Morgan Stanley CEO says end to trouble nearer

By Joseph A. Giannone

PURCHASE, New York (Reuters) - Morgan Stanley Chief Executive John Mack on Tuesday said financial markets are the most difficult he has seen in 40 years, but there are several signs investment banks are closer to working through their painful mortgage and corporate loan woes.

The United States is nearing the end of the subprime mortgage crisis, Mack said, though adding he is still concerned about more potential losses stemming from commercial mortgages, European markets and mid-size U.S. banks.

"It's going to be a difficult year for the Street. If you think about all the moving parts .... I think the Street has a lot of work to do," said Mack. "We're making progress, but there are still concerns."

Speaking on the sidelines of Morgan Stanley's annual meeting in Purchase, New York, Mack predicted the financial crisis that has hammered banks for the past year will continue to challenge banks for several more quarters.

He cited news from UBS last week disclosing an additional $19 billion in mortgage and other debt losses, which sparked talk that there is more bad news ahead from the financial sector. UBS last year posted $18 billion of losses.

BALLGAME ALMOST OVER

Still, Mack offered upbeat predictions that the markets for mortgages and leveraged loans used to finance big buyouts may soon be out of the woods.

"If you look at the subprime problem in the U.S., you would say were in the eighth inning or maybe the top of the ninth," of a nine-inning baseball game, Mack said. "Leveraged lending, as we know it, is in the ninth inning."

Aside from a deal to help finance the buyout of Clear Channel Communications, which Morgan Stanley has already marked down, Mack said there are no other big deals festering in its backlog.

Problems stemming from commercial mortgages are about half way through, said Mack, who added no one really knows how much more trouble will flow out of European debt markets.

"We just don't know. We don't have enough information yet," Mack said. "We keep getting disclosures that surprise us."

Mack said Morgan Stanley, which absorbed $9.4 billion of fourth- quarter losses from poorly managed mortgage trades, remains focused on boosting balances of ready cash and taking fewer risks.

While a number of investment firms are launching funds to scoop up distressed debt, Mack said Morgan Stanley is pursuing these opportunities "gingerly."

POSITIVE SIGNALS

There are several signs that conditions are improving, Mack said. The fact that Washington Mutual Inc on Tuesday received a $7 billion infusion from TPG Capital and other private investors is encouraging, Mack added.