John Mack waltzed back to the

Morgan Stanley

(MWD)

trading desk to rounds of applause, needing nothing more than his formidable presence to light up the room. But it's going to take more than personality to turn around this beaten-up company.

In returning to Morgan Stanley four years after being muscled out by Phil Purcell, Mack will have his hands full.

He will have to work quickly to heal feelings hurt in the bruising battle that led to Purcell's ouster last month. No doubt, Mack will try to lure back some of the many investment bankers and traders who headed for the exits over the past three months. He'll also need to make sure the firm doesn't lose too many Purcell loyalists who are unhappy about the recent turn of events.

Another big item on his agenda is deciding whether to keep Morgan Stanley together or pursue a sale of its parts. One area sure to get a lot of attention is the Discover credit card business, which the firm is considering spinning off as a freestanding business.

For now, Mack isn't saying much about his plans. Noting he'd been back at the firm for just a few hours, Mack said it's too soon to make any decisions.

In a Thursday conference call, he deflected questions about the future of Discover, saying he doesn't have all the facts before him.

"I need to plug back in and make sure we have the best people," said Mack. "I need to understand and define the strategy."

Mack's return to Morgan Stanley had been the subject of speculation for more than a week. His return marks a major victory for the investment-banking arm of Morgan Stanley over the firm's large retail brokerage operation.

The irony, of course, is that Mack had as big a role as Purcell in orchestrating the 1997 deal that led to the merger of Morgan Stanley, one of Wall Street's storied investment banks, with Dean Witter Discover, a mass-market retail brokerage. At the time of the deal, Purcell was the head of Dean Witter.

In a television interview and during the conference call with analysts, Mack defended the merger, saying he would do the deal again if he had to.

But to the investment bankers and traders from the Morgan Stanley side, Purcell was always an outsider -- he continued to live in Chicago, not New York. Mack, meanwhile, was always one of their own, having started at the firm in 1972 as a bond salesman.

Purcell was driven out in a high-profile putsch led by former and current employees with ties to the old Morgan Stanley. The executive's bruising management style never wore well at the firm, and he was unable to overcome the clash of culture that was spawned by merging an old-line investment bank with a big retail brokerage group.

In going back to the future with Mack, some believe Morgan Stanley, which has seen its stock languish in comparison with that of its peers, can return to its glory days. Mack's supporters hope his arrival can stem the flood of departures at the firm, lure back some of the stars who have left, and put an end to what has been Wall Street's longest-running soap opera.

The press release, however, made no mention of recently departed employees and didn't address the issue of Morgan Stanley's board, many of whom were Purcell loyalists. The group of former Morgan Stanley alumni who helped push Purcell out the door has been demanding a voice on the board too.

Late Thursday, however, Zoe Cruz and Stephen Crawford, two executives Purcell had recently named co-presidents and appointed to the Morgan Stanley board, announced that they were giving up their board seats.

The elevation of Cruz and Crawford was the spark that started the protests that led to Purcell's ouster. Cruz and Crawford remain co-presidents, and Mack gave no indication that he intends to remove either of them.

The release also traffics in some revisionist history. Charles Knight, the board member who headed up the search for a new CEO and initially ruled out Mack as a candidate, is quoted as calling Mack "the very best candidate to lead the firm.''

Knight says the board conducted "an intense, thorough search process and evaluated a number of outstanding candidates.'' Given that it's been only two weeks since Purcell announced his resignation, the thoroughness of the search is open to question.

There's danger in revisiting the past as Morgan Stanley is now doing. While Mack was a beloved figure by many at the old Morgan Stanley, he also was feared. It was at Morgan Stanley that he earned the sobriquet "Mack the Knife," a reference for his penchant for cost-cutting, usually in the form of lost jobs. His return also could fuel a new round of defections among Purcell loyalists.

After Mack left Morgan Stanley, he took the top job at

Credit Suisse First Boston

(CSR)

and lived up to his nickname. Over a three-year stretch, Mack eliminated nearly 10,000 jobs. While his ax-wielding helped return CSFB to profitability, he also clashed with other top managers at Credit Suisse, the Swiss bank that owns the investment firm.

Last summer, Mack, for the second time this decade, was pushed out of his job, after Credit Suisse decided not to renew his contract. For the past year, Mack has been without a job. Recently, he was named chairman of Pequot Capital Management, one of the nation's largest hedge funds.

Whether he wants to talk about it or not, the future of Discover is certain to occupy a lot of Mack's attention over the next few months. In a bid to save his job, Purcell outlined a hastily drawn plan in April to spin off Discover, even though Purcell had always talked up the advantages of Morgan Stanley being in the credit card business.

After Purcell announced he would step down, the board indicated it was rethinking the spinoff. Analysts have questioned whether Discover could survive on its own without a huge capital investment by Morgan Stanley.

It's become increasingly difficult for credit card companies to function as standalone businesses, as evidenced by

Bank of America's

(BAC) - Get Report

$35 billion offer on Thursday for

MBNA

(KRB)

, the largest independent credit card company.

Analysts say the BofA-MBNA deal makes it less likely that Morgan Stanley will go ahead with the spinoff. Rather, Morgan Stanley could seek a buyer for Discover, given that other big banks will now be looking to bolster their credit card offerings.

David Hendler, an analyst with CreditSights, says he believes Mack will not immediately look to sell Discover. He says Mack has been away from the company for several years and will need time to assess the situation.