The reports from the front could have been worse. Still, Morgan Stanley (NYSE:MS) reported third-quarter earnings that -- excluding its Discover segment -- fell 8% from the prior year and missed analysts' estimates.

Investors in investment banks have been sitting on the edge of their seats over the past month, waiting for some more insight into how the crazy credit and equity markets have been affecting the banks. On Tuesday, results from Lehman Brothers (NYSE:LEH), though nothing to write home about, at least showed that diversification could help avoid some truly ugly results.

Today's report from Morgan sounded a similar variation on that theme. The firm's institutional-securities segment saw pre-tax profit plummet 22% from the third quarter of 2006. The soft results owed to lowered activity in the fixed-income-securities subsegment, and to $877 million in net losses in a subsegment that Morgan called "other sales and trading." The big loss came from writing down the value of financing that the firm had provided to non-investment-grade companies for acquisitions.

Balancing out these results were strong results from investment banking, equity sales and trading, global wealth management, and asset management. Equity sales and trading managed to post a 16% increase in revenue despite realizing $480 million in losses from quantitative strategies in its prop trading activities. Meanwhile, asset-management pre-tax income jumped to $491 million from $155 million in the prior year, a reflection of new money inflows, increased performance fees, and private-equity and real estate investment gains.

Looking ahead, we can see that economic conditions will likely dictate whether we see further deterioration in the investment banks' results. While the impact from the credit market's troubles has registered rather quickly, the decrease in other areas, such as investment banking, will lag, since banks are still working through deals in the pipeline from earlier in the year.

Up ahead this week, we still have results from Goldman Sachs (NYSE:GS) and Bear Stearns (NYSE:BSC) to look forward to. Though it's likely we'll see similarly strong investment-banking results, both firms have had very public problems with their asset-management segments, so we may end up seeing more soft spots in their reports.

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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. The Fool's disclosure policy has never been caught with its pants down. Of course, it doesn't actually wear pants...