Morgan Stanley’s Mack Tells Brokers 2009 Will Be ‘Difficult’

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Morgan Stanley’s Mack Tells Brokers 2009 Will Be ‘Difficult’
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By Christine Harper

March 30 (Bloomberg) -- Morgan Stanley Chief Executive Officer John Mack told employees at Morgan Stanley and Citigroup Inc.’s Smith Barney unit that 2009 will be a “difficult year” and that profitability isn’t near the bank’s long-term targets.

“’09, even though flows of business are good, is nowhere near what we need on a long-term basis,” Mack, 64, said on an internal conference call today with the brokers. “So ‘09, I think, will be a difficult year for all of our firms, mainly because of some of the legacy positions that we continue to have, and they drag on all of us.”

Mack, among bank chief executive officers who met with President Barack Obama last week, said he told people at the White House meeting that now isn’t the time to return money the banks got in October from the Treasury. New York-based Morgan Stanley received $10 billion from the U.S. Troubled Asset Relief Program.

“As much as we’d like to give the money back and just focus on not having government involvement, being totally a public entity, we think and I think that it’s the wrong time to do it now,” he said on the call. “The reason that money was put in the hands of these banks is to help get us through this very difficult time in financial markets and a very difficult time in the economy.”

James Wiggins, a spokesman for Morgan Stanley, declined to comment on the conference call.

Mack also said he had discussed with Morgan Stanley’s asset management group, the firm’s head risk manager, Co-President James Gorman and some bankers about whether the firm should buy bad assets from other banks in the Treasury’s new Public-Private Investment Program and sell them on to retail clients.

Treasury Plan ‘Promising’

“The Treasury’s plan to help banks get rid of bad assets is promising,” Mack said. The firm is “talking about how can we participate as one of the firms that can buy these assets and package them where your clients will have access to them. Simply say we’re all over it.”

Under the Treasury plan announced last week, the Treasury will provide $75 billion to $100 billion to finance investors’ purchases of devalued loans and securities after an auction. The program’s initial objective is $500 billion and it could expand to $1 trillion. The Treasury is picking asset managers to run funds that will buy the debt.

Mack told employees the American people are upset about the loss of jobs and homes, and that their anger is being directed at Wall Street. He said some anger is justified and “we’ve all made mistakes.” At the same time, he said, Obama, Treasury Secretary Timothy Geithner and Lawrence Summers, Obama’s senior economic adviser, recognize that efforts to tax or otherwise curb Wall Street compensation is a concern for employees.

“I know there’s been a lot of talk about compensation and taxes, I just want to assure you we’re all over that,” Mack said. “The president and his financial team and Larry Summers and Secretary Geithner understand it.”

Morgan Stanley’s brokerage joint venture with Smith Barney, announced in January, is making progress and “there is a chance we can close this sooner than later,” Mack said on the call. He also said the venture should benefit from Morgan Stanley’s recently agreed venture with Mitsubishi UFJ Financial Group Inc. [http://www.bloomberg.com/apps/ne ... MbqY&refer=home