JPMorgan quarterly profit rises, loan book grows (Reuters)

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 new loans faster than customers paid off existing ones during the quarter, a reversal from the first quarter and a bright spot for a sector long plagued by weak loan demand.

JPMorgan's revenue rose and it added staff, and its shares were up 2.75 percent in afternoon trading.

But the bank still faces stiff headwinds, including big expenses from mortgages as the effects of the housing crisis linger.

Foreclosures could take another 12 to 18 months to start declining, Chief Executive Jamie Dimon said on a conference call with reporters.

"JPMorgan's revenue growth is a sign that things are getting better. They're just not getting better quickly," said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon. Ferguson Wellman owns JPMorgan shares.

Although loans at the end of the second quarter were up from the end of the first quarter, average loans outstanding during the latest quarter declined, signaling that even if loan demand is improving, growth is uneven.

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.

BOND TRADING

Bond trading revenue fell 18 percent from the first quarter, but the decline was less than some investors had feared. Shares of investment banks Goldman Sachs Group Inc and Morgan Stanley rose on hopes that JPMorgan's trading results bode well for the sector.

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.

The bank benefited from not having to pay a British tax on bonuses. In the year-earlier period, that tax reduced profits by $550 million, or 14 cents a share.

JPMorgan made more loans during the quarter, net of customer loan repayments. Its 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.

The bank also gathered more deposits during the quarter; deposits surged by 5 percent from the first quarter to $1.05 trillion. Chief Financial Officer Douglas Braunstein said mid-sized companies delivered much of the money.

Deposits could support more loans in the future, if there is enough demand.

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 setting aside less money to cover bad loans, or dipping into funds previously set aside.

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.

Dimon, who is famously blunt, seemed optimistic about the outlook for profits. He said the bank will build capital levels in the coming months, and criticized regulators for not allowing it to return those funds to shareholders faster.

"God knows why we have to hold all that capital," Dimon said, adding that banks' capital ratios are going "to drive up so fast people are going to be surprised."

Banks returned billions of dollars of capital to investors in 2007 and 2008, even as large clouds gathered over the mortgage market.

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 2.75 percent to $40.71 in afternoon trading following the results. Stocks rose in early dealings on the bank's strong earnings but later pulled back.

TAKING 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 banks are facing with home loans, JPMorgan said it expects to have to repurchase $3.6 billion of mortgages that it packaged into bonds. Such repurchases are usually because a bank failed to properly collect payments on the mortgages, or should never have sold them to investors in the first place.

JPMorgan said it added $1.3 billion to its litigation reserves, mainly for mortgage-related matters. It also continued to add to its loan reserves for losses on mortgages.

"It is possible we are very over-reserved in mortgage land," Dimon said in a conference call with analysts.

He expects to win a legal battle with the Federal Deposit Insurance Corp over liabilities left from busted lender Washington Mutual, pieces of which JPMorgan bought in a government-arranged deal during the financial crisis.

Credit card delinquencies are improving so quickly that the bank drew down its reserves for losses on those balances, adding 15 cents a share to second-quarter profit.

The charge-off rate for uncollectable card debt will be down to about 4.5 percent this quarter, nearly a year earlier than previously expected, said Chief Financial Officer Douglas Braunstein. The improvement echoed comments Wednesday from card lender Capital One Financial Corp.

(Reporting by David Henry; editing by John Wallace)

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China quarterly growth tops forecast, boosts inflation fight (Reuters)

BEIJING (Reuters) – China's economy grew faster than expected in the second quarter, easing fears of a hard landing and strengthening Beijing's resolve to fight persistently high inflation.

China's statistics office said on Wednesday that stabilizing prices remained the top priority, even though a "complex and volatile" global economy posed a threat to growth, complicating the policy choices.

Second-quarter gross domestic product rose 9.5 percent from a year earlier, exceeding economists' forecasts for 9.4 percent growth, helped by solid domestic consumption and investment.

But that was still the slowest pace since the third quarter of 2009, when the world economy was pulling out of its worst recession in 80 years.

Some cooling was expected -- and even welcome -- because China has raised interest rates and clamped down on bank lending to try to ease inflation, which hit a three-year high in June. The stronger-than-expected GDP figures suggest Beijing may have more room to tighten without choking off growth.

