Originally created 06/14/05

Morgan Stanley CEO Purcell says he plans to retire



NEW YORK - Morgan Stanley CEO Philip J. Purcell, acknowledging that calls for his ouster and a string of top-level defections have hurt the Wall Street investment bank, said Monday he will retire as soon as a successor can be found.

The announcement came as Morgan Stanley also warned that its second-quarter earnings would fall about 15 percent to 20 percent from the first quarter of 2005.

News of Purcell's planned retirement came three days after nine stock traders left the company, the latest in a series of departures by employees dissatisfied with Purcell's management style. The resignations, which began in late March, had led a group of dissident shareholders and former executives to publicly call for Purcell's firing and a reorganization at Morgan Stanley.

That, Purcell said, led to a "sideshow" that distracted the company from its business goals.

"This morning's announcement was very, very simple but hard," Purcell, 61, told analysts in a conference call. "There's been way too much attention being paid to acrimony and criticism, most of it directed at me. It's not good for Morgan Stanley, and the best thing for me to do is, in fact, to retire."

Investors who had sold Morgan Stanley stock as the turmoil increased were clearly relieved Monday, bidding the shares up $1.37 at $51.25.

Purcell said he will stay on until his successor is named, which could happen as late as next March's annual shareholder meeting.

Simultaneously with Purcell's announcement, the company also warned that its earnings would fall sharply below Wall Street's estimates. Like other Wall Street firms, Morgan Stanley warned that difficult market conditions in the March-May quarter would harm second-quarter earnings, which Morgan Stanley is scheduled to release June 22. Purcell said the company's difficult quarter was not connected to its leadership issues.

Two sources close to the company, speaking on condition of anonymity, said Purcell's departure was a joint decision by the CEO and Morgan Stanley's board of directors. They said Friday's resignations - from a division Purcell had highlighted as important to the firm's future - were the deciding factor in his departure.

The sources also told The Associated Press that Morgan Stanley board member Charles Knight, who will head the search for Purcell's successor, told an employee meeting early Monday that popular former Morgan Stanley executive John Mack would not be considered for the job.

In addition, Knight told employees that none of the dissidents would be candidates, the sources said, nor would five former managing directors whose departures earlier this year triggered the succeeding wave of defections.

Purcell's promotion in late March of co-presidents Zoe Cruz and Stephen Crawford had angered a handful of longtime executives. Since then, five of the 14 members of the company's executive committee have left, along with a number of other managers, mostly in Morgan Stanley's stock trading and institutional banking businesses.

Those departures prompted the group of eight shareholders and former executives to begin a litany of calls for Purcell's firing, especially as high-ranking employee resignations continued through April and May. They included Joseph Perella, the higly respected head of Morgan Stanley's investment banking operation.

Then, on Friday, the nine traders on Morgan Stanley's equity derivatives desk, which manages stock options and futures, defected to Wachovia Securities.

The high-profile resignations highlighted a rift between former Dean Witter employees, who came with Purcell to Morgan Stanley in the 1997 merger between Morgan Stanley and Dean Witter, and longtime Morgan Stanley workers. The dissidents who called for Purcell's ouster all have roots in the pre-merger Morgan Stanley and accused Purcell of using the division in the ranks to shore up his position as chairman and CEO.

The dissidents' repeated calls for Purcell's job were rejected by Morgan Stanley's board of directors, which gave Purcell a vote of confidence at a meeting April 30.

A spokesman for the dissident group said they would have no immediate comment.

In a letter to employees released by Morgan Stanley, Purcell defended the merger, saying the combined company has gained market share in almost every category and its stock price has outperformed the S&P 500 nearly threefold.

"I feel strongly that the attacks are unjustified, but unfortunately, they show no signs of abating," Purcell said in the letter. "A simple reality check tells us that people are spending more time reading about the acrimony and not enough time reading about the outstanding work that is being accomplished by our firm."

The company has retained Thomas Neff of the headhunting firm Spencer Stewart to search for qualified replacements.

"I will make sure that the firm stays on course until my successor is chosen and that we continue to be relentless in pursuing our business goals," Purcell said in his letter.

Last year, Purcell earned $22,467,606 in total compensation, including stock option grants and stock sales, and has another $15,167,941 in unexercised stock options from previous years, according to regulatory filings.

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