Morgan Stanley chief braves interview to reassure investors

The last time a chief executive of a major investment bank went on the business channel CNBC to be interviewed about the credit crisis, it was Alan Schwartz of Bear Stearns, and his company was consigned to history four days later.

Which was why almost the whole of Wall Street switched on the channel yesterday morning to watch Morgan Stanley's John Mack taking questions from the very same interviewer whose grilling of Mr Schwartz has been blamed by some for the panic that engulfed that company in March. The parallels were too numerous for everyone involved and everyone watching to avoid. For the past few weeks, Morgan Stanley has teetered on the brink, as clients have deserted and it worked hard to close a rescue deal with Japan's Mitsubishi to improve its finances.

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Even the sunshine backdrop of the interview was the same, since Mr Schwartz had been interviewed from a business conference in Palm Beach, Florida, and Mr Mack was attending a business leaders event at Kiawah Island Golf Resort in South Carolina.

In the end, although Mr Mack painted a grim picture for the future of the finance industry and the economy, he somehow managed to be reassuring in a way that Mr Schwartz could not. The US stock market, which is already well aware of the grim outlook, actually drifted upwards throughout the interview. "Why don't we just stay on the air a while if that's what it takes," Mr Mack said.

The credit crisis has been like nothing else he had witnessed during his career, the executive said, and the process of reducing risk will be painful. "There is too much leverage in the system. We all have to take some blame for that. Morgan Stanley was clearly leveraged along with our competitors."

It will be particularly painful for hedge funds, he said, and for the employees of the once-lucrative Morgan Stanley prime brokerage division which does business with them. "Some of my friends in that community say that by year-end, you'll see the number of firms in the hedge fund area shrink, I've heard as large as 30 per cent. We need to resize our prime brokerage business."

Mr Mack, who lobbied hard for the ban on short-selling introduced by regulators in the US at the height of the financial panic, said that in "extreme circumstances" the practice has exacerbated problems in the financial system. "It's prudent to have some kind of controls," he said, adding the whole architecture of regulation should be overhauled and co-ordinated on a global level.

Meanwhile, he was able to offer assurances about Morgan Stanley's future that Mr Schwartz did not fully manage, saying that confidence was returning, not ebbing. "Funds that took some of their money, in some cases all their money, are coming back," he said.