The Wall Street Journal-20080213-UBS Expected To Name Chief For Investments- Morgan Stanley Veteran Seen as Likely Choice- Unit-s Uncertain Future

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UBS Expected To Name Chief For Investments; Morgan Stanley Veteran Seen as Likely Choice; Unit's Uncertain Future

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Morgan Stanley executive Jerker M. Johansson is expected to be named chief executive of UBS AG's investment-banking operation, running securities sales, trading and merger advisory businesses at the Swiss bank, according to people familiar with the matter.

Mr. Johansson has been with Morgan Stanley for 22 years in a series of positions culminating in his role as global head of institutional equities at the U.S. investment bank. He most recently served as vice chairman, Europe, after being reassigned in an executive shake-up.

An announcement from UBS could come as early as tomorrow, say people familiar with the matter. Mr. Johansson declined to comment. A Morgan Stanley spokesman declined to comment. UBS didn't respond to requests for comment.

UBS has had a hard time finding candidates for the investment- banking job in part because of the unit's uncertain future. UBS warned last month that it would likely report fourth-quarter write-downs of some $14 billion on its holdings of debt securities, contributing to a quarterly loss of more than $11 billion.

Analysts have noted that UBS's valuation could actually increase if it jettisoned the investment bank to focus on its lucrative wealth- management business, but the bank's board has so far remained committed to keeping the unit.

The UBS search had been under way for weeks and included a number of former Wall Street executives. Among them: Brad Jack, the former co- chief operating officer at Lehman Brothers Holdings Inc. and Thomas Montag, the former co-head of Goldman Sachs Group Inc.'s global securities business.

Mr. Jack, who retired from Lehman in 2005 and had been overseeing its investment-banking relationships shortly before leaving, and Mr. Montag had been finalists for the UBS job until Mr. Johansson emerged as a last-minute candidate a few weeks ago, says a person familiar with the situation.

Mr. Johansson joined Morgan Stanley in 1985 as a summer associate in equity capital markets, rising through the ranks to become chief operating officer of the institutional-equity division and head of European equities. Two years ago, he was named head of all institutional equities, following the ouster of former Chief Executive Phil Purcell.

Under new CEO John Mack, however, Mr. Johansson has shifted through numerous roles and ultimately lost his line-of-business power when his close ally -- former Morgan Stanley Co-President Zoe Cruz -- was ousted in December. Mr. Johansson at the time was co-head of sales and trading for institutional securities, typically Morgan Stanley's biggest division, but was shifted to his current position.

One big challenge for any new UBS investment-banking chief will be expanding businesses -- such as brokerage services to hedge funds or expansion into fast-growing markets in Asia and Latin America -- that could replace lost revenues in areas such as fixed income, which deals with the packaging, sale and trading of debt securities.

But it is unclear how much money UBS would commit to expanding an investment bank that has just cost it so much in write-downs.

UBS has pulled back markedly from an effort earlier in the decade to gain a high profile in U.S. investment banking. It hired scores of deal makers from rivals such as Credit Suisse Group and on a parallel front poured money and trading talent into a proprietary hedge fund called Dillon Read Capital Management. The hedge fund collapsed last spring from bets on subprime-mortgage securities, forcing UBS to close the unit, reimburse clients and pay out big severance packages.

Tomorrow, analysts will also be looking for details of what specific investments UBS is holding and how it has protected itself against further losses.

Credit Suisse yesterday revealed details of its subprime and leveraged loan book, something analysts have been clamoring for other investments banks to do.

By contrast, UBS has been faulted with only gradually admitting to massive losses, and investors have expressed anger at the bank's continually growing loss tally.

Dresdner Kleinwort analyst Stefan Stalmann expects UBS to come clean about what it still holds, including potential damage from monoline insurers and other increasingly critical areas such as commercial mortgage-backed securities.

Because of UBS's caginess in disclosing full losses thus far, Stalmann says his 'guesstimate' is up to $40 billion in exposure not yet publicly known.

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Katharina Bart and Anita Raghavan contributed to this article.