Mr Mack not only succeeded in returning to the firm he was forced to quit more than four years ago but managed to do so less than two weeks after the board of directors officially ruled him out as a contender.

Details of Mr Mack’s contract and pay were not made available immediately but it is understood he will earn at least $25 million (£14 million) a year including bonuses and stock options.

The Mack effect began swiftly as Mr Purcell’s chief cohorts, the recently appointed Stephen Crawford and Zoe Cruz, resigned from the board to allow the new chairman “flexibility in shaping the board’s composition.” The pair will remain at the business.

Mr Mack said: “I am proud to return home to the world’s premier financial services company and to the most talented team on Wall Street,” He made it clear he would welcome back staff who have left since Mr Purcell initiated a management shake-up in March. He has already been in touch with star bankers Joseph Perella and Vikram Pandit.

The board said that Mr Mack had the “singular combination of experience, strategic insight and leadership ability needed to bring together the people of Morgan Stanley and improve profitability”. With a Wall Street pedigree, which includes almost 30 years at Morgan Stanley, he commands massive respect among investment bankers and rank-and-file employees. He is known as Mack the Knife because of his record of cost-cutting.

Mr Mack left Morgan Stanley in 2001. He had made an agreement with Mr Purcell that, following the merger with Dean Witter, the pair would share the chief executive’s job.

But it soon became apparent that Mr Purcell had no intention of keeping to the plan.

Times Recommends

• Equitable Life halts £7bn sale on market turmoil
• Potential buyers emerge to save Woolworths staff
• Terrorist attacks close Bombay Stock Exchange