M This is Mesters in Business with Very Results on Bloomberg Radio this weekend. On the podcast, Boy Do I have an extra special guest, John Mac, legendary CEO of Morgan Stanley. Man. This is just a master class on leadership, on team building, on understanding of business and understanding what to do for your clients. So not only that they give you business, but they give you their loyalty and their ongoing respect. I don't know what else to say other than my conversation with Morgan Stanley's John Mac. I've been looking forward to this conversation for quite a while. As soon as I saw the book came out, I was I have to really get the inside dope from John, and so let's start with the beginning. You started Smith Barney in n was so compelling about a North Carolina kid from Duke going to Wall Street. It was pretty simple. So I was on a scholarship at Duke, an athletic scholarship, and cracked C five in my neck. So my scholarship was only valid for four years and I needed one class to graduate. I had very little money I thought had passed away when I was in college, so I needed a job and I went down and knocked on the door a company called First Securities of North Carolina, and a guy named Bill Vannor said, look, you know nothing about the business. I'll put you in the back office and you can go to your one class every day ahead and you go on your lunch out and come back and go to work. So it was me and nine women in the back office and they had the old IBM computer punch cards. That's how long ago it was. So I got a sense and a field for the business. And I got to know a lady named Fannie Mitchell who ran job placement for Duke University. It's when people would come down and say, you know Procter and Gamble or IBM, whoever it may be. She would say, we've got you got to talk to his John mac and I think you know. I would see it in the cafeteria and most students would ignore. I'd sit down, have a couple of coffee with her, or have lunch with her. So that's how I got involved with the securities business. And then Smith Barney was in town and they were going to open an office in Atlanta, and they ended up hiring me to go to their Atlanta office. So I come up to New York in and I'm working at Smith Parney and they decided because of the explosion of volume the New York Stock has change stopped all new branches from opening. So I got a chance to go into the municipal behind apartment. That's what I did. I was a trader salesman, and I learned a lot about a risk and also learned a lot about drinking at lunch. And you've got to be very careful going out with clients having a couple of drinks. Hey, you come back to the desk a little uh buzzed? What happens? Can't you make a trading mistake that way? Well, not only you can. I did. Uh. We went down to say Van if you remember that years ago, down to Walla Street. It was US Trust was my client, a guy named Jimmy Dagnan, and US Trust was the adviser for the State Employees of New York, which is a huge pension giant. So we sat there and we drank for at least three hours. Now, wait, are you normally a drink or during lunch or if the client is drinking, you gotta keep up. I'm a client guy. No one wants to drink alone. So if he's drinking or she's drinking, I'm drinking. And I came back and I made a mistake, and uh, thank god they didn't fire me. And over time we eradicated that and fixed it. Uh, And then I learned be very careful when you go out to lunch on Wall Street. So tell us a little bit about the culture on the street in the late sixties and early seventies. What was it like. It was a crazy time. The thing of politically correct didn't exist, to say the very least. All Right. So I'm I'm two years old. I'm at Smith Barney. I'm a municipal trader. Uh. Then I go into the corporate behind the market and I hear about these crazy parties that Wall Street was was throwing. And I only went to one and left. I mean it was basically strippers and people getting drunk. And you know, I came from a town of about twelve thousand people in North Carolina, Baptist religion. Mainly, it was a new or for me, but it taught me a lot. You gotta pay attention and you've got to make sure that you don't get drunk at lunch. And you gotta make sure you tell the truth. Telling the truth is certainly a key part, and that's a theme that comes up again and again in your book. We'll get to that in a little bit. You mentioned the New York Stock Exchange didn't allow any new branches to be open. I have a vague recollection of Wall Street being closed on Wednesday days to catch up on the paperwork. Tell us a little bit about that's correct. They closed on Wednesday to catch up on the paperwork. And all the firms, whether it was first of all Us and Morgan, Stanley going Goldman, Sacks and Morgan at that time didn't have a big secondary business. We had to clear up the back office. So you'd shut it noon and try to figure out these securities go to why, and these securities go to Z literally paper certificates and delivering absolutely talk about, you know, ancient technology. One of the things you mentioned was that by the nine eighties there were two key forces driving changes on Wall Street, deregulation and technology. Corret tell us about that. Well, the markets were changing, they were global, and as they became global and you were competing around the world, it was clear that you needed to free up our securities business to be more active on a global basis. So we got rid of a lot of regular sation. We got more oversight, but not regulatory control. I mean, clearly reported the sec New York Stock Exchange, etcetera. But it wasn't smothering. I mean, you know, we were not used to it, but it was the right thing for New York Stock Exchange to do. There had to be more regulation. And uh, you know, as as I said earlier, it's a global market, and you wanted to make sure that we represented New York Stock ex Change and really America the proper way. And it worked, and the UK was much stricter than we were, and in Germany they were stricter and we were, and clearly the Japanese were stricter than we were. And over time all these different regulatory areas from around the world came up with a conclusion, we need kind of an overall management system for risk and regulatory oversight. So if you took a big risk in China and Japan or in Europe, you needed to roll that up so the US regulator or the UK regulator could see what your overall risk was. I think that was a huge and very important move. You spent the first part of your career primarily in fixed income. First, you mentioned municipals in corporate. What was the appeal of the bond side of the business. Well, originally, when I joined Smith Barney, I was going to go to Atlanta in the retail office and cover Florida and other other southern states. And then I got to know a guy named George Wilder who had been in the municipal bond of business, and a guy named John McDougall who was a municipal bond trader, and they convinced me, you know, once you stay in New York, you're a great salesman and you can sell and trade muntis with us. And I like New York, and I like the business, and I like the investment world of large