Morgan Stanley Battle Heats Up

A day after Morgan Stanley announced its plan to spin off its Discover Card division, eight former executives demanded Tuesday that the investment firm’s chief executive, Philip Purcell, be dismissed and replaced by one of their own.

In a statement, the former executives, who are also Morgan Stanley shareholders, said that Purcell should be replaced by former President Robert Scott as chief executive and that a separate, non-executive chairman be named. Purcell holds both posts.

Scott said that, as CEO, he would contact former Morgan Stanley executives who left the company after last week’s management shake-up and ask them to return. Scott also promised to make changes in the company’s retail and asset management businesses, though the group’s announcement did not give any details.

Andrew Merrill, a spokesman for the dissident group, said that the group would start lobbying shareholders today at a meeting for investors at Sanford Bernstein, the research arm of Alliance Capital Management.

Brad Hintz, an analyst at Bernstein, is a former Morgan Stanley executive. Hintz did not return a call seeking comment.

In a statement, Morgan Stanley reiterated its support for Purcell.

“The board is well-acquainted with Mr. Scott and his record running our individual investor group and Discover card businesses and can only reiterate what it said yesterday in its message to employees,” the company said. “The board is fully behind Phil Purcell and the firm’s management team. There is no fair or compelling case for a change in the CEO, an action that would involve risk or discontinuity.”

Scott ran Morgan Stanley’s retail investment group from 2001 through late 2003, at which time revenue fell off substantially, though much of that could be attributed to the market’s downturn after the dot-com bubble burst.

Profit also fell for the first two years of his tenure but recovered somewhat in 2003.

Morgan Stanley announced the spinoff of Discover into a separate publicly traded company after the market closed Monday. On Tuesday, its shares fell $1.85 to $56.45 on the New York Stock Exchange.

In a news release Monday, Purcell said that it was “the right time” for the spinoff, which would leave the credit division as a stand-alone business. He did not provide details of how many Discover shares would be distributed to shareholders for each existing Morgan Stanley share.

The dissident shareholders continued to push for change at Morgan Stanley.

“The retail brokerage side still has issues that need to be resolved,” said David Trone, an analyst with Fox-Pitt Kelton.