Cecelia "Cece" Sutton is at a crossroads between commercial and investment banking.

After 30 years at Wachovia Corp., the last five as the leader of the $765 billion-asset Charlotte company's retail bank, Ms. Sutton is to join New York-based Morgan Stanley on Jan. 5 as its president of retail banking.

Her charge: to identify acquisition targets and set a course for growth, and the field is wide open. Ms. Sutton, who lives in Charlotte, said she is unsure what city she will next call home. It depends on where Morgan Stanley buys.

"We are really building this from the ground up," she said in an interview. "Everyone at Morgan Stanley is approaching this effort with a lot of energy. It will certainly be a challenge but one that I believe … could be dynamite."

Though the line between commercial and investment banking has been blurring for years, most often when an executive jumps that gap it is a commercial bank luring the expertise of an investment banker.

This is changing, however, as both Morgan Stanley and Goldman Sachs Group Inc. have converted to bank holding company structures. The rest of the big five investment banks are gone: Bear Stearns Cos. failed, Lehman Brothers Holdings Inc. went bankrupt, and Merrill Lynch & Co. Inc. has sold itself to Bank of America Corp.

Ms. Sutton may have needed a new job at just the time Morgan Stanley needed a banker. Wachovia is to be sold next month to Wells Fargo & Co. Many fellow executives, including Benjamin Jenkins 3rd, who as vice chairman and head of the general bank was her boss, are leaving once the deal closes.

In the interview Ms. Sutton made it clear she did not want to talk about what happened to Wachovia. "It has been very hard because we care deeply about Wachovia and what we have built," she said. "Wells Fargo is approaching things the right way, and they will make for quite a competitor."

Morgan Stanley's courtship of Ms. Sutton was quick. The company converted to a bank holding company in September with the idea of gathering low-cost deposits through a retail banking operation. A Morgan Stanley spokesman said Ms. Sutton's name was given to chairman and chief executive John Mack by a mutual acquaintance a few weeks ago. She was hired shortly after a meeting with Mr. Mack and co-president James Gorman.

Speaking to a conference a day before her hiring was announced, Mr. Gorman said Morgan Stanley was looking to attract "world-class talent" to run its retail banking business, which will leverage its 450 existing branches and force of 8,500 financial advisers. Ms. Sutton, 50, is to sit on Morgan Stanley's management committee and report to Mr. Gorman.

Ms. Sutton's hiring was well regarded by analysts, though most acknowledged that the veteran executive will have a Herculean task turning a venerable New York investment bank like Morgan Stanley into a retail powerhouse.

"It is a daunting challenge," said Nancy Bush, the president of NAB Research LLC. "I am surprised that she decided to make the leap." In addition to the recession, she said, Morgan Stanley must address "public doubts about its viability," a role that will partially fall on Ms. Sutton's shoulders. "The public still identifies them as part of Wall Street and doesn't realize that they are a bank holding company."

Gary Townsend, the chief executive at Hill-Townsend Capital LLC, agreed, saying that building a retail bank from scratch would be similar to reversing the course of an aircraft carrier. "On a scale of one to 10, the degree of difficulty for her would be a 10," he said.

Ms. Sutton declined to disclose many details about Morgan Stanley's retail bank, largely because she has not yet joined the company. She agreed, however, that it would make sense for the company to buy a bank large enough to provide geographic diversity. "Due to the current environment in retail banking … that would help considerably," she said.

Ms. Sutton gave no indication that a deal is imminent, discussing the effort more in terms of careful preparation.

Morgan Stanley is "starting to lay out a really comprehensive strategy, determining first what markets we're going to be in and the value proposition we'll offer."

In the interim, she said, the company has begun tapping in to its existing client base and already has roughly $40 billion in deposits. "I'm guessing that there is additional opportunity there," she said.

Morgan Stanley offers some checking and direct-deposit services, along with secured lending and small-business services. It also has an established wealth management business that could help gain traction in retail banking.

Analysts said that, though such operations supply a good foundation, acquisitions will be necessary. The problem might be finding a suitable target of adequate scale. Some observers pointed to speculation that Citigroup Inc., whose bid to buy Wachovia's retail bank was thwarted by Wells Fargo, is looking at the much-smaller Chevy Chase Bank in Maryland as proof that larger companies are not currently available.

"Morgan Stanley has to find something that is meaningfully large," Mr. Townsend said. This could be challenging; Capital One, for instance, took nearly three years between identifying possible targets and actually buying one, he said. "Morgan Stanley doesn't have that much time."

Ms. Sutton said a possibly bigger challenge will involve building a bank-like balance sheet, given that potential clients have largely hunkered down financially as the recession takes hold. "Where the consumer is in the economic cycle places pressure on our business," she said. "That will impact deposits, loans, and fee generation." Morgan Stanley is evaluating products and services that might thrive under such conditions, she said, though no decision has been made.

Ms. Bush said guarding against credit risk must be a top concern for Ms. Sutton and Morgan Stanley. "It will be a balancing act" between expanding loans and deposits and taking on risk, Ms. Bush said.

Ms. Sutton downplayed the obstacles, predicting Morgan Stanley will have no trouble finding a suitable bank to buy. She said that events are unfolding so quickly that a banking company that seems off-limits now could suddenly become available, drawing heavily on the circumstances that led to the near-collapse of her current employer. Interestingly, Morgan Stanley in September reportedly rejected an overture from Wachovia to merge the companies before the investment bank converted to a bank holding company. "Wachovia has a very valuable franchise and a wonderful retail bank, but events put us in the situation we're in," Ms. Sutton said. "As a result, we're being acquired. I'm sure there are other institutions like that … and I think there will be opportunities to acquire."

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