pension funds, money managers and things like that. So we did a combination of things. We covered clients, and then we satisfied the desire of retail salesman who wanted to buy UNI's in New York state or in California of Florida. So that's how I got into the bond business. What was it like trying to build a team on a bond desk that you described in the book could get a little frenetic. Yeah it was, but you know, we built it over the long period of time, and we all grew up over that period of time. And you learned that Number one, you had to be upfront. You had to focus on your clients. You couldn't get drunk at lunch, which occasionally we all got drunk at lunch and sometimes made a mistake. And you learned to focus on your client and uh, you know, it became a very personal business and you got to know who they were. You got to know their families. And I remember when I was at Smith Barney invented IF. At Smithers, I was given the worst accounts because I went from trading to sale. So we'll dump all these accounts on John Mack. Give it to the kid. You got it. And uh. There was a gentleman named Dick Van Skoye at the Mellon Bank who managed and advised that the state employees of Pennsylvania teachers and retirement funds. It was huge, but he was tough as nails, and you learned very quickly that you better be on your toes when you dealt with Dick. And I got to know him. He was a great mentor, taught me a lot about the business, and I spent a lot of time in Pittsburgh, even to the point that my wife and I would go out. I mean I remember going out to Pittsburgh with these huge funds. It was probably it was probably the largest account in the country. A Melon Bank at the time, and a guy named Jackie Coogler at Solomon Brothers, and Solomon was the dominant player in the bond market. They were the number one broker banker for the pension funds for the state of Pennsylvania, both in teachers and the employees. And I just kept digging away, working hard at it, and over time I became their number one dealer they dealt with. And George Polochick, who came over from the Ukraine after the Russians back then took over in World War Two, was running it. He had been at sun Life in Canada, and I got along with him well, and I did a lot of business with the Melon Bank, to the point I became their number one broker dealer. And policheck, who loved martinis, walked onto the Solumna floor and screamed out to Coogler. How does it feel to be number two? That's the environment we're in And I'll tell you, I mean, I think business it's personal and uh. We got to know the people at Melan Bank, whether it was you know, Sally's daughter who was in med school, at George policheck who was going back over to Europe for a while. We really worked at getting to know people in building trust. And at the end of the day, it's all about trust and it's all about delivering on what you say you're gonna do. And with the help of a lot of people, that's what we did. And of course my partner in all this was Christy macken. As I said earlier, my clients say, look, John, we don't we really don't care about you. Send Christia your wife. Yeah, she was awesome and it is awesome. So you eventually become head of the fixed income department. And what was it like to go from sales and trading to managing a whole team of salespeople and traders. Well, it was very different and I learned very quickly, thank God for Dick Fisher, that you have to be more balanced and not as um. I don't know if the word is aggressive, ruthless, uncouth, all of those words. We used to sit in clusters of four salespeople together, and we probably had five clusters. And one of my rules were that the desk can never be empty. You always need one person there because you know, if no one's there in the photo rings, no one's picking it up. Occasionally you know no one was there, and I'd walk in and be really piste off about it and reach over and I would just clean the desk off everything. And thank God for Dick Fisher. I mean, he said, look, John, you got the biggest gun in the firm, in that division. Your job has never used your gun. So I learned a lot from him, and I calmed things down. I wasn't as aggressive, wasn't as pushy, but I was still demanding. And look, it's a great business with great opportunities, but you gotta pay attention. You gotta pay attention to the people around you. Gotta pay attention to your clients. And this idea of especially at Morgan Stanley, the surest way to be fired at Morgan Stanley is that the word got back. You've got a client laid somewhere, you're gone, there's no debate, no discussion. So we really focused on trying to get close to our clients, give them what they needed, introduced them to other clients that also had similar asset management responsibilities. And Morgan Stanley at the time was really growing from a pure investment bank that covered you know, A T and t IBM, Southern cal you name it. They had at the Government of Japan, and we really worked at imbuing that culture of first class business in the first class way into the Morgan Stanley sales and trading business. So let's talk a little bit about some of the things you discussed in the book. You describe how different Wall Street is today from when you began. Tell us a little bit about the process of finance being institutionalized and how the culture has changed. Well, I think the biggest changes the markets became so big and global that Wall Street had to change. So if you go back and when I started the business, basically your client base was here in the United States, but over time, as globalization took place, your clients would be all over the world. And UH, people were more and more focused on what are the maximum returns we can make in investing, and it got to be a twenty four hours a day trading whether you're in in China or Japan, or Europe or US. So you had to be on your game, and you also had to be available to do business at night, and our traders oftentimes would stay up all night to satisfy inquiries coming in from China or be there early in the morning for London. So globalization was the big change, and then technology added to it. Technology allowed people to see markets and here we are at Bloomberg. They were looking at machines. They could tell you what was going on in in Hong Kong or what was going on in Europe. So the markets became seven and as a result, you had to staff. In my case of fixed income division, you needed people around the world to be able to satisfy clients who are investors and at the same time satisfy clients who are raising money through Morgan Stanley. So if a t n T was doing a big bond deal, we want to make sure that you know the Japanese, the Chinese, and just go around the world the Middle East, London and back to New York. That all of our clients got a chance to see and talk to a salesman who had information about the transaction we were doing for a T and T. So globalization was the big change. Then add to that and here we are at Bloomberg Technology. You know, when I got into business, there was no technology. You had a little machine that would do uh, interest rates for you know, you'd put in a