00:00:18
John Mack: The notes that people
gave me, they wanted— let's talk 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 Stanley, but clearly the
industry. And I want to take you
00:00:34
through a week after Lehman
Brothers goes bankrupt, Merrill Lynch is bought by Bank of
America. And I'm going to start
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just a little bit of a run-in,
going to that weekend. This 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 was happening to Morgan Stanley,
and secondarily to Goldman
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Sachs. Now, going into this crisis,
clearly, we knew Bear Stearns sold in the early spring of '08.
And then we knew the
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problems that were going on with
Lehman Brothers. So we get a call from Tim Geithner, head of
the New York Fed, Friday
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afternoon, sometime around 5:00,
4:30. And says, "John, can you come down to the Fed,
we're going to have a meeting."
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So we get the call, "Come
downtown," we're at midtown, 48th Street. We get in the car with
my CFO, we start down the drive,
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we get to about 40th Street.
Traffic's not moving. It's raining in New York. There's no way
we're gonna make it downtown to
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get to the Federal Reserve. My
driver, who is a ex-policeman, says to me, "Hey, boss, you see
that bike lane over there? Does
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that go all the way down to the
Battery?" I said, "Yeah, Joe, it 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, a couple of bikers threw things
at us. But we made the meeting
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and got there on time.
Basically, the meeting was about 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' and hawin' and sayin' "Why us?" we
finally figured out we really
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needed to do something as an
industry. It was clear that Secretary Paulson did not have
the political capital to go to
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Washington after Freddie and
Fannie, after Bear Stearns, and get more money. So he was asking
the Street to help out.
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The conversation around the table—
basically, it was, "Look, Hank, if we do this, what are you
going to do when AIG gets in
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trouble? Everyone's talking
about AIG. And I think John Thain was here not long ago
speaking to you," and someone
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said, "How about Merrill Lynch?
They're going to be next." So all those things were talked about
very openly. So we go through.
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Bank of America backs away from
Lehman. Barclays backs away from Lehman. Lehman declares
bankruptcy that night. That's a
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Sunday night. I think it was— I
think it was the 14th. It may have been the 13th. I knew that Morgan
Stanley would be next in line.
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We went into that week, with $181
billion in cash, not in securities, not in treasuries,
not in IBM stock. Cash. Because
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we knew there would be a run on
the bank. On Monday, our stock started down. I think we went
into the week in the— in the low-
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30s and probably ended up in the
mid-20s after the first day. We were two days away, on Wednesday,
of announcing our earnings,
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which were very strong earnings.
On Tuesday morning, given the way the market acted on Monday,
we were thinking about, should we
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accelerate our earning? Lloyd
Blankfein at Goldman announced their earnings Tuesday morning,
right before the opening. I
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think they had like a 7% return
on equity. In this crisis, was, I 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
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afternoon we announced our
earnings, 16.2% return on equity, 1.8 billion PBT. Next day our
stock opens down 30%. And just
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so you understand what was going
on, what was going on— fund managers would come in to Morgan
Stanley, and somewhat to Goldman
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but we were the next in line.
They would ask, at 2:45, for all their credit balances and
their margin balances. Short our
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stock, and buy credit derivative
swaps. So as the spread on credit derivative swaps got
wider, it's an indication your
00:05:13
credit is weaker. And then the
clearing banks would call — Credit 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." 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, 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 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 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?" Which, if you're an employee of
our firm, or an investor in our
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firm, or a client of our firm,
you have grave concerns. So we had a number of of town hall
meetings and tried to say to
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people, "Here's what's going on,
here are the facts. You need to know what's rumor and what's not
rumor." So in our first meeting,
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after the stock was getting
crushed, after our earnings report, I lead off with, "If
you want to sell your stock,
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sell it. We're not keeping notes
on who sells and who doesn't sell. You need to be comfortable
with your personal situation."
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And then we went through some of
the rumors. And the point I tried to make to them, that, "Let's
not focus on it. There's going
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to be a rumor a minute. What you
need to focus on is your colleagues, your clients, and
make sure they know as much as
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you can tell them about markets
and our position." And then we 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 told, versus their colleagues
who had been at other firms that
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were also going through this
right before us. I think the key 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 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 and we want to stabilize the
firm. So on Wednesday, with the
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stock continuing to fall, we had
called one of our investors, CIC, 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. 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 into a room not quite this big,
but they sat on one side, we sat
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on one side and we spent four
days kind of working our way to the middle. And once we had a
deal, they said, "Wasn't that a
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lot of fun?" And at that time,
when you don't need the money, 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 the luxury of starting on the
other side of the room. We
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started right in the middle. And
for a lot of reasons we could not come to an agreement. At the
same time, Tim Geithner, head of
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New York Fed, who I think had
done just a superb job, was calling me saying, "What is Plan
B? What are you going to do?" And
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you know, we were talking to the
Chinese. We had put out a feeler 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 market and get people to stop
the run on the bank. On— on
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Wednesday, it was clear in
talking to my manage committee— 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 Pandit at Citi. As many of you
know, he used to work at Morgan
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Stanley. And he said, you know,
"Great earnings. You know, if you need us, we're here to help you."
