00:00:18
John Mack: The notes that people
gave me, they wanted— let's talk
00:00:21
about leadership. And I can't
think of a better time than one
00:00:25
year ago, the crisis that we
went through. Not only Morgan
00:00:30
Stanley, but clearly the
industry. And I want to take you
00:00:34
through a week after Lehman
Brothers goes bankrupt, Merrill
00:00:43
Lynch is bought by Bank of
America. And I'm going to start
00:00:47
just a little bit of a run-in,
going to that weekend. This
00:00:51
would be September the
12th, 13th, 14th, where we met at
00:00:55
the Fed, and then move you very
quickly through the week on what
00:01:01
was happening to Morgan Stanley,
and secondarily to Goldman
00:01:04
Sachs.
00:01:13
Now, going into this crisis,
clearly, we knew Bear Stearns
00:01:18
sold in the early spring of '08.
And then we knew the
00:01:24
problems that were going on with
Lehman Brothers. So we get a
00:01:28
call from Tim Geithner, head of
the New York Fed, Friday
00:01:30
afternoon, sometime around 5:00,
4:30. And says, "John, can
00:01:36
you come down to the Fed,
we're going to have a meeting."
00:01:38
So we get the call, "Come
downtown," we're at midtown, 48th
00:01:42
Street. We get in the car with
my CFO, we start down the drive,
00:01:46
we get to about 40th Street.
Traffic's not moving. It's raining
00:01:49
in New York. There's no way
we're gonna make it downtown to
00:01:52
get to the Federal Reserve. My
driver, who is a ex-policeman,
00:01:56
says to me, "Hey, boss, you see
that bike lane over there? Does
00:02:01
that go all the way down to the
Battery?" I said, "Yeah, Joe, it
00:02:04
does." Next thing I know we're in
the bike lane. Going all the way
00:02:08
down. We actually got there in
five minutes. It's amazing. Now,
00:02:11
a couple of bikers threw things
at us. But we made the meeting
00:02:14
and got there on time.
Basically, the meeting was about
00:02:18
Wall Street coming together to
create enough capital to set up
00:02:23
a bad bank for Lehman's low
quality assets. And after hemmin'
00:02:29
and hawin' and sayin' "Why us?" we
finally figured out we really
00:02:33
needed to do something as an
industry. It was clear that
00:02:37
Secretary Paulson did not have
the political capital to go to
00:02:41
Washington after Freddie and
Fannie, after Bear Stearns, and
00:02:46
get more money. So he was asking
the Street to help out.
00:02:50
The conversation around the table—
basically, it was, "Look, Hank,
00:02:53
if we do this, what are you
going to do when AIG gets in
00:02:57
trouble? Everyone's talking
about AIG. And I think John
00:03:00
Thain was here not long ago
speaking to you," and someone
00:03:03
said, "How about Merrill Lynch?
They're going to be next." So all
00:03:06
those things were talked about
very openly. So we go through.
00:03:11
Bank of America backs away from
Lehman. Barclays backs away from
00:03:14
Lehman. Lehman declares
bankruptcy that night. That's a
00:03:19
Sunday night. I think it was— I
think it was the 14th. It may have been
00:03:22
the 13th. I knew that Morgan
Stanley would be next in line.
00:03:28
We went into that week, with $181
billion in cash, not
00:03:35
in securities, not in treasuries,
not in IBM stock. Cash. Because
00:03:41
we knew there would be a run on
the bank. On Monday, our stock
00:03:46
started down. I think we went
into the week in the— in the low-
00:03:50
30s and probably ended up in the
mid-20s after the first day. We
00:03:55
were two days away, on Wednesday,
of announcing our earnings,
00:04:00
which were very strong earnings.