price and it would give you what the yield is. But now you go into Morgan Stanley, You're going to JP, Morgan or Goal makes no difference. Every desks has a box with data and information. And if you go back when I got in the business in in the early early seventies. Uh, matter of fact, in the late sixties, that didn't exist. I mean people would go out for lunch and you know, take a couple of hours, didn't miss anything. But today you don't leave your desk, right, let's say the very least. So you helped to build a very special culture at Morgan Stanley. What goes into building a competitive investment bank? How do you create and sustain that culture? Well, I think by and large, people who come into the business are competitive, They want to achieve and they want to do well. What I was trying to do was to take all this um I guess courage is the wrong word. This aggressiveness, this ability to build business, and how do you make it into a one firm versus the guys in San Francisco they get an order, don't share it with New York. If we do it, you know, we'll get more more of a commission. So what I was trying to do when I took over the fixed income division is to create a one firm entity. I call it the one firm firm. And I brought in a guy named Tom DeLong, who I had met on an airplane. So Christie and I were out in Utah. We were looking at buying a house because we started picking up skin. And by the way, I'm a terrible skier. Um, So I'm talking to this guy on the plane, and I said, what do you do. We said, I'm a professor at b y U and I'm coming back to talk to A T and T and their management group about you know, managing people and evaluations, etcetera. And I said, well, look, I'd like you to come in and see me when you have time. I'd like to talk to you. So Tom comes in and by the way, now Tom was a professor at Harvard University, so Tom comes in and he interviews my senior group. And he comes in. He said, well, here's what people think. To get ahead at this division. They have to be your friends exactly, that's right, and if they're not your friend, they don't make it. And he said that may not be reality, but that's what they all believe. So he said, what you should do is set up in an independent group of people, let them make a presentation to you of the talent it should be promoted. And you know, if you have a strong objection, you can say that, but by large you should accept what they put in front of you. So that's exactly what they did. They took me picking who's going to be promoted, and there was a promotion committee and also a compensation committee, and then they would come to me and make recommendations. And so you didn't favor one person. You had somewhere between four and eight people on these committees. And when they brought it to me, unless I had something very specific that I'd say, well, let me tell you why I disagree, I accepted their recommendation. And that move really changed the culture of the division and it came into you know, you don't have to be Max's friend or anyone else. Is about being professional, direct and honest. And your peers would do the evaluation on how you're doing, what you're doing, and what you should be doing. This is the full three and the peers would all so anonymously review their managers absolutely and what was the results from those sort of things. Well, in some cases we found that managers were not setting the right tone as far as being energetic and working with them. Uh, they were reluctance oftentimes to go out with salesman and help them entertain with the clients or spend time with clients. So we really put more pressure on managers to be involved and not just sit in an office or on a training desk at the far end and just you know, take advantage of people working hard but they're not involved. So it got it more involved, and it also got us to eliminate some of the managers when you saw these three sixty reviews and some of the data, and then you you would dive into it and find out they're right, We're not going to have people like that at this firm. So not a lot of reduction at head counts, but a few people we asked to leave and you talk about um the willingness of senior management to assist with clients. You seem to be ready to jump on a plane to go anywhere in the world, China to Tokyo, and it didn't matter if you could help close a deal. Uh, you were there, that's true. I mean number one, I love the business. I mean to go to China and build the relationships we built in China and go to Europe or it didn't make any difference where I went. I loved the business. And you know, China was just opening up. And one of the guys who used to be at the World Bank said, you know, John, what China really needs I think it was ed limb. It needs an investment bank. So we formed a small investment bank owned mainly by the Chinese, but Morgan Stanley on of it, and we built a securities business with it with the Chinese in China and why and she Sean who was the vice premier, He was the gentleman I worked with and Uh. It took a lot of time, but the Chinese wanted to create their own capital markets. They wanted to be independent, and they wanted the ability to go around the world raise money. Because we do any American infestment bank. And I tell one of the things that really touched me. Uh, we're talking about China, but let's say China communists, we're talking about die hard communists. Why don't she Sean who was running the Central Bank at the time, and then he was given the responsibility by gron Gi to build a securities business. And I'm working with him to do this joint venture. And he flies over to New York and we're sitting in my office on whatever floor at Morgan Stanley and we're never about an hour and a half. We're making zero progress. We're not getting anywhere. And i'd been in Europe with him and talked to him over there. We're making progress there. Now here he is in New York and it's like there's like a big heavy stone on him. And I look at him and I finally figure out he's a chain smoker. I said, she Sean, light him up. He said, I can't do that. I said, what do you mean you can't do that? He said, in New York, he can't smoke inside. I said to my office, you can do anything you want to light them up? And he smoked, Luckies, can you imagine smoking Luckies. He smoked Luckies, he lit him up. We got the deal filter right, no filter, We got the deal done. And I keep reflecting back, you gotta pay attention to the person who's in the room with you. But I'm impressed that he knows the local rules and customs in New York. Very respectful. That's really impressive. So you opened this joint venture in China. Is Morgan Stanley the first US bank to open a joint venture and it was I know, the UK banks Hong Kong Bank at a UK ownership, but we were the first bank. But you know, I'm sure JP Morgan had some kind of outlet there, but more for banking and taking deposits and doing traditional banking business, but from a trading point of view, securities business. Thanks to Ed Limb, who as I said, had worked at the U N said, you know, China really needs capital markets and needs investment banking business, and with his