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Opinion

John Mack the knifed

The abrupt resignation of Morgan Stanley Dean Witter's president, John Mack, is the most serious yet in a series of setbacks over the past six months for a firm once seemingly immune to crises.

Author: Antony Currie

Until recently, bad news for Morgan Stanley was more trivial - sex discrimination lawsuits brought by women who felt they were being passed over for promotion simply because of their sex, the sacking of analyst Christian Curry, which raised allegations of cheating on expenses, racial discrimination, private eyes lurking in parks at night, and Curry's appearance in a gay porn magazine.

But a train of events linked to junk bond problems have left the once untouchable firm looking decidedly sullied. It has missed analysts' earnings consensus in the last two quarters and has been the subject of rumours of massive high-yield debt losses at the same time as three of its most senior fixed-income managers suddenly decided to resign.

Peter Karches, president of the institutional securities business and long-time confidant of Mack was first to go last fall. Within a couple of weeks Kenneth DeRegt, worldwide head of fixed income, also resigned. Both sat on the firm's executive board. Then, in October, it was the turn of the head of leveraged finance, Dwight Sipprelle, to go.

Three weeks after announcing third quarter 2000 earnings, despite being asked about proprietary losses on the analysts' call more than once, and despite weeks of rumours that the firm had lost up to $1 billion, Morgan Stanley finally admitted to losing $45 million in high-yield that quarter.

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