John J. Mack, dubbed “Mack the Knife,” appeared to have pulled a rabbit out of a hat this morning when he announced a deal with Mitsubishi UFJ for a $9-billion lifeline for Morgan Stanley.
But sources told the New York Times that the deal was actually saved by Mack’s onetime rival - former Goldman Sachs CEO Henry Paulson, whose Treasury Department offered protection to Mitsubishi UFJ late Sunday if it agreed to go ahead with its investment.
Late last week, the deal between the two banking houses had looked as if it might fall apart after Morgan Stanley’s stock lost about 59-percent of its value.
After a weekend of tnese negotiations, agreement apparently came late Sunday only after Paulson’s Treasury Department assured Mitsubishi UFJ that its investment would be protected if the U.S. were to inject money into Morgan Stanley at a later date, according to the Times.
Once upon a time, when Paulson was at Goldman Sachs and Mack was at Morgan Stanley and, then, at Credit Suisse, they had been fierce competitors.
But the completion of this deal was key to Paulson’s strategy of bringing in outside investment to rehabilitate financial markets even as it considers buying stock in banks directly.
Analysts estimate that Morgan Stanley has more than $100 billion in capital, but the firm has struggled to regain investors’ confidence since the collapse of Lehman Brothers last month. Investors have become so unnerved about the health of the financial industry that Morgan Stanley’s stock has plummeted nearly 82 percent this year, closing at $9.68 on Friday.
Until today, Mack, who began his career with Morgan Stanley as a stock trader in 1972, had been rallying investors with little success. The son of Lebanese immigrants who attended college on a football scholarship, he is known for his aggressive, take-no-prisoners style, reportedly encouraging his staff by shouting: “There’s blood in the water, let’s go kill,” according to a recent profile in the Times of London.
Today, he sent out a self-congratulatory note to his staff about the deal, which gives Mitsubishi UFJ a 21-percent stake in the company.
“MUFG’s investment is a powerful endorsement of the tremendous value in the Morgan Stanley franchise, but the caliber and commitment of our people give me even greater confidence about the future of this Firm,” he wrote.
He said the company would now hunt for new acquisitions that will “help us ramp up our deposit base.”
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