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Purcell is OUT! Mack might be in (*Updated*)


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I don't know how many of you are interested in investment banks and Wall Street, but this is very big news in the Wall Street world so I thought I'd pass it along.


Morgan Stanley's Purcell

Will Step Down as CEO


Embattled Leader to Retire

Once a Successor Is Named;

Weaker Profit Is Forecast



June 14, 2005

Embattled Morgan Stanley Chief Executive Philip J. Purcell agreed to step down after a lengthy and acrimonious battle this spring weakened the leader's hold on the Wall Street firm.

In an announcement yesterday morning, Mr. Purcell said he would retire as soon as a successor is named but by no later than the firm's next annual meeting in March. The company said director Charles Knight, head of the board's compensation, management-development and succession committee, would lead the search. The company also said it named a longtime director, Miles Marsh, as its lead director.

"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," Mr. Purcell, 61 years old, said in a letter to employees.

He added: "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 also said it expects its fiscal-second-quarter per-share earnings to be approximately 15% to 20% below those of the year-earlier period, citing weakened market conditions that the company previously had announced. The company will report the results June 22.

In a meeting with the firm's equities group that was broadcast to bankers and other employees early yesterday, Mr. Purcell and some board members stressed that the retirement decision was a joint one by the board and Mr. Purcell. Mr. Knight said Morgan Stanley wasn't considering as successors to Mr. Purcell any of the five management-committee members who resigned earlier this year. In late March, those five executives stepped down after a controversial management shake-up in which Mr. Purcell named two new co-presidents above them.

Mr. Knight added in a statement released by the firm that Morgan Stanley also wasn't considering any of the eight former executives who led a campaign to oust Mr. Purcell, or John Mack, the former Morgan president who left the firm after clashing with Mr. Purcell in 2001.

Mr. Marsh, who will take the lead in representing the independent, or nonexecutive, directors, told a group of Morgan Stanley employees: "Phil and the board have independently been considering the right course of action. In the last week, Phil came to us with the conclusion that he should remove himself for things to settle down. We, obviously, had been thinking about it ourselves and regretfully, had to accept his conclusion."

Mr. Purcell said later in a call with analysts that he believed the board wouldn't be keen to go to the five departed management-committee members as CEO candidates because directors had already picked the co-presidents, Zoe Cruz and Stephen Crawford, "over the five that recently departed." He added: "It would be very unusual that they would consider any of those five ahead of Zoe or Steve." As for other former Morgan Stanley executives that Mr. Knight appeared to rule out, Mr. Purcell said the board already was familiar with their records and qualifications and was in a position to decide it wanted to look elsewhere.

Some observers viewed the firm's decision to hold the job open and not name even a temporary CEO as a sign that Morgan Stanley may have intentionally made itself more attractive as a takeover candidate. During the call, Mr. Purcell said the firm doesn't comment on deal speculation. However, Morgan shares rose on reaction to new future leadership and deal talk. The shares were up 2.3% at $51 each in late trading on the New York Stock Exchange.

Because some of Mr. Purcell's longtime allies will remain in charge, analysts said the board didn't appear to be ready to set a new path for Morgan Stanley. The new lead director, Mr. Marsh, formerly the chief executive of paper company Fort James Corp., previously served on the board of Dean Witter, Discover & Co., which Mr. Purcell led before the merger with Morgan Stanley. Mr. Marsh joined the Morgan board at Mr. Purcell's urging in 1997.

"The board has failed. Half the board was handpicked by Purcell. Do we really, as investors and analysts, trust the board to pick the new CEO? Given their track records, no," said David Hendler, a financial-services analyst with CreditSights Inc. in New York. "We think most of the board has to go. The quickest, cleanest way to do that is to sell out to a financial conglomerate."

It also isn't clear how leaving the top job open will affect morale; some analysts believe the continued uncertainty will work against stabilizing the firm and may not stem a tide of recent departures.

In the call with analysts, Mr. Purcell said he believed the continued presence of Ms. Cruz and Mr. Crawford, the co-presidents, would be a stabilizing factor. "We've got management in place that everybody knows and respects, and none of that changes. ... I would hope and expect that people will rally around the leaders that they have and that will help stem the defections."

Despite some analysts now saying the company would be a better takeover candidate if it doesn't break up any of its parts, Mr. Purcell said leadership changes won't change the company's plan to spin off its Discover credit-card operations as a public company within "three to six months" of the announcement in early April that it would do so. Chief Financial Officer David Sidwell said he would provide a further update on timing of the Discover spinoff after another board meeting around next week's earnings report.

