it is. It is just
Speaker 1: the circumstances they had been They hadn't't managed the way
Speaker 1: I think they should have been managed. They didn't have
Speaker 1: a connection with the leadership of the firm. They had
Speaker 1: become risk of verse um and it's it was no
Speaker 1: longer um, you know, the sense of you do well,
Speaker 1: you get rewarded. So the meritocracy thing had just dissipated away.
Speaker 1: So to walk in and have people scrambling to you know,
Speaker 1: get to see me or or how to feel good, yeah,
Speaker 1: it did. It did good. Um. And I never forget
Speaker 1: when I got up into the water to him to
Speaker 1: talk to people, and I said, you know, I always
Speaker 1: wanted to see all of you again. But I never
Speaker 1: thought I would see you by coming back and here,
Speaker 1: back to Morgan Stanley and doing it. But it was
Speaker 1: a thrill. I mean, you know, you don't get many
Speaker 1: chances to redo or recorrect or change what had happened
Speaker 1: and go back the way it was, and we were
Speaker 1: able to do that, and it was it was a
Speaker 1: high And you want to get Christiane here, I mean
Speaker 1: to her other than as I said, other than kids.
Speaker 1: That was the highlight of our marriage. So I gotta
Speaker 1: work on it, do some other things. And I mentioned
Speaker 1: when you first came in, and I'm sure you don't
Speaker 1: remember this. The day you were brought in, you were
Speaker 1: doing a media tour and I have a vivid recollection
Speaker 1: of sitting in a makeup chair in the green room
Speaker 1: at CNBCC and you and some other people blow in. Hi,
Speaker 1: I'm John mc Nice to meet you. What was that about,
Speaker 1: I asked, and someone said, oh, that's John Mack. He
Speaker 1: just came back to run Morgan Stanley. I'm like, oh,
Speaker 1: isn't that great? And that was I don't was it?
Speaker 1: Oh five? Was like yeah, really really fascinating. Um and
Speaker 1: you very quickly rebuilt the firm's culture. Tell us what
Speaker 1: you did to bring back the one firm firm and
Speaker 1: the meritocracy. How did you get Morgan Stanley back on
Speaker 1: the straight and narrow again. Well, number one, you had
Speaker 1: to return it to meritocracy, and we had a lot
Speaker 1: of meetings either in big groups small groups. Christie and I.
Speaker 1: One of the things we did early on if there
Speaker 1: was a golf outing at Morgan Stanley with clients, if
Speaker 1: you went to the out there to be all men,
Speaker 1: and this occasionally they be one woman who played golf.
Speaker 1: So Christie and I said, well, let's do things. I
Speaker 1: want women to be in charge of entertaining. They've been
Speaker 1: doing their own golf outings. So we got David Leadbetter
Speaker 1: and his guys come in and we did golf lessons
Speaker 1: up in Purchase, New York for our women professionals, and
Speaker 1: then we took them down to North Carolina six or
Speaker 1: seven months later at a club we belonged to called Landfall,
Speaker 1: and we had, you know, the golf teachers come up
Speaker 1: and work with them. And the beauty of it is
Speaker 1: now that women have their own golf outing women only,
Speaker 1: which I think is terrific. So what we tried to
Speaker 1: do is pull people together and talk about how do
Speaker 1: you make this a great firm again? Because it the
Speaker 1: roots are there, the bones are there, and it was
Speaker 1: about reaching out and bringing people together and working for
Speaker 1: our clients and making sure that we treated people people fairly.
Speaker 1: So there's a quote of yours in the book that
Speaker 1: I found fascinating. You wrote, certain risk taking behavior multiplied
Speaker 1: exponentially when investment banks were converted from partnerships to publicly
Speaker 1: traded companies. I couldn't agree more. Tell us your thoughts, well,
Speaker 1: the thought was when it was a partner's money, they
Speaker 1: were much more conservative. They were literally jointing several liability
Speaker 1: literally on the hook if the firm lost money. That
Speaker 1: that's got to focus your attention. It does, and depending
Speaker 1: where you were which firm, But the culture Morgan Stanley
Speaker 1: had been a pure investment bank and they really didn't
Speaker 1: have sales in trading, whether in equities or in fixed income.