help, we started a small investment bank there which continued to grow. So not just the division in China grew, but all of Morgan Stanley grew, and eventually you came to realize, hey, we have all this investment banking and trading experience, but we don't have a retail force the way somebody like Merrill Lynch does, and lo and behold the long comes Dean Winner potentially um a great merger candidate. Tell us a little bit about why that seemed like a good idea at the time. Sure, well, what we saw Mary Lynch, which traditionally had been a pure retail firm because of their huge network. Number one, they had better information not only from what's going on in the retail market, but also from institutions. You know, if you're in Des Moines, Iowa, and you knew the local president of the First Bank of Iowa, you've got better information. And if they were going to buy treasury securities I medicipals, you got that order. So we saw that we were getting limited information. And then um Sears who had bought Dean Winter I think it was Ed Brennan and Phil Purcell had been a management consultant I think for Mackenzie, but not sure that. And he he convinced ed Brennan that you know, if you really are going to be in retail, you have Sears stores everywhere every city of a hundred thousand people. There was a Senior's store, and he said, you know, we ought to open up Dean Winter offices and all these these serious stores. And that's what they did, and it grew and grew, and then they came to the point that Priscella convinced Sears, let's spin it out and take this company public. So Morgan Stanley was chosen to be the lead underwriter on the spin out of Dean Winter from Sear US. So if Dick Fisher calls me in, I meet priscell who I liked, and I looked at their business and the information they were getting from clients versus what we were getting. They were in every well how many serious stores are there, They were everywhere. At their peak, I think it was like three, so they had better information. So UH, you know, we talked, h and talked, and finally we came to the conclusion on the handshake to do the deal. UH. Sears and Dean Winter was much larger in market cap than Morgan Stanley, so it was agreed upon. UH, and he wouldn't do it without being uh the CEO. And UH we had a couple of dinners in New York with Dick Fisher and in him UH Ed Brennan and to get the deal done, he had to be the CEO. So Fisher says to me in a private meet in his office, I'm not gonna let you do this trip or do this management training. I said, well, Dick, no one's on our firm, his shareholders firm. And for me to say that, Dick Fisher, it was kind of ridiculous because he was always teaching me about the business and he was a wonderful man and a smart man. So I said, look, this is what makes sense for shareholders. I'll take the number two job. Feels a good guy. I'll get along with him, and let's do this merger. And we did. And what we also inherited when we did that merger was Discover Card, which was also a money machine. It was a money machine, but you know, we clashed, and we clashed in the sense like I said, I think earlier, if I were out in Sacramento seeing the state funds of California and I had an extra hour, I would drop by, you know, the local office of the Morgan Stanley Dean Wood her office and go in talk to a salesman. And clearly, you know, salesman who are on commission by large do a good job, but always have complaints. And I heard the complaints, came back and I talked with the manager of All Retail, and I talked to Purcell, and then Purcell said to me, you know, Johnny can't do that. I said, what do you mean, I can't do that. You can't just drop into the office and talk to him. I said, well, last time I checked. You know, you're the CEO, but I'm preasling the firm. I'm in Sacramento seeing Safeway stores and you're telling me I can't go into the office and talk to him. He said, well, you know Ed Brennan would never do that at serious And I said, you know this is not serious, and uh so, right then we knew we had an issue. Right He was very risk averse and you were very hands on. It seems like from day one a clash of the Titans was teeing up. Yeah, but not from day one. I mean, look, they had built a great business in retail. Uh at Dean Winter they had brokers all over the country doing business. They didn't have an international business. I think they thought international was going to Canada. Um, it was just two different cultures and no one challenged or spoke up either two a guy named Jimmy who ran the the the retail business are clearly per sale who ran both retail institutional the credit card business, and my view at Morgan Stanley. And I did this with Dick Fisher, and people did it with me in my office. I don't care what you say to me, I want to hear it. And a Dean win or you didn't do that, and that that was the big cultural change. So given the sort of head to head in terms of culture, Purcel's team, at least for a while, seemed to have won. You eventually came to realize he was reducing your authority step by step and at a certain point you're like, I don't want to just be a figure head, and so you you resigned. Tell us what that was like to You've been at Morgan Stanley for quite a while. Yeah, well it was difficult. But I couldn't stay there, um under a philosophy or a management style where uh, you're not allowed to go to your boss and tell him you know, I think you're a jerk. And I had a number of people say that to me, and I didn't get even with him. I just changed some of the things. Sometimes they were right. I wasn't jerk um. Just two different cultures. I mean, Morgan Stanley built it's it's business on telling clients exactly what they thought. They didn't sugarcoat it, they didn't try to say, you know, maybe a little of this, a little that. They told the client these are the issues. And that's the way I grew up and that's the way Dick Fisher was. So as much as I tried to change, I just I was miserable. I couldn't do it. And uh he put me in charge of the retail system, but everything was bounced through him before I could make any decisions. Look, it's their style. They had been successful. The retail business was important to the firm, and by putting retail and institutional together we had tremendous cloud. But from a managerial point of view, it's not a culture I wanted to be in. Let's talk a little bit about a period where you were just bored golfing. You leave Morgan Stanley, you're really not sure what the next chapter in your life is going to be, and then you get a phone call about the mess that was credit Swiss. What made you attracted to coming in and trying to clean up Credit Swiss first Boston. Well, I got a call from Lionel Pinkus and I assume they had a big investment with the Swiss and they were not happy what was going on. So I met with him, and um, you know, I met some of the other people who in the management of Credit Sweet and I said to Christie, I would rather do this job and regret it then not do this job and regret it. So that's how I made the decison regret minimization framework exactly a good way to think about it. We should talk more about your