JPMorgan Chase's stock soared after second-quarter profit fell more than 50 percent, hurt by $1.1 billion in write-downs at its investment bank, but the results beat expectations.
The third-largest U.S. bank , which bought Bear Stearns in May, had until now mostly sidestepped the credit crisis that has seen massive write-downs for Wall Street firms.
The $1.1 billion of write-downs were mainly for mortgages and leveraged-buyout loans. Competitors such as Citigroup and Merrill Lynch have taken much larger write-downs in recent quarters.
The bank's revenue was higher than forecast, bolstered by market share gains by its investment bank as well as growth in retail financial services.
"JPMorgan is obviously much better positioned in a very tough environment," said Peter Boockvar, equity strategist at Miller Tabak in New York.
The better-than-forecast earnings, which helped lift stock market futures, came a day after Wells Fargo also beat expectations, sending financial stocks soaring. Later on Thursday Merrill Lynch is reporting earnings and on Friday Citigroup, JPMorgan's troubled larger rival, will.
Net income dropped to $2 billion, or 54 cents per share, from $4.23 billion, or $1.20 a share, a year earlier.
Analysts on average had expected earnings of 44 cents a share, according to Reuters Estimates.
The company's tier one capital ratio, a measure of capital strength, rose to 9.1 percent from 8.4 percent in the same quarter last year, though it would have been 8.1 percent without regulatory relief stemming from the Bear Stearns takeover, which was assisted by federal regulators.
The bank also sounded a note of caution." Our expectation is for the economic environment to continue to be weak -- and to likely get weaker -- and for the capital markets to remain under stress," Chief Executive Jamie Dimon said in a statement.
Dimon sounded some other ominous notes in a conference call saying the bank is prepared for losses on prime mortgages to triple and adding that unlike Wells Fargo, the bank has no plans to boost its payout.
"We're not going to increase the dividend until we see clear daylight," he said.
Still, JPMorgan has been benefitting from rivals' weakness and is gaining market share in multiple businesses because of it, Mike Cavanagh, JPMorgan's chief financial officer, said in a conference call with reporters.
Despite the deals downturn, the bank enjoyed the second-highest quarter for investment banking fees.
Dimon said the bank is keeping its compensation ratio relatively high because "we don't want our people getting depressed."
The acquisition of Bear Stearns, completed in the second quarter contributed $540 million of losses and charges.
The company's shares rose 4.9 percent to $37.70 in premarket trading.
At Wednesday's close, the stock was down 15 percent this year, compared with a 35 percent decline in the KBW Bank Index.