By Niket Nishant and Nupur Anand
(Reuters) -JPMorgan Chase shares rose nearly 5% on Friday after profit beat expectations in the third quarter, fueled by gains in investment banking and rising interest payments.
The prospect of further monetary easing by the Federal Reserve spurred an equities rally during the third quarter, prompting companies to issue debt and equity. Improving economic confidence underpinned earnings at JPMorgan, the largest U.S. lender, and rival Wells Fargo, which also surpassed profit estimates.
JPMorgan's stock, trading around $223, was on course for its biggest daily percentage gain in 1-1/2 years.
JPMorgan's investment-banking fees surged 31%, doubling guidance of 15% last month. Equities propelled trading revenue up 8%, exceeding an earlier 2% forecast.
"These earnings are consistent with the soft-landing narrative" of modest U.S. economic growth, Chief Financial Officer Jeremy Barnum told reporters.
"In light of the positive momentum throughout the year, we're optimistic about our pipeline for mergers and acquisitions," Barnum later told analysts.
Net interest income - the difference between what the bank earns on loans and pays on deposits - grew 3% in the quarter.
JPMorgan raised its annual NII forecast to $92.5 billion from $91 billion. The new estimate was higher than the $91.05 billion analysts polled by LSEG had forecast.
The move surprised analysts who had expected third-quarter NII to decline after President Daniel Pinto warned last month that forecasts were too optimistic.
After fielding several questions from analysts parsing the guidance, CEO Jamie Dimon said: "I don't want to spend all the time on this call guessing what the NII number is going to be next year."
The results highlighted the benefits of JPMorgan's diversified business, as growth in its commercial and investment bank offset declines in its consumer unit, said Peter Nerby, a senior vice president in the financial institutions group at Moody’s Ratings.
The results underscore JPMorgan's track record of generating capital to protect its bondholders from economic, geopolitical and regulatory uncertainty, Nerby said.
Dimon reiterated his warning that escalating global conflicts could disrupt economic activity.
"We have been closely monitoring the geopolitical situation for some time, and recent events show that conditions are treacherous and getting worse," Dimon said in a statement.
Tensions in the Middle East have escalated this month, with Israel clashing with Iran and the Lebanese group Hezbollah, while it battles Hamas in Gaza.
As the Nov. 5 presidential election nears, Dimon has been floated for senior positions on U.S. economic policy, such as Treasury secretary. He has been praised by former President Donald Trump and spoke to Vice President Kamala Harris last month.
"I've always been an American patriot and my country is more important to me than my company," Dimon, who has not publicly endorsed a presidential candidate, told analysts.
When asked if he would consider a government role, Dimon said: "the chance of that is almost nil. And I probably am not going to do it. But I always reserve the right" to reconsider.
Dimon, who has run the bank for 18 years, has emphasized that he and the rest of the board will "do the right thing" on succession when he eventually leaves, without specifying details.
PROVISIONS JUMP
Banks are building stockpiles of money to cover loans that may not be repaid. The provisions are rising to more typical levels as consumers deplete the savings they built up during the pandemic.
JPMorgan set aside $3.11 billion in the quarter for likely credit losses, compared with $1.38 billion a year earlier, largely because it had expanded lending, Barnum said.
Still, consumer finances and spending remain resilient in a strong job market, Barnum said, and late payments on loans are normalizing from historically low levels.
Overall, profit fell 2% to $12.9 billion for the three months ended Sept. 30. Earnings per share of $4.37, however, exceeded expectations of $4.01, according to estimates compiled by LSEG.
"Relative to the uncertainty going into the quarter JPM reported strong third-quarter results," said Gerard Cassidy, an RBC Capital Markets analyst. He cited the bank's better-than-expected non-interest income and NII.
Dimon said the bank was awaiting new draft proposals, known as Basel III Endgame, which would increase capital requirements for large U.S. lenders.
"We believe rules can be written that promote a strong financial system without causing undue consequences for the economy, and now is an excellent time to step back and review the extensive set of existing rules."
The Fed is watering down the contentious proposal after months of industry push back. The draft rules would raise big banks' capital requirement by 9% instead of 19% under the original proposal.
(Reporting Nupur Anand in New York and Niket Nishant in Bengaluru; Editing by Lananh Nguyen, Arun Koyyur and Rod Nickel)