Speaker 1: But what became apparent that firms like Solomon Brothers, we're
Speaker 1: making huge inroads because Jackie Coogler at Solomon could call
Speaker 1: the CFO at I B M or A T N
Speaker 1: T and say, here, what pension funds are thinking? And
Speaker 1: doing with your stock. We think there's an opportunity you
Speaker 1: could float a hundred million dollar equity deal or bond deal.
Speaker 1: They had better information and Morgan Santley didn't have that
Speaker 1: cells and trading business. We were not talking to portfolio
Speaker 1: managers as traders. We were talking to them as we're
Speaker 1: pricing a t N T at seven one a s
Speaker 1: how many do you want? That's the way it worked.
Speaker 1: But other firms, and including Golden Sacks, they were a
Speaker 1: two way shop. They were buying and selling UH debt
Speaker 1: and equities with pension funds and getting a lot of information.
Speaker 1: What were they looking for and what were they doing?
Speaker 1: And then you take that back and you show it
Speaker 1: to New Jersey belt telephone, or you show it to
Speaker 1: a t N T or IBM. You're bringing that CFO
Speaker 1: or that treasure more information so he can figure out
Speaker 1: what's the next move for a t N T or
Speaker 1: Southern Bill. So was it inevitable that these firms had
Speaker 1: to go public just so they had access to those
Speaker 1: pools of capital to expand into trading and underwining in
Speaker 1: everything else. Yeah, because the end of the day, the
Speaker 1: risk component went up dramatically and uh, you know, if
Speaker 1: you go through the crisis, probably if you were not
Speaker 1: a public company, you'd have wiped out the partnership. So
Speaker 1: you needed to have a strong base of capital and
Speaker 1: selling equity and be end of the public market gave
Speaker 1: you that. It also gave you the liquidity to go
Speaker 1: in the market, uh, to raise more equity if you needed,
Speaker 1: or do a bond do. I used to think, hey,
Speaker 1: big mistake going from partnership to public because of the
Speaker 1: change in risk profile. But it sort of sounds like
Speaker 1: it was inevitable that all these partnerships would eventually go public. Well,
Speaker 1: you know what's interesting if you look at Lazard, they
Speaker 1: still do business. It's truncate, It's not what it used
Speaker 1: to be. Uh. If you're a CFO or a CEO,
Speaker 1: you want to know what are the hedge funds doing,
Speaker 1: State of California, State in New York, Big Pools, Bundy
Speaker 1: and their pension funds. What are they thinking? What do
Speaker 1: they need? You want that kind of data. You want
Speaker 1: to know what our investors looking for. And I think
Speaker 1: you know, if you look back, and it was difficult,
Speaker 1: we went through a hard time. The Dean would merge
Speaker 1: or really changed the firm. Now you had unbelievable banking
Speaker 1: with a retail and the amount of information that you
Speaker 1: could bring to a CEO or a CFO about markets
Speaker 1: and then the distribution network you now had was a
Speaker 1: huge advantage. And I think that's one of the reasons
Speaker 1: Morris Stanley has done so well. Really interesting. We'll talk
Speaker 1: about books in a little while, but you seem to
Speaker 1: throughout your book quote ron Churnow's House of Morgan a lot.
Speaker 1: How helpful was that in doing your research to write this? Well,
Speaker 1: I had read the book years ago, so I didn't
Speaker 1: do a lot of work to dig down on So
Speaker 1: I would say very little, really, because because he just
Speaker 1: goes berserk on the research side, everything he does is
Speaker 1: so deeply and richly researched it. He was never he
Speaker 1: was never a bond salesman like me. Well, you were
Speaker 1: actually on the inside, so it's a little different. One
Speaker 1: of the other things you wrote was everybody got the
Speaker 1: financial crisis wrong, and in the run up to it,
Speaker 1: people just didn't expect the bottoms drop out that much.
Speaker 1: Tell us a little bit about what took place with
Speaker 1: Morgan Stanley leading up to the financial crisis. Well, number one,
Speaker 1: we had too much risk there was no question about that.
