Morgan Stanley chief executive Philip J. Purcell, under pressure from shareholders over poor financial performance and beset by high-level defections from the storied Wall Street firm, said Monday that he would retire as soon as a successor is found.
The announcement came after Purcell waged a bitter battle with eight disgruntled former executives and with top managers inside the firm who thought he had neglected Morgan Stanley's historic core businesses of investment banking and equity trading in favor of less productive retail brokerage and credit card services.
Through most of the fight, Purcell retained the unwavering support of a board filled with loyalists. But that support cracked after a team of revenue-producing sales and trading executives quit Friday to join Wachovia and the company prepared to announce Monday morning that second-quarter earnings would be down 15 to 20 percent from last year.
"It has become clear that in light of the continuing personal attacks on me, and the unprecedented level of negative attention our firm -- and each of you -- has had to endure, that this is the best thing I can do for you, our clients and our shareholders," Purcell wrote in a public letter to Morgan Stanley employees. "I feel strongly that the attacks are unjustified, but unfortunately, they show no signs of abating."
Purcell became chief executive in 1997 after the retail brokerage he headed, Dean Witter, Discover & Co., merged with Morgan Stanley Group Inc., a pedigreed Wall Street investment bank with roots dating to the 19th century.
But the two sides of the firm never meshed well. Rising bitterness finally burst into the open in recent months as the firm's earnings and stock price suffered, morale plunged with big-name departures and the eight former executives went public with their campaign to oust Purcell. Analysts said the departures of top bankers such as Joseph R. Perella hit Purcell especially hard because a Wall Street firm's most important asset is its talent. Big producers often take their banking and trading clients with them when they leave.
Morgan Stanley suffered another major setback last month when a jury ordered the firm to pay $1.45 billion to financier Ronald O. Perelman for investment losses Perelman suffered in Sunbeam Corp., a Morgan Stanley client. At one point, Morgan could have settled the case for $20 million.
"Purcell was already in a weakened condition, and then second-quarter earnings numbers came in, and it was another poor performance," said Richard X. Bove, a banking analyst at investment firm Punk, Ziegel & Co. "That added tremendous fuel to the belief that this guy just could not get control of the company."
Jennifer Chien, an analyst at PNC Advisors, which owns about 2.2 million Morgan Stanley shares, said directors may have felt compelled to push Purcell out to insulate themselves from lawsuits claiming they failed to protect investors. "They at least needed to appear independent," she said.
Morgan Stanley said Monday that Charles F. Knight, chairman of the board's compensation committee, will lead the search for a new chief executive. Board member Miles L. Marsh will serve as lead director. Purcell said he would stay until a successor is named but not beyond the next shareholder meeting in March.
On a conference call with analysts Monday, Purcell said he did not think his departure would cause a significant change in strategic direction for the firm. Purcell's remarks contrasted with recent comments from some analysts suggesting Morgan Stanley could be a takeover target for firms such as Bank of America Corp. or HSBC Holdings PLC that are looking to compete with full-service financial supermarkets such as Citigroup Inc. and J.P. Morgan Chase & Co.
Knight said in an e-mailed statement that the firm would not select any of the dissident alumni or recently departed members of the management committee as chief executive. He also said the firm would not pick former Morgan Stanley president John J. Mack.
Several analysts said the new chief executive would almost certainly come from outside Morgan Stanley because the elevation of any internal candidate could exacerbate internal rifts.
Bove said the new chief executive would have to be someone with top-level experience at a big Wall Street firm. He cited Citigroup president and chief operating officer Robert B. Willumstad, former Goldman Sachs executive and current New York Stock Exchange chief executive John A. Thain, and Bear, Stearns & Co. president and co-chief operating officer Warren J. Spector as among the possible candidates.
Purcell earned $22.5 million last year. According to a recent filing with the Securities and Exchange Commission, he stands to receive about $62 million in deferred compensation and pension benefits after a voluntary resignation. A spokeswoman for the firm said the board has made no final decision on a severance package.