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ANALYSIS-JPMorgan on profit drop: Be relieved we aren't taking big risks

April 11 (Reuters) - JPMorgan Chase & Co executives had an explicit message for shareholders after reporting declining first-quarter earnings: Don't worry, be happy that the bank isn't chasing short-term gains by making irrational lending decisions.

The first quarter was a tough one for the bank: profit fell 19 percent, revenue fell 8 percent, and the bank set aside 38 percent more money to cover loan losses.

But the Important thing is that the bank is not lowering its lending standards, Chief Executive Jamie Dimon told reporters.

"We feel really good about the risks we're taking ... for the future of the company," Dimon said on a conference call.

The bank will not be too aggressive in areas where it says it believes other lenders have taken leave of their senses, such as corporate lending, Chief Financial Officer Marianne Lake told analysts on a separate conference call.

"We'll do every rational and sensible deal we can do but we aren't going to chase growth at the expense of discipline," Lake said.

For now, though, being disciplined is painful.

JPMorgan's mortgage lending and bond trading businesses logged steep revenue declines, but the bank's profits also fell in many other key businesses, including corporate lending and credit cards.

"It was not an exciting set of numbers," said Andrew Kohl, an associate portfolio manager at Alpine Financial Services Fund, which owns JPMorgan shares.

Total loans on JPMorgan's books grew less than 1 percent in the first quarter compared with the year-earlier period, and the average rates it earned on its $730 billion of loans fell to 4.49 percent, from 4.78 percent.

One headwind for loan growth at JPMorgan is the impact of old Washington Mutual assets that the bank is not replacing when they mature. JPMorgan rescued Washington Mutual at the height of the financial crisis.

JPMorgan's loan growth lags the overall market, Federal Reserve data show. Loans across the U.S. banking system rose about 3.5 percent from the final week of March 2013 to the last week of March 2014.

The volume of loans to companies has been growing fast, Fed data show: commercial and industrial loans on banks' books were 7.8 percent higher at the end of March from a year earlier.

In the riskiest part of that market, namely junk-rated loans to companies, quality has weakened, and deals are put together in a way that reduces protection to investors.

In the first quarter, companies took out $8.6 billion of second-lien loans, which are riskier as they provide lower recoveries to lenders in a default, the fifth-highest on record and a 25 percent increase over each of the past two quarters, Thomson Reuters LPC data show.

(Reporting by David Henry in New York, Additional reporting by Lauren Tara LaCapra in New York and Michelle Sierra at Thomson Reuters LPC in New York; Edited by Martin Howell)

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