Morgan Stanley's (MWD) two top investment bankers are resigning, increasing the pressure on Chief Executive Philip Purcell (search) and raising questions about whether the securities firm can remain independent.

The resignations would be the biggest blow yet in a battle raging between Purcell and a group of eight former Morgan Stanley executives seeking to oust him.

Joseph Perella, Morgan's investment banking chairman and company vice chairman and one of the best-known bankers on Wall Street, is resigning after 12 years at the firm, his personal spokesman said on Wednesday. Tarek "Terry" Abdel-Meguid, a long-time Perella deputy and the head of investment banking, is also quitting, a person familiar with the situation said.

"Morgan Stanley simply cannot be managed if this much turmoil exists within," Punk, Ziegel & Co. analyst Dick Bove said. "And if it cannot be effectively managed, I don't see how Purcell can stay at the top."

At least 10 traders and bankers have left the firm since Purcell shook up management in the securities business late last month. The departures of Perella and Meguid would be the most painful yet.

Morgan Stanley declined to comment on the matter.

Bove, who last year predicted 2005 would be pivotal for the firm, says the dissident former executives have not provided a viable alternative to Purcell and this could offer an opening for a "white knight" — such as London-based banking giant HSBC Holdings (HSB) — to acquire the firm.

Earlier this year, Morgan Stanley shareholders approved changes, including a measure to elect all directors each year, that removed barriers to a potential acquisition. Morgan Stanley shares were down 62 cents to $53.86 in late-morning trade on the New York Stock Exchange.

Purcell more than ever is under pressure to boost the company's laggard stock and improve the performance of some struggling businesses.

In the management shake-up in securities business, he promoted Zoe Cruz, who was head of fixed income, and Stephen Crawford, the chief administrative officer, to become co-presidents.

A week later, Cruz and Crawford were added to the board of directors. The firm also announced plans to spin off its Discover card business, a strategic reversal designed to appease investors who have pushed Purcell to shed the unit.

Some Morgan Stanley employees and investors have criticized Purcell's moves, and several pension funds this week indicated they would take a more active role in the dispute.

Analysts warn that a stream of departures from the firm's investment banking and trading businesses could do serious harm and force the board to reassess its support for Purcell.

The dissident group of former executives accuses the 61-year-old chief executive of mismanagement. Morgan shares have fallen by nearly a third over the past five years, a period in which shares of Goldman Sachs Group Inc. (GS) and Lehman Brothers Holdings Inc. (LEH) have risen sharply.

Morgan's retail brokerage, money management and Discover card businesses have generated disappointing results. These businesses comprised Dean Witter, Discover & Co., which was led by Purcell before its 1997 merger with the old Morgan Stanley.

Perella made his name building the M&A practice at Credit Suisse First Boston with Bruce Wasserstein in the 1980s. He joined Morgan Stanley in 1993 as a senior banker and member of the management committee, and lately led efforts to strengthen relationships with some of the firm's most important clients.

Meguid joined Morgan Stanley in 1978 and in 1990 founded a private equity business. Since the mid-1990s, he has served as deputy to Perella, who became head of corporate finance in 1995 and head of investment banking in 1997.