Mack Says Hedge Funds Driving Up Bank Pay

Feb 25 2010 | 12:56pm ET

Morgan Stanley Chairman John Mack believes investment bankers are overpaid, and he pointed a finger at hedge funds to explain why that is.

Mack, who stepped down as CEO of the Wall Street giant at the end of last year, said banks fear a brain drain to better-paying hedge funds. He cited one example of a 28-year-old trader at Morgan Stanley whose unit had earned between $300 million and $400 million for the firm. The firm lost the trader to a hedge fund which offered a pay package totaling $25 million, more than twice Morgan Stanley’s offer.

Regrettable as that may be, Mack warned that investment banks must reform.

“If we don’t do something, the government will do something,” he said at a forum at Charlotte, N.C.’s Queens University. And he had harsh words for his banking brethren.

“I still don’t think the industry gets it,” he said. “The issue is not structure, it is amount.”

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