PURCHASE, New York (AP) — Morgan Stanley chief executive John Mack said yesterday that Wall Street is facing the most difficult conditions that he has seen in 40 years, but he feels the global credit crisis might be "in the final innings".

Mack, who easily won re-election to Morgan Stanley's board along with 10 other directors, said at the investment bank's annual meeting that he still plans to "go slow" because of the market's turbulence. The bank wrote down billions of dollars worth of securities linked to risky sub-prime mortgages and other debt since last year.

"We're keeping powder dry," he said. "We feel the risks on the market, the run on Bear Stearns, and we think it is important to have very liquid positions and we're working toward that."

He expects more bad news will come out as the world's banks recover from the sub-prime mortgage crisis, particularly from "overseas and some small retail banks in this country". However, Mack said he thinks the market is turning and that could provide opportunity.

In fact, Mack said that Morgan Stanley is seeing opportunities in the same mortgage market that caused Wall Street's pain this year.

"I don't know if this is the bottom or close to the bottom, but at some point it will be wise to invest there," he said. Mack faced a tough test at this year's annual meeting after three pension funds aligned themselves against the nomination of Morgan Stanley's slate of directors. However, all secured easy re-election, according to preliminary tallies.

Bill Patterson, executive director of CtW Investment Group, said more is needed to ensure Morgan Stanley and other banks don't take excessive risks. He had urged investors to withhold votes from Mack and other directors, and called on Morgan Stanley to set up an independent chairman.

"More is needed," Patterson told Mack during a question-and-answer session at the meeting. "The company needs an independent chairman who has the capacity to stand up to you when risk gets out of line."

Mack said Morgan Stanley's board is set up with a lead director that officiates over meetings, and that he often "stays out of the room and waits" when the board discusses certain issues.

Morgan Stanley shareholders also turned down a proposal where shareholders have an advisory vote on compensation for top executives. Last year, Mack turned down an annual bonus after Morgan Stanley suffered losses due to the mortgage crisis.