John Mack on Banking Risks

so much time? Well, I think the transition from being a Swiss private bank to a publicly held bank, that the rules and reporting have changed. I mean the Swiss banks. I remember years ago when I was there, you could go down in their vaults. He would see pieces of art locked up, things like that, And I think they had a real advantage of bank secrecy. They had a lot of people around the world who wanted to be protected. We put money in there and knowing it would be

secure or safe and secretive. And the world's changed, and that's what they're dealing with because they need to change with it. Were you trying to change Credit Swie affair amount when you were there and you made a friend of changes, but the board didn't always like it. I mean they said they had some choice words for you, like arrogant. You had some choice words for them as well. Yeah, they said I'm the most arrogant person they ever met.

And I said that the stupidest people I've ever dealt with. So we had a great relationship. As soon as my contract was up, they shot me. So it was fine. But when when you say stupid, what didn't they get from your point of view? I mean, you've spent a lifetime in banking, you know, banking. What didn't they understand? You need to build financial service business built on trust and built on not hiding money or putting money in

different spots. But you need to be opened. You need to give a return on the investments or the assets someone gives you, and just having bank secrecy is not enough. And I don't think they got that. And for years the Swiss was a haven for people all over the world who wanted to put money away. They did and you know, for those who are putting the money in, it made a lot of sense. But long term, I think it really helped hurt the Swiss banks in a

competitive way. They weren't as competitive they should have been, and they're great banks. They just needed to open up a vault a little more and not be so secretive. It looks like it we're in for a new era now as UBS is slated to take over credit swies to purchase at a bargain rate, and Calm Color, somebody you know well worked for you, is going to take it over. What do you expect Calm Color and UBS

to do with credit Swies? Well, I think they'll look number one or are They're overlaps and there'll be a lot of overlaps, and you want to get the best people from each institution and still have those lines of businesses, but with a better rolodecks of who are the talent to people into the two banks. So I see it business as usual. But I think it will be a smaller institution when they put them together, and I think

they will focus on performance, not just bank secrecy. You've spent a lifetime managing risk, knowing when to take it when not to take it right, Well, is it likely they'll take less risk? Already? We've had calm callers said we want to cut back on the investment bank. We're not as interested investment bank. Would you expect to sort the sort of profile the bank to shift. Yeah, I do,

but I think that's universal. I think the big banks who've had big trading positions and taken a lot of risk, I think they've all dilled that back, and clearly the Swiss is going to do that now. When I was there, it was first Boston was their investment bank, and the amount of risk that we took was really out of proportion what we should have been doing. So I think all the banks are focused a lot more on risk. I think their regulators are better at defining and seeing

the risk. But I think banks have to maintain confidence in their institution, and when you have big swings, when you take a huge loss on some risk position, it hurts their credibility and it hurts the trust that people have in them. So I think most of these banks are going to be much more conservative and the risk they take, which brings us back to the United States to some extent, we have our own problems with banks right in the United States, starting with Silicon Valley Bank

going beyond that. At the same time, is this similar to what you saw in twenty eight, two and nine, again you were running Morgan Stanley. The banks, including Morgan Stanley had taken a lot of risk on there's a lot of leverage in the respect retrospect didn't work out so well. Do we have a similar issue now, you know, David, I don't think so. I think the banking issue at Silicon Bank is pretty straightforward. What they were doing, who

they were underwriting, who they were lending money to. I think you go back to the crisis here in New York and the markets we're really volatile. We were just taking market risk. We were not taking tremendous credit risk, either with companies or with individuals. So when you look at Wall Street back then, a lot of our risker and government securities and just loading up the balance sheet saying there's making a bet on interest rates, not on credit.

So I think the difference today is the credit risk, not so much the interest rate risk. But we have interest rate risk now all the time. They have interest rate risk well, and the feed is meeting just this week and it's we don't know if it's going to raise rates again or not. There are a lot of institutions, banks as well as the corporations that maybe have based their whole theory on low interest rates forever, which we're

not going to have. So how much risk is there in terms of interest rate risk in the system, do you think? I don't think as much as we've seen in the past. I mean I don't. I just don't see banks, and again I've been retired for a while. I don't see them taking all that kind of risk to try to get earnings up. They're all always that it's going to be a risk in the marketplace. There's always interest rate risk. But I think all the banks are much more discipline and the kind of risk they want.