wife because it seems like she regularly gives you good advice and send you off to apologize for something you said. And you talked about that in the book. Well, we'll circle back to that later. So I'm amused by the headline Wall Street fears big Mac attack. What was the expectation post Morgan Stanley? What what did the Street think You're gonna come in and do a Credit Swiss? Well and Morgan Stanley, when I thought, especially in the Thicks income division at that time, and somebody thinking Iran that we we were too too fat, you know, we need to do reduction. So I did. And this isn't just head count. This is you describe some pretty egregious spending going on a credit Swiss, Well, it was. It was totally out of control. And no, the Swiss were were kind of absentee landlords and they were used to getting all this money on a Swiss bank account and a lot of money coming I assumed from other parts of the world. Said it was pretty easy when I got there that we had to do some head count reduction. When I got there, three of my bankers who would work for me at Morgan Stanley, Um, we're big in technology, Frank Watron and his team, and uh, when I saw what kind of money they were making, it was it was mind boggling. So uh, I flew out to see them and uh, I said, look, guys, I'll pay you a lot of money, There's there's no question about that. But what you're doing and the amount of money you're making now versus the rest of the firm and using the balance use of the firm is unacceptable. So we're gonna have to figure out a way. I want you to make a lot of money. I think as a great motivator, but this is totally out of control, and I wish I could remember exactly some of the numbers, but there were numbers like I've never seen before. It was order of nacktitude's larger than than the rest of the strip. They got a piece of every deal they did personally, personally, so you know who. One of them says, uh, you know, John, this is in our contract, but I think this compensation is way out of kilter. And just to add a little color to this, when I said to them, I want to come out and I want you to come to New York and we got to talk about these contracts and this is after not eleven, and they said, well, we're afraid to do that. I said, well tell me you want Well after not eleven, we don't go to New York. I said, okay, pick a city. I'll meet you in the city. So I met him in Denver. I think about that, how absurd that is. So I flew out to Denver and I took Steve Volk, who had been at Sherman and Sterling as the lead lawyer, lead partner. He had joined me to help clean up credits fees. So I sit with George Buttress uh trone and I think a guy named Brady, and I said, look, guys, I want you to make a lot of money. I don't have any issue with that, but this is craziness and I can't do that. And they said, well, look at maybe craziness, but that's our contract. I said, it may be your contract, and uh, I'll see you in court and we'll fight it out. And they gave up a contracts but I still paid them a line of money. But you can't you can't create a culture when you have one offs doing whatever they want to do. You described it as anyone with a personal fiefdom is a terrible idea for a firm. Absolutely, And they're good, they were smart. You would you would like a room full of Frank Latron's. You gotta be managed, You've gotta be a team player. So someone said to you around this time, Hey, we're giving up a lot of money. What about you, John, what are you giving up? And what was your response? Gave up the contract? So you gave up about a third of yourself. That's a big chunk of cash. But if you're going to ask people to go up their contract, you can't be different than them. This term that I run from from time to long, it's a one firm firm. We all have to be in it together. So for me to keep the contract, it's just not the right thing to do. And also I learned so much from Dick Fisher. I'm I'm looking way down the road. I'm not looking about what's going to happen next week or two weeks from now. Well, that's that's a good strategy and investing. To say, Harry, the very least you wrote in the book, the Swiss and Swiss bankers were unlike any other bankers you work with in the UK and China and Japan. What made the Swiss so much of a one off? Well, they were very independent. Uh, they had a lock on certain clients, whether it was leaders out of the Middle East or out of oligarchs in Russia. They got a lot of money coming in because they were Swiss. They had a great franchise and they really lived off their private banking business and in their investment banking business. They had a guy who was very talented, very smart, named Alan Wheat, and they had other people that come in, but everyone was running it for their own returned into their own pocket. And um, so when I got there, I cut commissions. I got Frank and his guys to give up some of their money. Um, and someone said, you know, we're cutting commissions and getting less when you give up your contract, and I did so it just wouldn't being managed. And the Swiss, uh, you know, they make a lot of money because they get money from all the places that maybe J. P. Moorey none others wouldn't take. They did a lot of investing with that money. They got to carry on some of it. Uh. It's a great it's a great um system for running very profitable business. But the world was changing and disclosure was becoming more and more open. People want to know, you know, who has the money, where is it going, how's money being transferred? And we finally got that to start moving and changing in Switzerland. And uh, I was pretty tough on them, and of course they thought I was the most arrogant person they ever met. I thought they were the dumbest people ever. And you in the book you described actually saying that to their face. Given how secretive they are and how less than team focused they were, you knew this match wasn't gonna last forever. How long did you last? The credits West, I think I lasted at least two years, maybe three, long enough to start showing a profit. We started making money. It was great. I mean I remember the only on group out of the Middle East said to me, and they were a huge investor in credit. So he's Johnny doing a great job. We're finally making money again. But I can't take people telling me, you know, you don't have access for this, you don't have access for that. My view, which drove him crazy, was to open up their vault and let the European Jews come in and see how much money Credit Swiez took when World War two started? Right? You know, how about the paintings they had? What's a bank doing with our ren Wirin's in a safe? What was the response to that? They didn't like it? I can't imagine. So you end up leaving Credit Swiss not long after. Well, they wouldn't renew my contract, right, So it wasn't like you were out and I fired. It was after your your contract ended. I was fired. So so non renewal And what was the firing like? Tell us a little bit about that. Was it relatively polite and pleasant? The swisser they're not quite German they're not quite French. Their customs are a little bit different than the rest of Europe. Well, um, when