Speaker 1: But we were not alone, and we did not have
Speaker 1: a fortress balance sheet like a JP Morgan with him,
Speaker 1: or even a city bank. You know, no one knows
Speaker 1: when the bullets coming with the bullet came and shot
Speaker 1: a lot of us and a lot of these companies
Speaker 1: either merged or went out of business. And all I
Speaker 1: can say is God for the Japanese and what they did,
Speaker 1: I mean, that was the life saver. It got us
Speaker 1: through and thanking Mitsubishi with Morgan Stanley and as I
Speaker 1: said to you earlier, they remembered our culture because we
Speaker 1: would always have Japanese trainees and they stood up and
Speaker 1: that's what saved us. So you tell a story in
Speaker 1: the book. You have Hank Paulson, Ben Bernanki and Tim
Speaker 1: Guythner coming to you to say, hey, you guys have
Speaker 1: to find a merger partner in The response is we
Speaker 1: have a hundred eighty billion dollars in capital. This is
Speaker 1: gonna be a painful period, but will survive. What was
Speaker 1: their response, They didn't care, didn't get more capital. So
Speaker 1: you reach out to Bank of Mitsubishi and you're waiting
Speaker 1: for the term sheet to come in and it's midnight
Speaker 1: and it's two and it's four am, and it's six am.
Speaker 1: And then Tim Geithner calls, and then Hank Paulson calls,
Speaker 1: and then a third time Tim Geithner calls. What happens next, Well,
Speaker 1: what happens The check flew into Boston and we had
Speaker 1: to send one of our bankers up to pick up
Speaker 1: the check and fly back. So he was at home
Speaker 1: is on the weekend, and he went up in his
Speaker 1: uh dungarees and and running shoes and picked up a
Speaker 1: check for I don't know a billions some and brought
Speaker 1: it down. I got it. I got it, a copy
Speaker 1: of it framing in my office back at the townhouse.
Speaker 1: The Japanese saved us. They saved us because they remember
Speaker 1: our culture and we used to train tons of Japanese
Speaker 1: bankers at Morgan Stanley. So you're you're waiting for the
Speaker 1: final word from Bank of Mitsubishi. I think you know
Speaker 1: where I'm going. And now Geith nicholes for the umpteenth time,
Speaker 1: and your secretary pokes her head and then says it
Speaker 1: was the head of New York, said Tim Geithner. And
Speaker 1: he's insistent, and you basically said, we're going to figure
Speaker 1: this out ourselves, and you did. And what's your relations
Speaker 1: ship with Tim? Now? I liked him. I mean, listen
Speaker 1: to me. I hope it's not personal to him. And
Speaker 1: and the point was, I'm trying to save the firm.
Speaker 1: I can't take all these calls when I'm talking to
Speaker 1: the Japanese, so you know we're under the gun. He's
Speaker 1: a decent guy, but he had his job to do
Speaker 1: and I had my job to do. And um, at
Speaker 1: the end of the day, it worked so uh And
Speaker 1: in fact, the Treasury Department taps Morgan Stanley to help
Speaker 1: with the AI G Bellot. Yeah, they did, so that
Speaker 1: was a good, uh working relationship. You actually had a
Speaker 1: good relationship with Hank Paulson from when he was CEO
Speaker 1: of Goldman. Yeah. He's the best. Well, look, he's honest,
Speaker 1: he's smart, he's straightforward, he gets things done. I have
Speaker 1: a lot of respect for Ank Paulson. Before we get
Speaker 1: to our favorite questions, there were a couple of little
Speaker 1: curved balls I wanted to throw you. Um, there's a
Speaker 1: story in the book. You talk about somebody who you
Speaker 1: go to who you know is a giant Duke basketball fan,
Speaker 1: and you asked him to give up part of his
Speaker 1: bonus as you were doing, and very begrudgingly he did
Speaker 1: it for the team. And then you get Coach K involved.
Speaker 1: Tell us that story. It's charming. Well, he was a
Speaker 1: huge fan of Duke, and um, I needed him on
Speaker 1: board with what I was trying to do and he
Speaker 1: gave up some power and money to accommodate me. And uh,
Speaker 1: Mike Taoski is a good friend of mine, a close
Speaker 1: friend of mine. So I called Coach K and I said,
Speaker 1: might do me a favor. What you call this gentleman
Speaker 1: and just tell him how much um, I appreciate what
Speaker 1: he's done, and that you are happy that you helped
Speaker 1: my friend John McK out. So Mike calls the guy
Speaker 1: and he said, look, Um, I want to tell you
Speaker 1: what you did is really something John Mac is. Um.
