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John Mack, Survivor?


A new Morgan Stanley rises with its leader still in place.

A year ago, few could have guessed that Morgan Stanley (MS) would not only survive the credit crisis intact, but that it did so with John Mack its helm. But even during a financial hurricane like the one that's torn through Wall Street during the past 18 months or so, miracles can happen.

Earlier this month, the firm announced it had agreed to buy back the warrants issued to the government as part of the TARP handout. And yesterday, Reuters broke the news that Mack, known as "Mack the Knife" for his aggressive cost-cutting measures, is going on a hiring spree. The bank plans to hire as many as 400 traders and salespeople.

Of course, we've seen this movie before. Last July, Mack told the Financial Times it was aggressively stepping up its hiring plans with plans to spend the $1 billion it had saved by firing 4,800 people earlier in the year. It was just a couple of months later that the hiring plans were abruptly shelved and the firings began again after Lehman Brothers went bankrupt and Morgan Stanley was forced by the government to become a bank holding company.

But its somehow feels real this time around.

It must be especially gratifying for Mack that the firm seems to have reached the light at the end of the tunnel before his scheduled retirement in 2010. It's even better that it's happening while rival Goldman Sachs (GS) is floundering to polish its image, which has been repeatedly tarnished by critics recently.

Last year, some speculated that if Morgan survived the crisis -- which at one point felt like a big if -- Mack's retirement would almost certainly come early. The crisis started in earnest at Morgan Stanley in late 2007 when it was forced to write down $3.7 billion on subprime losses, a setback that ultimately claimed Morgan's co-president Zoe Cruz as a victim.

By the spring, Mack was battling shareholder groups who called for him to step down from Morgan's board. They claimed that Mack hadn't done enough to accept responsibility for the losses and that instead he used Cruz as a scapegoat. Mack ultimately prevailed and retains the CEO and chairman titles today.

But the victory party wouldn't last long. Mack's prediction in April 2008 that the credit crisis would be over in six months proved disastrously off base. His overly optimistic observation then that the crisis was in "its final innings" looked absurd ill-informed just five months later.

In September, Mack and Morgan Stanley were on life support. Rumors that Morgan was teetering on collapse tore through trading desks at hedge funds and banks around the globe. The Wall Street Journal reported later that "some of the biggest names on Wall Street -- Merrill Lynch, Citigroup (C), Deutsche Bank (DB) and UBS AG (UBS) -- were placing large bets against Morgan Stanley," according to trading records. Talks to merge with Wachovia Bank went nowhere.

Mack hit defensive mode in overdrive, placing calls to bank CEOs as well as regulators to put an end to the chatter. An SEC ban on short-selling helped, and an 11th hour cash injection of $9 billion from Mitsubishi UFJ Financial Group in October sealed Morgan's survival.

This year, Mack presided over a calm and peaceful shareholder meeting in April. The firm has stayed on the sidelines as rivals like Goldman Sachs and JP Morgan (JPM) have taken on more risk on their trading desks. Earlier this week, the Charlotte Observer reported that the Morgan is planning to build a retail bank instead of buy one, and it's hired former Wachovia execs to run it.

Welcome to the new Morgan Stanley, with an old familiar face at its top.
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