BofA, JPMorgan Post Profit on Mortgage, Investment Business

Bank of America Corp. and JPMorgan Chase & Co., two of the three biggest U.S. banks, reported higher third-quarter earnings Wednesday, demonstrating the strength of the nation’s mortgage-lending and investment-banking markets.

Charlotte, N.C.-based Bank of America, the second-largest U.S. bank and the biggest in the California market, said increased mortgage lending helped boost net income for the quarter ended Sept. 30 by 10%, to $4.13 billion, or $1.02 a share, from $3.76 billion, or 91 cents, a year earlier.

Excluding merger costs, Bank of America earned $1.04 a share. On that basis, analysts were expecting profit of $1.02 a share. The company’s stock rose 87 cents to $42.44.

New York-based JPMorgan Chase, which merged with Bank One a year ago, said its third-quarter net income was $2.53 billion, or 71 cents a share, up 78% from $1.42 billion, or 39 cents, a year earlier. The firm said strength in its investment banking business, including record trading revenue, boosted results.

Excluding merger-related charges, JPMorgan Chase’s operating profit was $2.7 billion, or 75 cents a share, 3 cents above the average estimate of analysts.

JPMorgan Chase shares rose 96 cents to $34.73.

Bank of America was one of several financial firms with California operations that reported results Wednesday, including Seattle-based Washington Mutual Inc., the nation’s biggest thrift; Beverly Hills-based City National Corp. and East West Bancorp of San Marino.

Financial companies are benefiting from the booming housing market, which has stoked mortgage lending. A surge in demand for merger and underwriting advice also has added to banks’ profit.

“It clearly indicates the economy is reasonably strong,” said Mark Batty, an analyst at PNC Advisors in Philadelphia. “Loan growth remains very strong, and that’s a positive.”

Still, many of the banks reporting this week had weaker results in their consumer divisions. The main culprits have been higher provisions for loan losses amid soaring bankruptcy filings and write-offs related to Hurricane Katrina, which devastated the Gulf Coast in August.

What’s more, banks have been squeezed as short-term interest rates have risen much faster than longer-term rates, narrowing the difference between what banks pay for money and what they earn on loans and investments.

Bank of America said its net interest income rose just 2% to $7.97 billion in the third quarter as “success in growing loans and deposits was dampened by continued relatively low long-term interest rates.”

In recent weeks, longer-term interest rates have moved up sharply, in part because of inflation worries and expectations that the Federal Reserve would continue to tighten credit. That could present a new problem for banks if higher long-term rates slow mortgage lending.

“The Fed is raising rates to make sure consumer spending stays in line with what the economy can handle in terms of debt,” said Adam Dener, a partner at Capco, an advisor to financial-services companies. “If the Fed continues to raise rates, the fourth quarter should be a bit more challenging” for banks.

In other earnings:

* Washington Mutual said profit increased to $821 million, or 92 cents a share, from $674 million, or 76 cents, a year earlier on a jump in home-loan demand. The company, which raised its quarterly dividend by a penny to 49 cents a share, was expected to earn 90 cents a share.

* City National reported net income of $59.8 million, or $1.17 a share, up 12% from $53.5 million, or $1.04 a share, a year ago.

* East West earned $28.6 million, or 52 cents a share, up 40% from $20.4 million, or 39 cents.