I got a call from Jamie Dimon.
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"Great earnings. You know, if you
need us, we're here to help you."
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Then I got a call from one of the
Vice Chairmen at Citi. He said, you know, "Great earnings. We'd
love to merge with you." So, on
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Thursday, I called Vikram and
said "You've said you want to merge. We'd interested in talking to
you." He said, "We'd love to do it.
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I'll come back to you. I need to
talk to my board." Jamie Dimon had called my CFO, and called
James Gorman, who will be CEO in
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three months. And they were
saying they called— Jamie called 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 you're calling us"— he wants to
do a deal. So I call Jamie and I
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said, "Jamie, you know, you're
calling my CFO and my President, clearly, you must want to do a
deal. Is that why you're
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calling?" He said, "No, I was just
calling to be helpful." And I 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 be direct. I don't want you
going around me." It was an
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information-gathering exercise.
I don't blame him for it, maybe I would have done the same
thing. So we go through
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Wednesday, Thursday. No one
really wants to do a deal. Our stock is probably in the— I'm
gonna guess low teens. Tim
00:11:08
Geithner is constantly saying
"What is Plan B? 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 call from the Fed. "We want you
to find a partner. Would you
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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 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 morning Tokyo time, which would
be Sunday afternoon in New York
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at 5pm. Hank Paulson, through
all this, was probably the most supportive of all the regulators,
calling and saying, "We're gonna
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get through this. We need an
independent Morgan Stanley and others." There was only one other.
He didn't have to use the name.
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And we talked constantly on ways
of raising money, of working with 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 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 holding company that would help
us through this crisis?" And I
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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 bank holding company. The board
is called in for Saturday,
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because I'm not sure if we will
make it. So the board comes in 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. 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 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 call from Hank Paulson. And Hank
said, "John, the markets are
00:13:24
fragile. We cannot have Monday
morning open without a solution 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, 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 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 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 believe that the Japanese are going
to invest in us, and that's my
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partner." He said, "You and I both
know they will never make a 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 Union Bank. Japanese firms are
not known for doing hostiles.
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They did a hostile. They listened
to us. We bought them NRDPs. 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 to pull myself together because
I felt Hank was the one person
00:14:39
who really understood the
culture of the business. What 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 take them through it. Now the
board has hired outside advisors.
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Outside law firm and outside
investment bank. Small, boutique bank. Most of the people are
staying. Staying, spending the
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night in the office. We come in
Sunday, the board doesn't come 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 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 over to my couch, and I picked
up the phone. Hank said, "John,
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I'm on here with Ben Bernanke.
And Tim Geithner. We want to 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 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 the conversation goes something
like this. "We're worried about
00:15:54
financial markets on a global
basis." This is Hank speaking. "We cannot have chaos on Monday
morning. We need you to do
00:16:04
something with your firm." Ben
Bernanke said, "John, we see 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 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, Jamie Dimon at JP, and he'll buy
your bank."
00:16:33
I want to stop there for a 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 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 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 just practical. They did a
superb job. So Tim Geithner says
00:17:03
to me, "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. 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 you. 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 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. 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, I think people in the room would say that.
00:18:14
"I have the utmost
respect for the three of you. What you do for
this country? Makes you
00:18:24
patriots. But I have 45,000 employees. I
won't do it. I'll take the firm
00:18:36
down." Click. 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, trying to do what's right.
00:18:56
They're trying to do their job.
So now, in 30 minutes, I'm on the phone with the Japanese.
00:19:08
Paul Taubman [?] and Ji-Yun Li [?], who's 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 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 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 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 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 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, I'm on the phone with the Japanese."
00:20:08
Go back, back and forth, back
and forth. She comes back in 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 get [bleeped]."
00:20:33
When you come that close to
really going out of business, 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 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 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 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 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 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 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 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 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 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 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 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 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 not being disrespectful, I had a
pizza delivered every hour on
00:23:10
the hour for seven hours. He
said his housekeeper really 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 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 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 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 just trying to stay focused. So
the key is, I mean, some of
00:23:55
these things were very
straightforward on leadership. 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 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 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 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 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 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 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, "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 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 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 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 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 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 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 wrong thing to do.