J.P. Morgan profit rises despite markdown

LONDON (CNNMoney.com) -- J.P. Morgan Chase & Co. reported a rise in quarterly profit Wednesday, even as its investment banking business was hurt by turmoil in the global credit markets.

Net income edged higher to a record $3.4 billion, or 97 cents a share, from $3.3 billion, or 92 cents a share, in the year-earlier period. Net managed revenue rose 4 percent to $17 billion in the quarter, and total managed provisions for credit losses rose 67 percent to $2.4 billion.

J.P. Morgan CEO Jamie Dimon said the bank "performed well" in the face of the credit crisis.

The bank did better than Wall Street thought it would. Analysts had expected J.P. Morgan to post earnings of 90 cents a share on revenue of $16.6 billion for the quarter ended in September, according to estimates from earnings tracker Thomson First Call.

J.P. Morgan (Charts, Fortune 500) shares rose 4 percent in morning trading on the New York Stock Exchange.

The strong results contrast starkly from those of rival Citigroup Inc. (Charts, Fortune 500), which posted a 57 percent drop in quarterly profit on Monday, and highlight how the credit crisis has leveled varying degrees of pain on banks.

Chief executive Jamie Dimon attributed the results to the bank's strong balance sheet and good risk management. "We've always believed in a fortress balance sheet," he told analysts during a conference call.

The company also managed to avoid some "potholes," he said, referring to structured investment vehicles and collateralized debt obligations - pools of bonds that are sold off in slices of varying credit risk.

But the bank didn't entirely steer clear of problems. J.P. Morgan took a $1.3 billion markdown on loans committed for leveraged buyouts, and its investment banking profit fell 70 percent to $296 million.

Dimon offered a cautious outlook for the next few quarters. "We're not predicting what's going to happen because we don't know," he said. "There's still a lot of risk on the balance sheet."

The bank said it has about $40.6 billion of funded and unfunded leveraged loan commitments in the pipeline.

Banks have taken more than $20 billion in writedowns as loans extended for leveraged buyouts have lost value amid the debt crunch and fears about home loans given to borrowers with weak credit have led to a decline in the value of mortgage-backed securities.

Dimon said he hoped the so-called "super fund" that J.P. Morgan is helping to create would help stabilize the credit markets. The fund will buy highly-quality mortgage-related securities from structured investment vehicles in an effort to prevent a fire-sale of their assets.

But he acknowledged that the fund wouldn't ease pressure on structured investment vehicles that hold lower-quality assets. "There may be some SIVs that this isn't going to help," Dimon said.

At J.P. Morgan, losses related to home equity loans hurt the retail banking division, but the company said problems were mostly concentrated in markets where home prices are falling.

Dimon said he's cautious about the housing outlook, but that J.P. Morgan is using the market downturn to build its home equity, prime mortgage and subprime mortgage businesses.

J.P. Morgan's overall results were buoyed by strength in asset management, card services and commercial banking.

Asset management revenue soared 35 percent to a record $2.2 billion, and profit rose to a record $521 million. Card services and commercial banking both posted double-digit earnings growth.

Dimon said jobs would likely be cut in some divisions, but that J.P. Morgan would keep hiring workers in its high-growth businesses.

He also said stock buybacks would not take precedence while the bank was focused on dealing with its financing commitments.

More bank earnings are on tap this week. Washington Mutual Inc. (Charts, Fortune 500) is slated to report its results after the market close, and Bank of America Corp. (Charts, Fortune 500) is due to post earnings Thursday.