Morgan Stanley (MWD) shares sank Monday after the board reaffirmed its support for embattled Chief Executive Philip Purcell (search), disappointing investors speculating on a break-up of the company.

The board did approve significant by-law changes making it easier to unseat Purcell in the future and investors unhappy with the firm's underperforming stock will continue to apply pressure, analysts said.

"This is not the end of the story," said David Katz of Matrix Asset Advisors Inc., who holds 1.2 million Morgan shares. "Clearly the stock went up Friday on speculation of maybe something more significant. The board should take that as a significant sign that people are that keen on a new CEO to push the stock up."

Purcell has been under the gun, as years of discontent over his leadership and the firm's laggard stock price prompted a growing number of investors to call for radical changes at the world's second-largest securities firm.

Speculation that the board may sell the firm, or shed the weak brokerage and asset management arms, has sent shares soaring on several occasions.

Shares of Morgan Stanley (search) fell $2.62, or 5 percent, to $50.00 in morning trade Monday, erasing gains made Friday after CNBC reported the board would meet Saturday to discuss Purcell's fate.

"The sharp rise in the shares Friday implied the market was expecting more decisive action from the board," said Jeffery Harte, a securities industry analyst at Sandler O'Neill & Partners in Chicago.

For a month, a group of eight retired Morgan Stanley executives have turned up the heat on Purcell, joining other investors who blame him for the firm's laggard performance since the bursting of the tech stock bubble in 2000.

Attacks by the group of eight and other dissidents have fueled internal tensions still lingering from the 1997 merger of Morgan Stanley, an elite investment bank, with the Purcell-led brokerage and credit card lender Dean Witter, Discover & Co.

Simmering tensions boiled over at the end of March, when Purcell shook up the firm's management ranks, prompting the departures of several senior, well-regarded executives. In subsequent weeks its two top investment banking executives quit and a team of equity traders fled to a rival, giving rise to fears that other talented executives could follow.

These and other setbacks at the firm fueled speculation the board, dominated by directors with long standing personal and business ties to Purcell, would bend to investor pressure.

The recent rise and fall of Morgan Stanley shares mirrors last month's stock action, when investors boosted the firm's shares betting on a sale of Discover. Investors for years had complained the seventh-largest U.S. credit card lender did not fit with the rest of Morgan Stanley.

Instead, the company announced it would spin off Discover to shareholders and Morgan Stanley shares quickly lost their gains.

To be sure, the board's rule changes make it easier for dissidents to challenge Purcell at next year's annual meeting. The board also said it would name a lead independent director, a potential first step to dividing the chairman and CEO roles.

"What this did was it cemented the time frame for Purcell and the management team," Harte said.

Yet now that all directors can be voted out in any given year, and a simple majority of directors can replace the CEO, analysts say Purcell and his new management team have roughly 10 months to win over investors.

Fox-Pitt, Kelton Inc. analyst David Trone predicts Morgan Stanley will boost buybacks, or if the shares still lag, it could pursue a sale of the firm.

"The battle is over, but the war isn't over," Trone said. "The decisive battle is next spring."