Purcell Prevails at Morgan Stanley

Philip Purcell won the power struggle for Morgan Stanley Dean Witter on Wednesday as his chief rival John Mack handed in his resignation from the prestigious Wall Street firm.

Mack, 55, known as “Mack the knife” for his aggressive cost-cutting, announced he would leave the giant investment bank, brokerage and Discover credit card issuer as it became clear that Purcell, 56, was not about to hand over the top job.

Mack was to succeed Purcell as chief executive under a secret agreement the pair struck when Mack’s Morgan Stanley merged with Purcell’s Dean Witter in a $10-billion deal four years ago, the Wall Street Journal reported last week.

That deal--if it existed--fell apart on Wednesday.

Mack’s departure comes after nearly four years of tension between the two merged firms and a long-running conflict in styles between the instinctive, quick-acting Mack and the more analytical Purcell, who made his name at blue-chip management consultant McKinsey & Co.

“There always seemed to be friction between those two,” a source familiar with Morgan Stanley said. “They were just on different sides of the fence and I think John [Mack] underestimated Phil [Purcell].”

The rift between the two had been disguised by good profit as Morgan Stanley’s institutional securities business and Dean Witter’s retail brokerage and Discover card business performed well together after the merger.

“But now that the markets have turned choppy, they’ve had some tough times maneuvering in a market that’s not as favorable as it once was,” the source said.

The firm missed analysts’ fourth-quarter profit estimates last month as earnings fell 26% on weak bond trading, losses on investments and higher staffing costs.

On top of that, Mack found himself bereft of teammates as his longtime friend Peter Karches resigned from the firm last August.

Karches reported to Mack as head of Morgan Stanley’s institutional securities and investment banking unit, which provided the majority of the firm’s overall revenue.

“The firm had some trips and fall-ups in some of their businesses . . . and a lot of good people started to leave,” the source said. “Karches was the final straw. Once he lost Karches and his support, Mack was all alone at that point.”

Mack’s resignation ends a nearly 30-year career at Morgan Stanley, which he joined in 1972 as a bond salesman. He was a managing director of the firm by 1979 and became president in 1993.