Marshall & Ilsley profit up 16 pct, bad loans rise

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NEW YORK, July 18 (Reuters) - Marshall & Ilsley Corp. (MI.N), Wisconsin's largest bank, on Wednesday said second-quarter profit rose 16 percent, as growth in fee income offset an increase in loan losses, which more than doubled.

Net income for the Milwaukee-based company rose to $220.3 million, or 83 cents per share, from $190.5 million, or 74 cents, a year earlier. Core operating income rose 9 percent to $222.6 million, or 84 cents per share.

Analysts on average forecast profit of 85 cents per share, according to Reuters Estimates.

Results included a $19 million gain from selling shares of credit card company MasterCard Inc. (MA.N)

Marshall & Ilsley, however, set aside $26 million for credit losses, up from $11.1 million a year earlier, while net charge-offs rose to $23.6 million from $9.9 million.

"Results reflect the challenging operating environment that confronts domestic banks," Chief Financial Officer Greg Smith said in a statement.

Fee income benefited from several acquisitions by the company's Metavante Corp. financial technology unit, which offers processing services. Noninterest revenue rose 11 percent to $537 million, while lending income rose 5 percent to $402.9 million. Expenses also rose 5 percent, to $574 million.

Marshall & Ilsley has said it plans in the fourth quarter to separate Metavante in a transaction valuing the unit at $4.25 billion, including debt. Private equity firm Warburg Pincus would invest $625 million for a 25 percent stake and the bank's shareholders would hold the remainder.

Marshall & Ilsley has more than 300 banking offices in several states, including 192 in Wisconsin, and $58.3 billion of assets.

The bank's shares closed Tuesday at $46.76 on the New York Stock Exchange. The shares are down 3 percent this year, compared with a 2 percent decline in the Philadelphia KBW Bank Index .BKX.

((Reporting by Jonathan Stempel Editing by Mark Porter; Reuters Messaging: jon.stempel.reuters.com@reuters.net, 646 223 6317)) Keywords: MARSHALLILSLEY RESULTS/

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