I also think the Federal Reserve and regulators are much more astute at looking at these balance sheets and the risk they're taking. The risk should be in helping build businesses, not speculating in the market. If you want to speculate in the market, divine or define a certain amount of capital you want to put on the trading desk and take a risk that way. But in the risk of making these big loans and taking a lot of exposure if the markets change in these companies, I think that

has really been dialed back. Is the big banking business in it says as interesting as it was when you were in it. In this sense, a lot of the business is going into credit. The prior to credit. Now it's gone out from the regulatory part right, and the big money center banks, as you say, have gotten a lot more conservative. You built a career actually and taking risk. Yeah, some would argue we took too much risk, and thank God for the Chinese and the Japanese who helped us

get through all that. Yeah. I think given the crisis that we all went through years ago, I think bank boards are much more astute, much more involved, and I think the CEOs and treasures of the institutions are really concerned about how much risk are we taking and how

much can we afford? John famous story in your book Up Close and All End actually is when you had Tim Geitner and Hank Paulson and Ben Burnanky on the phone saying you got to sell to Jamie Diamond as I recall at a discount price, and you stood up to them. There are some bank leaders right now having similar conversations in Switzerland, in Washington with bank regulators. How did you have the courage it was required to stand

up to Hank Poulson and Tim Geitner. Well, I guess the courage came from if we had listened to them. Morgan Stanley wouldn't exist now, and my gut feel was that we were going to get through this. I believe

that Japanese We're going to put money in. We had a great relationship with the Japanese and that came from years of doing business in Japan and we used to bring in When I joined Morgan Stanley, there were always two to five Japanese employees of the banks from Japan as trainees, and the Japanese had remembered the culture and they really adopted the culture. And when we were in trouble, the reason the Japanese stepped up they knew our culture.

And God bless the founding partners of Morgan Stanley of having that kind of relationship and the foresight to bring people from all over the world, but especially from China and from Japan to see the culture. How we manager is, how we built a business, how we built relationships, and the Japanese clearly had a lot of respect for that and admiration for it. So that's why they stood up

and said, we'll put the money in. How would the world of look, the financial world look different if, in fact, JP Morgan had bought Morgan Stanley and you didn't have a Morganstown anymore. What would it have meant for the overall economy and the financial world. Well, look, I think to have broad based investment banking community gives you better ideas, creative ideas, and also it dissipates risk over a much larger platform. So I think concentration too much concentrations a negative.

And if we'd have lost Morgan Stanley and I remember Paulson colony and saying Saint John, you got to hang on because if you go down, we're right behind you, and it would have eroded. I think the investment banking business, which I believe really diversifies risk, also is very creative, a global business, and I think helps liquidity in the market. Plus also hiring a lot of people who do really well and helping companies. So it would have been a disaster if we had gone down, and I think it

would have been a domino effect. And thank God for Hank Paulson. And when you talk about heroes, Hank Paulson's a hero. He really stood up. When you talk about hiring people, You've made it clear in your book that people are really what it's all about. Getting the right people getting the right places. You have a couple that

you had working for you, we're gone on. We have, of course James Gorman running Morgan Stanley, who's done a pretty good job by all the great job, and Calm Color now who's back in the spotlight running Ubs, which is going to take over credit Sueez. What do you think about Calm Color as a leader? I think as a first class leader. Clearly he's very smart, and I think working together through the crisis, it showed that he

was able to keep his financial team on board. In other words, people were close to panicking and he calmed them down. And I gave him a little bit of help on that, but he did it. Says a natural leader, and I think he's a natural for what he's going to do in Switzerland. Finally, what does it take to become in the middle of a crisis? You didn't with respect to the pressure, but Morgan stun You just talk about Colm Color hurt in the crisis. You were there

and in some really difficult times. What separates the people who can handle that from the ones who can't? I want to say stupidity. I knew if I cracked, they all cracked. So I had to put on a face that you know, I'll never forget Tom, and I'd say to me, you know, you act like nothing's going on. Well, what they didn't know I was shut my office door and just try to pull myself together. Couldn't. I couldn't

show the stress of fear that we were under. And I'll never forget Colin, Christie my wife and saying, Christie, I don't know if I can get this done. And you turn to people you can trust and people who know you well and people who are not going to leak. Oh, guy, John Mack is really frightened about the crisis. And for me,

the best person was Christie. And then I had other people like Tom Knigs, who's a close friend, various stute, and he was one of the few people who would constantly come to my office and say, stupid, you can't do that, and you need someone to put a mirror in front of you and challenging. Tom did that. Colin did that. And I had great talent and James Gorman was unbelievable and so cool given what we were going through.

So the leadership team remained very calm, and I you know, I give Tom Knigs credit I give Colum credit, Gorman credit, and I just listened to the people out there in the business. If they did say, John, you need to get on a plane and fly to London, I was gone. I would do whatever they asked me to do. They were more in contact with people and issues than I was, and also made it a point to be seen. I'd get out and walk the trading floor, walk investment banking floor,

and people looked at me. I'd be joking on the trading floor. They'd say it cut. Max seems to be really relaxed about this, and it kind of let some of their air out of tension, just kind of went out of their bodies and they said, no, we're going to be all right. And you know, I really believed we weren't going to be all right, and the worst thing we could have done was panicked, and we didn't. And I had a team in place, is starting with people like Tom Nds and James Gorman and Colum callaher

who really got us through that. So I was lucky in many ways that it wasn't me. It was the team that's who got us through it.