Philip Purcell yesterday agreed to step down as chairman and chief executive of Morgan Stanley after a three-month battle with dissident former executives and a string of high-level defections from the Wall Street bank.

Mr Purcell said he would leave the group as soon as a successor was announced, but no later than March.

Miles Marsh, former chairman of Philip Morris who is now Morgan Stanley's lead director, told staff that Mr Purcell went to the board last week to offer his resignation. "We obviously had been thinking about it ourselves and regretfully had to accept his conclusion."

The board has hired headhunters Spencer Stuart to find a successor, but Charles Knight, of the board's compensation committee, said it had ruled out as candidates any of the eight dissident former directors that campaigned for Mr Purcell's removal.

He also ruled out the five members of the management committee who quit following a management reshuffle in March, as well as John Mack, a former president of Morgan Stanley.

Morgan Stanley also issued a warning about its second-quarter earnings. Following a similar warning from JPMorgan Chase, the company said difficult trading conditions meant earnings per share in the second quarter would be 15-20 per cent below that of the same period last year.

The group's shares opened strongly following the news of Mr Purcell's departure but slipped to trade over 2 per cent higher at $51 at 1pm in New York. Some analysts said Mr Purcell's departure would make it less likely that Morgan Stanley would be sold to a large banking group such as Bank of America.

Mr Purcell has faced mounting criticism since announcing a management shake-up that saw Zoe Cruz and Stephen Crawford promoted to co-presidents, making them internal frontrunners to succeed him. This prompted the immediate resignation of Vikram Pandit, who was previously Mr Purcell's favoured successor, and the departure of a number of other senior executives.