On Tuesday morning, given the
00:04:05
way the market acted on Monday,
we were thinking about, should we
00:04:09
accelerate our earning? Lloyd
Blankfein at Goldman announced
00:04:15
their earnings Tuesday morning,
right before the opening. I
00:04:19
think they had like a 7% return
on equity. In this crisis, was, I
00:04:24
thought, very good. We were to
announce on Wednesday, and we
00:04:29
said, "No, let's accelerate. we'll
do it Tuesday afternoon." Tuesday
00:04:34
afternoon we announced our
earnings, 16.2% return on equity,
00:04:39
1.8 billion PBT. Next day our
stock opens down 30%. And just
00:04:46
so you understand what was going
on, what was going on— fund
00:04:49
managers would come in to Morgan
Stanley, and somewhat to Goldman
00:04:53
but we were the next in line.
They would ask, at 2:45, for all
00:04:59
their credit balances and
their margin balances. Short our
00:05:03
stock, and buy credit derivative
swaps. So as the spread on
00:05:10
credit derivative swaps got
wider, it's an indication your
00:05:13
credit is weaker. And then the
clearing banks would call — Credit
00:05:18
Suisse, JP Morgan, Deutsche
Bank. "If you want us to clear
00:05:23
for you, you need to post "10
billion more in collateral."
00:05:28
So that was the spin we were in.
Money running out the door. It
00:05:34
was a classic run on the bank.
And, you know, Lloyd, again,
00:05:40
Blankfein at Goldman, and I talked
constantly. And he always kept
00:05:45
saying, "John, you gotta hold on
because I'm 20 seconds behind
00:05:48
you." So the whole game was to
hold on, to find other sources of
00:05:54
capital. At the same time, you
were reading the paper, or you
00:05:59
would turn on CNBC, and you would
see— and I gave Maria Bartiromo
00:06:04
grief about this, you would see
"Does Morgan Stanley make it?"
00:06:09
Which, if you're an employee of
our firm, or an investor in our
00:06:12
firm, or a client of our firm,
you have grave concerns. So we
00:06:18
had a number of of town hall
meetings and tried to say to
00:06:22
people, "Here's what's going on,
here are the facts. You need to
00:06:27
know what's rumor and what's not
rumor." So in our first meeting,
00:06:32
after the stock was getting
crushed, after our earnings
00:06:34
report, I lead off with, "If
you want to sell your stock,
00:06:38
sell it. We're not keeping notes
on who sells and who doesn't
00:06:42
sell. You need to be comfortable
with your personal situation."
00:06:48
And then we went through some of
the rumors. And the point I
00:06:52
tried to make to them, that, "Let's
not focus on it. There's going
00:06:55
to be a rumor a minute. What you
need to focus on is your
00:06:59
colleagues, your clients, and
make sure they know as much as
00:07:04
you can tell them about markets
and our position." And then we
00:07:09
did a O&A. And I'd answer any
question anyone asked. It was
00:07:13
very open, very forthright. And
they had more information, I am
00:07:18
told, versus their colleagues
who had been at other firms that
00:07:21
were also going through this
right before us. I think the key
00:07:27
thing that I said to them— "This
is not the time to be angry.
00:07:32
This is not the time to say it's
someone's fault. This is the
00:07:36
time to focus on the firm and
your clients." That careers are
00:07:41
long careers. We don't want to
get even, we want to do business
00:07:45
and we want to stabilize the
firm. So on Wednesday, with the
00:07:50
stock continuing to fall, we had
called one of our investors, CIC,
00:07:54
which is one of the super-wealth
funds in China who we had done
00:07:58
some transactions with and had
invested in us a year earlier.
00:08:03
They came in and— good friends of
mine, but the Chinese love to
00:08:07
negotiate. And in our first
round, a year earlier, we came
00:08:12
into a room not quite this big,
but they sat on one side, we sat
00:08:16
on one side and we spent four
days kind of working our way to
00:08:20
the middle. And once we had a
deal, they said, "Wasn't that a
00:08:24
lot of fun?" And at that time,
when you don't need the money,
00:08:28
it was a lot of fun. We actually
enjoyed it. It was give and take
00:08:31
and push and argue and debate.
