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OUCH JPIG BAD NEWS NEW YORK (Dow Jones)--JPMorgan Chase & Co. (JPM), bracing itself for more loan losses driven by the recession, delivered surprisingly strong first quarter results on Thursday.
Carried mainly by a recovery in securities trading that lifted JPMorgan Chase's investment banking revenue to a record, the bank said it's strong enough to pay back the U.S. Treasury Department even as it had to set more money aside for rising delinquencies and loan losses. Bond trading took away much of the pain from the recession.
JPMorgan Chase's profit for the quarter fell 10% from a year earlier, to $2.1 billion, but revenue jumped 48%, to $25.03 billion. The bank's shares rose about 1% in recent trading, to just almost $33.
Write downs related to illiquid, or so called toxic, securities and loans are "getting to be much less noteworthy," Chief Financial Officer Michael Cavanagh told investors during a conference call. However, JPMorgan Chase set aside $4.2 billion to cover future loan losses, $100 million more than in the fourth quarter - more than some analysts had expected.
JPMorgan Chase has a war chest of $28 billion to cover future loan losses, and that reserve is "staggeringly high" for some loan portfolios, Cavanagh said. Loan losses are expected to continue to rise, but not more so than previously expected, he said.
Chairman and Chief Executive Jamie Dimon told reporters the bank might add "a little bit" to that reserve if the economy continues to deteriorate. He also said he doesn't expect the stellar results in investment banking to be sustainable. "It was just an exceptionally good quarter and it is unreasonable to expect that continue like that," he said.
It is the third big bank to surprise Wall Street with solid first quarter results despite the recession. Goldman Sachs Group Inc. (GS) on Monday reported a $1.7 billion profit, reversing a $2.3 billion fourth quarter loss. And Wells Fargo & Co. (WFC) said last week it expects a $3 billion first quarter profit. It is scheduled to report earnings next week.
Goldman's results were tied almost exclusively to fixed income trading, and Wells Fargo benefited mainly from its acquisition of Wachovia Corp. JPMorgan Chase benefited from its acquisition of Bear Stearns Cos. and Washington Mutual Inc. last year, and, like Goldman, it wants to pay back the money it received last year from the Treasury's Troubled Asset Relief Program.
Dimon said TARP was good for the banking system, but the money has become "a scarlet letter." And unlike investment bank Goldman, Dimon said JPMorgan Chase doesn't plan to raise capital. Unless forced to do so by the government, "I don't see why we need to raise money," he said. The bank awaits guidance about TARP repayment from the government.
Earnings of 40 cents a share beat the average analyst estimate by 8 cents, according to Thomson Reuters.
The investment banking division posted earnings of $3.6 billion, reversing a $3 billion loss in the fourth quarter driven by primarily by almost $5 billion in fixed income trading revenue.
But retail banking also improved earnings slightly, to $4.6 billion despite rising loan losses. The commercial banking business fell back, hurt by money put aside for rising loan losses and by declining demand from middle-market borrowers. The credit card business generated its second consecutive quarterly loss and is likely to remain unprofitable this year, Cavanagh said.
Mortgage originations were strong, driven mainly by borrowers seeking to refinance to take advantage of falling interest rates. Auto lending also resurged, in part because captive lenders retrenched, Dimon told reporters.
Credit-loss provisions nearly doubled from a year earlier, to $8.6 billion. The net charge-off rate surged to 4.9% from 2.68%.

-By Matthias Rieker, Dow Jones Newswires; 201-938-5936; [e-mail]
(Kerry E. Grace contributed to this article.)

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