JP Morgan Profit Up 55%, Topping Views, But Reserves Boosted

JP Morgan Chase, the nation's largest bank, said Wednesday earnings rose 55%, reflecting strength across most of its primary business lines, although it increased reserves to offset subprime mortgage losses.

“They’re doing better, in pretty much all of their businesses, than they were two years ago," said Jeffery Harte, managing director in equity research at Sandler O'Neill, on “Squawk Box.”

"They took some subprime related charges but it doesn’t seem to be too much,” O'Neill said.

The New York-based bank said net income rose to $4.8 billion, or $1.34 a share, from $3.1 billion, or 86 cents a share, a year earlier. The results were boosted by an 11 cent accounting change.

Revenue was nearly $19 billion, up from $15.2 billion a year earlier.

The results far outpaced the $1.02 a share earnings on $16.9 billion in revenue expected by analysts surveyed by Thomson Financial.

The bank said it was raising its quarterly dividend 4 cents to 38 cents a share, payable on July 31 to stockholders of record as of July 6. It was the first dividend increase in six years, according to Chief Financial Officer Michael J. Cavanaugh.

It also authorized a $10 billion share repurchase program.

On Monday, Citigroup , the nation's largest financial institution, said its first-quarter profit dropped 11% on a charge to cover a massive restructuring aimed at cutting costs and improving earnings. But the results still beat analysts' expectations.

Bank of America , the nation's second-largest bank by assets, is scheduled to report its earnings on Thursday. It is based in Charlotte, N.C., Jamie Dimon, the bank's chairman and chief executive, said he was "very pleased" with the results, which he said reflected the bank's broad reach.

"The investment bank, asset management and commercial banking each delivered record earnings," he said. "Private equity gains were also very strong."

Dimon repeated that while consumer and business credit appeared to be holding, "it is an environment "which we do not expect to continue indefinitely."

In fact, JPMorgan saw some softening in its consumer retail operations.

Net income in retail financial services totaled $859 million in the first quarter, up from $718 million in the fourth quarter but down from $881 million a year earlier, in part reflecting the sale of an insurance business.

The bank's provision for credit losses rose $207 million to $292 million.

"This increase was due to higher losses in the subprime mortgage portfolio and, to a lesser extent, increased provision in the home equity portfolio related to weaker housing prices," the earnings report said. And it warned of "continue poor loss experience" in coming quarters.

Still, the bank called its exposure to the troubled subprime mortgage market -- which involves home loans to high-risk borrowers -- to be "manageable."

Cavanaugh, the CFO, told reporters that JPMorgan Chase mortgages appeared to be performing better than those issued by other lenders because the bank had been conservative in its products and underwriting.

In addition to increasing reserves, the bank has tightened underwriting standards by requiring higher credit scores of borrowers and larger down payments on some loans, Cavanaugh said.

In card services, net income was $765 million, up from the fourth quarter but down from the $901 million of a year earlier. The bank said that prior-year results had benefited from significantly lower charge-offs following a change in bankruptcy rules that made it more difficult for consumers to wipe out debts.