The Wall Street bank will also move its government relations group from the legal division to the chief operating officer's group, leaving Grossman to focus on legal matters.
Grossman, who will turn 45 on Saturday, joined Morgan Stanley in 2006 and helped the bank successfully fight litigation related to its spin-off of Discover Financial Services Inc
Grossman has also played a key role in combining the legal teams of Morgan Stanley and Smith Barney, as the bank merges the two into an integrated wealth management business.
In the memo announcing the changes, Morgan Stanley Chief Executive James Gorman said Barron has been an invaluable counselor to me and the Board during his tenure.
Barron, 60, joined Morgan Stanley just 18 months ago, leaving behind his partnership at Cravath, Swaine & Moore to help steer the bank through legal and regulatory challenges stemming from the financial crisis and the Dodd-Frank financial reform bill. He has stepped down from the legal chief role and from the operating committee, but will remain of counsel to the bank and on its management committee until his full departure at mid-year.
Barron's term was meant to last two years at the outset because Gorman felt Grossman needed more experience before taking on the full responsibilities of chief legal officer, a source familiar with the matter said. Barron recently told Gorman he thought Grossman was ready for the job, said the source, who asked not to be identified.
Barron's predecessor, Gary Lynch, hired Grossman shortly after he arrived at Morgan Stanley in 2005, having worked with him for years in the financial institutions practice at Davis Polk & Wardwell.
There, Grossman spent a large part of his time counseling big banks on regulatory issues, Lynch said in an interview. As a three-year associate, Grossman was handling communications with regulators, an unusual amount of responsibility for a young attorney, Lynch said in an interview.
When I got to Morgan Stanley, I realized I needed help and immediately thought of Eric, said Lynch, who is now global chief of legal, compliance and regulatory relations at Bank of America Corp
Grossman also had a knack for instilling confidence in big corporate clients, said Robert Fiske, a senior counsel at Davis Polk who also worked closely with Grossman during his time there. Clients were often so taken with Grossman that they preferred to deal with him rather than senior attorneys even though he was low on the totem pole, Fiske said.
A lot of us identified him as a real star within the first few weeks, said Fiske.
Grossman's claim to fame while at Davis Polk had little to do with the courtroom, though. An avid sports fan of New York teams, including the Mets and the Rangers, Grossman served as an agent for baseball star Darryl Strawberry when he was just two years out of law school, his former colleagues said.
When Grossman takes over as Morgan Stanley's legal chief, the government relations team, which handles lobbying efforts and now reports to Barron, will begin reporting to Chief Operating Officer Jim Rosenthal. Rosenthal's group handles other types of outreach, including corporate communications and community affairs, and was already involved with Dodd-Frank issues.
Like other Wall Street banks, Morgan Stanley is battling lawsuits over billions of dollars of mortgage-backed securities it packaged and sold in the years leading up to the subprime housing bust.
It is also figuring out the legal and regulatory implications of rules stemming from Dodd-Frank and the Basel Committee's new capital standards. How regulators interpret and enforce the new rules will have a significant impact on Wall Street's trading and profitability, and big banks including Morgan Stanley have been actively voicing their concerns in Washington.
(Reporting By Lauren Tara LaCapra; Editing by Derek Caney, John Wallace and Gerald E. McCormick)