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Could The Credit Crisis Be Over Soon?

[Jun 2, 2008.]


Although many are concerned about the economic condition of the country, John Mack expressed a particularly rare take on the credit crunch, believing that an end is in sight to the troubles in the US subprime and leveraged loans market and that the crisis could very well be over in as little as six months.

John Mack, chairman and chief executive of the Morgan Stanley corporation, said that, although the market conditions are the worst he had seen in the 40 years that he has operated on Wall Street, the problems in the subprime and leveraged loans market are at the end of their line and coming to a closure. In his words, they're in the "top of the 9th inning", making an analogy to the last part of a baseball game.

He added, however, that the situation would take a couple of fiscal quarters at minimum to end the worst of the financial crisis in the US because many assets, including but not limited to commercial securities, were still in a state of turmoil.

Mack concluded by saying that Morgan Stanley would remain conservative in face of the current economic landscape and avoid large acquisitions in order to preserve the company's capital and liquidity, reflecting positively on stocks. Be that as it may, Morgan Stanley, just like the many rival companies out there, has been forced to carry the weight of billions of dollars in writedowns and raise capital from investors on the outside.

John Mack's commentary, delivered during a conference at Morgan Stanley's annual shareholder meeting, reflects accurately on Wall Street and its hope that the prices of several classes of troubled assets are closing in on the bottom.

Despite his optimism, John Mack and several other directors have been addressed with consternation by a notable amount of shareholders over the risk management problems that have caused the corporation to take over $9bn dollars worth of writedown on a mortgage transaction. In this vein, CtW Investment Group, a coalition of pensions funds backed by a solid union, has called for Mr. Mack to give up the chairman's seat. Bill Patterson, a member of the aforementioned group, has said that a lot more should be expected of the Morgan Stanley board and that it needs the capacity to stand up to John Mack and other irresponsible executives when risk-taking gets totally out of line with proper economic protocol.

In face of those concerns, Mr.Mack, who was re-elected with a strong majority vote along with his board of directors, replied that he had taken complete and total responsibility for the poor trade and has demonstrated this sentiment at the shareholder meeting. Regardless, more shareholders have stepped up and criticized the leader for removing Zoe Cruz, the co-president of Stanley Morgan, after the atrocious trade that occurred in the previous year.

Towards that issue, Mr.Mack didn't name the unfortunate vice president but did say that he had taken more than his share of the blame for the horrible transaction and atoned for his transgression by receiving no bonus this year. He went on to say that, regardless of how minuscule a bonus might appear in the larger picture of corporate tycoons and their immense salaries, it goes a long way towards showing that he is an upright man who holds himself responsible to the company and those shareholders who choose to invest their money in it.


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