But this time, we did not have
00:08:36
the luxury of starting on the
other side of the room. We
00:08:40
started right in the middle. And
for a lot of reasons we could
00:08:44
not come to an agreement. At the
same time, Tim Geithner, head of
00:08:49
New York Fed, who I think had
done just a superb job, was
00:08:53
calling me saying, "What is Plan
B? What are you going to do?" And
00:08:59
you know, we were talking to the
Chinese. We had put out a feeler
00:09:02
to the Japanese. We talked to
Buffett, we talked to everyone
00:09:07
in trying to figure out how can
you put some calmness into this
00:09:12
market and get people to stop
the run on the bank. On— on
00:09:18
Wednesday, it was clear in
talking to my manage committee—
00:09:22
and we did everything as a team.
It was clear they felt like we
00:09:26
needed an alternative. So I'd
received a call from Vikram
00:09:29
Pandit at Citi. As many of you
know, he used to work at Morgan
00:09:32
Stanley. And he said, you know,
"Great earnings. You know, if you
00:09:38
need us, we're here to help you."
I got a call from Jamie Dimon.
00:09:41
"Great earnings. You know, if you
need us, we're here to help you."
00:09:46
Then I got a call from one of the
Vice Chairmen at Citi. He said,
00:09:48
you know, "Great earnings. We'd
love to merge with you." So, on
00:09:55
Thursday, I called Vikram and
said "You've said you want to merge.
00:09:59
We'd interested in talking to
you." He said, "We'd love to do it.
00:10:03
I'll come back to you. I need to
talk to my board." Jamie Dimon
00:10:07
had called my CFO, and called
James Gorman, who will be CEO in
00:10:12
three months. And they were
saying they called— Jamie called
00:10:16
him and asked, you know, "What
can I do to help you? What's
00:10:19
going on?" Things like that.
"Clearly, John, the reason that
00:10:23
you're calling us"— he wants to
do a deal. So I call Jamie and I
00:10:28
said, "Jamie, you know, you're
calling my CFO and my President,
00:10:33
clearly, you must want to do a
deal. Is that why you're
00:10:35
calling?" He said, "No, I was just
calling to be helpful." And I
00:10:40
said, "If you want to be helpful,
you talk to me. You don't talk
00:10:43
to my CFO and CEO— President. We
need to do business. We've got to
00:10:48
be direct. I don't want you
going around me." It was an
00:10:52
information-gathering exercise.
I don't blame him for it, maybe
00:10:55
I would have done the same
thing. So we go through
00:10:58
Wednesday, Thursday. No one
really wants to do a deal. Our
00:11:03
stock is probably in the— I'm
gonna guess low teens. Tim
00:11:08
Geithner is constantly saying
"What is Plan B?
00:11:11
Why don't you call Jamie?" I say,
"Well, I talked to Jamie, he has
00:11:14
no interest in the firm." So we
get into Friday. Again, I get a
00:11:20
call from the Fed. "We want you
to find a partner. Would you
00:11:25
talk to so and so?" I said, "I've
done that. They don't want the
00:11:28
firm. And if they did want the
firm, they would pay no price
00:11:30
for it." On Friday afternoon, we
found out that the Japanese had
00:11:37
interest in talking to us. And
they would call me at 6am Monday
00:11:42
morning Tokyo time, which would
be Sunday afternoon in New York
00:11:46
at 5pm. Hank Paulson, through
all this, was probably the most
00:11:51
supportive of all the regulators,
calling and saying, "We're gonna
00:11:56
get through this. We need an
independent Morgan Stanley and
00:11:59
others." There was only one other.
He didn't have to use the name.
00:12:08
And we talked constantly on ways
of raising money, of working with
00:12:12
the Chinese, working with the
Vice Premier Wang Qishan, who— who
00:12:17
I know really well, and Hank knows
really well. But by Friday, we
00:12:21
were getting nowhere. We'd been
turned down at every place we've
00:12:24
gone. Lloyd called me and said,
"Do you think if we were a bank
00:12:29
holding company that would help
us through this crisis?" And I
00:12:33
say, "Clearly. in the long run, it
would. I'm not sure if— in the short
00:12:36
run, if it would." But started to
do some work on looking at being a
00:12:40
bank holding company. The board
is called in for Saturday,
00:12:45
because I'm not sure if we will
make it. So the board comes in
00:12:51
on a Saturday. We have our first
meeting. We take them through the
00:12:56
situation. It looks dire. We
don't know about the Japanese.
