7:45 p.m. | Updated
Morgan Stanley has shaken up its once-powerful fixed-income department, announcing in an internal memo on Wednesday that Kenneth deRegt, the executive in charge of the business, is retiring.
Colm Kelleher, the company's president of institutional securities, said Mr. deRegt would be replaced by Michael Heaney and Robert Rooney, both of whom have worked closely with Mr. Kelleher over the years.
The change puts a spotlight back on Morgan Stanley's fixed-income division, which the Wall Street firm has been aggressively shrinking since the financial crisis. The division had been one of its biggest moneymakers. Now, thanks to new regulations and other pressures, it is a drain on operations. As a result, Morgan Stanley has shifted gears and has aggressively expanded into wealth management, which is a lower-return business but comes with less risk.
Mr. deRegt, 57, was a major overseer of the downsizing of the fixed-income unit. Under his watch, the department has stopped handling certain business lines, sold billions of dollars of assets and laid off hundreds of employees.
Morgan Stanley said he was leaving to join a new company, Canarsie Capital Group, as a partner. One of his sons works at the company.
Still, some people inside Morgan Stanley say the last few years have been tough on Mr. deRegt, having to oversee cutbacks. In addition, areas like interest-rate trading, a fixed-income business that Morgan Stanley has actually made a big push into, have not performed as well as some had hoped recently, putting additional pressure on Mr. deRegt.
The cuts in fixed income were an issue at Morgan Stanley's recent shareholder meeting. Responding to questions from Michael Mayo, an analyst at Crédit Agricole Securities, about the company's strategy, Morgan Stanley's lead director, Robert Kidder, said that the board was focused on the department's progress, and that it was a factor when the board reviewed the performance of the chief executive, James P. Gorman.
“The lead director reiterated that returns versus size are what matter, but we are still unsure where returns will wind up and feel the strategy is still somewhere between the bigger players and UBS,†Mr. Mayo wrote in a recent report, referring to UBS, which has sharply cut back its presence in fixed income.
Morgan Stanley has stressed that it does not want to get out of fixed income, but rather wants a slimmed-down franchise that can serve the needs of its clients and produce a decent return. As a result, it has been selling riskier assets that would require the holding of more capital to satisfy regulators. That way, it can free up capital and use it elsewhere, hopefully generating a decent return.
The announcement brings an end to Mr. deRegt's long career at Morgan Stanley. He joined the company in 1981 and worked there almost his entire career.
Mr. Heaney was most recently global head of credit sales and trading, municipals and emerging markets credit. He joined Morgan Stanley in 1986. Mr. Rooney, who joined Morgan Stanley in 1990, was previously the head of fixed-income sales and trading for Europe, the Middle East and Africa, and global head of fixed-income client coverage since 2009.
