During his July 12 conference call from Zurich, Credit

Suisse Group chairman Lukas Mühlemann could not have sounded happier as he sung

the praises of John Mack, his new chief executive at Credit Suisse First

Boston. Punctilious and formal, his English refined and slightly accented, Mr.

Mühlemann sounded as if he were phoning in from a Gstaad ski lift with nary a

care in the world.

Then Mr. Mack came on. He’s suddenly the man charged with

turning the troubled CSFB around, cleaning up its I.P.O. mess while keeping it

at the top of the bulge bracket. And even as he moves forward with a mandate

from the coolly confident Mr. Mühlemann, he still must deal with the

entanglements of the past.

Asked about the propriety of holding a still very sizable

share in Morgan Stanley, the company he left as president last January, the

56-year-old Mr. Mack’s reply was as blunt as his Carolina drawl was pronounced.

“I still have Morgan Stanley stock, and now I’m lucky enough to have CSFB

stock,” he said. “Look, I think I can handle the conflict.”

The gnomes of Zurich have spoken. Out with Allen Wheat,

CSFB’s former chief executive, and his taint of federal I.P.O. probes; in with

Mack the Knife. And if Mr. Mack remains one of the largest individual

shareholders of Morgan Stanley, so what? Mr. Mack, as he himself said, would no

doubt work it out.

Mr. Mack’s Morgan Stanley stake is a big one-the rich fruit

of his 28 years spent with the firm. According to Morgan Stanley’s most recent

proxy, he holds 7,540,306 shares, or $438 million worth of stock.

In the annals of Wall Street, it’s a unique situation:

picture the Red Sox bringing in George Steinbrenner in the hopes of finally

securing another World Series.

“It’s pretty unusual,” said Guy Moszkowski, a securities analyst

for Salomon Smith Barney Inc. “But Morgan Stanley generally has pretty tight

windows through which former employees can sell stock.”

That’s just one of the potential conflicts Mr. Mack faces.

Morgan Stanley and CSFB, like the Red Sox and Yankees, are bitter longtime

rivals in all areas of banking, but especially in technology, where star

rainmaker Frank Quattrone has made hundreds of millions for CSFB from his

mini-fiefdom in Silicon Valley (attracting the suspicious eye of federal

regulators in the process). Now Mr. Mack is being called upon to cement CSFB’s

status in the bulge bracket.

Whether he does this by poaching from his old firm or

restructuring from within, there’s no getting around the fact that, if Mr. Mack

is to succeed on the scale that his outsized ego surely demands, CSFB will have

to take market share away from Morgan Stanley. Morgan Stanley’s share price

would no doubt be affected by this, as would Mr. Mack’s net worth.

According to regulatory filings, Mr. Mack has registered to

sell two million shares, and in an interview with The New York Times he said that he was restricted in selling the

rest of his horde. A Morgan Stanley spokeswoman confirms that, as part of his

severance agreement, Mr. Mack is subject to restrictions with regard to the

sale of the rest of his stock.

Meanwhile, he has other potential conflicts. Wall Street is

asking: When will the poaching begin?

Analysts have argued that Mr. Mack is unlikely to cut too

much of a swath through his old firm’s banking ranks. Fair point: CSFB’s cost

base is already the highest in the industry, and in a slack market environment,

many managing directors will prefer the safer shores of Morgan Stanley to the

more turbulent waters of CSFB. Mr. Mack also has an understanding with his

former firm that precludes hiring from its ranks in the coming months.

Nonetheless, Mr. Mack is known to place a very high premium

on having a cadre of loyal senior aides reporting to him. Call them John Mack

guys: men-and a few women-whose careers at Morgan Stanley were nurtured over

the years by Mr. Mack as he, and they, ascended through the ranks.

Vikram Pandit, now co-head of investment banking at Morgan

Stanley, was one banker whose star was burnished to a high sheen during Mr.

Mack’s reign. Zoe Cruz, head of fixed income, was another.

