Morgan Stanley is the most recent bank to join the conga-line of Wall Street money losers, recently announcing a quarterly loss of US$9.4 billion – its first loss since going public in 1986. The massive write-down has forced the bank to accept a US$5 billion fire-sale equity injection from China. The losses largely stem from the white-shoe firm’s decision to invest in sub-prime and other mortgage-related assets.

Despite the losses, the Morgan Stanley board, which includes luminaries such as Erskine Bowles (former chief of Staff for Bill Clinton), Howard Davies (former Governor of the Bank of England), former Duracell CEO Robert Kidder, Donald Nicolaisen (former PwC head), Charles Noski (former Deloitte partner) as well as several other high profile directors with laden resumes, have not terminated the services of CEO, John Mack (also known as “Mack the Knife”).

In a bid to keep up with rival Goldman Sachs, Mack led Morgan Stanley into the riskier area of proprietary trading. That move is believed to be a significant reason for the recent write-downs. However, unlike Merrill’s Stanley O’Neal or Citigroup’s Chuck Prince, Mack has been able to keep his job. The Captain has certainly not gone down with the ship.

It was a very different scenario eighteen months ago, with the ebullient Mack boasting to Business Week that:

“If you go back to the mid-’90s, there was no question that we were the No.1 firm,” says Mack, who has promised investors that he will double the company’s pretax earnings, to at least $14 billion, by 2010. “This is not rocket science.”

Even last September, Mack was hailed by Fortune and penned his reaction to the sub-prime meltdown in the magazine’s ‘Crisis Council’ alongside Warren Buffett, Jim Chanos and Robert Schiller.

Morgan Stanley is currently trading at around US$49 per share – around the same level as way back in 1999. Therefore, in the space of eight years, investors in Morgan Stanley have earned a capital return of around zero. This year alone, Morgan Stanley has dropped by more than 37 percent.

Amazingly, despite the gigantic loss, Mack has been able to garner positive press, by voluntarily forgoing his bonus payment for this year. Mack however, does not seem to be offering to pay back any of his US$37 million in remuneration which he was paid last year. Praising Mack’s offer to forgo bonus for 2007 is akin to thanking a bank thief for returning their stolen largesse. It should be remembered that despite rejecting this year’s bonus, Mack still owns more than US$100 million worth of Morgan stock.

The son of Lebanese immigrants, Mack was CEO of Morgan Stanley between 1997 and 2001. After the firm merged with retail broker, Dean Witter, Mack lost a bitter power-struggle with Dean Witter boss, Phil Purcell. Mack then moved to rival bank Credit Suisse, where he proceeded to sack more than 10,000 staff. Despite his famed lethal reputation, Credit Suisse’s performance under Mack was poor, dropping to 11th place (from 2nd) in M&A, and from 3rd to 6th in underwriting.

In 2006, Mack was interviewed by the Securities and Exchange Commission in relation to the leaking of information to the hedge fund, Pequot Capital. Mack was never charged with any offence but later became Chairman of Pequot in 2005 (before returning to Morgan Stanley). Allegations swirled that the SEC initially went soft on Mack due to his powerful political connections.

In keeping his job, John Mack just proved that on Wall Street, performance and pay very rarely equate.