John Mack, former chief executive officer at Morgan Stanley (NYSE:MS) and senior advisor at KKR, spoke with Bloomberg Television’s Stephanie Ruhle and Matt Miller today about job cuts and compensation in the financial-services industry, China’s economy, emerging markets and peer-to-peer lending.
Mack said that the Wall Street pay debate is “healthy” and “needs to take place.” On CEO pay, he said: “I would love to see you stop beating up on Lloyd and Jamie. I think that would make a lot of sense and I’m in favor of that.”
*ALL BANKS OVERHIRED DURING BOOM TIMES
*MORTGAGE BUSINESS ON WALL ST. LESS THAN HALF PRE-CRISIS
*WALL ST. COMPENSATION DEBATE IS A `HEALTHY DEBATE’
*WALL STREET STILL PAYS YOUNG PEOPLE VERY WELL
*PUBLIC SHOULD STOP `BEATING UP ON’ BLANKFEIN, DIMON
*PRE-CRISIS RETURNS JUSTIFIED HIGH PAY AT THE TIME
*BANKS STARTING TO TAKE NOTE OF LENDING CLUB
*SOME PIECE OF INVESTORS’ PORTFOLIO SHOULD BE IN EMERGING MARKETS
*QUANTITATIVE EASING HELPED THE ECONOMY
MATT MILLER: And still obviously an incredibly busy guy. It’s not like you’ve gone into full retirement here–
STEPHANIE RUHLE: Not even close.
MILLER: I was looking at the things that you’re doing, advising KKR & Co. L.P. (NYSE:KKR); Glencore on the board at Rosneft’ NK OAO (MCX:ROSN), on the board of trustees of New York Presbyterian Hospital. So still an incredibly busy plate for you.
JOHN MACK: Well I don’t believe retirement–
MILLER: No golf?
MACK: You know it’s interesting, when I left Morgan Stanley (NYSE:MS) in ’01 I had no plans. And I played golf literally 4, 5 days a week. After about 3 weeks I called my wife, I’ll leave out the expletive, I said, I hate this game. If all you have is golf, it’s a boring life. So I’m over the moon to be retired but I’m really active.
What I really enjoyed is working with small startups. I’m involved with Lending Club. I’m involved with a company called Lineage which is cold storage which is going to be the number two cold storage facility in the United States.
MILLER: Bitcoin cold storage?
MACK: No this is cold storage of beef, poultry and things like that.
MILLER: I gotcha. Listen, we’re going to talk a lot about that throughout the program. But I want to ask first about the Barclays PLC (NYSE:BCS) news today. Because you had a similar experience when you went in to take over at Credit Suisse Group AG (NYSE:CS) First Boston, you had to instantly let go of 10,000 employees. And here you see Antony Jenkins doing the same, and a lot of analysts are saying that’s not even enough. How difficult is that?
MACK: Well it’s very difficult. I mean any time you’re asking people to leave their job it’s very difficult. At Credit Suisse Group AG (NYSE:CS) the thing that made it, not easier, but made the decision a clear decision, was if you go back, they had just merged with DLJ. And in that merger there were very few layoffs. I think the only layoffs that took place was in the division that Brady Dugan ran in the equity area.
So when you went in and you saw all the duplication and no one being, kind of saying, does it make sense? We put these two companies together, where are the synergies? So I’m not saying it was easy, but it was obvious. And that’s what we did.
RUHLE: John there was, as you’re saying, much more fat in the system. When you look at Barclay’s laying off 10,000 people since 2008:, that’s all we’ve seen happen. Do you wonder who’s left to fire? The business is about human capital.
MACK: Well it is Stephanie but at the same time you need to look at the volume of business. If you go back when the real craziness was going on, 7 or 8 years ago, we were hiring and busy and wanted to hire more people. Just look how many people were hired out of the colleges in the analyst programs. How many MBAs were hired out of the graduate schools?
The business has changed. There’s, we’re less risk in the business. The mortgage business is half of what it used to be, maybe even smaller than that. You think about the global economy that gives you some insight there’s opportunity. But we all over hired during the boom years and I think it takes time to adjust and that’s what they’re doing.
RUHLE: How do you think banks keep talented people employed in areas like mortgages or leveraged finance which are inherently risky businesses?
RUHLE: If I was the top talented structured products guy, why would I want to do it at a Morgan Stanley or a Credit Suisse?
MILLER: Instead of KKR?
MACK: Well the answer to me is it’s all about the leadership of the company. And the message you send and the opportunities you give. If you treat people fairly, even though markets may be slow or even in some point, kind of stopped, people will stay. It’s how you treat the people who work for you. And it’s not just about money; it’s a lot more than money.
MILLER: But it is about money and we did see Antony Jenkins as he’s firing 10-12,000 people, he’s still increasing the bonus pool by 10% because he says he’s got to keep people there. Lloyd Blankfein talked to us about this. Listen to what he had to say.
(BEGIN VIDEO CLIP)
LLOYD BLANKFEIN, CHAIRMAN, GOLDMAN SACHS: The earnings of an institution have to go to compensate labor for their services but also have to compensate the investors and give them a return on capital. And to the extent you have a higher capital requirement you’re going to have to allocate more of your earnings to paying that. And so that’s resulted in lower compensation. But you still have to compensate your people. It’s still a market. We still have to compete in the marketplace for talent. And that’s what we do.
(END VIDEO CLIP)
MILLER: So Goldman Sachs Group Inc (NYSE:GS) obviously a different story than the earnings we saw out of Barclays which were poor to say the least. But you’ve got this back and forth between Washington and Wall Street, between the public and Wall Street. What do you think about the compensation debate?
MACK: Well listen, it’s a healthy debate and it needs to take place. It should take place almost every year because you need to look at it. But at the same time, if people talk about the cuts in compensation, the last time I checked, this business is still a business that pays people extremely well.
So if you’re a young man or young woman coming out of graduate school or undergraduate school and you can get a job at one of these firms where you can learn a great deal, especially if you’re an analyst, an analyst being a two-year program. And the money you’re being paid I think is very competitive and probably more competitive than a lot of the industry’s that people go to work for.
RUHLE: Well then let’s talk about CEO pay for a minute.
RUHLE: Because we watch bank CEOs get kicked and criticized day in and day out for their compensation. But the highest paid CEOs out there aren’t in banking.