JPMorgan Chase, the first big bank to post earnings for the first quarter, reported that profits surged 67%, even as problems in its mortgage lending business continued to mount.   Strong results from its investment banking and trading businesses helped offset losses from the retail bank, which continues to deal with bad loans and set aside an additional $650 million to cover potential legal claims.  JPMorgan’s Q1 numbers also got a boost from credit cards, which resulted in a $2 billion reversal of loan-loss provisions.

JPMorgan's $5.6bn profit - or $1.28 a share - handily exceeded analysts’ consensus estimate of $1.16.  A year ago, the company earned $3.3bn or 74 cents a share.

        Cloud Behind the Silver Lining.   Revenue remained under pressure, however, as it fell to $25.8bn billion - down 8% from a year earlier.  This was driven by a slowdown in mortgage lending and new rules curtailing overdraft fees.  Investors see the drop as a indication of what’s to come at other banks at a time when they are increasingly worried about the industry’s ability to grow - and this has put selling pressure on the publicly traded financial sector. 

While expressing pleasure with the quarterly results, CEO Jamie Dimon acknowledged that troubles continue in home lending, where “extraordinarily high losses” have been running at $4 billion a year.  "Rest assured, we are fully engaged in fixing our problems and addressing our mistakes from the past."

And then there are the ongoing state investigations over questionable foreclosure practices, along with lawsuits from private investors seeking to recover losses on troubled loans and securities.  The bank set aside an additional $650mn in Q1 to cover those potential legal claims, after increasing litigation reserves in 2010 by more than $6.7bn. 

However, banking analysts say the mortgage problems could end up costing the bank up to $10 billion.  JPMorgan execs are not as concerned and say their reserves are ample enough to handle claims.

        In the On Deck Circle.   Bank of America is scheduled to announce quarterly results on Friday, while Citigroup and Goldman Sachs each will deliver their numbers next week.   [TheStreet.com, NYT Dealbook, 413]