JPMorgan Beats Views, Despite Profit Drop

Updated from 12:19 p.m. EDT

JPMorgan Chase(JPM) managed to beat first-quarter expectations fueled by its sale of Visa(V) shares, but profit was cut in half as the credit crunch took its toll on the banking titan.

In the first three months of the year, the New York-based bank recorded net income of $2.37 billion, or 68 cents a share, compared to $4.8 billion, or $1.34 a share, in the year-earlier period. Revenue dropped 11% from a year earlier to $16.89 billion. Analysts expected the bank to post earnings of 64 cents a share.

Chairman and CEO Jamie Dimon, however, noted market conditions and the credit environment "remained challenging." In the first quarter, the bank took $2.6 billion worth of writedowns related to leveraged loans as well as prime, Alt-A and subprime mortgages.

JPMorgan Chase also added a $2.5 billion provision to protect itself against further loan losses -- approximately $1.1 billion was specifically related to its home-equity portfolio, the company said. The bank's total allowance for credit losses is now $12.6 billion, it said. Its Tier 1 capital ratio was 8.3% at the end of the quarter.

"Our expectation is for the economic environment to continue to be weak and for the capital markets to remain under stress," Dimon said in a company statement. "These factors have affected, and are likely to continue to negatively impact, our firm's credit losses, overall business volumes and earnings -- possibly through the remainder of the year, or longer. However, we are prepared to manage through this down part of the economic cycle, given the strength of our liquidity, credit reserves, capital and operating margins, and to successfully position our company well for the future."

JPMorgan shares closed up 6.7% to $44.96 Wednesday.

JPMorgan Chase was busy in the first quarter. Last month, the company agreed to purchase ailing Bear Stearns(BSC) for $10 a share, with the Federal Reserve pledging to backstop $29 billion worth of the riskiest of Bear's structured finance portfolio.

"The Bear Stearns merger provides a unique opportunity to enhance our ability to serve clients by adding new capabilities in prime brokerage and clearing and by improving strength in equities, mortgage trading, commodities and asset management," Dimon said. "We welcome the employees of Bear Stearns and look forward to working together to build increased franchise value."

The company also immensely profited from the sale of a portion of its stake in Visa, as many banks that have reported earnings for the first quarter also did. JPMorgan Chase had a $1.5 billion gain on the sale of Visa shares, which went public last month.

JPMorgan has navigated the credit crunch better than many of its rivals. Merrill Lynch(MER), which reports earnings Thursday, and Citigroup(C), which reports Friday, have written down billions of dollars in securities tied to mortgages and other debt. More pain is expected from the firms this week.

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