NEW YORK – Morgan Stanley (MWD) Chief Executive Philip Purcell (search) on Monday surrendered to calls for his ouster from investors unhappy with dozens of departures and years of listless stock performance.
Purcell, 61, announced his retirement after a series of board meetings that began on Wednesday. Purcell offered to quit to spare Morgan Stanley from the distraction of a long battle with a group of retired executives, one insider at the firm said.
However several analysts, including Merrill Lynch's Guy Moszkowski, said it was the board that asked Purcell to quit as employee resignations continued to pile up.
"Investment banks are only as good as their people, and in the last six months, there has been a talent drain at Morgan Stanley," said Michael Santelli, a portfolio manager at Allegiant Asset Management Co. in Cleveland.
Nine derivatives staffers on Friday joined the exodus of more than 30 bankers and traders from the firm since late March, after Purcell ousted several well-regarded executives and installed new leadership who supported his plans for an integrated securities firm.
Analysts and investors warned that the bank would be hobbled if the wave of defections continued.
Morgan Stanley also warned on Monday that it expects its second-quarter profit to fall about 15 percent to 20 percent from a year-earlier, to about 88 to 94 cents a share. Analysts polled by Reuters Estimates on average had forecast $1.12 per share.
News of Purcell's departure sent the firm's shares up 2.3 percent to $51.00 on the New York Stock Exchange (search). The shares have fallen 8 percent this year.
Purcell said he would retire as soon as a successor is named, but no later than the firm's next annual meeting in March 2006. Morgan Stanley board member Charles Knight is leading the search for a new chairman and chief executive.
"It has become clear to me, 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," Purcell said in a letter to employees.
Knight made it clear that former Morgan Stanley president John Mack (search), who was pushed out by Purcell in 2001, members of the so-called group of eight, and five recently departed executives will not be considered as successors.
Purcell has led Morgan Stanley since the 1997 merger of elite investment bank Morgan Stanley with Dean Witter, Discover & Co., a Chicago brokerage, mutual fund and credit card company focused on the middle class. The marriage fueled stellar results initially and vindicated Purcell's "financial supermarket" strategy.
But the brokerage, money management and cards businesses have struggled since the stock market bubble burst in March 2000, while Discover earnings were sapped by high loan losses. Rivals were quicker to recover.
Over the past five years, Morgan Stanley shares have fallen 32 percent, while shares of rival Lehman Brothers have more than doubled.
In March Purcell shook up senior management, pushing aside president Stephan Newhouse and naming two new executives to run an integrated securities business.
Eight former senior Morgan Stanley executives and shareholders responded by launching a campaign calling for Purcell's ouster, blaming him for the firm's laggard performance.
High-profile departures followed, including Newhouse, star banker Joseph Perella, global equities chief John Havens and institutional securities head Vikram Pandit.
The board stood by Purcell, but in recent weeks it yielded to pressure by changing governance rules to make it easier to vote out the CEO and require all directors to stand for election every year.
In April, the firm announced it would spin off its Discover credit card unit after Purcell had long resisted such a move. Purcell said on Monday he expects the spin off will be completed between July and October.
Recently analysts believed Purcell had survived the dissidents' attacks, at least until next year's annual meeting when dissidents could launch a proxy battle. Yet the persistent drip of bad news proved tough to ignore.
"The negative publicity and the brain drain was intense, and continuing. That might have been the nail in the coffin for Purcell," said money manager Timothy Ghriskey of Solaris Group.
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