There was a time when J.P. Morgan so dominated the U.S. financial system that it could single-handedly calm a market panic, rescue an industry or keep the government from running out of cash. So powerful was the firm that after the great crash of 1929, a Congress suspicious of market manipulation decreed that commercial and investment banking could not cohabit under the same corporate roof, effectively dividing Morgan in two.

In the ensuing decades, the bankers at J.P. Morgan and the investment bankers at Morgan Stanley were considered the bluest of Wall Street bluebloods. When the Depression-era law was finally repealed, their successors tried to re-create the power and scope of the original House of Morgan through a series of acquisitions. But last week, the two proud firms, for different reasons, stood humbled before investors, corporate customers and Wall Street competitors.

At one, chief executive Philip J. Purcell was finally forced to step down as chairman of a firm where the investment bankers of Morgan Stanley never quite gelled with the retail brokers and credit card marketers of Dean Witter. Although he won the power struggle within the firm, in the end Purcell couldn't stem the flow of high-profile defections and criticism from former executives that eventually convinced directors that the price of keeping him was too high. It didn't help that the firm had just been hit with a $1.45 billion judgment in a case that it could have settled years earlier for $20 million. Nor did it help that the company had just warned of another quarter of disappointing earnings that put the firm at the back of the Wall Street pack. By week's end, dissident shareholders were talking about nominating a rival slate of directors, and plans to sell off the Discover card unit were put on hold after buyers discovered it would require a big infusion of cash.

At J.P. Morgan, the recent problems have less to do with strategy or financial results than with faulty ethics and business judgment. The bank agreed to pay $2.2 billion to Enron shareholders and bondholders to settle allegations that it knowingly helped the energy firm structure the complex deals used to hide debt and poor operating results from investors. It was a bitter pill for a company that -- despite billions of dollars in write-offs and settlements with regulators over tainted analysis and manipulated IPO markets -- had continued to claim it bore no responsibility for the tech and telecom bubble in which it was the leading financier. At least in the Enron case, J.P. Morgan arrived relatively early at the settlement table: Its earlier $2 billion agreement with WorldCom shareholders was $630 million more than a settlement offer it had defiantly rejected several months before.