Morgan Stanley chief predicts near-term end to subprime trouble

THE CHAIRMAN and chief executive of Morgan Stanley has sounded a rare note of optimism on the credit crunch, predicting a near-term end to the troubles in the US subprime and leveraged loans markets and saying the crisis could be over within six months.

John Mack said the investment bank would consider buying portfolios of leveraged loans and mortgage assets as their prices and potential returns were becoming attractive.

Mr Mack's comments, made at the margins of Morgan Stanley's annual shareholder meeting, reflect Wall Street hopes that the prices of several troubled asset classes are close to the bottom

Morgan Stanley, like many rivals, has been forced to shoulder billions of dollars in write-down, and raise capital from outside investors.

Mr Mack reiterated that market conditions were the worst he had seen in his 40 years on Wall Street but added that the troubles in the subprime and leveraged loans markets were in "the top of the 9th inning" - the last part of a baseball game.

However he said it would take at least "a couple of quarters" to end the worst of the US financial crisis because assets such as commercial mortgage-backed securities were still in turmoil.

Mr Mack said in the current environment that Morgan Stanley would "keep its powder dry" and steer clear of large acquisitions to preserve capital and liquidity.

Mr Mack and other directors have been attacked by some shareholders over the risk management problems that forced the company to take a $9.4 billion writedown on a mortgage trade.

Bill Patterson of CtW, a coalition of union-backed pension funds that has called for Mr Mack to give up the chairmanship, said: "More is needed from the Morgan Stanley board . . . [It] needs the capacity to stand up to you and other executives when risk-taking gets out of line."

Mr Mack, who with other directors was re-elected with an overwhelming majority, said he had taken full responsibility for the trade.

Another shareholder, who did not give his name, criticised Mr Mack for ousting Zoe Cruz, the co- president who left last November after the disastrous trade.

© 2008 Financial Times

This article appears in the print edition of the Irish Times