00:13:00
That is really our hope, and, or,
would the federal government do
00:13:04
anything to help us? Again,
milling around and our next
00:13:11
meeting was going to be that
evening, Saturday evening. So I
00:13:15
think the lowest point for me,
came Saturday afternoon. I got a
00:13:19
call from Hank Paulson. And Hank
said, "John, the markets are
00:13:24
fragile. We cannot have Monday
morning open without a solution
00:13:30
to your firm. You have to find a
partner." And I was pretty
00:13:34
aggressive on— on pushing
back. I said, "Hank, you know,
00:13:37
you've been my biggest
supporter. You've been helping
00:13:40
us the whole way. Now you're—
you're breaking away. I can't
00:13:43
believe, given everything you've
said to me during the week, now
00:13:47
this is happening." He said,
"Look, John, it's not about
00:13:52
Morgan Stanley. It's about
financial meltdown on a global
00:13:55
basis. You need to find a
partner." I said, "Well, look, I
00:13:59
believe that the Japanese are going
to invest in us, and that's my
00:14:02
partner." He said, "You and I both
know they will never make a
00:14:08
decision that quickly." And I
said, "Hank, I don't know that.
00:14:12
They hired us to do a hostile
takeover of a minority piece of
00:14:17
Union Bank. Japanese firms are
not known for doing hostiles.
00:14:22
They did a hostile. They listened
to us. We bought them NRDPs.
00:14:25
they stay true to their word. I
believe they'll invest." So Hank
00:14:30
and I agree to disagree. Hung up
to the phone and just really had
00:14:35
to pull myself together because
I felt Hank was the one person
00:14:39
who really understood the
culture of the business. What
00:14:43
Morgan Stanley meant, not— not
just to the people of the— of the
00:14:47
firm, but also in the financial
system. So we go to the board, we
00:14:52
take them through it. Now the
board has hired outside advisors.
00:14:55
Outside law firm and outside
investment bank. Small, boutique bank.
00:15:01
Most of the people are
staying. Staying, spending the
00:15:07
night in the office. We come in
Sunday, the board doesn't come
00:15:10
in 'til midday. We really have
nothing to do. We're waiting for
00:15:14
5:00 in the afternoon, which
would be Sunday morning in
00:15:18
Tokyo. So my secretary walks in
and says, "John, Hank Paulson is
00:15:21
on the phone." So for some reason
I got up from my desk. I walked
00:15:27
over to my couch, and I picked
up the phone. Hank said, "John,
00:15:33
I'm on here with Ben Bernanke.
And Tim Geithner. We want to
00:15:38
talk to you." And I said, "Well,
Hank,
00:15:40
I'd like to put my general
counsel on the phone." So we hit
00:15:44
the speaker button. So Gary
Lynch, my general counsel on our
00:15:47
on the phone, but again, there
are 15, 20 people in the room, and
00:15:49
the conversation goes something
like this. "We're worried about
00:15:54
financial markets on a global
basis." This is Hank speaking. "We
00:15:59
cannot have chaos on Monday
morning. We need you to do
00:16:04
something with your firm." Ben
Bernanke said, "John, we see
00:16:08
things you don't see. This is
much bigger than any one firm. It's
00:16:14
about a global crisis. And we
have to have a solution and we
00:16:17
need a solution for your firm."
And Tim Geithner, who had been
00:16:22
very persistent about Plan B
said, "I want you to call Jamie,
00:16:28
Jamie Dimon at JP, and he'll buy
your bank."
