John Mack Blames Glencore Rout on Short Sellers Playing With CDS

  • Fine to short but not `real investing': Ex-Morgan Stanley CEO
  • `Every senior person' in company bought stock after the slump

John Mack, the former Morgan Stanley chief now a Glencore Plc director, blamed short sellers and investors dabbling in derivatives for the wild swings in the Swiss mining and trading company’s shares that briefly wiped more than $6 billion off its market value.

Glencore fell a record 29 percent Sept. 28 -- on concerns slumping commodity prices would erase the value of its equity -- before recovering all of its losses and more in the following five days. Mack has a history of attacking short sellers, saying in the 2008 financial crisis they drove down Morgan Stanley stock, hitting its credit default spreads.

“You have fund managers who short the stock, play with the CDS, that’s exactly what happened during the crisis,” he said in a Bloomberg TV interview on Thursday. “That’s fine for them to do that but that creates a lot of volatility. It’s not real investing.”

Mack demonstrated his belief in Baar, Switzerland-based Glencore, and in the event his financial acumen, by buying $670,000 of its shares on Sept. 29 at 80.78 pence each. The stock has gained 46 percent since then to trade at 117.80 pence by 3:30 p.m. in London.  Chairman Tony Hayward, BP Plc’s former CEO, bought 100,000 shares at 91 pence each.

Worst Fears

“Every senior person” in Glencore bought stock, Mack said in the interview.

Other investors followed after the company allayed their worst fears with a statement saying its business was “robust” and it had secure access to funding. Analysts including at Citigroup Inc. called the stock selloff unjustified and recommended buying the shares.

Glencore is in the middle of a restructuring to help it withstand lower commodity prices and bolster its finances. It has stopped paying a dividend, sold $2.5 billion in new shares and is in the process of selling assets, such as a stake in its agriculture unit and future gold and silver production, according to people familiar with the matter.

Billionaire Chief Executive Officer Ivan Glasenberg has also railed against mining rivals for oversupplying the market, saying fellow executives had “screwed up” by building too many mines. Glencore cut output at its Australian coal mines and said in August it would close copper mines in the Democratic Republic of Congo and Zambia.

Morgan Stanley

The company, the world’s biggest supplier of copper, is taking appropriate action to raise capital and shut mines, Mack said. “When you own a mine you feel the number one thing you have to do is produce,” he said. “Sometimes you have to cut that back.”

Mack was appointed an independent non-executive director of Glencore in June 2013. Since stepping down as chairman of Morgan Stanley at the end of 2011, he has served as an adviser to asset managers including KKR & Co. and BKM Capital Partners.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.

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