Phil Purcell's Credibility Crisis

For years, Morgan Stanley (MWD ) Chief Executive Philip J. Purcell seemed invincible. The bank's return on equity and profits soared past most of its peers'. So did the stock price, which reached 109 on Sept. 11, 2000. Wall Street adored its one-stop-shop model, created when Dean Witter -- with its retail brokerage network and Discover credit-card operation -- bought Morgan Stanley and its storied investment bank in 1997. Everything was going Purcell's way.

No longer. Today, Purcell is under fire. Integrating the two firms has proven much tougher than many investors expected. That might be O.K. if the different segments were stellar stand-alone businesses. But while the investment bank remains a star, the former Dean Witter operations are laggards as Morgan plays catch-up with rivals who have bigger and more profitable retail brokerage and credit-card outfits. Almost eight years into the merger, the investment bank is still doing the heavy lifting, accounting for 62% of operating earnings. The brokerage contributes just 6%.