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John Mack’s return to Morgan Stanley as chairman and CEO was made official Thursday in one of the most gleefully received management changes on Wall Street in years. “It will be like a rock concert here when John comes back,” one Morgan Stanley banker said. “For the people he knows, he’s the right guy for the job, and for those he doesn’t know, he’ll win them over.” But that could prove difficult. Mack, 60, is returning to a firm whose layout has vastly changed since his departure four years ago after losing a power struggle to former CEO Phil Purcell. He’ll also have to evaluate and possibly roll back a string of promotions of bankers and capital markets pros made by Purcell during his last embattled months at the firm. Handicapping who exactly will benefit in a Mack regime is the obsession of many Morgan Stanley watchers right now. Most of the really senior people who were close to Mack have left the firm, including former vice chairman Joseph Perella and former head of investment banking Tarek Abdel-Meguid. A major problem: how to bring back former president of institutional securities Vikram Pandit without ruining the career of current co-president and Mack prot�g�e Zoe Cruz, who along with co-president Stephen Crawford, resigned from Morgan Stanley’s board on Thursday. Mack also has to find a new general counsel to work with vice chairman and former Shearman & Sterling partner David Heleniak, whom Purcell hired only weeks ago. Several sources point out that with a $20 million-plus employment contract, forcing Heleniak out would be unlikely and fiscally unwise for the firm. Over time, Mack will also most likely look to bring on some of his old loyalists, including former Credit Suisse First Boston chief administrative officer Tom Nides, now president and CEO of Burson-Marsteller, or even, some speculate, Citigroup Inc. vice chairman Stephen Volk. Nides and Volk did not return calls for comment. Mack’s biggest challenges will come from the capital markets divisions, sources familiar with the firm said. Mack has some of his closest colleagues in those divisions, including head of global capital markets Walid Chammah and head of fixed income Neal Shear. Indeed, the support of the well-respected Chammah has been an important bragging right for Morgan Stanley’s leaders. Mack tried unsuccessfully to woo Chammah to join Credit Suisse First Boston in 2002. More recently, Chammah was offered a more senior position by Purcell, but turned it down, sources said. Mack, a former bond salesman, also has to extend an olive branch to the firm’s denuded equities division, which has suffered the bulk of the firm’s departures since Pandit and his deputy, John Havens, left. To bring back Havens, Mack has to bring back Pandit; to bring back Pandit, Mack risks the resignation of Pandit’s rival, Cruz. In the investment banking division, Purcell elevated two unassuming managing directors, Michael Uva and Cordell “Corey” Spencer, to co-heads of investment banking, while also promoting head of financial sponsors Alan Jones to head of corporate finance. If Mack wants to bring back loyalists Perella and Meguid, it is unclear whether any of those bankers would be willing to step back into the shadows — especially the well-liked Jones, who enjoys the support of many bankers at the firm. The Group of Eight dissident shareholders released a statement Thursday supporting Mack’s return and expressing their hope that Mack would bring back Perella, Meguid, Pandit, Havens and former president Stephan Newhouse. Several Morgan Stanley bankers were sanguine about the prospect of Mack’s bringing in his own loyalists, noting that at least he would operate more transparently than Purcell. Fox-Pitt Kelton analyst David Trone also expressed skepticism in a Thursday research note that the firm’s hierarchy would make a significant difference. “We are indifferent to whom Mack chooses as his lieutenants, as no specific group makes this company more valuable than the other in the long run,” Trone wrote. “We’ve consistently stated our belief that the producers of this firm come to work every day focused on generating revenue (and thus bonuses), not sitting around some theoretical water-cooler bantering about the machinations at the top of the firm.” Copyright �2005 TDD, LLC. All rights reserved.

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