'Mack's back', the cry went up in June 2005 when the news that former Morgan Stanley CEO John Mack was returning to the fold as top man. Dozens of senior bankers and traders had left in the weeks before Mack's return, and staff morale was at its lowest ebb.
Since then, Mack has rebuilt his management teams, fired over 1,000 brokers, invested more than $1bn in hedge fund businesses and now announced that he is spinning off the firm's credit card business, Discover. The firm's share price has risen 59% since June last year, return on equity jumped from 19% to 23.6% in 2006, whilst operating profits came in at a record $7.5bn for the year.
Not everything in the garden is rosy, however. Whilst the brokerage business under James Gorman put in its best performance in six years last quarter, the firm's asset management business continues to struggle. Critics suggest that these units, too, should be spun off or sold. Mack, however, seems to remain keen to keep the rest of the empire together, insisting that 'there are a lot of synergies between asset management and the securities businesses'.
Asset management notwithstanding, Mack deserves a pat on the back for his efforts since his return (or, indeed, the $40m bonus he got for 2006). 'There is still room for improvement in many of our businesses', he said after Morgan Stanley's fourth quarter profits were released, 'but I couldn't be more pleased with the performance we delivered (in 2006)'. Mack has Goldman Sachs in his sights now, and hopes to further narrow the earnings gap between the two firms in 2007.