updated 10/19/2006 2:17:08 PM ET 2006-10-19T18:17:08

JPMorgan Chase & Co. the third largest U.S. bank, said  Wednesday that quarterly net income rose about 32 percent on record investment banking fees and strong gains from bond underwriting and loan syndications.

Investment banking fees hit a record $1.4 billion, up 44 percent. While its pipeline for mergers and acquisitions remained strong, company executives said investment banking fees could be $100 million to $200 million less in the current quarter.

The stock fell nearly 2 percent in mid-day trading and was among the most active issues on the New York Stock Exchange.

Third-quarter net income rose to $3.3 billion, or 92 cents a diluted share, from $2.5 billion, or 71 cents a diluted share, in the year-earlier period, when it took a charge of $248 million, or 7 cents a share, related to Hurricane Katrina.

Analysts, on average, looked for JPMorgan to earn 86 cents a share before one-time items, according to Reuters Estimates.

Net revenue increased 8 percent to $15.4 billion.

Over the last year, JPMorgan has squeezed out higher profits despite declining mortgage originations, a slowdown in credit card growth and charges from large acquisitions, such as Bank One Corp.

Prudential Equity Analyst Michael Mayo said its traditional banking business reflected the challenges of tough competition and an inverted yield curve, or when short-term interest rates are higher than long-term rates.

Mayo said credit cards, mortgage, auto and commercial banking showed flat to down revenue.

The New York-based bank’s acquisition of the energy portfolio after the meltdown of hedge fund Amaranth Advisors LLC helped boost results at its commodities business, Chief Financial Officer Mike Cavanagh said. He declined to give specific numbers.

Fixed-income revenue was nearly $2.4 billion as the bank took more risky commodities trades. Average quarterly revenue from the fixed-income business has been averaging about $1.8 billion over the last several quarters, executives said.

“The results demonstrate we got paid for that risk,” Cavanagh said.

Investment banking fees were driven by debt underwriting and fees from merger and acquisition advice.

Deal highlights in the quarter included advising on the leveraged buyout of HCA Inc. and being joint bookrunner on Russian state-owned oil firm Rosneft’s $10.8 billion initial public offering.

Total investment banking revenue rose 5 percent to $4.7 billion. Net income fell 9 percent to $976 million because of higher compensation expenses and a larger provision for credit losses.

JPMorgan Chief Executive Jamie Dimon said the company’s retail banking business was hurt by a 28 percent decline in mortgage originations.

Jeff Harte, an analyst at Sandler O’Neill Partners, said in a research note that the bank’s credit quality and reserve levels remained strong. In a conference call with reporters, CFO Cavanagh said the credit market for late customer payments remains “benign.”

The mortgage banking unit posted a net loss of $83 million, compared with net income of $53 million in the year-ago quarter. Net income at the commercial banking unit fell 19 percent to $231 million due to higher reserves for credit losses.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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