Which is taking place tomorrow at Lotus. Yes, Lotus. The festivities begin at the usual time, but apparently the “real party is starting around ten,” which is when John Mack will be showing up, after having pregamed with us at Tortilla Flats, because, you know, when in Rome. Anal_yst will be TiVo’ing “Gossip Girl,” and he doesn’t even work at Morgan, so you know the expectations are high.
Holiday Party Watch:There Will Be Unlimited Mike’s Hard Lemonade At The Morgan Stanley IBD FIG Holiday PartyBy John Carney
Did a love of Parker Brothers board games, Monopoly in particular, get John Mack to return to the Dean Witter-tainted Morgan Stanley in 2005? According to the non-news driven article about the Lebanese Lothario* on Page One of today’s Wall Street Journal: maybe (always so vague, the Journalettes). As you probably know, after the train wreck that was the Morgan Stanley-Dean Witter merger, things got awkward between Mack and DW chief Philip Purcell, who became chairman and chief executive of the new company. So bad that Mack left in January 2001. Retirement (also known as running Credit Suisse Group) was going pretty well, until one day, Mack’s son, always the rabble-rouser, gifted his father with a “custom Monopoly board with a ‘Chance’ card that read: ‘A struggle with Phil Purcell finds you in a dilemma at MSDW. Should you stay or should you Go? You choose Go.” (Yes, let’s all pause to make sure we’ve taken that 72-hour pill within the allotted 72 hours. We’ll wait).
And that’s what it took to get the Mack Man back at helm of a Morgan Stanley whose business was in the toilet. MS had missed the train to private equity town. MS was dragging the dead weight that was (is) Discover. MS was making Merrill Lynch look good. Since sometime after that that fateful day, Mack’s been buying up everything from Tennessee Avenue to Waterworks (not to mention winning $10 after coming in second place in the beauty contest. True story).
As the J notes, “playing catch up” has come at a price. Namely: the $30 million to woo Stephen Trevor from Goldman and the concerns over the high risks of getting so involved in private equity by a staunchly investment banker bank. And they’re nowhere near Blankfein and Co., who have a $20 billion buyout fund/$28 billion in investments versus Morgan Stanley’s (projected to be) $6 billion buyout fund/$8 billion investments.
But Mack lives with the constant pressure of his Monopoly-gifting son breathing down his neck, and is working hard to make things better. He slashed paychecks for last year’s poor performers (a group that did not include John Mack, who got $41.4 million in 2006, a 38% raise). And Morgan Stanley’s share of global M&A deals grew to 39.6% this year, up from 2004’s 17.3% during Phil Purcell’s last full year in charge. And, of course, it landed the role of co-lead on the big Blackstone IPO. Morgan Stanley stock is up some ridiculous percentage too, although so is almost every other Wall Street stock.
A couple of years ago John Mack was telling Morgan Stanley’s bankers that they had lost their “swagger.” But, to judge from today’s Journal, it looks like the swagger is back with the Mack.
At Morgan Stanley, A Game of Catch-Up [WSJ]
*Carney’’s note: Calm down, boys. We’re not talking about Mack’s private life. We assume that the name “Mack the Knife” has nothing at all to do with his after-hours activities. We’re just referring to the fact that after he broke up with Morgan Stanley he certainly managed to get around Wall Street quite bit.
Earlier: Maybe If Dick Fuld Spent As Much Time Working On His Right Hook As He Did Worrying About Earnings, We Wouldn’t Be Having This Discussion
How times have changed. It wasn’t so long ago that the SEC stood accused of letting Morgan Stanley chief executive John Mack’s reportedly close connection to the Bush Administration block an investigation into insider trading. Now Mack has endorsed Hillary Clinton.
Business Week reports:
One of Wall Street’s big-time Republican fund-raisers, Morgan Stanley (MS) CEO John Mack, has told BusinessWeek that he and his wife, Christy, are endorsing Democratic Presidential candidate Hillary Clinton, whom they supported for re-election as senator.
Mack previously reached Ranger status in Republican campaign finance circles by raising at least $200,000 for President George W. Bush’s reelection in 2004. (Former Goldman Sachs (GS) CEO Hank Paulson, now U.S. Treasury Secretary, raised a Pioneer-worthy $100,000.) Mack, who says he’ll stay a registered Republican, was also considered a possible candidate for various Bush Administration posts over the years.
It’s too early to tell who the other major bank chiefs will back. But Mack’s switch could tip the balance of power toward the Democrats. According to nonpartisan contribution tracker PoliticalMoneyLine, three of the other top six bank CEOs (Goldman’s Lloyd Blankfein, Lehman’s (LEH) Richard Fuld Jr., and JPMorgan Chase’s (JPM) Jamie Dimon) have favored Democrats in their political giving patterns over the past few years. Bear Stearns (BSC) CEO Jimmy Cayne is strongly Republican. Citigroup’s (C) Charles Prince and Merrill Lynch (MER) CEO Stan O’Neal have bipartisan donation habits.
