John Mack: 30% Of Hedge Funds May Disappear; Lower Leverage Means Fewer Jobs

The market is still far from convinced that all is now right at Morgan Stanley, so CEO John Mack met up with CNBC’s David Faber for a long chat on what looks like a beautiful lawn in Kiawah, South Carolina (we missed why).

No bombshells, though Faber noted that the market bounced back (a little bit) over the course of their talk (for whatever that’s worth). Some notes:

Prime brokerage business: No doubt there are too many hedge funds out there. Mack’s friends in the hedge fund industry tell him the number of hedge funds could “shrink by 30%” over the next year (Not surprising, since the results we’ve seen from many hedge funds have been horrendous).

Shorts and rumours: Mack doesn’t hate short sellers! “I believe in short selling… I’m all for that” But: When aggressive shorting influences CDS spreads, then it becomes problematic. And of course he also slammed the rumormongers: “I think it’s been a real disservice. The number of rumours… really add a sense of desperation and fear.”

Layoffs: Inevitably, there will be more: When you go from a business that’s leveraged 30-1 to one that’s leveraged in the mid teens, “that changes the nature of the business.” You can read into that what you will.

Meanwhile, MS shares are down about 4%, near their lows of the day. If the interview helped the markets as a whole, Morgan Stanley traders missed the memo

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.

Tagged In

clusterstock-us