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Morgan Stanley is thumbing its nose at the UBS approach. The Swiss group decided last week to close its fixed-income business, putting Wall Street rivals on the spot. Morgan Stanley also has struggled to earn a decent crust buying and selling bonds, commodities and the like. But chief executive officer James Gorman is tapping fixed income currency and commodities (FICC) boss Colm Kelleher to run the entire investment bank, suggesting he thinks he can make a serious go of the business.

Mr. Kelleher's co-president Paul Taubman, a 30-year Morgan Stanley veteran who runs capital markets and the advisory arm, is set to leave. Given the decision by UBS boss Sergio Ermotti, Mr. Gorman's choice looks odd. Like UBS, Morgan Stanley is best known for its advisory and equity underwriting business.

Granted, the U.S. bank has more cachet in fixed income. After all, it's where former boss John Mack cut his teeth. Returns, nevertheless, are low. And Morgan Stanley has only about 7 per cent of the market, at best half the share of the biggest player, JPMorgan.

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Mr. Gorman's firm still needs to run roughly the same scale of infrastructure, meaning its cost-to-revenue ratio is higher than much larger rivals. Nor is it easy to pick up a bigger slice of the business to bridge the gap: trading desks at Citi, JPMorgan and Bank of America all benefit from captive internal customers such as cash-management cousins and lending clients.

Mr. Kelleher can't replicate that. He'll soon get some leeway, however, from the $120-billion (U.S.) of deposits Morgan Stanley will have once it owns the remaining 35 per cent of its brokerage joint venture with Citi, That, at the least, could provide cheaper funding for its derivatives book, assuming the Federal Reserve approves.

For all the bravado, though, Morgan Stanley is actually shrinking the balance-sheet impact of fixed-income trading. It's already planning to cut the unit's risk-weighted assets by 20 per cent by the end of 2014 to $255-billion – on top of a 17-per-cent drop in the past 12 months. The latest cull would free up some $6-billion of capital, which should boost returns so long as revenue doesn't drop commensurately.

That's the essence of the choice being made by Mr. Gorman and Mr. Kelleher. The clock is already ticking on whether they'll succeed.

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