I went, I said I could pick someone that I liked and trusted a friend to go on the board. And I asked a guy named Tom Bell, who was a close friend of mine. He used to run why in our advertising agency and then he ran Cousins Properties in Atlanta to go on the board. And he called me after there means that John be prepared. They're gonna fire you tomorrow, and I said, well thanks, so heads up. So I went in they fired me, and uh, I sat and said, you know, Walter or what do you think of this? Trying to get them to talk that they didn't want any part of talking. And look, you know, I don't I don't have any issue with I don't have an issue with him fire. But I was. I guess you could say I was aggressive or obnoxious one or the other. But we turned the place around, we started making money. But um, look, I don't think in general, we have to ask my friends and people who know me. I don't think I'm arrogant, but clearly I came across as arrogant know what all? And they shot me. So, you know, but you have done a good job there. Let's let's talk a bit about Mac and NiFe, right, So there's chainsaw Al, there's Neutron Jack. I don't get the sense that you were as blase about having to reduce headcounts as some other CEO s were. It struck me that Mac the Knife sort of rankled you a little bit, and at least that's how it comes across in the book. Yeah, I didn't mind it. I mean, being nuns back the Knife. It kind of built a reputation for me. And you know, people would I'd go to a bar somewhere, I'd go to a Christmas party with a lot of wallster you guys, and early someone to be pointing sis Mac the Knife. You know, I kind of I have an ego. I like that I am Mac the Knife. That's uh, that's pretty good. So now you you get fired at Credit Swiss. And meanwhile Morgan Stanley, run by the somewhat risk averse Phil Purcell, starts falling behind all their competitors, and lo and behold there is an agitation to uh have some change at at Morgan Stanley. Dean Witter tell us what happens next. Well, I'm at pe Quat, which is a hedge fund, with Sam Mark Sandberg and having a good time and Morgan Stanley is falling by, and then Parker Gilbert, who had been the chairman of the firm, and I think, going all the way back, his stepfather was one of the original partners at JP Morgan spun out and started Morgan. Wasn't he related to Henry Morgan? Also, I mean, Dad, I don't know. I don't think so, but I don't know that Charles Morgan was related to Henry Morgan, who was not on the management committee. But there was a relationship going all the way back to the Morgan's. Uh So Parker got together with a number of retired partners who owned a tremendous amount of Morgan Stanley slash Dean with a stock now and they went on a campaign to force Purcell out and at the end of the day they were successful. And you get the phone call again. Briefly thought about it. What does your wife stadium m Well, she said, I had to do it, She said, John, that firm is part of you, and you've done so much, you've got to go back and do this. So the two you return your first day of work, you walk into the trading room to deliver just hey, I'm back. What is that experience like? Well, I think, um, Christie would say, who's my wife would say, other than having our kids, it was the happiest moment of her life. She would say that John, we grew up at More in Stanley, we knew the culture. And to come back and to have people just running to get to the door to welcome us in, it was emotional. It was Um, I guess a lot of it is. It is just the circumstances they had been They hadn't't managed the way I think they should have been managed. They didn't have a connection with the leadership of the firm. They had become risk of verse um and it's it was no longer um, you know, the sense of you do well, you get rewarded. So the meritocracy thing had just dissipated away. So to walk in and have people scrambling to you know, get to see me or or how to feel good, yeah, it did. It did good. Um. And I never forget when I got up into the water to him to talk to people, and I said, you know, I always wanted to see all of you again. But I never thought I would see you by coming back and here, back to Morgan Stanley and doing it. But it was a thrill. I mean, you know, you don't get many chances to redo or recorrect or change what had happened and go back the way it was, and we were able to do that, and it was it was a high And you want to get Christiane here, I mean to her other than as I said, other than kids. That was the highlight of our marriage. So I gotta work on it, do some other things. And I mentioned when you first came in, and I'm sure you don't remember this. The day you were brought in, you were doing a media tour and I have a vivid recollection of sitting in a makeup chair in the green room at CNBCC and you and some other people blow in. Hi, I'm John mc Nice to meet you. What was that about, I asked, and someone said, oh, that's John Mack. He just came back to run Morgan Stanley. I'm like, oh, isn't that great? And that was I don't was it? Oh five? Was like yeah, really really fascinating. Um and you very quickly rebuilt the firm's culture. Tell us what you did to bring back the one firm firm and the meritocracy. How did you get Morgan Stanley back on the straight and narrow again. Well, number one, you had to return it to meritocracy, and we had a lot of meetings either in big groups small groups. Christie and I. One of the things we did early on if there was a golf outing at Morgan Stanley with clients, if you went to the out there to be all men, and this occasionally they be one woman who played golf. So Christie and I said, well, let's do things. I want women to be in charge of entertaining. They've been doing their own golf outings. So we got David Leadbetter and his guys come in and we did golf lessons up in Purchase, New York for our women professionals, and then we took them down to North Carolina six or seven months later at a club we belonged to called Landfall, and we had, you know, the golf teachers come up and work with them. And the beauty of it is now that women have their own golf outing women only, which I think is terrific. So what we tried to do is pull people together and talk about how do you make this a great firm again? Because it the roots are there, the bones are there, and it was about reaching out and bringing people together and working for our clients and making sure that we treated people people fairly. So there's a quote of yours in the book that I found fascinating. You wrote, certain risk taking behavior multiplied exponentially when investment banks were converted from partnerships to publicly traded companies. I couldn't agree more. Tell us your thoughts, well, the thought was when it was a partner's money, they were much more conservative. They were literally jointing several liability literally on the hook if the firm lost money. That that's got to focus your attention. It does, and depending where you were which firm, But the culture Morgan Stanley had been a pure investment bank and they really didn't have sales in trading, whether in equities or in fixed income. But what became apparent that