Good Quarter for Key Banks

Bank One Corp., Wells Fargo & Co. and other U.S. banks had higher third-quarter profit as costs dropped and falling interest rates bolstered revenue from lending.

Bank One, the sixth-largest U.S. bank, recorded a 30% increase in net income, while profit at Wells Fargo, the fourth-biggest bank in the country, increased 42% as margins on lending widened.

The Federal Reserve’s nine interest rate cuts this year lowered the cost of funds banks used to lend money during the quarter and encouraged customers to borrow. That helped offset an increase in losses from bad loans as the weakening economy made it harder for customers to pay debt.

“The aggressive Fed easing and significantly lower interest rates have allowed banks to come through with adequate to good numbers,” said David Katz, chief investment officer of Matrix Asset Advisors, which owns shares of Bank One and Wells Fargo, among other financial services stocks.

Bank One said net income increased to $754 million, or 64 cents a share, as it saved money by cutting 2,690 jobs, or 3.4% of its work force, in the third quarter.

Bank One’s net income rose to $754 million, or 64 cents a share, from $581 million, or 50 cents, a year earlier. Chief Executive Jamie Dimon has cut more than 8,000 jobs and trimmed the company’s exposure to large loans. Expenses fell to $2.3 billion in the third quarter from $2.5 billion a year earlier.

Bank One said nonperforming assets, most of which are loans flagged not likely to be paid, rose $277 million to $3.22 billion from the second quarter and $1.09 billion compared with the year-ago quarter.

Bank One shares rose $2.46 to $32.81 on the New York Stock Exchange.

Wells Fargo had net income of $1.16 billion, or 67 cents a share. Lower interest rates encouraged customers to take out new mortgages.

Wells Fargo said it received a record $67 billion in mortgage applications during the quarter and lent $48 billion for mortgages during the period.

Revenue increased 14% to $5.5 billion as net interest income rose 15% to $3.22 billion. The bank’s net interest margin rose to 5.40% from 5.34% a year earlier.

Revenue the bank made from fees such as deposit service charges and mortgage origination increased 11% to $2.28 billion.

The San Francisco-based bank’s bad loans increased $155 million to $1.79 billion in the quarter, a 9.5% increase.

Wells Fargo shares fell 58 cents to $40.19 on the NYSE.

Fifth Third Bancorp, the 15th-largest U.S. bank, said third-quarter profit rose 17% as it gathered more deposits and fee income.

Profit from operations rose to $363.5 million, or 62 cents a share, from $309.4 million, or 54 cents, in the year-earlier quarter. That beat the 61 cents a share expected by analysts polled by Thomson Financial/First Call.

Fifth Third’s nonperforming assets rose 22% to $21 million from $173 million a year earlier. The bank’s stock fell $1.01 to $54.92 on the NYSE.