updated 10/20/2004 8:50:53 AM ET 2004-10-20T12:50:53

Profits at JPMorgan Chase & Co. dropped 13 percent in the third quarter on weakness in the bank’s trading operations and costs related to its merger with Bank One.

The nation’s second largest bank said Wednesday that net income in the July-September period totaled $1.4 billion, or 39 cents a share, compared with net income of $1.6 billion, or 78 cents per share, a year earlier.

Excluding charges related to its July 1 merger with Bank One and changes in accounting, earnings were $2.2 billion, or 60 cents a share.

Analysts surveyed by Thomson First Call had projected earnings of 74 cents a share for the quarter.

Chairman and chief executive officer William B. Harrison Jr. said in a statement accompanying the report that operating results “were below expectations, primarily due to weak trading results in the investment bank.” He said retail banking and credit card operations performed well.

Chief financial officer Dina Dublon told a news conference that “the results in fixed income trading are disappointing to us and to the Street. So, yes, we are below what the Street expected us to be” in third-quarter performance.

“We obviously are disappointed with the results this quarter,” she said, adding that weakness was highly concentrated in investment banking.

James Dimon, former CEO of Bank One and president of the merged bank, said integration of the two institutions was proceeding on schedule.

“We continue to be on track in all phases of the merger integration,” Dimon said.

The bank, which is headquartered in New York, said operating earnings in its investment bank totaled $627 million in the third quarter, down 10 percent from the same period a year earlier. It blamed weak trading results in fixed-income markets.

Operating earnings also declined in its treasury and securities services division, the bank said. Operating earnings in this division were $96 million, down 17 percent from the year-earlier period.

Divisions that showed increases appeared to benefit from the acquisition of Bank One, which had very strong retail operations.

Operating earnings for retail financial services totaled $822 million for the third quarter, nearly three times greater than the $280 million reported a year earlier. Profits in the card services division were $421 million in the July-September period, compared with $62 million a year earlier. Earnings in the commercial banking division were $215 million, compared with $24 million a year earlier, while earnings in the asset and wealth management division were $197 million, up from $19 million a year earlier.

In the second quarter, JPMorgan Chase had reported a loss of $548 million after increasing its reserves by $2.3 billion to cover the expected cost of litigation in the Enron Corp. and WorldCom Inc. bankruptcies.

The bank said revenues for the third quarter were $13.6 billion, up $5.3 billion or 64 percent, due to the Bank One acquisition.

Last week, Citigroup, the nation’s largest financial institution, said earnings in the July-September period were a record $5.31 billion, or $1.02 a share, up 13 percent from a year ago and well above analysts’ expectations.

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