firms like Solomon Brothers, we're making huge inroads because Jackie Coogler at Solomon could call the CFO at I B M or A T N T and say, here, what pension funds are thinking? And doing with your stock. We think there's an opportunity you could float a hundred million dollar equity deal or bond deal. They had better information and Morgan Santley didn't have that cells and trading business. We were not talking to portfolio managers as traders. We were talking to them as we're pricing a t N T at seven one a s how many do you want? That's the way it worked. But other firms, and including Golden Sacks, they were a two way shop. They were buying and selling UH debt and equities with pension funds and getting a lot of information. What were they looking for and what were they doing? And then you take that back and you show it to New Jersey belt telephone, or you show it to a t N T or IBM. You're bringing that CFO or that treasure more information so he can figure out what's the next move for a t N T or Southern Bill. So was it inevitable that these firms had to go public just so they had access to those pools of capital to expand into trading and underwining in everything else. Yeah, because the end of the day, the risk component went up dramatically and uh, you know, if you go through the crisis, probably if you were not a public company, you'd have wiped out the partnership. So you needed to have a strong base of capital and selling equity and be end of the public market gave you that. It also gave you the liquidity to go in the market, uh, to raise more equity if you needed, or do a bond do. I used to think, hey, big mistake going from partnership to public because of the change in risk profile. But it sort of sounds like it was inevitable that all these partnerships would eventually go public. Well, you know what's interesting if you look at Lazard, they still do business. It's truncate, It's not what it used to be. Uh. If you're a CFO or a CEO, you want to know what are the hedge funds doing, State of California, State in New York, Big Pools, Bundy and their pension funds. What are they thinking? What do they need? You want that kind of data. You want to know what our investors looking for. And I think you know, if you look back, and it was difficult, we went through a hard time. The Dean would merge or really changed the firm. Now you had unbelievable banking with a retail and the amount of information that you could bring to a CEO or a CFO about markets and then the distribution network you now had was a huge advantage. And I think that's one of the reasons Morris Stanley has done so well. Really interesting. We'll talk about books in a little while, but you seem to throughout your book quote ron Churnow's House of Morgan a lot. How helpful was that in doing your research to write this? Well, I had read the book years ago, so I didn't do a lot of work to dig down on So I would say very little, really, because because he just goes berserk on the research side, everything he does is so deeply and richly researched it. He was never he was never a bond salesman like me. Well, you were actually on the inside, so it's a little different. One of the other things you wrote was everybody got the financial crisis wrong, and in the run up to it, people just didn't expect the bottoms drop out that much. Tell us a little bit about what took place with Morgan Stanley leading up to the financial crisis. Well, number one, we had too much risk there was no question about that. But we were not alone, and we did not have a fortress balance sheet like a JP Morgan with him, or even a city bank. You know, no one knows when the bullets coming with the bullet came and shot a lot of us and a lot of these companies either merged or went out of business. And all I can say is God for the Japanese and what they did, I mean, that was the life saver. It got us through and thanking Mitsubishi with Morgan Stanley and as I said to you earlier, they remembered our culture because we would always have Japanese trainees and they stood up and that's what saved us. So you tell a story in the book. You have Hank Paulson, Ben Bernanki and Tim Guythner coming to you to say, hey, you guys have to find a merger partner in The response is we have a hundred eighty billion dollars in capital. This is gonna be a painful period, but will survive. What was their response, They didn't care, didn't get more capital. So you reach out to Bank of Mitsubishi and you're waiting for the term sheet to come in and it's midnight and it's two and it's four am, and it's six am. And then Tim Geithner calls, and then Hank Paulson calls, and then a third time Tim Geithner calls. What happens next, Well, what happens The check flew into Boston and we had to send one of our bankers up to pick up the check and fly back. So he was at home is on the weekend, and he went up in his uh dungarees and and running shoes and picked up a check for I don't know a billions some and brought it down. I got it. I got it, a copy of it framing in my office back at the townhouse. The Japanese saved us. They saved us because they remember our culture and we used to train tons of Japanese bankers at Morgan Stanley. So you're you're waiting for the final word from Bank of Mitsubishi. I think you know where I'm going. And now Geith nicholes for the umpteenth time, and your secretary pokes her head and then says it was the head of New York, said Tim Geithner. And he's insistent, and you basically said, we're going to figure this out ourselves, and you did. And what's your relations ship with Tim? Now? I liked him. I mean, listen to me. I hope it's not personal to him. And and the point was, I'm trying to save the firm. I can't take all these calls when I'm talking to the Japanese, so you know we're under the gun. He's a decent guy, but he had his job to do and I had my job to do. And um, at the end of the day, it worked so uh And in fact, the Treasury Department taps Morgan Stanley to help with the AI G Bellot. Yeah, they did, so that was a good, uh working relationship. You actually had a good relationship with Hank Paulson from when he was CEO of Goldman. Yeah. He's the best. Well, look, he's honest, he's smart, he's straightforward, he gets things done. I have a lot of respect for Ank Paulson. Before we get to our favorite questions, there were a couple of little curved balls I wanted to throw you. Um, there's a story in the book. You talk about somebody who you go to who you know is a giant Duke basketball fan, and you asked him to give up part of his bonus as you were doing, and very begrudgingly he did it for the team. And then you get Coach K involved. Tell us that story. It's charming. Well, he was a huge fan of Duke, and um, I needed him on board with what I was trying to do and he gave up some power and money to accommodate me. And uh, Mike Taoski is a good friend of mine, a close friend of mine. So I called Coach K and I said, might do me a favor. What you call this gentleman and just tell him how much um, I appreciate what he's done, and that you are happy that you helped my friend John McK out. So Mike calls the guy and he said, look, Um, I