00:16:33
I want to stop there for a
00:16:36
second, because a number of
people have asked me, internally,
00:16:39
"Well, you know, were you upset
with them? Did you think they
00:16:41
were doing the right thing or
the wrong thing?" Well, I
00:16:44
disagreed with him. But I'm not
upset with them. Their job is to
00:16:49
have financial stability. My job
is to protect the firm and keep
00:16:54
it going. We weren't nefarious,
it wasn't mean, it wasn't— it was
00:16:58
just practical. They did a
superb job. So Tim Geithner says
00:17:03
to me,
00:17:06
"Call Jamie." I said, "Tim,
I've called Jamie. He doesn't
00:17:12
want the firm." "He wants it now."
I said, "No, he doesn't. I've
00:17:16
spoken to him. He does not want
the firm." "Call him. He'll buy the
00:17:20
firm.
00:17:22
I said, "Yeah, he'll buy the firm
for $1." Don't laugh. That was
00:17:27
the price. I said, "Let me ask
you a question. The three of
00:17:35
you.
00:17:36
I have 45,000 employees. In New
York City, AIG, Lehman Brothers,
00:17:45
Bear Stearns, Merrill Lynch and
other layoffs, there's probably
00:17:49
40,000 jobs have been lost. From
a public policy point of view,
00:17:54
does this make sense?" Tim said,
"It's not about public policy.
00:18:00
It's about stability. And that's
what we're focused on. And we
00:18:03
want you to do something with your firm."
So I said, I think very calmly,
00:18:10
I think people in the room would say that.
00:18:14
"I have the utmost
respect for the
00:18:18
three of you. What you do for
this country? Makes you
00:18:24
patriots.
00:18:30
But I have 45,000 employees. I
won't do it. I'll take the firm
00:18:36
down." Click.
00:18:39
That was the conversation. So
you're in there. It is surreal,
00:18:49
because you're going through
this. Trying to protect the firm,
00:18:54
trying to do what's right.
00:18:56
They're trying to do their job.
So now, in 30 minutes, I'm on
00:19:03
the phone with the Japanese.
00:19:08
Paul Taubman [?] and Ji-Yun Li [?], who's
00:19:11
his chief of staff, are in there
with me, the doors shut. And I
00:19:17
speak into the phone to my
partner in Tokyo. I wait 10
00:19:20
seconds, 30 seconds. He
interprets. He does the
00:19:23
translation. I wait, he talks back
and forth. It's— it's very kind
00:19:29
of— if you've been with
interpreters, you gotta stay
00:19:33
very focused on what you're
going to say. So my secretary
00:19:38
comes in and says, "Tim Geithner
is on the phone. He wants to
00:19:41
talk to you." I said "Tell Tim I
gotta call him back. I'm on the
00:19:46
phone with the Japanese." We go back
to the conversation. I talk, I wait,
00:19:53
back and forth. My secretary
comes in, says, "Hank Paulson is on
00:19:58
the phone. He wants to talk to
you."
00:20:02
All I can tell you, I'm wired now.
"Tell Hank, I'll call him back,
00:20:06
I'm on the phone with the Japanese."
00:20:08
Go back, back and forth, back
and forth. She comes back in
00:20:11
about three or four minutes and
says, "Tim Geithner is on the
00:20:16
phone and he wants to talk to
you now." "Tell Tim Geithner to
00:20:21
get [bleeped]."
00:20:33
When you come that close to
really going out of business,
00:20:39
call it near death— death
experience— the end of the—
00:20:42
whatever you want to call it,
your only focus is to make sure
00:20:47
your company survives. I had no
fear of the three of them. They
00:20:57
were doing their job. I had to
do my job. The team around me
00:21:04
were superb. We communicated, we
worked together, we had single
00:21:10
focus. And we got it to work. We
did survive. I went home, went
00:21:18
to the city, my wife came into the
city. And we went over to my
00:21:21
kids' apartments. And I went in and I
said to Christie, I said, "Chris,
00:21:26
I may lose the firm." Emotional.
