LONDON (Reuters) - Wall Street bank Morgan Stanley (MS.N: Quote, Profile, Research) said on Wednesday it had suspended a London-based credit trader who had overvalued positions by $120 million.

The company's chief financial officer said it had notified the authorities and was conducting a full internal review.

"I'm sure we know what the sentence is going to be, but I don't want to be like the Queen of Hearts," CFO Colm Kelleher said, referring to the character in Alice's Adventures in Wonderland famous for saying "off with his head."

Morgan Stanley did not disclose the trader's name. A spokesman said the trader became aware of the overvaluation based on internal controls in the second half of May, and has notified UK securities regulator Financial Services Authority.

The $120 million "mismark" on the trader's book was not a realized loss, the spokesman said.

Morgan Stanley, which has tightened its risk controls over the past few months, said it was an isolated situation.

The investment bank reported write-downs and losses of $1.7 billion in the second quarter.

Most investment banks have redoubled their risk controls after French bank Societe Generale's (SOGN.PA: Quote, Profile, Research) rogue-trader scandal.

In May, Lehman Brothers Holdings Inc LEH.N suspended two London equities traders after identifying a similar issue and Credit Suisse (CSGN.VX: Quote, Profile, Research) in February also suspended some traders in control procedures after finding pricing errors on books.

(Reporting by Daisy Ku, additional reporting by Dan Wilchins in New York; Editing by Braden Reddall)