NEW YORK — John Mack returned to Morgan Stanley as its chairman and chief executive Thursday, bringing the stability of a Wall Street veteran to an embattled firm and promising to seek the return of top employees who left the company under former chairman and chief executive Phil Purcell.
The company's board of directors voted unanimously to name Mack chairman and CEO, a long-rumored appointment thought to appeal to the company's investment bankers and promote internal unity. The company said Mack will take over immediately from Purcell, who announced his retirement June 13 under pressure from investors and his own board of directors over his leadership style and management of the company.
In an interview with The Associated Press, Mack said he would reach out to employees who left the firm during Purcell's watch. Five of the 14 members of Morgan Stanley's executive committee — including veteran mergers-and-acquisitions star Joseph Perella — left the company in late March and early April, many expressing frustration with perceived favoritism from Purcell.
"I would like to have them come back, along with others," Mack said. "There are some talented people out there who have left Morgan Stanley, not just those five executives. We need more talented people." He later added that he had been in touch with Perella and other executives and was in negotiations to try to bring them back.
Mack's return comes four years after he resigned from the firm in a bitter power struggle with Purcell. The 29-year Morgan Stanley veteran was greeted with cheers at an employee meeting and a standing ovation as he toured Morgan Stanley's trading floor.
His appointment was widely anticipated on Wall Street and boosted the stock in the weeks following Purcell's retirement. Morgan Stanley's shares fell 85 cents to $52.47 on the New York Stock Exchange during an overall losing day on Wall Street.
"This is obviously very positive," said Jennifer Chien, equity analyst with PNC Advisors. "He's a long-time veteran of the organization, he knows the institutional business very well, and he'll have a lot of the bankers and traders on board with him."
Mack, 60, is known for executing a financial turnaround as CEO of Credit Suisse First Boston after he left Morgan Stanley in 2001.
Now he inherits a Wall Street institution in crisis. He faces low employee morale and poorly performing asset management and retail brokerage businesses. Morgan Stanley's second-quarter earnings disappointed Wall Street as margins eroded and revenues fell.
"The easy answer is to just say that we'll focus on clients, get on the right side of trades and execute our strategy," Mack told the AP. "But really, it's going to take me some time to look at the firm, spend time with managers who run these businesses."
Mack will also have to determine whether Discover Financial Services, the company's credit card and mortgage lending arm, should be kept or spun off. In April, Morgan Stanley announced plans to make Discover an independently traded company, but the board made no decision on the idea at a meeting last week amid concerns that Morgan Stanley would have to pay too much in capital to support Discover's independence.
In addition, while the Discover division's performance is somewhat mediocre compared to other credit card brands, it provides Morgan Stanley with strong cash flow that Mack might wish to retain as he cuts costs and restructures the firm.
Mack said he would need more time to study the Discover spin-off before making a decision on whether to go forward with it.
"He's got his work cut out for him in terms of the retail brokerage and asset management businesses," Chien said. "It's one thing to turn around one business, another thing to turn around such diverse businesses in an organization where you have morale issues and distrust of the board and senior management. It's a multi-year project at best."
Mack left Morgan Stanley after 29 years following a power struggle with Purcell, the architect behind Dean Witter & Co.'s 1997 takeover of Morgan Stanley that left Purcell in charge. Mack, who had been president of Morgan Stanley since 1993, could not get Purcell to agree to give him more authority, nor was Purcell willing to step aside. Mack went on to run CSFB from 2001 through 2004.
Purcell, meanwhile, was ultimately unable to fully integrate Dean Witter, primarily a retail brokerage, with the investment banking and asset management divisions of Morgan Stanley. Purcell's leadership was widely criticized, and a series of high-profile executive resignations starting in late March encouraged a dissident group of shareholders and former executives to increase their efforts to get him fired.
The dissidents, led by former Morgan Stanley President Robert Scott, welcomed Mack's appointment and echoed his desire to have the departed talent return to the company.
"We applaud the board's openness in turning to John as an action clearly in the best interests of shareholders, clients and employees," the group said in a statement. "We hope that John will be able to attract back many of the talented people who left the firm during this stressful period."