JP Morgan to spend billions on bonuses as profits surge

The Wall Street banking group JP Morgan Chase has set aside $5.8bn (£3.8bn) to pay its richly-endowed investment bankers during the first six months of the year.

The sum, which does not include a $550m provision for Britain's one-off "supertax" on bankers' bonuses, is just 3 per cent lower than JP Morgan put aside for the same period last year, despite revenues at America's second-biggest bank falling by 7 per cent.

The overall figure beat analysts' expectations as the bank kicked off the reporting season in the US.

It said its net income had risen to $4.8bn – more than a 75 per cent increase on the $2.7bn achieved in the same period last year – and the surge was largely because of a sharp improvement in bad loans. Because of this, it was able to return to shareholders some $1.5bn that it had expected to lose.

Jamie Dimon, the chief executive, said: "Our net income increased to $4.8bn, including the benefit from a $1.5bn reduction of loan loss reserves, which we do not believe represents normal ongoing earnings."

He also described the returns from the bank's consumer lending business as "unacceptable" and appeared cautious about the outlook for the future. "These businesses did not meet expectations nor generate satisfactory returns on capital for our shareholders. It is too early to say how much improvement we will see from here. [However] we saw solid performance in our other businesses."

While JP's investment bank performed strongly in the first quarter, it had a disappointing second three months, with earnings down 6 per cent at $1.4bn. Analysts were pleased with the overall result but voiced concerns that the performance of JP's investment arm did not bode well for companies such as Goldman Sachs or Morgan Stanley, which are largely reliant on their investment banking earnings.

JP also held its dividend – a further suggestion that it remains cautious about the outlook, although it has bought back shares.

Reform of US banking regulations could cost JP up to 11 per cent of its earnings, according to some estimates.

Mr Dimon said: "With a need for global regulatory coordination and hundreds of rules to be written, increased focus is critical in order to implement these reforms in a way that protects consumers and the competitiveness of the US financial system, while ensuring the flow of safe and sound credit."