JPMorgan profit surges on investment banking gains

JPMorgan Chase & Co. reported a 36 percent jump in second quarter profits Thursday, easily surpassing analysts' forecasts as huge gains in its investment banking business outweighed higher losses from bad loans.

The results came two days after rival Goldman Sachs Group Inc. also posted surprisingly good results, solidifying the companies' position as the strongest players in the industry. Many other banks are still struggling to emerge from the worst of a credit crisis that peaked last fall as well as a recession that has sent loan defaults higher.

"Both JPMorgan and Goldman Sachs were well positioned going into the crisis, and they are going to continue to pull ahead and dominate the sector," said Len Blum, managing partner at investment bank Westwood Capital.

JPMorgan and Goldman are among the 10 major banks that federal regulators deemed healthy enough last month to repay billions in bailout funds, freeing them from tighter government oversight and caps on pay that the industry had chafed at. Two major banks that haven't yet exited the rescue program, Bank of America Corp. and Citigroup Inc., report their earnings on Friday.

JPMorgan earned $2.72 billion for the April-June period, up from $2 billion a year ago. Investment banking profits more than tripled to $1.5 billion on higher underwriting fees and gains in its bonds business, though some analysts said that was an unusual bump and unlikely to be sustained.

Like Goldman Sachs, JPMorgan is also seeing its investment banking business benefit from a smaller playing field. JPMorgan bought Bear Stearns Cos. at a fire sale price last year when the firm was on the brink of collapse, and Lehman Brothers later declared bankruptcy - both of them felled by risky loans related to real estate.

At the same time, JPMorgan also reported higher losses in consumer lending and credit cards. The bank said it set aside $9.7 billion for credit losses in the quarter, up from $4.29 billion a year earlier. It also set aside another $2 billion to cover future losses, bringing its total loss reserves to more than $30 billion.

JPMorgan executives were cautious about the consumer lending business in a conference call with investors and analysts, noting the ongoing uncertainty about the economy.

The bank's chief financial officer, Mike Cavanaugh said that "in the near term, meaning this year and next, it's going to be hard to see how we turn a profit in the (credit) card business."

JPMorgan's credit card services division posted a $672 million loss in the quarter, compared with a year-earlier profit of $250 million, as more cardholders default. Revenues also fell with the introduction of new rules designed to protect consumers.

Credit card issuers have been hit not only by delinquencies but also by lower consumer spending. Also, JPMorgan executives said, it's not yet known how credit card legislation that recently became law will affect profits in the card business.