The appointments of Colm Kelleher, Morgan Stanley's financial chief through last year's financial crisis, and key banker Paul Taubman to jointly run the unit is a sign of its still-prized position within the bank.
Gorman, who is set to replace Morgan Stanley Chief Executive John Mack on January 1, comes from the wealth management side of the business, while the newly appointed executives will oversee sales and trading and investment.
Gorman wants to put in place some folks that he can rely on that side of the business because maybe that's not his strong suit, said Walter Todd, portfolio manager at Greenwood Capital, which owns 125,000 shares in Morgan Stanley.
Ruth Porat, global head of the financial institutions group, was named chief financial officer, succeeding Kelleher.
Morgan Stanley swung to a profit in the third quarter, joining competitors like Goldman Sachs Group Inc
But its trading operations have lagged both rivals.
BURNISHING THEIR RESUMES?
Displaced in the management shuffle is Michael Petrick, who led Morgan Stanley's the trading unit.
Morgan Stanley spokeswoman Jeanmarie McFadden said Petrick's status was unclear and that the firm was in discussions with him about another role.
Kelleher, 52, will oversee sales and trading, while Taubman, 48, will focus on investment banking.
Overall, the institutional business posted pre-tax income of $1.3 billion in the third quarter.
We have more work to do in our trading business, and Colm, Paul and I are all committed to continuing to attract world-class sales and trading talent in the months ahead, Gorman, 51, wrote in an internal memo.
Both Kelleher and Taubman were seen as candidates to replace Mack, who will retain the title of chairman.
Michael Hecht, an analyst with JMP Securities, said Kelleher and Taubman would have ample opportunity to burnish their resumes for future CEO jobs while running institutional securities.
The best way to do that is to have more experience running a business and successfully fixing a business where they had the biggest competitive gap and the biggest opportunity, Hecht said.
Taubman, global head of investment banking since 2007, has more than 25 years with Morgan Stanley. Earlier, he was global head of mergers and acquisitions.
Kelleher became chief financial officer in 2007, previously working as head of global capital markets. He joined the firm in 1989.
Kelleher's move to institutional securities left an opening for Porat, 52, to take over as chief financial officer.
Porat led the team that advised the U.S. Treasury on Fannie Mae
Morgan Stanley also announced that Thomas Nides, the chief administrative officer, will also become chief operating officer, overseeing operations and technology.
Jim Rosenthal, head of firm-wide technology and operations, was appointed as chief operating officer of Morgan Stanley Smith Barney and head of corporate strategy for Morgan Stanley.
Morgan Stanley shares closed down 0.76 percent at $30.15.
(Reporting by Steve Eder in New York and Santosh Nadgir in Bangalore; Editing by Maureen Bavdek, Dave Zimmerman and Ted Kerr)