Purcell said he will retire as soon as his successor is named.

NEW YORK (CNN/Money) - Morgan Stanley CEO Philip Purcell gave in to critics Monday, announcing his retirement, as one of Wall Street's leading brokerage firms seeks to repair its battered image -- and its earnings.

Purcell informed the company of his decision to leave as soon as his successor is named, but no later than the next annual meeting in March. It came via a letter that was sent to all Morgan Stanley employees Monday morning. The brokerage firm also announced a second-quarter earnings forecast that fell well short of Wall Street forecasts.

Morgan Stanley (up $1.06 to $50.94, Research) stock -- which has taken a beating in recent years -- jumped on the news and was the most active issue on the New York Stock Exchange.

"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," Purcell said in the letter released by the company. (For the full text of the letter, click here).

Purcell has been locked in an ongoing high-profile battle with a group of dissident investors and former executives critical of his leadership -- a rift that became public when two top executives resigned in March to protest Purcell's leadership.

Their departure was followed by a string of departures, including that of the company's chief legal officer, Donald Kempf, who's been under fire for his handling of lawsuits and regulatory actions.

Industry watchers noted that Purcell also has been under pressure from Wall Street due to Morgan's performance and lagging stock price, which is down about 39 percent since 2000.

Some industry veterans said Purcell's impending departure was a positive for the company.

"Ding, dong the witch is dead," said a former Morgan Stanley partner, who spoke to CNN/Money on condition of anonymity.

"No doubt Purcell has been under a lot of pressure as the stock has underperformed and the company has underperformed its peers," said Jeffery Harte, analyst with Sandler O'Neill & Partners.

"But the timing of Purcell's resignation is a surprise. It kind of came out of the blue. Nobody on Friday would have seen this coming," he said, adding: "If nothing else, it removes a cloud that was hanging over the company."

Morningstar analyst Meghan Crowe agreed.

"It's hard to say definitively whether Purcell was forced out or chose to go on his own," Crowe said. "But given that his announcement coincided with the warning, and that people have been leaving the firm over the past few months, the pressure would've been building on Purcell."

Meanwhile, the dissidents, known as the "Group of Eight" on Wall Street, said they hoped Purcell's departure would halt the flood of talent from the investment bank, Reuters reported.

In its warning, New York-based Morgan forecast second-quarter profits would be 15 to 20 percent lower than the $1.10 reported a year earlier, or between 88 to 94 cents a share. Analysts had forecast a profit of $1.08 a share for the quarter,

on average. Morgan Stanley is expected to report quarterly results June 22.

Potential successors for Purcell include Morgan Stanley co-presidents and directors Stephen Crawford and Zoe Cruz, industry analysts said.

In late morning call with analysts, Purcell commended Cruz and Crawford, saying both have "done an outstanding job in the last three months" in a difficult environment. "I believe both of them will provide outstanding leadership for the firm going forward," Purcell said.

The call focused almost entirely on Purcell's resignation and analysts were asked to withhold questions about the company's earnings warning until next week.

Another possibility could be Sir David Walker, chairman of Morgan Stanley's international operations.

"One thing in Walker's favor is that he's too old to be a permanent CEO," said the former Morgan Stanley partner. Another thing, he added, is that "Walker may have been critical of Purcell but he never joined the gang of dissidents."

"Ultimately it's going to need an executive with intestinal fortitude to take control of the firm and chart an apolitical steady course," he said.

Purcell said the search for a successor had begun, adding he was not worried about further defections.

But his departure by itself won't erase the bank's problems, including its struggling Discover credit-card business, weak results at its Dean Witter brokerage, and a tough fixed-income trading environment.

Morgan received another black eye last month when a Florida jury awarded billionaire investor Ronald Perelman a total of $1.45 billion in damages after finding the firm defrauded Perelman when he sold camping-equipment maker Coleman to the bank's client, appliance maker Sunbeam Corp.

The suit alleged that Morgan Stanley was aware of accounting irregularities at Sunbeam but didn't reveal them to Perelman because of the multi-million dollar fee it stood to earn from the deal.

Regarding the Discover business, Purcell said the company was still pursuing a spin-off of the unit that he expected to happen this year.

He dismissed the notion that the acrimonious environment at the firm had contributed to the second-quarter shortfall.

"It's the difficult business environment," he said. At the same time, he said, Morgan Stanley continued to lead in areas such as mergers and equity underwriting.

Asked whether not having a CEO would make Morgan Stanley more amenable to a merger down the road, Purcell responded by saying that was not an option.

Click here to read Purcell's retirement letter.