In JP Morgan's 3Q, consumer banking offsets drop in trading

JPMorgan Chase & Co. third-quarter profits rose 7 percent from a year earlier, as the bank as able to increase revenue in its consumer banking business even though the company saw a sizeable drop in trading revenue in the quarter.

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The biggest bank by deposits and assets said Thursday that it earned a profit of $6.73 billion, or $1.76 per share, compared with $6.29 billion, or $1.58 a share, in the same period a year earlier. The results beat analysts' forecast of $1.65 a share, according to FactSet.

JPMorgan's consumer bank was the driver of this quarter's growth, reporting a 16 percent rise in net income. The bank saw higher deposit and loan growth and higher revenue in its credit card division, which the bank has been expanding aggressively in the last year with a new high-end credit card known as Chase Sapphire Reserve. Charge-offs in that business have been creeping steadily higher for several quarters, however, and the bank had to set aside an additional $223 million to cover potential losses.

Despite the creep up in delinquencies, "the U.S. consumer remains healthy," JPMorgan Chase CEO Jamie Dimon said in a statement. In a call with reporters on Thursday, JPMorgan Chief Financial Officer Marianne Lake said the creep up in delinquencies was within the bank's expectations.

The bank was able to grow loans across the board in its consumer business: credit cards, business loans, auto loans as well as mortgages. Along with the growth in loans, the bank benefited from a rise in interest rates. Net interest income rose to $16.68 billion in the quarter, up from $14.07 billion a year earlier. And the bank's net interest margin, which measures a bank's profitability by comparing how much it makes from lending money versus how much it costs to borrow, grew to 2.37 percent from 2.24 percent.

The gains in JPMorgan's consumer banking division were more than enough to make up for declines in corporate and investment banking, its other major business. That division reported a 13 percent decline in profits from a year earlier, mostly due to lower trading revenues. Bond trading revenue was down 27 percent and stock trading revenue fell 4 percent, the bank said.

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Stock and bond trading revenue has languished this year at major banks because markets have been relatively quiet. JPMorgan Chase, Citigroup, Bank of America and Goldman Sachs all saw trading revenue drop in the second quarter this year, and analysts have been anticipating another decline this quarter. Citigroup, which also reported its results on Thursday, reported a smaller, but similar decline in its bond trading revenue.

JPMorgan's total revenue was $26.2 billion on a managed basis, which was more than the $25.19 billion that analysts had been looking for. The firm's return on common equity, a measure of how well a bank is performing, was 11 percent in the quarter, up from 10 percent a year earlier. Major banks like JPMorgan try to keep that metric above 10 percent.

JPMorgan's stock slipped 85 cents to close Thursday at $95.99 in midday trading. It's up roughly 11 percent this year.