By David Henry
NEW YORK (Reuters) - JPMorgan Chase & Co posted a higher-than-expected jump in second-quarter profit as it wrote off fewer bad mortgages and credit card loans.
The second-largest U.S. bank managed to make more loans during the quarter than in the first quarter and added staff, signs that bright spots are emerging in a sector long plagued by credit losses and questions about future profitability. The bank's shares rose in premarket trading.
"For this company to put up these kinds of numbers, given all the pressures the industry is facing, is phenomenal," said Richard Bove, a bank analyst with Rochdale Securities.
JPMorgan is the first major U.S. bank to post quarterly results, and its performance gives hints about how other banks fared in the period.
While there was positive news from the bank, it still faces headwinds. It said it still expects big expenses in mortgages as the housing crisis continues to saddle banks with high costs. Foreclosures could take another 12 to 18 months to start declining, Chief Executive Jamie Dimon said on a conference call with reporters.
Bond trading revenue, long a profit engine for many banks on Wall Street, declined from the first quarter.
And although loans at the end of the second quarter rose from the first quarter, the average loans outstanding declined, signaling that even if loan demand is improving, growth is uneven.
JPMorgan earned $5.43 billion, or $1.27 a share, in the second quarter, beating the average Wall Street estimate by 6 cents a share, according to Thomson Reuters I/B/E/S.
The results were up from year-earlier earnings of $4.8 billion, or $1.09 a share.
JPMorgan's loan book grew to $689.74 billion at the end of the quarter from $686 billion at the end of March as increased business lending offset a 2 percent decline in consumer lending. Compared with a year earlier, total loans were down 1 percent. Average loans fell to $686.11 billion from $688.13 billion in the first quarter.
Shrinking loan books and low interest rates since 2008 have made it difficult for banks to post profits, or increase them. A large part of earnings over the past year has come from reversing allowances the banks made earlier for bad loans.
Many analysts are hoping banks will start to post loan growth in the coming quarters, which would be a sign of sustainable increases in profits.
JPMorgan reduced the expense it recorded for credit costs to $1.81 billion in the second quarter from $3.36 billion a year earlier. However, that was up from $1.17 billion in the 2011 first quarter.
JPMorgan shares were up 2.5 percent to $40.60 in premarket trading Thursday following the results. Stock futures edged higher as the bank's strong earnings offset concern about the U.S. budget deficit talks and Europe's sovereign debt crisis.
TAKING SOME TIME WITH MORTGAGES
Dimon said in the earnings announcement that mortgage costs were down slightly, but cautioned that the housing market was still working through difficulties.
"Unfortunately, it will take some time to resolve these issues and it is possible we will incur additional costs along the way," he added.
In a sign of the lingering difficulties that JPMorgan and other banks are facing with home loans, JPMorgan said it expects to have to repurchase $3.6 billion of mortgages that it packaged into bonds. These repurchases are usually because the bank failed to properly collect payments on the mortgages, or should never have sold them to investors in the first place.
JPMorgan's investment banking profit fell 13 percent from the first quarter but rose 49 percent from the 2010 second quarter. Fixed income trading revenue fell 18 percent from the first quarter to $4.28 billion.
JPMorgan's investment bank last year went a long way toward making up for the drag of mortgages on the company. The bankers generated 38 percent of the bank's profits in 2010, about 10 points higher than their target contribution. The unit has been allocated nearly 40 percent of the capital JPMorgan assigns to its six business units.
JPMorgan's pre-provision profit, a measure of how much the bank earns before setting aside money for credit losses, fell 5 percent from a year earlier to $9.94 billion in the second quarter. The change was an improvement from a 20 percent drop in the same measure in the first quarter.
In the latest quarter the bank did not have to pay a UK tax on bonuses. In the year-earlier period, that tax reduced profits by $550 million, or 14 cents a share.
(Reporting by David Henry; editing by John Wallace)
