Investor Alert

June 30, 2005, 6:56 p.m. EDT

Morgan Stanley taps Mack to lead firm

New CEO suggests bank will retain broad strategy

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By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) -- Morgan Stanley said Thursday that it elected John Mack as chairman and chief executive to lead the investment bank's emergence from a recent crisis.

Mack "has the singular combination of experience, strategic insight and leadership ability needed to bring together the people of Morgan Stanley and improve profitability across the firm," Miles Marsh, the lead director of the board, said in a statement.

Mack replaces Phil Purcell, who stepped down earlier this month amid criticism from institutional investors and a group of former executives who said the poor performance of retail brokerage Dean Witter was undermining the investment-banking side of Morgan Stanley's business.

During his first conference call with analysts, Mack suggested Morgan Stanley should remain a broad financial-services firm and said he would do the controversial 1997 Dean Witter merger again if he could.

Thursday's appointment is a homecoming for Mack, who has spent almost 30 years at Morgan Stanley over the course of his career. He lost a power struggle with Purcell four years ago over who would wield control over the company following the Dean Witter deal.

Setting priorities

In the statement announcing his appointment, Mack described four priorities for Morgan Stanley. See full story.

The investment bank needs to have "the right people" and ensure everyone is working toward "a common goal," Mack said, likely referring to a series of defections the bank has suffered in recent months.

Morgan Stanley also needs to have the right strategy to tackle "intense global competition," he continued.

The firm must also focus "relentlessly" on clients and work productively with regulators, public officials and other "key constituencies of the firm," Mack added.

Broad business

During Thursday's conference call, Mack suggested narrowing the focus of Morgan Stanley's business may not be a successful strategy.

"Narrowing the business could be very profitable but I don't think it's sustainable," he explained. "Cyclicality requires us to have a broader business and a broader strategy."

Morgan Stanley's merger with Dean Witter still makes sense, he added.

"I'd merge it again," Mack said. "The concept of a large footprint in financial services makes a lot of sense. Over a number of cycles you need to have the breadth and strength of a large financial institution."

The comments countered a plan presented by in May by a group of Morgan Stanley dissidents that would have essentially divided the company into three parts: the investment bank, Morgan Stanley; the retail brokerage, Dean Witter; and the credit-card unit, Discover.

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