UPDATE 2-Morgan Stanley makes Kelleher sole head of key bank unit

Nov 5 (Reuters) - Morgan Stanley's co-president of institutional securities, Paul Taubman, will retire at the end of the year, the bank said on Monday, ceding full control of the powerful investment banking and trading operation to his co-president and rival, Colm Kelleher.

Chief Executive James Gorman has wanted to consolidate the business under the leadership of one person for some time, a source familiar with the matter said. Taubman decided to retire after realizing that Gorman planned to choose Kelleher, said the source, who was not authorized to speak about the matter publicly.

Kelleher, 55, is known on Wall Street as an ebullient and aggressive competitor with a background in both banking and trading, particularly in the fixed-income markets. Taubman, 52, is a more reserved and traditional advisory banker and the two butted heads frequently on management and business strategy, multiple sources have said.

``I am confident that under Colm's leadership, we will continue to align sales and trading more closely with investment banking and capital markets to drive synergies between these businesses and optimize our ability to grow our revenue base and drive profits,'' Gorman said in a statement.

The change in command comes as Morgan Stanley works to reshape its fixed-income and commodities trading unit into one that focuses on simpler and less risky areas of the market that make up for weak margins with high volume.

The bank has been unwinding complex and costly derivatives trades, cutting staff and considering the sale of at least part of its commodities trading unit because of changes to global banking and capital rules that are crimping profits.

Though the trading and banking business still accounts for about half of Morgan Stanley's revenue, the bank's reliance on that business has been diminished by the bank's multi-year acquisition of Citigroup Inc's Smith Barney retail brokerage business.

Morgan Stanley's wealth management business has delivered $10.1 billion in revenue so far this year, compared with $23.1 billion from the institutional securities business that Kelleher and Taubman oversee.


An accountant by training who joined Morgan Stanley in 1989, Kelleher had been co-head of fixed-income in Europe and head of Global Capital Markets, as well as chief financial officer for two years during the financial crisis, before taking on his current role in December 2009.

Under the dual co-president structure, Kelleher had more closely worked with the sales and trading business, while Taubman had overseen investment banking.

As part of the reorganization, Kelleher elevated Mark Eichorn and Franck Petitgas to co-head the investment banking unit. Kenneth de Regt, head of fixed income trading, and Ted Pick, head of equities, will continue to run those trading businesses day-to-day and report to Kelleher. All four will report into Kelleher, who is based in London.

Eichorn, 48, has headed mergers and acquisitions in the Americas since 2009, and will be based in New York. Petitgas, 51, is head of international capital markets and will continue to oversee the trading businesses from London.

In another change, institutional securities vice chairman Jeff Holzschuh, 52, who focuses on the power and utilities industries, has taken the new title of chairman of institutional securities and will serve an ambassadorial function concentrating on ``key client relationships globally,'' the company said.

Eichorn and Holzschuh also are joining the company's management committee. Petitgas is already on the panel.