And sitting on the sidelines are a bunch of former John Mack

guys-mostly in the fixed-income area, where Mr. Mack himself first made his

name-who were pushed out by Morgan Stanley chief executive Phil Purcell over

the course of last summer and fall, when telecommunications companies started

hitting the wall. Like many banks, Morgan Stanley had some big fixed-income

exposures that rapidly disintegrated-Shelby Bryan’s ICG Communications being

one notable case. But unlike other banks, Morgan Stanley, led by Mr. Purcell,

immediately started taking people out as a result. Many of those who “retired”

or decided to “pursue other interests” were John Mack loyalists-most prominent

being Peter Karches, the head of the institutional-banking business, who left

the firm in August.

Others who followed were fixed-income head Kenneth de Regt,

who left in September, and junk-bond maestro Dwight Sipprelle, who followed a

few weeks later. A few months after that, Michael Rankowitz-the high-yield co-head,

with Mr. Sipprelle-took a dive for Mr. Purcell following the fallout from

former President Bill Clinton’s address at a Morgan Stanley high-yield

conference.

With his core people gone, Mr. Mack was thus vulnerable to

Mr. Purcell’s mini-putsch in January.

So will Mr. Mack now turn to this ready and no doubt eager

lineup of followers to do his bidding as he shakes things up at CSFB?

If so, he’ll need to start letting some senior bankers go.

And to do that, he’ll have to wait until January, when all the lucrative bonus

guarantees handed out by Allen Wheat last October, at the time of the

Donaldson, Lufkin & Jenrette Inc. acquisition, finally expire. Despite the

bonuses, which were ladled out to bankers across the board, word on the Street

has it that only 50 percent of D.L.J.’s bankers remain at today’s CSFB, an

astonishingly low figure given the top-of-the-market price paid for the

company. According to a CSFB  spokesman,

90 percent of D.L.J. employees remain at the firm.

Nevertheless, there’s still enough of a stench lingering

from the junk-bond losses that occurred during Messrs. de Regt, Sipprelle and

Rankowitz’s watch to make their return seem unlikely. That, at least, is the

view from within CSFB.

“Dwight Sipprelle lost a shitload of money,” said one CSFB

bond banker. “He was publicly flogged and executed by John Mack. I doubt he

would be anyone’s choice. He also worked from a different model over there at

Morgan Stanley. They were big proprietary traders; CSFB’s business is more

customer-driven.”

As for Mr. Karches, a 25-year Morgan Stanley veteran and

longtime friend and associate of Mr. Mack, he seems to be preparing more for

his golden years than a return to the trenches. He has registered to sell

816,432 shares of Morgan Stanley since his departure and, together with Mr.

Rankowitz, has been actively playing the ponies more than he’s been playing the

markets-the former bankers have been joint backers of a number of racehorses of

late.

But Mr. Mack may have less need for his clique these days.

Within the nasty little world of the Morgan Stanley boardroom, he had more of a

need for supporters capable of guarding his flank. No matter how high he

climbed, he always had to watch his back. He survived bitter battles in the

1980′s with old-line bankers such as Robert Greenhill, the Morgan Stanley

president who preceded him, and powerful investment-banking head Joseph Fogg

III. It was Mr. Purcell, a retail broker from Dean Witter, who finally stuck

the shiv in him.

The climate for Mr. Mack is different at CSFB. His position

is more secure and his mandate broad. Now he’s running his own shop, and likely

will be for years to come.

Most important, the gnomes are with him. As far as they’re

concerned, it’s cleanup time at CSFB, and Mr. Mack is the man to do the job.

Mr. Mühlemann admitted it himself during the conference

call, in so many words-his bankers are overpaid and much too prone to playing

it fast and loose. It would be Mr. Mack’s charge to do as he saw fit to put

things right.

“There are no teams coming to CSFB,” Mr. Mack said at the

press conference announcing his appointment. “Clearly, though, if there are

individuals who would like to talk to us because they see strategic

opportunities here, we would always talk to them.” Stay tuned.

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