Speaker 1: He didn't call me an a hull. He said, John
Speaker 1: Mac is a selfish time guy and what you did
Speaker 1: just warmed his heart. And I want to thank you
Speaker 1: because he's my friend. The salesman was on cloud nine,
Speaker 1: I can imagine. And then and then another curved bowl.
Speaker 1: I gotta ask you you once stole Barton Bigg's car.
Speaker 1: We hit it his car was a dump, It was
Speaker 1: a clunker. He had a broken rear rear window. He
Speaker 1: just taped it up. He didn't even replace the window. Yeah,
Speaker 1: we hit the car and he was and then you
Speaker 1: had a make believe sheriff from North Carolina, Paul. And
Speaker 1: what was his reaction, Well, he laughed at the end,
Speaker 1: but he had no idea what was going on. And
Speaker 1: Bart was a wonderful man, but he's a good guy
Speaker 1: to pull the pranks on. So what I've learned in
Speaker 1: pulling pranks, of which there are numerous examples in the book,
Speaker 1: But here's what I've learned though, when the prank is on,
Speaker 1: you laugh because everyone's trying to get me some way
Speaker 1: or one way or another. Very very funny. So we
Speaker 1: only have a few minutes left to me. Uh, let
Speaker 1: me jump to some of my favorite questions that we
Speaker 1: ask all of our guests. Uh, tell us about your
Speaker 1: early mentors who helped us shape your career. Number one
Speaker 1: Dick Fisher, just hands down. He would call me in
Speaker 1: and say, look, John, you got to do this. I
Speaker 1: know you're aggressive, you're a great salesman. You can't manage
Speaker 1: people and try to threaten them and scare him you
Speaker 1: gotta ease up. Uh So he did that. He also
Speaker 1: I could go to him if I had a problem,
Speaker 1: a question. So he was, without question, my best mentor.
Speaker 1: And the other person is not that she mentored and
Speaker 1: she's my wife. She say, John, you know you ought
Speaker 1: to reach out to that person, and you know they're
Speaker 1: kids sick. You've got him into children's hospital and Morgan
Speaker 1: Stanley Children's Hospital. Uh So she's been a wonderful partner
Speaker 1: in telling me, you know you're being a little too aggressive.
Speaker 1: Back down. And I think I think she's right. I've
Speaker 1: have I softened up. Yeah, I think I have softened up.
Speaker 1: And that's another thing. Um, Morgan Stanley got behind us
Speaker 1: and we built this children's hospital, which employees love. They
Speaker 1: go up there on the weekends and they read stories
Speaker 1: to kids. That's how you build a culture that you
Speaker 1: do things like that. And I'm trying to think. Frank Bennet,
Speaker 1: who's Herst Corporation, said to me he thought that was
Speaker 1: the best sign of corporate philanthropy he's ever seen. So
Speaker 1: if sometime you're up near the new Presbyterian uptown, if
Speaker 1: you go into the children's hospital, Morgan Stanley Children's you'll
Speaker 1: see on the wall that Morgan Stanley gave a lot
Speaker 1: of money, and then you'll see names of hedge funds
Speaker 1: and other clients. When they heard what we're doing, they
Speaker 1: gave money. And you know New York is huge. You
Speaker 1: got you know Philadelphia Children's Hospital. You got him in Boston.
Speaker 1: New York City didn't have a standalone children's hospital. And
Speaker 1: our employees will go up there now and read books
Speaker 1: of the kids on the weekend. Sometimes it's a wonderful
Speaker 1: thing we did. We it's we're really really happy with it.
Speaker 1: You should be very proud of that. You mentioned books.
Speaker 1: Let's talk about some of your favorites and what are
Speaker 1: you reading currently. Well, actually, I just read my book again.
Speaker 1: My my favorite book all time is Gone with the Win.
Speaker 1: Do you believe that that's a big book. It is
Speaker 1: a big book. So I'm taking History of the South
Speaker 1: at Duke University and one of the things you had
Speaker 1: to do you had to read fifty pages every other
Speaker 1: day about a history or something with a sound. So
Speaker 1: I picked up Gone with the Win. I didn't put
Speaker 1: it down until I finished it. Really, if you haven't
Speaker 1: read it, you got to read it. Seen the movie
Speaker 1: never books awesome. It's just awesome. So what sort of
Speaker 1: advice would you give to a recent college graduate who
Speaker 1: was interested in a career in finance or investing. Well.
