Morgan Stanley's incoming CEO will be facing a drastically different landscape on Wall Street from when John Mack took over in 2005.
James Gorman is poised to take over a bank that some say is still looking for direction after surviving a credit crisis that wiped out most of its competitors.
Barclays Capital analyst Roger Freeman said Morgan Stanley was still in "soul-searching mode" as it looks to strike the right balance between rebuilding an investment banking and trading business that struggled during the credit crisis and its growing retail brokerage operations.
Morgan Stanley announced the CEO succession plan late Thursday. Gorman will take over the CEO post in January, while Mack will remain at the company as chairman.
Gorman, a 51-year-old native Australian, joined Morgan Stanley in February 2006 and most recently served as the bank's co-president. He was one of the first executives Mack hired when he returned to the firm in 2005 after being forced out in a power struggle four years earlier.
Robert Kidder, lead director of Morgan Stanley, said in a statement that Mack told the board 18 months ago he wanted to step back from the CEO role when he turns 65 in November.
Investors welcomed the apparently smooth transition in leadership. Morgan Stanley's shares rose 67 cents, or 2.3 percent, to $29.31 Friday.
Morgan Stanley has been criticized in recent months under the leadership of Mack for being too conservative as the market stabilized and began to recover from the peak of the credit crisis last fall. The swing toward a more conservative business approach was in reaction to mounting losses from the bank's more aggressive investment strategy before the global economic meltdown that began in late 2007.
While its main competitor Goldman Sachs has rebounded thanks to a return to its more aggressive trading practices, Morgan Stanley is still trying to dig itself out from real estate-related bets that soured during the downturn.
The New York-based bank lost more than $1.2 billion in the second quarter.
However, despite all its struggles, Morgan Stanley has remained in business while many of its other Wall Street brethren have failed or been sold to new parents to avoid collapse.
Lehman Brothers failed almost exactly a year ago, while Bear Stearns was sold off on the brink of collapse and Merrill Lynch found a new parent as well. Morgan Stanley forged relationships with foreign investors, including China's international investment fund and Japan's Mitsubishi UFJ Financial Group.
The new investments from overseas and a focus on bolstering its capital base has helped Morgan Stanley weather the economic downturn. The company also received $10 billion from the government's bank bailout program, which it has already repaid. Morgan's strong capital position could provide Gorman some ammunition as he looks to rebuild the bank's brand and identity.
Part of that new identity is the sprawling retail brokerage unit it now operates after purchasing a majority stake in Smith Barney, Citigroup's retail brokerage business. Gorman's background running Morgan Stanley's global wealth management business should help him to build that division, which the bank now considers a cornerstone to a more diversified operation.
Fox-Pitt Kelton analyst David Trone wrote in a research note that Gorman's appointment shows Morgan Stanley is dedicated to increasing its focus on the wealth management business.
Morgan Stanley is widely expected to eventually purchase the remaining 49 percent stake in Morgan Stanley Smith Barney, as the joint venture with Citigroup is known, as it further invests in the retail brokerage business.