Mack faces dispute by activists

by Dave Nixon

Story link: Mack faces dispute by activists

John Mack’s headship of Morgan Stanley will be disputed at next month’s annual meeting by a group of activist funds which are calling on investors to vote in opposition to his re-election to the board.

CtW Investment Group, a union-backed alliance of investment funds, chargeed Mr Mack and directors Robert Kidder and Howard Davies of “risk management failures” that led to $9.4bn in mortgage-related writedowns.

In a statement, Morgan Stanley said it had taken forceful action in reaction to last fall’s mortgage-related writedowns.

CtW-affiliated funds possess about 0.5 per cent of Morgan Stanley’s shares and are doubtful to get enough support to expel Mr Mack at the company’s annual shareholder meeting on April 8.

Nonetheless, the move could incite other investors to show their discontent at Mr Mack’s decision to increase Morgan Stanley’s exposure to higher-risk, higher returns products upon taking the controls in 2005.

Among potential successors being discussed on Wall Street are Robert Steel, the former Goldman Sachs executive who is under-secretary for domestic finance at the US Treasury, and Brady Dougan, chief executive of Credit Suisse. However, it is uncertain whether any of them would be attracted to the job.

Morgan Stanley’s shares have lost over 40 per cent of their value over the past year.

In December, Morgan Stanley sold a 9.9 per cent stake to China Investment Corporation – a Beijing-controlled investment fund – for $5bn in an attempt to buttress its balance sheet.

On Wednesday, Morgan Stanley’s shares closed down 3.48 per cent in New York at $41.01.

CtW charges Mr Mack of dwindling Morgan Stanley’s risk management procedures by altering lines of reporting for the chief risk officer. CtW, whose affiliated pension funds control $200bn in assets, is leading a campaign against numerous Wall Street banks – including Citigroup, Merrill Lynch and Bank of America – that have been hit by subprime-related losses.