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By Olivia Oran
NEW YORK, Feb 4 (Reuters) - Colm Kelleher is a stickler fordiscipline, even when it comes to the office dress code.
In an internal risk meeting during the summer of 2010, thethen head of trading at Morgan Stanley chastised colleagues forrolling up their shirt sleeves and dispensing with their jacketsin the New York heat, according to a former executive. Even inthe dog days of summer with no clients present, Kelleher heldthose around him to a high standard.
Kelleher's role as enforcer-in-chief at Morgan Stanley wassolidified last month when the Wall Street firm's ChiefExecutive James Gorman named him president, the No. 2 spot.
With Morgan Stanley under pressure to slash jobs, assets andbusiness lines to compensate for a decline in bond trading,Gorman needs a lieutenant who can wield the ax as well as getthe firm's investment bankers, traders and wealth managementadvisors to work together to boost revenue.
Despite a deep affinity for Morgan Stanley's roots andtraditions as a blue-blood Wall Street institution, Kelleher, a27-year veteran of the firm, is unsentimental about change,according to current and former colleagues.
Ahead of his promotion he culled one-in-four jobs on itsbond trading desk and he is shifting more operations to low-costcities such as Mumbai in India and Budapest in Hungary as partof a two-year plan to boost profits and reboot its flaggingshare price.
A spokesman for Morgan Stanley declined to comment onKelleher's role in the bank's strategy and declined to make himavailable for interview.
BRASH AND OUTSPOKEN
As chief financial officer of the bank during the financialcrisis, Kelleher helped save it from a near-death experience bydrastically shrinking its balance sheet, converting it into atraditional bank holding company to access funding from theFederal Reserve and negotiated a $9 billion investment fromJapanese bank Mitsubishi UFJ Financial Group.
Given fears that the current rout in commodity prices andslow global growth will hurt bank revenues, Gorman toldinvestors last month that Morgan Stanley needed to "control whatwe can control given the market realities."
Kelleher, a wine buff and classical music lover, is good atmaintaining control.
When he ran Morgan Stanley's bond trading division inLondon, he was known for aggressively tracking down traders whohad lost money. Former Morgan Stanley traders recall beingsummoned to Kelleher's office with a call and then berated ifthey didn't pick up the phone right away. In his office, hewould glare at them over the top of his glasses when he didn'tlike the answers he got.
Brash and outspoken, former and current colleagues said theycould quickly tell they were in Kelleher's good books if hecracked jokes about them in public. The silent treatment was abad sign.
Kelleher's style did not mesh well with that of the morereserved Paul Taubman, Morgan Stanley's former star dealmakerwho ran the investment banking division.
The two personalities clashed and in the end Gorman chose toput the trading and investment banking arms under Kelleher,prompting Taubman to leave in 2012. Taubman declined to commentfor this story.
AMBITIOUS BUT CAUTIOUS
Kelleher's ascent to the president's job marks the secondtime he has triumphed over an internal rival in recent years.
His promotion last month was a cue for the departure of GregFleming, the former head of wealth management whose aspirationsto be CEO jarred with plans by Gorman, who is 57, to stay on foranother five to seven years.
Kelleher is a year older than his boss, and that means hecould miss out on the top spot.
While Kelleher is ambitious, colleagues say, he is acautious operator, someone who has survived multiple leadershipupheavals by keeping his head down.
"I don't think Colm ever postured for a big job, but heknows when the other guy is going to screw up his hand," saidJerry Wood, who ran fixed income sales at Morgan Stanley formany years and is now retired.
A father of two boys and one girl, he has been approachedfor top jobs at European banks Barclays and Lloyd's, according to former and current colleagues. It isunclear whether he was offered the jobs or asked if he wanted tobe on shortlists.
But Kelleher's loyalty lies with Morgan Stanley, where he isone of the few entrusted with an access pass to the roof of theNew York headquarters in the middle of Broadway's Theaterdistrict, allowing him to puff on a cigar between meetings.There are also pieces of art from his own collection displayedon the executive floors.
BYZANTINE HISTORY
For Morgan Stanley to compete effectively against rivalswith larger balance sheets such as JPMorgan Chase & Co,Kelleher will need to encourage more cross-selling between itsinvestment banking and wealth management arms, as well asbetween banking and trading teams. For example, bankers couldencourage their corporate clients to originate trades and hedgeswith their counterparts in the sales and trading business.
He is well versed in such collaborative initiatives. When hewas running investment banking and trading, Kelleher helpedcreate a group of senior executives whose job it was to persuadethe firm's biggest clients, from companies to hedge funds, touse as many of the bank's products as possible.
More recently, he has moved senior equities executives intobond trading, including naming former equities trading head SamKellie-Smith as the new head of fixed income in January.
Kelleher has also started rewarding employees who drum upbusiness for other divisions. Investment bankers who, forexample, introduce an executive whose company is about to gopublic to wealth management brokers get a bump in theircompensation.
It's all a far cry from the career Kelleher once considered.A history graduate from Oxford University, he told the WallStreet Journal in 2012 that had he taken a different path, hewould have become a professor, lecturing university students onByzantine history.
Born in Ireland to a family of nine children but raisedlargely in England, where he is big fan of the Chelsea soccerteam, Kelleher likes to pepper business discussions withreferences to historical and literary figures such as KingCanute and Edgar Allen Poe.
When Morgan Stanley was threatened with a three-notchdowngrade to its credit rating in 2012, which would have led toa big increase in its borrowing costs and may have prompted bigclients to pull back from some business, he gathered his teamfor a pep talk.
"He talked about the house of Morgan and where the firm camefrom and what its values are that make it unique," said LucasDetor, a former co-head of Morgan Stanley's distressed and U.S.leveraged loan business and now an executive managing directorfor investment manager CarVal Investors.
"He told people, 'I got it. We've come from tough placesbefore.' And he was right."
Morgan Stanley escaped with a two-notch downgrade, which wasa blow but not a critical one.
Despite his steely reputation, Kelleher doesn't take himselftoo seriously.
At Morgan Stanley's 2005 Christmas party for the fixedincome team in London, a credit salesman dressed in hot pantsand a skintight vest as part of a skit to roast Kelleher, thenthe region's head of bond trading.
Darragh McCarthy's lampoon of Kelleher as a satirical gaycharacter in the popular British television series LittleBritain had some colleagues wondering if his career at the bankwas over but his boss saw the joke.
McCarthy was promoted soon after. (Additional reporting by Dan Freed and Anjuli Davies; Editingby Carmel Crimmins and Martin Howell)