want to tell you what you did is really something John Mac is. Um. He didn't call me an a hull. He said, John Mac is a selfish time guy and what you did just warmed his heart. And I want to thank you because he's my friend. The salesman was on cloud nine, I can imagine. And then and then another curved bowl. I gotta ask you you once stole Barton Bigg's car. We hit it his car was a dump, It was a clunker. He had a broken rear rear window. He just taped it up. He didn't even replace the window. Yeah, we hit the car and he was and then you had a make believe sheriff from North Carolina, Paul. And what was his reaction, Well, he laughed at the end, but he had no idea what was going on. And Bart was a wonderful man, but he's a good guy to pull the pranks on. So what I've learned in pulling pranks, of which there are numerous examples in the book, But here's what I've learned though, when the prank is on, you laugh because everyone's trying to get me some way or one way or another. Very very funny. So we only have a few minutes left to me. Uh, let me jump to some of my favorite questions that we ask all of our guests. Uh, tell us about your early mentors who helped us shape your career. Number one Dick Fisher, just hands down. He would call me in and say, look, John, you got to do this. I know you're aggressive, you're a great salesman. You can't manage people and try to threaten them and scare him you gotta ease up. Uh So he did that. He also I could go to him if I had a problem, a question. So he was, without question, my best mentor. And the other person is not that she mentored and she's my wife. She say, John, you know you ought to reach out to that person, and you know they're kids sick. You've got him into children's hospital and Morgan Stanley Children's Hospital. Uh So she's been a wonderful partner in telling me, you know you're being a little too aggressive. Back down. And I think I think she's right. I've have I softened up. Yeah, I think I have softened up. And that's another thing. Um, Morgan Stanley got behind us and we built this children's hospital, which employees love. They go up there on the weekends and they read stories to kids. That's how you build a culture that you do things like that. And I'm trying to think. Frank Bennet, who's Herst Corporation, said to me he thought that was the best sign of corporate philanthropy he's ever seen. So if sometime you're up near the new Presbyterian uptown, if you go into the children's hospital, Morgan Stanley Children's you'll see on the wall that Morgan Stanley gave a lot of money, and then you'll see names of hedge funds and other clients. When they heard what we're doing, they gave money. And you know New York is huge. You got you know Philadelphia Children's Hospital. You got him in Boston. New York City didn't have a standalone children's hospital. And our employees will go up there now and read books of the kids on the weekend. Sometimes it's a wonderful thing we did. We it's we're really really happy with it. You should be very proud of that. You mentioned books. Let's talk about some of your favorites and what are you reading currently. Well, actually, I just read my book again. My my favorite book all time is Gone with the Win. Do you believe that that's a big book. It is a big book. So I'm taking History of the South at Duke University and one of the things you had to do you had to read fifty pages every other day about a history or something with a sound. So I picked up Gone with the Win. I didn't put it down until I finished it. Really, if you haven't read it, you got to read it. Seen the movie never books awesome. It's just awesome. So what sort of advice would you give to a recent college graduate who was interested in a career in finance or investing. Well. Number One, you have to pursue it. Uh, you gotta get in the door. Hopefully you have a background that will help you. If your education, let's say you're a history major. I was a history major. If your education doesn't put you naturally into that glide path, and take courses and get into that glade path. Go to school at night, get your NBA. That helps. But more importantly, figure out how do you get to know people within that company. Make sure your job you have now you've performed well in it, and get to know people in the company and get introduced by them to the head of a division or department. But you can get in it. I mean, there's a lot of ways to get in this business. And in one way of doing it, go work for a JP Morgan their asset management business. Go work for a hedge fund. Go work for a lot of people who are in the business and learned kind of the day to day sales and training business. And if you want to be an m and a specialist, my advice is you need to have a degree in an accounting or an MBA where you can really zero in and have the train need that you need to do it. Do that you can do that business if you didn't have any experience, if they give you a chance. My point is you've got to give them enough information that they want to give you a chance. And the way you do that is do extra work, or work for an edge fine, or work for you know, whoever it may be, and you'll get that shot. And our last question, what do you know about the world of investing today that you wish you knew fifty years or so ago when you were first getting started. Great companies that you invest in you should hold and Uh, I always looking for the profit and I made money on it. But some of these companies to take Apple Computer give you great great example, my son eleven years old, Morgan Stanley, takes Apple Public. I buy him a computer. He says, Dad, this is a great company. I want to buy stock in it. Uh. And he's like eleven or twelve years old. Anybody's shares in it. I think that small purchase is well worth over a couple of million dollars. So he understood great companies and his father, didn't you hold him? He's never sold a share and it's just been a home run. So I believe, well, dad's a trader of the sons. That's all right, that smart, smart investor. So I believe you buy great companies and hold him. And that's what we do. Now. We have a family office that helps me and we work with them, and we still meet and talked to a lot of investors. Quite fascinating. John, Thank you for being so generous with your time. We have been speaking with John mac, former CEO of Morgan Stanley and author of the fascinating book Up Close and All in Life and Leadership Lessons really from a Wall Street Warrior. If you enjoy this conversation, we'll be sure and check out any of our previous five hundred we've done over the past eight or nine years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Sign up from my daily reading list at Ridhults dot com. Follow me on Twitter at Ridholts. Check out all of the Bloomberg podcasts on Twitter at podcasts. I would be remiss if I did not thank the correct team that helps put these conversations together each week. Justin Milner is my audio engineer ATKO. Val Bron is my project manager. Sean Russo is my head of research. Paris Wald is my producer. I'm Barry Rihults Human listening to Masters in Business on Bloomberg Radio.