JPMorgan earnings set bar high for U.S. banks

People walk past the JPMorgan Chase & Co building after Chase said yesterday it was buying Bear Stearns for $2 a share in New York March 17, 2008.

NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) reported quarterly profit that beat forecasts and set a high bar for rivals, as investment banking earnings gained, loan losses slowed and Chief Executive Jamie Dimon sounded an atypically optimistic note about the prospects for a strong U.S. economic recovery.

The results at the second-largest U.S. bank sent its shares up 4.05 percent to a 12-month high, making it the biggest gainer in the Dow Jones industrial average, and underscored an industry-leading role that was strengthened by its resilience during the 2008 financial crisis.

Some investors had looked to JPMorgan, the first of the major banks to report, to end nagging worries over banks' health, and reassure Wall Street that the financial crisis was fading.

"The chance of a double dip is rapidly going away," said Dimon. "This could be the makings of a good recovery."

JPMorgan cut its loss reserve for its credit card business and said credit trends were improving in its mortgage portfolio.

Banks broadly rallied on the news and the KBW Banks Index .BKX was up 2.8 percent in afternoon trading.

"JPMorgan is a bellwether for many of the financials," said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati. "Anyone who does not come in with similar results will suffer the consequences in the market."

JPMorgan's closest rivals, Bank of America Corp (BAC.N), the largest U.S. bank by assets, and Citigroup Inc (C.N), are due to report results on Friday and Monday. Citi and Bank of America borrowed $45 billion from U.S. taxpayers, while JPMorgan received $25 billion. JPMorgan and Bank of America have repaid their bailout money, but the government still holds an almost 30 percent stake in Citigroup after that bank repaid $20 billion.

Analysts broadly expect Bank of America to report a profit of 9 cents a share, down from 40 cents a share a year earlier, while Citigroup is expected to break even after reporting an 18 cent per share loss for last year's first quarter, according to Thomson Reuters I/B/E/S.

Goldman Sachs Group (GS.N) and Morgan Stanley (MS.N) are due to report on Tuesday and Wednesday, and analysts will be watching to see how the investment banks performed compared with JPMorgan.

The New York-based bank reported a quarterly profit of $3.3 billion, or 74 cents a share, compared with $2.1 billion, or 40 cents a share, a year earlier.

Dimon, who has typically been cautious about the bank's outlook, was upbeat on a call with journalists.

He said the bank was adding staff "everywhere," although he also said he would want to see continued and sustained improvement in employment and credit losses before raising the dividend.

JPMorgan said it planned to add 9,000 employees in the United States. The bank has added 7,054 people, or 3 percent of its total headcount, since the end of the first quarter last year.

REGULATION

Dimon, who has been an outspoken critic of the Obama administration's proposed regulatory reforms, was again vocal in a call with analysts after the earnings release.

He warned about plans to bring trading of the instruments known as over-the-counter derivatives onto exchanges. This could hit the bank's revenue by "$700 million to a couple billion dollars," Dimon said.

While President Barack Obama was pressing lawmakers in Washington to approve his financial reform bill, Dimon renewed his criticism of the proposed bailout fee on big banks, which the White House has said could raise up to $117 billion over the next 10 years.

"Let's not call it a bank fee," Dimon said. "Let's call it what it is, which is a punitive bank tax."

Banks benefited from more than $1 trillion in U.S. government support to the banking sector in 2008 and 2009 and a series of rate cuts by the Federal Reserve.

Low borrowing costs have boosted profits at JPMorgan and other banks, but regulators have warned banks that interest rates will eventually rise.

Dimon, who repeatedly complained that the bank did not want or need government bailout funds, told analysts JPMorgan was well positioned to handle rising interest rates.

LOWER LOSS EXPECTATIONS

The investment bank unit reported quarterly net revenue of $8.3 billion, almost matching last year's record of $8.4 billion in the first quarter. Dimon and Chief Financial Officer Michael Cavanagh said this business was strong across all regions and asset classes.

The pair were somewhat more cautious about the outlook for the bank's retail financial services business, which includes the Chase bank, mortgage and other consumer lending. "If things start to peak out and the economy gets better, you're through the worst part; but there's a ways to go," Dimon said.

The credit card business, which has been a hot-point for losses since U.S. unemployment started to soar last year, showed signs of improvement, the bank said. JPMorgan trimmed its loss expectations and cut the unit's reserve for loan losses by $1 billion.

Revenue rose 5 percent to $28.2 billion, beating analysts' expectation of $26.5 billion.

JPMorgan's shares closed up $1.86, or 4.05 percent, at $47.73 on the New York Stock Exchange. The shares have climbed almost 15 percent since the start of the year.

(Reporting by Elinor Comlay with additional reporting by Dan Wilchins and Steve Eder; Editing by Gerald E. McCormick)