Speaker 1: Number One, you have to pursue it. Uh, you gotta
Speaker 1: get in the door. Hopefully you have a background that
Speaker 1: will help you. If your education, let's say you're a
Speaker 1: history major. I was a history major. If your education
Speaker 1: doesn't put you naturally into that glide path, and take
Speaker 1: courses and get into that glade path. Go to school
Speaker 1: at night, get your NBA. That helps. But more importantly,
Speaker 1: figure out how do you get to know people within
Speaker 1: that company. Make sure your job you have now you've
Speaker 1: performed well in it, and get to know people in
Speaker 1: the company and get introduced by them to the head
Speaker 1: of a division or department. But you can get in it.
Speaker 1: I mean, there's a lot of ways to get in
Speaker 1: this business. And in one way of doing it, go
Speaker 1: work for a JP Morgan their asset management business. Go
Speaker 1: work for a hedge fund. Go work for a lot
Speaker 1: of people who are in the business and learned kind
Speaker 1: of the day to day sales and training business. And
Speaker 1: if you want to be an m and a specialist,
Speaker 1: my advice is you need to have a degree in
Speaker 1: an accounting or an MBA where you can really zero
Speaker 1: in and have the train need that you need to
Speaker 1: do it. Do that you can do that business if
Speaker 1: you didn't have any experience, if they give you a chance.
Speaker 1: My point is you've got to give them enough information
Speaker 1: that they want to give you a chance. And the
Speaker 1: way you do that is do extra work, or work
Speaker 1: for an edge fine, or work for you know, whoever
Speaker 1: it may be, and you'll get that shot. And our
Speaker 1: last question, what do you know about the world of
Speaker 1: investing today that you wish you knew fifty years or
Speaker 1: so ago when you were first getting started. Great companies
Speaker 1: that you invest in you should hold and Uh, I
Speaker 1: always looking for the profit and I made money on it.
Speaker 1: But some of these companies to take Apple Computer give
Speaker 1: you great great example, my son eleven years old, Morgan Stanley,
Speaker 1: takes Apple Public. I buy him a computer. He says, Dad,
Speaker 1: this is a great company. I want to buy stock
Speaker 1: in it. Uh. And he's like eleven or twelve years old.
Speaker 1: Anybody's shares in it. I think that small purchase is
Speaker 1: well worth over a couple of million dollars. So he
Speaker 1: understood great companies and his father, didn't you hold him?
Speaker 1: He's never sold a share and it's just been a
Speaker 1: home run. So I believe, well, dad's a trader of
Speaker 1: the sons. That's all right, that smart, smart investor. So
Speaker 1: I believe you buy great companies and hold him. And
Speaker 1: that's what we do. Now. We have a family office
Speaker 1: that helps me and we work with them, and we
Speaker 1: still meet and talked to a lot of investors. Quite fascinating. John,
Speaker 1: Thank you for being so generous with your time. We
Speaker 1: have been speaking with John mac, former CEO of Morgan
Speaker 1: Stanley and author of the fascinating book Up Close and
Speaker 1: All in Life and Leadership Lessons really from a Wall
Speaker 1: Street Warrior. If you enjoy this conversation, we'll be sure
Speaker 1: and check out any of our previous five hundred we've
Speaker 1: done over the past eight or nine years. You can
Speaker 1: find those at iTunes, Spotify, YouTube, wherever you find your
Speaker 1: favorite podcasts. Sign up from my daily reading list at
Speaker 1: Ridhults dot com. Follow me on Twitter at Ridholts. Check
Speaker 1: out all of the Bloomberg podcasts on Twitter at podcasts.
Speaker 1: I would be remiss if I did not thank the
Speaker 1: correct team that helps put these conversations together each week.
Speaker 1: Justin Milner is my audio engineer ATKO. Val Bron is
Speaker 1: my project manager. Sean Russo is my head of research.
Speaker 1: Paris Wald is my producer. I'm Barry Rihults Human listening
Speaker 1: to Masters in Business on Bloomberg Radio.