Oct 18 - Standard & Poor's Ratings Services today said that Morgan Stanley's (A-/Negative/A-2) fair third-quarter earnings, which are within our expectations given the current operating conditions, do not immediately affect our ratings on the company. Morgan Stanley reported Standard & Poor's-adjusted pretax income of $782 million, compared with $590 million in the second quarter and $275 million in third-quarter 2011. Investment banking revenue was 12% higher than in third-quarter 2011 because of stronger fixed-income underwriting fees. Equity underwriting and advisory fees declined, and we expect results in those businesses to be pressured as long as the risks of a global crisis keep corporations from expanding. Lower market volume also hurt equity trading results, down 8% year over year. Fixed-income, currency, and commodity trading results increased 33% over the same period, reflecting the improved market conditions. Results suggest clients returned to the firm after a weak second quarter. We expect trading results to improve once global economic conditions strengthen and investor confidence improves. Wealth management revenues improved modestly, but the pretax margin dropped to 7% from 11% in third-quarter 2011. The margin reflects one-time costs associated with Morgan Stanley's purchase of a larger stake in its wealth management joint venture and integration costs. The margin would have improved to 13% absent those expenses. We think results in this business remain below potential but should improve with the full integration of its joint venture over the next few years. Morgan Stanley's current projected Basel III Tier 1 common ratio was more than 9% at the end of the third quarter. We expect the company to return more capital to shareholders in 2013, considering its progress toward regulatory capital guidelines, subject to regulatory approvals. We expect capital, as measured by Standard & Poor's risk-adjusted capital framework, to remain neutral to the rating. The negative rating outlook on Morgan Stanley partially reflects the negative outlook on the U.S. sovereign rating. We incorporate two notches of uplift into the issuer credit rating on the company to reflect our expectation that the U.S. government would provide extraordinary support in a crisis. Therefore, if we were to lower the sovereign rating on the U.S., we would also lower the issuer credit rating on Morgan Stanley. We will continue to assess the potential impact of stress in the eurozone and the associated risks of contagion on the company's funding and liquidity, as well as the effect of regulatory changes on the franchise. Standard & Poor's, a part of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of credit ratings. With offices in 23 countries, Standard & Poor's is an important part of the world's financial infrastructure and has played a leading role for 150 years in providing investors with information and independent benchmarks for their investment and financial decisions.