Updated from 8:15 a.m. EDT

J.P. Morgan Chase ( JPM) posted a second-quarter loss Wednesday after moving to boost its litigation reserve by $2.3 billion. The nation's second-largest bank is still wrestling with its role in the Enron and WorldCom debacles.

The bank, which recently completed its acquisition of Bank One, lost $548 million, or 27 cents a share in the quarter, compared with a profit of $1.83 billion, or 89 cents a share, a year ago.

J.P. Morgan's decision to bolster its litigation reserve wasn't previously signaled, although the move seemed inevitable after Citigroup ( C), the world's largest financial services firm, set aside even more money for future legal settlements in its second quarter.

But Citigroup managed to produce a $1 billion profit, even after taking a $4.95 billion litigation charge, which included a $2.65 billion payout to WorldCom investors, something J.P. Morgan has yet to do. Like J.P. Morgan, Citigroup also faces a potential mega-settlement to resolve issues over its role in providing funding for some of Enron's shady off balance sheet accounting games.

With today's announcement, J.P. Morgan now has a total of $4.7 billion in litigation reserves, compared to $6.7 billion for Citigroup.

"The regulatory and legal environment continues to be very challenging," said J.P. Morgan Chairman and Chief Executive William Harrison, in a conference call with analysts. "This reserve represents our best judgment."

Excluding the litigation charge, J.P. Morgan said it would have earned $1.81 billion in the quarter, or 85 cents a share. Analysts, according to Thomson First Call, had predicted the bank would earn 83 cents in the quarter.

Investors, focusing more on the bank's operating earnings and news that the merger with Bank One would result in additional cost savings, propelled shares of J.P. Morgan higher in early trading. The stock rose $1.05, or 2.9%, to $37.45.

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