Purcell quits with $62.3m cushion

Morgan Stanley's chief executive, Philip Purcell, gave up the fight to remain as head of the investment bank yesterday, saying he would resign as soon as a new chief executive had been found and no later than the annual shareholder meeting next March.

Morgan Stanley's chief executive, Philip Purcell, gave up the fight to remain as head of the investment bank yesterday, saying he would resign as soon as a new chief executive had been found and no later than the annual shareholder meeting next March.

The announcement came as Morgan Stanley confirmed yet more of its star bankers had left the firm on Friday and said earnings for the second quarter would be as much as 20 per cent lower than last year.

The blow to Mr Purcell, who has long resisted pressure to step down, will be lessened by the fact that he will receive about $62.3m (£34.5m) in shares, pension and retirement benefits.

His departure may draw the curtain on a particularly difficult period in the history of Morgan Stanley, one of the most blue-blooded firms on Wall Street. The bank has been struggling with an internal culture clash since it merged with the financial services group Dean Witter in 1997.

In March a group of dissident former employees began a highly charged media campaign to try to force Mr Purcell to step down. Mr Purcell said yesterday: "I feel strongly that the attacks are unjustified, but unfortunately, they show no signs of abating. 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."

Morgan Stanley's shares surged $1.20 to $51.08 in midday trade as Wall Street welcomed the end to a highly damaging few months at the bank, which has seen the exodus of high-profile bankers such as Joe Perella and the defection of clients.

Yet Morgan Stanley's future remains uncertain. Many on Wall Street have seen its weakened state as an opportunity for a takeover, with HSBC in the UK and Bank of America thought to be interested in all or parts of its business. Morgan Stanley is spinning off its credit card arm, Discover, and could sell other divisions.

The bank said it had appointed the headhunter Spencer Stuart to find a replacement for Mr Purcell to provide strong leadership as soon as possible. Yet Charles Knight, a Morgan Stanley director who is leading the search for a chief executive, said some names have already been ruled out, including John Mack, a former president of the bank whom many in the firm would like to return as Mr Purcell's replacement.

Mr Knight said the board would not consider any of the five managing directors who left Morgan Stanley after Mr Purcell's highly unpopular decision this year to promote Zoe Cruz and Stephen Crawford to the position of co-president.

Mr Purcell used his final conference call with analysts to try to shore up support for Ms Cruz and Mr Crawford, saying they would "provide outstanding leadership in this firm going forward".

Then ... and now

* Philip Purcell's statements in April and May:

"We didn't think we'd have nearly this much press frenzy or that some of those outside would be nearly as irrational."

"It's over with the board in terms of strategy and it's over in terms of leadership. We are moving on."

* Resignation letter sent to all employees yesterday :

"It has become clear that 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 for you, our clients and our shareholders."