John Mack Backs Clinton [Business Week]
John Mack, like the Tom Arnold of investment banking (take a second on that one), has overcome huge odds to fight his way back to the top of his game.** Last year, the Morgan Stanley chief, who was shown the door in 2001, received a raise of 38% to take home $41.4 million, reports CNN Money. The package was comprised of a base salary of $800,000, $36.2 million in restricted stock, $4 million in other stock options, miscellaneous compensation of $15,447, $67,963 in pension benefits, $6,100 in matching 401(k) money and, perhaps most importantly, in the parlance of our times, use of the company jet valued at $321,848.
Earlier: How Goldman’s Managed To Stay Out Of The Backdating Scandal
Morgan’s Mack sees hefty pay raise [CNN Money]
**Rocky seemed too easy and we thought it was about time we—Carney—went public with our feelings for Carpool.
Yesterday’s DealBreaker of the Year candidate, John Mack, received a year end bonus of $40 million of stock and options.
Morgan Stanley CEO John Mack, who received a standing ovation from staffers on the firm’s trading floor when he made a triumphant return to the brokerage last year, got a bonus of almost $40 million this week.
A filing with the Securities and Exchange Commission late Thursday showed that the firm awarded Mack 461,821 shares of the firm’s common stock this week. At today’s share price of roughly $80, that’s just shy of $37 million.
The filing also said he was granted options to buy 178,945 Morgan Stanley shares at 78.40 a share, a package worth about $4 million.
Next up: Goldman Sachs honcho Lloyd Blankfein.
Morgan CEO Mack pockets hefty bonus [MarketWatch]
We’ve been pointing out for a long time that the really (potentially) explosive issue raised by former SEC investigator Gary Aguirre was not the now-officially dismissed suspicions on insider trading by Pequot Capital or illegal tipping by John Mack, but the still largely univestigated charges of favoritism at the SEC. Recall that Aguirre claimed he was fired from the SEC for trying to subpoena John Mack, who was then about to become the top man at Morgan Stanley. Now the mainstream media, for reasons of its own, has enjoyed playing up Mack’s connections to the Bush administration but a more relevant fact is probably his status as the head of a major Wall Street bank. This raises the fear that the SEC has been captured by the very industry its supposed to regulate. (By the way, even this might be too optimistic, since the words “been captured” imply that the regulatory agency was not created, owned and operated by the largest investment banks right from the start.)
In today’s Wall Street Journal, the Senate’s Finance Committee chairman Charles Grassley says that this is precisely the matter on which the committees investigation is focused.
Your Dec. 8 editorial “The Pequot ‘Scandal’” leaves the impression that Gary Aguirre and I are the only two people concerned about the way the SEC handled the Pequot investigation. In fact, Mr. Aguirre’s concerns have been echoed by both former and current SEC officials, who provided candid testimony to our committees.
The focus of the Senate investigation I’m conducting with Sen. Arlen Specter (R., Pa.) isn’t John Mack and Pequot; rather, it is whether the SEC retaliated against one of its lawyers and whether it wields an even hand in looking out for investors big and small. Our review is evidence-based, and so far the evidence suggests the Pequot investigation was fraught with problems, Mr. Aguirre’s termination is suspect, and the inspector general failed in his duty to conduct a thorough and independent inquiry.
Sen. Chuck Grassley (R., Iowa)
Committee on Finance
An SEC Investigation Fraught With Problems [Wall Street Journal]
Well, we sure went through a lot for this result. Fired SEC investigators, charges of political favoritism, hearing before the Senate. And now this: the SEC has cleared Morgan Stanley bossman John Mack in its (second) investigation into allegations of insider trading at Pequot Capital, according to the official word from Morgan Stanley. This isn’t exactly surprising news. Charlie Gasparino reported that the SEC had cleared Mack close to two months ago.
What is surprising is that it took so long for the official word to come down. Pequot itself was cleared a while back. And if Pequot was engaged in insider trading, no amount of tipping from Mack (assuming for the sake of argument there was any) would amount to a crime.
The U.S. Securities and Exchange Commission formally cleared Morgan Stanley (MS.N: Quote, Profile , Research) Chairman and Chief Executive John Mack in the commission’s insider trading probe against hedge fund firm Pequot Capital Management, a bank spokeswoman said on Friday.
Morgan Stanley spokeswoman Jeanmarie McFadden said the SEC advised Mack in a letter “a few days ago” that it would not pursue any enforcement action against him. She declined further comment.
The Aguirre-Mack-Samberg-Pequot-Heller-Credit Suisse-Morgan Stanley-SEC-GAO-Grassley Scandal Goes Meta And Picks Up Two New PlayersBy John Carney
The New York Sun thinks that the allegations made against Pequot Capital and Morgan Stanley chief John Mack have been getting a little too much ink from the New York Times. And they think they know why.
