JPMorgan Chase & Co said record investment banking fees helped drive a 36 percent rise in quarterly profit, topping Wall Street forecasts, but warned that credit quality in consumer mortgages and credit cards is deteriorating faster than it expected.

Though the second-largest U.S. bank is widely considered among the healthiest of the nation's major lenders, the amount set aside for bad loans in the quarter more than doubled from a year earlier, to $9.7 billion.

It said a surge in credit card and loan losses was likely to worsen.

Second-quarter results benefited from improving credit markets as well as federal regulators' efforts to stimulate the economy by keeping borrowing costs low, bolstering mortgage and other lending activity.

Chief Executive Jamie Dimon's bank skirted the worst of the credit crisis by largely avoiding losses and writedowns on complex debt and mortgages that hurt many rivals. Among the six largest U.S. banks, JPMorgan is the only one not to lose money in any quarter since the recession began in 2007.

The performance of JPMorgan relative to consensus is generally much more patchy than Goldman Sachs, but it's clear that the bank has done reasonably well on the trading side and less well on the home and private lending side, said Commerzbank economist Peter Dixon in London.

Goldman Sachs Group Inc posted better-than-expected quarterly earnings on Tuesday . Bank of America Corp and Citigroup Inc, JPMorgan's main rivals, may fare less well when they report results, expected Friday.

JPMorgan shares fell 26 cents to $36.00 in premarket trading but are solidly higher this year. Through Wednesday, the shares were up 15 percent in 2009, compared with a 14.4 percent drop in the KBW Bank Index.

PROFIT, REVENUE HIGHER

Second-quarter net income rose to $2.72 billion from $2 billion a year earlier. Profit per share fell to 28 cents from 53 cents as the number of shares outstanding increased. Net revenue jumped 41 percent to $27.71 billion.

Analysts on average expected profit of 4 cents per share on revenue of $25.91 billion, according to Reuters Estimates.

Results included per-share charges of 10 cents to bolster a federal deposit insurance program and 27 cents tied to last month's repayment of $25 billion taken from the government's Troubled Asset Relief Program. JPMorgan has said it will let the Treasury Department auction the attached stock warrants.

Dimon, on a conference call with reporters, said it is unlikely the bank will make money in 2010 in credit card operations or raise its dividend before early next year. It lowered the payout by 87 percent in February.

Still, Dimon said loan loss reserves are probably getting pretty close to their peaks, and the bank sees a little bit of a leveling off of delinquencies. JPMorgan said losses in the Washington Mutual Inc banking units it bought last September are in line with its forecasts.

Dimon expressed opposition to an Obama administration plan to create a consumer finance protection agency, echoing other banks. The more agencies, the more politics and bureaucracy, he said.

HAVES VS. HAVE-NOTS

It looks like good, strong numbers, and it looks pretty broad-based, said Michael Hecht, an analyst at JMP Securities. We are in an increasing world of haves and have-nots, and we know where JPMorgan and Goldman fall.

Profit in JPMorgan's investment bank more than tripled to $1.47 billion. Revenue rose by one-third to $7.3 billion, including a record $2.24 billion of investment banking fees and a record $4.93 billion from fixed-income trading.

Though investment bankers were paid 15 percent less than a year earlier, Dimon acknowledged more pressure from competitors to attract talent. Exiting TARP freed JPMorgan from some pay limits. Goldman, which also exited TARP, could be on pace for record payouts to its employees.

It's just going back to where it was, Dimon told reporters, discussing compensation. We will be facing the real compensation issues when we get to the end of the year.

Credit card operations posted a $672 million loss. JPMorgan boosted its projected losses on cards and sees a loss rate of about 10 percent for this quarter. It expects the loss rate from Washington Mutual to be 24 percent by year-end, the high end of a range it forecast in April.

Consumer banking's profit nearly vanished, falling to $15 million from $503 million, hurt by soaring credit losses tied to housing, including from Washington Mutual. Mortgage lending volume rose 9 percent from the first quarter to $41.1 billion.

JPMorgan now expects near-term quarterly losses of about $600 million from prime-quality mortgages, up from $500 million it forecast in April, and $500 million from subprime mortgages, up from a previous forecast of $375 million to $475 million. (Reporting by Jonathan Stempel; Additional reporting by Steve Eder; editing by John Wallace)

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