Morgan Stanley’s embattled chairman and CEO Philip Purcell announced that he will retire as soon as his successor is named, but no later than by the firm’s next annual meeting in March 2006.

In a letter from Purcell sent to all Morgan Stanley employees this morning, he said, “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.”

He praised Morgan Stanley employees for the job they’ve doine serving clients amid all the rancour around Purcell’s leadership at the firm. “I feel strongly that the attacks are unjustified, but unfortunately, they show no signs of abating,” he said. “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.”

Purcell said that the firm’s board has begun a search for a new chairman and CEO, led by Chuck Knight, who is head of the board’s compensation, management development and succession committee.

Despite his departure, Purcell maintained that the firm’s integrated securities strategy is, “coming together and will certainly bring great success in the future. My main regret is that I will not be here as the firm realizes the full potential of the execution of this strategy.” He added that, “There is no finer firm on Wall Street. And when the dust settles that will remain the one unqualified truth of this debate.”

He also said that the firm is in good hands, with the management team led by Zoe Cruz and Steve Crawford, and a strong independent board which has recently named Miles Marsh lead director.

In a conference call with analysts to discuss Purcell’s resignation, the firm revealed that it currently expects its 2005 second quarter earnings per diluted share to be approximately 15 – 20% below second quarter earnings per diluted share in 2004 of $1.10. The results were primarily driven by weakened market conditions, the firm suggested.

Purcell said he doesn’t believe the turmoil surrounding the firm contributed to the weaker results. And, he added that he doesn’t believe the public turmoil has weakened its franchise. He said that defections from the firm are only up slightly over last year, the difference is every departure is widely reported.

The company said it is still in the process of preparing second quarter financial statements and it is currently not anticipating a change in the Coleman litigation reserve, it added. And, it said in the call, that Purcell’s resignation doesn’t change its plan to spin off the Discover division. Purcell declined to comment on speculation surrounding a possible deal for Morgan Stanley, although he added that he’s not sure why his resignation announcement makes a deal more likely, even though he hasn’t named a successor.