Mystified New Yorkers were left wondering what could possibly explain the Times’s fascination with this story. Some might say it’s Mr. Mack’s connection to Mr. Bush, but it could just as easily be Mr. Mack’s connection to Morgan Stanley. That is the bank that, earlier this year, withheld its proxy votes for members of the board of the New York Times Co. to protest the Sulzberger family’s preferential voting status. A Morgan Stanley analyst complained at the time that the Times was underperforming as a business in large part because of the ossified management perpetuated by the ruling family’s use of super-voting shares to control the Times despite a relatively puny stake in the Times company.
It’s a scandal about the scandal! And just insanely paranoid enough to possibly be true!
‘A Full Airing’ [New York Sun]
[Disclaimer: John Carney has written for the New York Sun and the Times, and he's friendly with a couple of the girls at both papers. Morgan Stanley was a client on several deals he worked on. He's never met John Mack or anyone named Sulzberger. George Bush won't return his phone calls.]
Although the SEC has subsequently reinvestigated and cleared Pequot Capital and Morgan Stanley chief John Mack in connection with Pequot’s acquisition of a large state in Heller Financial in the weeks leading up its acquisition by GE, questions still linger over allegations that the initial investigation was quashed when the lead investigator sought to subpoena Mack. Now two Senate investigations are underway to determine whether the SEC failed to thoroughly conduct the initial investigation and whether politics played a role in that failure.
On Sunday the New York Times ran a story based on files the canned SEC investigator, Gary Aguirre, had turned over to Senate investigators. The evidence seems pretty damning.
The file shows that after Mr. Aguirre was blocked from questioning Mr. Mack about the Heller deal, Mr. Hanson, the S.E.C. branch chief, acknowledged in e-mail messages that he had discussed Mr. Mack’s “political clout” and the “juice” of his lawyers with officials at the commission.
In an exchange of e-mails in the summer of 2005, Mr. Hanson said that he had merely been trying to “alert folks above me,” and that politics did not influence S.E.C. decisions. Mr. Aguirre replied: “Bob, this is spin. You told me it would be tough to take Mack’s testimony because he has political clout.”
Ironically, these allegations of political corruption at the SEC are being substantiated at the same time lawmakers are considering giving the SEC more clout over hedge funds. This summer a federal court struck down regulations requiring hedge fund managers to register with the SEC and permit investigators to examine their books.
But if the SEC has trouble engaging in its core functions—investigating things like insider trading—does it really make sense to give the agency an even broader scope of authority?
S.E.C. Inquiry on Hedge Fund Draws Scrutiny
We’ve been spending some time trying to clear away the murk and shine some light into the shadows of Jeffrey Epstein’s financial dealings in an effort to provide some, uhm, actual financial reporting related to the sex candal encircling the mysterious money manager. There’s not much that is publicly available but we’re still digging.
What we have discovered, however, is a brief document amending a credit agreement for RELIANT PHARMACEUTICALS, INC. The amendment replaces the administrative agent for the credit. But what caught our eye was the confluence of three DealBreaker subjects all in the same documents.
The signature pages include lines for Morgan Stanley CEO John Mack, who is scheduled to appear before the SEC in connection with allegations of insider trading at Pequot Capital, as well at Jeffrey Epstein, who signs as trustee of the Wexner Children’s Trust II, part of the financial empire of The Limited founding family. And the agent who is being replaced? Goldman Sachs, where alleged insider trading crooks Eugene Plotkin and David Pajcin worked (not to mention the alma mater of that other DealBreaker obsession, Hank Paulson).
Now this is no doubt just a coincidence, and not really a conspiracy to make our heads explode. We should probably just take a deep breath and then post a Venn Diagram illustrating the connections but our diagramist is in meetings off-site.
One additional thought: this is probably the last time you’ll see Epstein’s name coupled with the words “trust” and “children” any time in the near future.
Reliant Consent, waiver and amendment [SEC]
The Westchester Journal News covers the Morgan Stanley “turnaround”**, and the significance of the Westchester office (besides its convenient geographic proximity to John Mack’s house in Rye):
As the company looks to gain ground, Morgan Stanley’s 725,000-square-foot complex in Harrison will play an important role. One function for the site is to serve as a backup facility in the event of a blackout, terrorist attack or other emergency affecting the company’s Manhattan operations. Morgan Stanley’s move into the building fit the pattern of financial services firms that fine-tuned emergency planning after the attacks on Sept. 11, 2001.
The site, which employs about 1,500 people, also is the headquarters for the company’s global wealth management division, which oversees retail brokerage and private wealth management for individual investors. The 107-acre site, once the corporate headquarters of Texaco, also includes a conference center and trading floor for commodities and fixed-income products.
Well, we suppose the suburbanization of Morgan Stanley goes hand-in-hand with the retail-ization and Merrill-ization.
** It’s like watching paint dry.
John Mack Is Hoping to Turn Around Morgan Stanley [JournalNews]