Purcell Defends Executive Changes

Morgan Stanley Chief Executive Philip Purcell, facing investors Tuesday for the first time since the brokerage giant was roiled by a series of executive defections, defended his stewardship and declared he was “very happy” with the company’s management changes.

But Purcell also warned that the investment banking business had slowed industrywide in the last two months. His comments, and concerns about possible turmoil in the financial system because of hedge fund losses, sent shares of Morgan Stanley and other brokerages sharply lower.

Speaking before a standing-room-only crowd of investors at the UBS Global Financial Services Conference in New York, Purcell downplayed the recent high-level executive departures that have fed criticism of his leadership.

Five of the 14 members of Morgan Stanley’s executive committee, and at least six other key officers, have left the company over the last six weeks, after Purcell on March 28 sacked Stephan Newhouse as president.

“When you choose some people in a new management structure, you don’t choose others, and in the process we lost some valued members of our management team,” Purcell said. “We are very happy with the choices that we’ve made.”

The departures have added to calls for Purcell’s dismissal from a group of eight former executives and shareholders, who had already been blaming Purcell for what they felt was mediocre performance by the company in recent years.

Purcell, 61, acknowledged that Morgan Stanley’s returns had lagged over the last few years as the company made investments to increase its size and reach, but said the firm’s new leadership would focus on improving the bottom line.

“I give you my assurance that every decision we make is focused on our return to premium status in relation to our peers,” Purcell said.

But he said the current quarter would prove difficult given Wall Street’s generally poor performance. Industrywide, completed mergers, global equity underwriting and high-yield bond underwriting all fell in March and April compared with a year earlier, Purcell said.

His comments helped push Morgan Stanley stock down $1.33, or 2.6%, to $49.42 on the New York Stock Exchange. The shares have tumbled 18% from a 52-week high of $60.32 on Feb. 11.

Other brokerage stocks also slumped, hurt in part by concerns about their links to hedge funds. Goldman Sachs Group dropped $3.39, or 3.2%, to $102.11; Merrill Lynch & Co. slid $1.40, or 1.6%, to $53.46; Bear Stearns Cos. lost $3.30, or 3.4%, to $94.49.

Purcell, responding to questions after his speech, said the firm lost about 100 managing directors every year, or about 10% of its total. Turnover in 2005 will probably be about the same, he said. The difference this year is that “you’ll read about every one of them in the newspaper.”

He said employee morale was “solid” at units that generate 75% to 80% of the company’s profit, but acknowledged that he was concerned about morale within investment banking and equities sales and trading.

Morgan Stanley’s board May 1 backed Purcell after an emergency weekend meeting held in the wake of calls for his ouster.