"These are very good numbers," said Liu Li-Gang, an economist with ANZ in Hong Kong.

"This is perhaps the reason the (central bank) raised interest rates last week. They are showing they are not afraid of a significant slowdown in the economy."

For investors worried that Beijing's tightening campaign might exact too heavy a toll on the fastest-growing major economy in the world, the figures offered some reassurance. Industrial output in June was also stronger than expected, growing at its fastest pace in over a year.

Asian stocks, metals and the Australian dollar all rose.

China's GDP in April to June rose 2.2 percent from the first quarter on a seasonally adjusted basis, a slight pick-up in pace from 2.1 percent in the first quarter.

Chinese officials have struck a hawkish note in recent days, mindful of the risk that overheating inflation could stoke civil unrest.

Although many economists think overall inflation pressures will ease during the second half of the year, prices have soared for popular staples such as pork and it will take time for them to recede.

A small majority of analysts expect the central bank to raise interest rates again this year and most forecast further increases in bank reserve ratios, a Reuters poll last week showed.

Sheng Laiyun, a spokesperson for China's statistics bureau, said stabilizing inflation was the primary goal, and policies would be "targeted, flexible and effective," echoing recent remarks by Premier Wen Jiabao.

"It's not easy and China has done a great job to maintain fast economic growth when the global situation is complex and volatile," Sheng said.

Europe's sovereign debt troubles and a slowdown in the U.S. economy means two of China's best export customers are struggling. New export orders slipped in June, a manufacturing survey showed earlier in July, which raised questions about China's growth prospects.

But Wednesday's figures suggested domestic demand remains robust. Final consumption contributed 4.6 percentage points to first-half growth, while exports subtracted slightly, China's statistics bureau said.

Analysts say China's economy is on course for growth well above 9 percent this year, a rate that would be the equivalent of adding Switzerland's GDP to the $6 trillion economy.

Still, demand weakness in China's Western export markets may cause economic growth to slacken in the third quarter from the second, they say.

REBALANCING

Industrial output rose 15.1 percent in June from a year earlier, the strongest growth since May 2010. It also marked a sharp quickening from May's 13.3 percent and beat market expectations of 13.1 percent.

The growth figures underlined the resilience of the world's second-largest economy, thanks to the country's rapid urbanization, and could soothe investor concerns about an abrupt slowdown that would dent demand for global commodities.

"The data should also help to dispel the wilder fears of an economic collapse in China," said George Worthington, an economist with IFR, a Thomson Reuters unit.

Fixed-asset investment grew 25.6 percent in the first six months from a year earlier, while retail sales expanded 16.8 percent, showing that domestic demand still held up relatively well despite policy tightening.

"The economic growth data are quite upbeat and industrial production is noticeably stronger than expected," said Xu Biao, an economist with China Merchants Bank in Shenzhen. "It's quite beyond expectations as Chinese imports and (purchasing manager's survey) in June were quite weak."

Stronger demand at home not only helps insulate China from the global turmoil, it provides a bit of a buffer for the rest of the world and evidence that Beijing is making good on pledges to move away from export-driven growth. But it can also increase price pressures.

Fighting inflation remains Beijing's top priority but any policy steps should avoid causing big swings in economic growth, Premier Wen said in comments published on Tuesday.

He signaled in June that the country would struggle to meet its 4 percent average inflation target in 2011. Monthly consumer price figures show inflation averaged 5.4 percent in the first half of the year.

An academic adviser to the People's Bank of China was quoted by state television on Wednesday as saying the inflation rate may have peaked in June, when it hit 6.4 percent.

Li Daokui, a member of the central bank's monetary policy committee, said the full-year inflation rate could be around 4.8 percent.

Last Wednesday, China raised rates by 25 basis points -- the third such increase this year -- which took the one-year bank deposit rate to 3.5 percent.

The central bank has raised benchmark interest rates five times since October and lifted banks' reserve requirement ratio -- its preferred policy tool so far -- nine times.

(Additional reporting by Langi Chiang, Gui Qing Koh and Zhou Xin: Writing by Emily Kaiser: Editing by Neil Fullick)

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