For the past 2½ months, Mr. Purcell has been the subject of a withering campaign by the group of former Morgan Stanley executives seeking his ouster, and he has come under pointed attack from institutional investors for the firm's lagging stock performance.

The former Morgan Stanley executives' campaign to oust him spilled into the open in late March, on television and in newspaper ads, after he engineered the management shake-up. The eight former executives waged a public campaign calling for Mr. Purcell's ouster, and for a breakup of the firm that would effectively undo the 1997 merger of the old-line investment bank with the company he led, Dean Witter Discover.

Since then, the board said repeatedly that it supported Mr. Purcell, and it tried a variety of steps to stave off the pressure, including governance overhauls, bringing in a senior lawyer as vice chairman and announcing a spinoff of the Discover credit-card operations as a public entity. Mr. Purcell also embarked on new efforts to develop relationships with investors and clients with whom he hadn't had as much contact before. Mr. Purcell even publicly declared the war with the dissidents "over" in early April, and the company consistently criticized the alumni campaign.

But the pressure on the board intensified as Morgan's stock dropped during the campaign and departures of high-level executives and senior business producers continued. On Friday, a nine-member team of product specialists and traders in Morgan's equity-derivatives business resigned to join Wachovia Corp.

Mr. Purcell may be due as much as $62.3 million for a "voluntary" termination, according to a Feb. 15 filing with the Securities and Exchange Commission. He has been granted equity awards of $48.1 million, $3.2 million in employee stock plans and $11 million in accrued pension entitlements, the filing said. The package projects a $1.2 million annual payment for life under the pension.

Had he been fired "for cause" Mr. Purcell would have been due $27.6 million, including $13.4 million in equity, $3.2 million from employee compensation plans and $11 million in pension payments -- with an additional $1.27 million in annual payments.

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I used to work there.

When Mack was canned, stock dropped three bucks or so. When Purcell got canned, the stock rose two bucks or so. That means Mack is worth $5 billion more than Purcell, give or take. Take into account their performance versus other banks... carry the two... :laugh:

All I have to say is... it's about time. Having a McKinsey/Dean Witter guy like Purcell as the head of a Wall Street institution was a joke. He just could not connect with the real dealmakers and rainmakers within the Firm.

I hope that whoever is next can right the ship.

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Well, this is how--to a degree--Lehman went bankrupt in the 80s: a contest between the traders and the management. I've always disliked Purcell, and I never thought that he belonged leading one of the best i-banks in the world. Dane--did you think that the DW-MS merger made sense? I always scratched my head at that.

As far as the ****storm--there has been many migrations of the top staff and management from the firm. I hope Morgan returns to form. It's a great bank and has some excellent staff.

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Ancal, I didn't realize that - hope it's working out for her there.

iheart - the beauty of Wall Street is that there are no loyalties. Except for Mack :D . All they need to do is hire him back and his lieutenants will follow. Or, just hire groups from other banks one-by-one to rebuild a quality staff. A commonplace practice, especially when money is bountiful. Like now...

In terms of MS-DW, I figured someone was smarter than me and knew why they did it. I guess it made sense from a diversification standpoint -- it's tough to be reliant solely on a super cyclical business like investment banking. But retail brokerage and investment banking, when you don't have a big high net worth presence? Not sure about the whole cross-selling argument. Increased distribution through the DW network and equity research presence didn't make sense, either. :whoknows:

Mack, Meguid, Newhouse, Pandit, Scott, Perella. Those guys were hitters. And they're all gone. Meguid was great to work for, and Perella was always up for a few drinks and chasing skirts. :laugh:

Oh well... I'm glad I don't work there no more.

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After my tenure at Bear Stearns, I feel like I'd go to war for them--they treated me so well. Granted I wasn't a money making machine and I didn't leverage out 10 billion in capital...and lose. But, they were still great to me--from top (meeting Ace Greenberg, Mike Solender (who is the GC) to bottom (some of my fellow Summer Associates)). I guess I probably had a very different experience than a typical retail broker, but then again there basically are no retail brokers (750 at Bear v. 11,000 at Merrill Lynch) so it's a much different atmosphere.

