JPMorgan Earnings Jump 20 Percent on Record Fees

NEW YORK – JPMorgan Chase & Co. (JPM) on Wednesday reported a 20 percent jump in second-quarter profit, as the nation's third-largest bank benefited from a surge in investment banking fees.

The New York-based bank's shares fell more than 3 percent, however, after saying it socked more money away in anticipation of tougher lending conditions.

JPMorgan said net income totaled $4.2 billion, or $1.20 a share, in the April to June period, up from $3.5 billion, or 99 cents a share, in the same period a year earlier.

Revenue rose 25 percent to $18.91 billion from $15.09 billion a year earlier.

The results — driven by higher profits from investment banking, asset management, Treasury and securities services, and private equity — easily beat estimates. Analysts surveyed by Thomson Financial had forecast earnings of $1.09 per share on $17.62 billion in revenue.

Net income from investment banking rose 41 percent to $1.18 billion, compared with the year-ago period. Investment banking is the business JPMorgan has devoted the most resources to lately, and has turned out the greatest profits in recent quarters.

JPMorgan's retail banking business, meanwhile, saw a 10 percent profit decline in the second-quarter to $785 million from $868 million, hurt by decreases in regional banking and auto finance.

Although the company's mortgage banking business improved, JPMorgan's chairman and chief executive Jamie Dimon warned that the bank is bracing itself for a riskier lending climate.

JPMorgan tripled its total provision for credit losses to $1.53 billion in the second quarter, from $493 million in same period a year ago. The credit loss provision for its investment banking unit — which is exposed to subprime lending — rose to $164 million, compared with a benefit of $62 million last year. Its retail banking credit loss provision rose to $587 million from $100 million in the previous year.

"Although we remain at a relatively benign point of the credit cycle, we continue to focus on being prepared for a less favorable environment," Dimon said in a statement.

Flat or falling home prices in certain areas of the United States prompted the provision boost, as did a surge in charge-offs, or loan debts that a bank writes off as uncollectable.

JPMorgan's home equity business involves prime lending, but Chief Financial Officer Michael J. Cavanagh said the bank's decision to increase its credit loss provisions does not reflect a spillover of subprime lending problems into prime lending. Prime loans are given to people with good credit histories; subprime loans are made to those with poor credit.

"It's more of a home price issue; it's less about borrowers' ability to pay," Cavanagh said in a conference call with journalists.

The bank's shares fell $1.81, or 3.7 percent, to $48.10 in midday trading on the New York Stock Exchange. That's still in the upper half of its 52-week range, but down from its May peak above $53. Fears that the subprime mortgage delinquency and default trend could spread have been rattling the financial sector.

JPMorgan is one of the many banks issuing the billions of dollars worth of mortgage-backed bonds that Standard & Poor's and Moody's recently said they would downgrade. It was also a creditor of the two hedge funds invested in mortgage-backed bonds that Bear Stearns Cos. (BSC) Tuesday said have become practically worthless.

Dimon said in a conference call with analysts that "we were a little bit behind" in avoiding losses from the Bear Stearns funds, but that overall, "we always have excess collateral."

The CEO also said that in the bank's investment banking business, loss rates related to certain subprime loans were worse than expected, but better than average.

Net income from Treasury and security services soared to a record $352 million from $316 million in the year-ago period; asset management net income jumped to a record $493 million from $343 million; and private equity gains more than doubled to $1.3 billion. JPMorgan's private equity portfolio rose to $6.5 billion from $5.6 billion last year.

Meanwhile, JPMorgan's credit card business had net income of $759 million, down from $875 million a year ago, when results were helped by a change in bankruptcy law.

Commercial banking net income edged up to $284 million from $283 million.

On Tuesday, a few major banks issued second-quarter financial results that showed resilience to subprime lending woes. Wells Fargo & Co. (WFC), the fifth-largest U.S. bank, said its second-quarter profit climbed 9 percent, while KeyCorp (KEY) posted an 8 percent gain.