From Morgan Stanley to Lending Club: John Mack's unusual career path

It’s rare that a CEO retires at the end of a long career and then starts working with a company looking to disrupt the business whence he came. It would be kind of like a former top GM executive helping out Telsa. But that’s just what John Mack, former CEO of Morgan Stanley and former co-CEO of Credit Suisse, is doing on the board of Lending Club (LC), a hot Silicon Valley start up that’s connecting investors directly to borrowers and bypassing the banks. In a recent interview with Yahoo Finance Editor-in-Chief Andy Serwer, Mack, 70, says he’s seen all manner of change in his 45-year career on Wall Street, but never as much as right now.

“I think what I would be worried about if I were still involved in the financial business—at least the investment banking business—is what is technology going to do to investment banking,” Mack says. “There are going to be changes. It will not be business as usual.”

Mack points to a generational shift and to the young entrepreneurs who are focusing their attention and technological expertise on this oft-staid business. “I will give you an example,” Mack says. “I had this young man come to see me, a Chinese University of Illinois engineer, who has started something called Future Advisors—and basically it’s a robo account. A person goes online and puts in their age, the amount of money they want to invest and their risk profile. And by using ETFs and indexes, you build a portfolio.  Over time that’s going to take I think a fair amount of business away from the Street." 

Mack is on the board of Lending Club, (along with former Treasury Secretary Larry Summers, and Kleiner Perkins VC Mary Meeker), which calls itself the “world’s largest online credit marketplace.” Lending Club facilitates personal loans, business loans and even elective medical procedures. Borrowers and individual lenders find each other on Lending Club’s website or app. Lending Club went public last December and climbed to $27 but has since dropped to $17.

Says Mack: “I made a comment to Renaud [CEO Renaud Laplanche] a little over 16 – 18 months ago and said, ‘you know Renaud, I can’t get over how the banks are allowing you to build this business.’ He said, ‘John, think about it.  We only have a few billion dollars in loans.  [Today that number is $9.2 billion according to the company.] The banks in consumer loans is over a trillion—they’re not even paying attention to us.’ But I think now we’re beginning to see banks pay attention to what’s going on at Lending Club. There is a whole marketplace being developed on lending, using the Internet, with no expenses coming from branches.”

Meanwhile on Wall Street

Mack is a close observer of other developments on Wall Street since the financial crisis. It was Mack who helped stop the run on Wall Street in the dark days of 2008 after first Bear Stearns and then Lehman collapsed, by securing a $9 billion investment in Morgan Stanley from Mitsubishi of Japan in October of that year. That 21% stake in is now worth $15 billion, plus about $1.5 billion in dividends it has received along the way. (If Buffett gets kudos for buying into GE and Goldman Sachs at that low ebb, then so too should the Japanese, and it was Mack who convinced them to do so.)

“It’s taken seven years but I think we’ve come out of the financial crisis very well,” Mack says. “If you look at the banks and also the banks with their securities business, including the pure investment banks like Morgan Stanley, Goldman Sachs, there is a lot less leverage, there is more liquidity. Regulation is intense.  At some point it may back off a little bit, given the intensity that’s been put upon these institutions.”

Watch Andy Serwer's full interview with John Mack

And what does he think of Dodd-Frank? “So far it’s been very effective but the real impact to all these firms has been the scrutiny from the SEC, the Fed, the OCC, and bank regulators," Mack said. "That’s where the real rubber has met the road, much more so than Dodd-Frank." Mack argues that in some cases Dodd-Frank may go too far. "But if you look at what has happened the real kind of motor in all of this has been the regulators. I think the Street can work around Dodd-Frank and work with Dodd Frank so I don’t think you have to kill it,” he said.

The real issue Mack says is when regulators undid Glass Steagall in the 1980s and 1990s, which separated investment banks and commercial banks. After that to compete with the much larger commercial banks, investment banks like Goldman Sachs and Lehman Brothers had to leverage up their balance sheets. But Mack says there a number of other parties to blame: “Let’s go back and look at the mortgage market and look at Fannie Mae and Ginnie Mae and look at the kind of loans that are being made.  Clearly the regulators knew the kind of leverage that was going on.  They knew the mortgage market was out of control. “

Beyond Wall Street

Mack has interests beyond finance and Wall Street. He’s on the board of New York-Presbyterian Hospital, one of the biggest in the U.S. Here too Mack sees technology radically changing the current state of affairs, be it in medical records, data tracking, wearable technology that tracks health and in outpatient clinics.

As a former Duke University football player (and former member of that University’s board) college athletics is another pet interest of Mack’s. Mack is adamant that student athletes should be paid, either in cash or through lifetime healthcare or in scholarships to pay to finish college or grad school. (Or some combination thereof.)  “What these young men are going through is full time work. And they need to be compensated for it in my view.”

Related:  Wall Street vet Mack: Better compensate student-athletes

Hmm, sounds like another status quo ready for Mack to help disrupt…