I go into the living room, walk
00:21:33
around and get my composure. I
come back and I said to her, "But
00:21:36
I'd rather be doing this than
reading a book in North
00:21:38
Carolina." The action was wild.
The team was unbelievable. And
00:21:45
how people worked— from my
experience, it was— I never want to
00:21:50
go through it again. But I'm
glad I went through it once.
00:22:01
In these points on leadership—
and you know, you don't call
00:22:08
yourself a leader, people say
you're a leader. All I know is
00:22:13
that one thing I could not do
was let my team see how
00:22:17
concerned I was. And I don't
think they ever did. And I tried
00:22:21
to, oftentimes, make light of
what was going on or make
00:22:26
jokes. So one of the things I
did, I had a hand-held blood
00:22:31
pressure gauge. So we go to
meetings, and I'd say "Check your
00:22:35
blood pressure." And matter of fact,
one of my guys actually went to
00:22:38
the hospital after he checked
his blood pressure. We found out
00:22:43
it was stress. Also, it was over one
of the Jewish holidays. And he
00:22:51
had told me that last year, his
12-year-old son, who didn't have
00:22:56
to fast, would come in and eat
food in front of him all the
00:23:00
time to punish him. And so I
decided to, even though I was
00:23:07
not being disrespectful, I had a
pizza delivered every hour on
00:23:10
the hour for seven hours. He
said his housekeeper really
00:23:16
liked it. And he thought it
was very funny that during the
00:23:18
crisis, I'm thinking about silly
things like that. I think you
00:23:22
had to keep a sense of humor. The
stress and the intensity was
00:23:27
more than anything I've ever
seen. And what my guys don't
00:23:32
know, when my CFO walked out of
my office and said, "We're gonna
00:23:35
be out of money in three days," I
shut the door. And I took— I
00:23:39
don't think I've ever taken
deeper breaths than I took after
00:23:43
he walked out the door. But that
was all in my office by myself
00:23:48
just trying to stay focused. So
the key is, I mean, some of
00:23:55
these things were very
straightforward on leadership.
00:23:59
Clearly, we recognized it was a
crisis. We communicated at least
00:24:04
six or seven times with all of
our employees on a global
00:24:07
network, so they knew what we
knew. We never sugarcoated it. We
00:24:13
told them the truth. From day
one. Everyone knew how serious
00:24:17
it was. Everyone trusted us. We
had a lot of integrity. They
00:24:22
knew we weren't trying to trick
them. I never said, "Go buy the
00:24:26
stock." I said, "If it makes you
feel better, sell the stock." A
00:24:30
lot of people sold stock. I
don't know who they are. I don't
00:24:33
want to know and I don't care.
People had to be comfortable. We
00:24:39
had to set a tone that as much
as the crisis was was tough, I
00:24:46
think if you talk to my
executives, I went out of my
00:24:49
way— I'll never forget coming out
of the meeting with— with the
00:24:53
Japanese, and I saw my Chief of
Staff and I said— it was— it was
00:24:56
the last day the Yankees were
playing in Yankee Stadium. And I said,
00:25:00
"I thought you're going to the
Yankees game." Always trying to
00:25:03
deflect and say there were other
things to do, things to talk
00:25:07
about, things to joke about. So,
I guess the point you want to
00:25:12
walk away with— and I don't know
if it's leadership or
00:25:17
responsibility, but when you
take on jobs, doesn't have to be a
00:25:21
big job, you have a
responsibility to do what you
00:25:23
think is right. And stand up,
sometimes when the odds are
00:25:29
against you and people are
pushing you. I think there— there are
00:25:33
enough stories you can read
about in the paper, where if
00:25:36
people would have done that, they
wouldn't be in the pickle
00:25:39
they're in now. So I guess if
you leave here, the thing to
00:25:44
think about is, stand up for
what you believe in. Do what you
00:25:48
think's right. Be prepared to
suffer the consequences. But
00:25:52
don't be pushed around when you
know in your heart of heart, it's the
00:25:55
wrong thing to do.
