J.P. Morgan's Profits Up on Lending Boost -- 3rd Update

By Emily Glazer Features Dow Jones Newswires

J.P. Morgan Chase & Co. said its third-quarter profit rose 7.1% as a boost from lending offset weaker trading results at the nation's biggest bank by assets.

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The bank reported net income of $6.73 billion, or $1.76 a share. That compares with a profit of $6.29 billion, or $1.58 a share, in the same period of 2016. Analysts polled by Thomson Reuters had expected earnings of $1.65 a share.

Revenue rose 2.7% to $26.2 billion. Analysts had expected $25.23 billion.

Shares slipped 0.5% in morning trading.

Analysts repeatedly asked bank executives about still low -- but rising -- interest rates and how they can help the profitability of big consumer lenders like J.P. Morgan. Sharp moves in the yield of the 10-year Treasury in the third quarter had whipsawed bank shares.

J.P. Morgan's portfolio of loans and securities got a boost from higher interest rates in the third quarter. The bank's net interest margin, a measure of how profitably it lends out and invest its customers' deposits, rose to 2.37% from 2.24% in the same period a year ago.

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Rates have risen this year as the Federal Reserve increased its short-term target. But the yield on the 10-year hasn't risen as much, leading to a flattening of the yield curve, which can hamper bank profits.

In fact, the bank has seen "very little to no movement" in the deposit rates it has had to offer its customers, finance chief Marianne Lake said on a call with analysts. Rates on certain savings accounts and CDs have moved incrementally higher, but Ms. Lake said it could be two or three more increases in the Federal Reserve's benchmark rate before consumer deposit rates move. That said, the bank has had to pay higher deposit rates to big companies.

J.P. Morgan's trading revenue decreased 21% to $4.53 billion from $5.75 billion in the third quarter of 2016, hurt by a 27% falloff in fixed-income trading revenue alongside a 3.6% decline in equities.

Ms. Lake said during the analyst call that the bank expects sluggish trading activity to continue into the fourth quarter. She added there were "no obvious catalysts on the horizon" that would affect trading activity for the remainder of the year and that the bank expects fourth-quarter markets revenue to be lower than it was in the same period of 2016.

J.P. Morgan extended $26.9 billion in mortgages in the quarter, down 1% from the $27.1 billion the bank extended in the third quarter a year ago. Revenue in its mortgage division, one of the largest in the U.S. by volume, was $1.56 billion, down 17% from the $1.87 billion it reported in the year-earlier period. Still, Ms. Lake said the bank is gaining share and investing in bankers, the retail segment and the purchase market.

Analysts also pressed executives about the bank's card business, particularly the impact of the Chase Sapphire Reserve card.

Ms. Lake said the bank reached an inflection point "where growth is offsetting the impact of the significant upfront investments in Sapphire Reserve" and revenue is expected to grow.

Overall profit at the corporate and investment bank was $2.55 billion, a 13% decrease from $2.91 billion in the same period last year. In the consumer bank, profits were $2.55 billion compared with $2.2 billion in the third quarter a year ago. J.P. Morgan's commercial bank earned $881 million, a 13% increase from the $778 million it earned in the year-ago quarter, and the bank's asset-management unit reported profits of $674 million compared with $557 million in the third quarter of 2016.

J.P. Morgan set aside $1.46 billion in the third quarter to cover loans that could potentially turn bad in the future. That compares with $1.13 billion in the third quarter of 2016 and $1.18 billion in the second quarter of 2017.

The bank also had higher net charge-offs in its card business and built reserves of $300 million, largely due to newer vintages.

The bank lost $1.27 billion to loan defaults, or 0.58% of its overall portfolio, compared with a 0.56% charge-off rate in the second quarter of 2017.

Costs decreased to $14.32 billion from $14.46 billion a year earlier. Executives said in a February investor presentation that expenses are expected to rise in 2017 to fund investments and growth.

The latest results included a legal benefit of $107 million, compared with expenses of $61 million in the second quarter and a gain of $71 million in a year earlier.

Return on equity, a measure of profitability, was 11% in the third quarter compared with 10% a year ago.

Since the election, J.P. Morgan's shares are up 38%, alongside a 34% jump in the KBW Nasdaq index of bank stocks.

Though bank stocks have been fairly flat in the months following the postelection surge, they came roaring back toward the end of the third quarter, in part due to investor optimism around a tax-code overhaul.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

October 12, 2017 11:04 ET (15:04 GMT)