As far as Morgan Stanley Dean Witter--I've always viewed Morgan Stanley as a white shoe investment bank with a high net worth/high end clientele. Dean Witter seemed like more of a typical small place, maybe something like AG Edwards with an army of brokers and smaller net worth clients. The inclusion of Discover, which was I believe an outgrowth of Sears, never made sense in the model as Morgan's clients probably never shopped at Sears or any of its sister stores. That Morgan has spun off Discover seems to make sense. The final piece that didn't make sense was Purcell and the manner in which he led the firm. It never seemed like the former Morgan employees had as much say as the Dean Witter folks and I think the initial impression was only solidified over the years.

Anyway, I wouldn't be surprised to see Morgan storm back in all ways with an newly invigorated staff.

An Ancal, I'm sure your sister will emerge fine from the rubble. :)

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Yep, I am glad I did it, but I will never. Ever. Go back.

Somewhere between carrying 50 pounds of pitchbooks and editing league tables (rankings of investment banks) at 3am in the morning, I realized it wasn't for me. Or maybe it was when I started to lose my mind, and my managing director busted me for practicing Egyptian hieroglyphs at my desk. :laugh: Oh, the life of an investment banking analyst.

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  • 2 weeks later...

Dane, looks like you're right about the potential for Mack to return...


Morgan Stanley

May Reconsider

Mack for CEO



June 23, 2005; Page C1

Morgan Stanley in recent days has weighed reconsidering former Morgan president John Mack as a candidate for chief executive of the Wall Street firm, after a series of people inside and outside the company began advocating his return, people familiar with the situation say.

But the board member leading the search, Charles Knight, chairman of the firm's compensation, management-development and succession committee, dispelled the notion.

"We're on the original plan we outlined," Mr. Knight said in an interview from his home last night. He previously told Morgan Stanley employees that the board had ruled out Mr. Mack, who left Morgan in 2001, as well as several executives who left this spring in a management shakeup, and said last night he knew of no change in the decision. Asked if other board members might be considering Mr. Mack, he said, "I don't see how that would be possible." Pressed, Mr. Knight added, "I'm not going to say it would never happen."

While not necessarily indicating which way they were leaning, other board members have said privately that it was Mr. Knight, not they, who publicly ruled out Mr. Mack.

The CEO job came open after chief executive Philip Purcell said June 13 he would step down once a successor is named. He was coming off a bruising battle, lasting nearly three months, in which Morgan Stanley alumni and shareholders sought his ouster in the wake of the management shakeup.

If Mr. Mack, 60 years old, becomes a viable candidate, he would join a slate of several others, including Laurence Fink, CEO of money manager Black Rock. A Morgan Stanley spokesman declined comment.

A person familiar with the matter says the board hopes to arrive at a decision on a candidate soon, perhaps by next week. Mr. Knight said the search was "moving more quickly than I thought it would." He added, "We are running a search here to find the best person we can find."

Mr. Mack, a veteran of the original Morgan Stanley investment bank, served as president under Mr. Purcell after the 1997 merger of Morgan Stanley and Dean Witter, Discover & Co. He left four years ago after failing to get Mr. Purcell and the board to agree to name him CEO under a deal he believed he had struck with Mr. Purcell. He joined Credit Suisse Group's Credit Suisse First Boston unit as CEO later in 2001, and was made co-CEO of the Swiss parent. He departed CSFB a year ago when the Credit Suisse board declined to renew his contract after he sought unsuccessfully to convince it to consider a merger.

People who know Mr. Mack say he recently has fielded calls from senior executives at Morgan Stanley asking him to consider returning. Other shareholders have communicated to the board their enthusiasm for him as a candidate, because of his knowledge of the firm and its people. He has been following a shareholder campaign to oust Mr. Purcell from a distance and hasn't weighed in publicly on the matter.

A willingness to consider Mr. Mack would be a blow to Mr. Purcell and his allies, and would render uncertain the status of some officials whose stars have risen under Mr. Purcell. But recently, even one of the new co-presidents Mr. Purcell named, Zoe Cruz, alluded to the possibility. During a visit to the London office last week, she told some staffers she would be amenable to a new chief executive of the caliber of Mr. Mack, among others, according to people with knowledge of her remarks.

Mr. Mack became chairman of hedge-fund manager Pequot Capital Management Inc. a few weeks ago. Recently he also served as an informal adviser to a group of investors and investment banks examining the proposed merger between the New York Stock Exchange and electronic-trading concern Archipelago Holdings Inc. He has said he is committed to his role at Pequot, but he likely would find the return to Morgan appealing.

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