JPMorgan ready to return $25bn Tarp cash

Investment bank posts record first-quarter profits

Jamie Dimon, the chief executive of the largest retail bank in the US, JPMorgan Chase, said he planned to hand back the $25bn (£17bn) it received from the US government last year as soon as possible, calling the money "a scarlet letter".

His comments came as the bank posted much better than expected financial results for the first three months of the year, including record profits at its investment banking arm.

Increasing numbers of customers are falling behind on their mortgages, credit cards and other loans, however, and the bank had to set aside another $4.2bn to cover expected losses, $100m more than in the previous three months.

The debate over whether banks should hand back the bailout funds they received during last autumn's financial panic has dominated Wall Street in recent days. Earlier this week, Goldman Sachs raised $5bn which it said it would use to help repay its $10bn from the government.

The Treasury department is currently conducting "stress tests" of the nation's biggest banks to determine if they have enough capital to survive a prolonged recession and to continue to provide credit to consumers and small businesses.

Mr Dimon said JPMorgan could pay back its $25bn without having to raise new money. "We could pay it back tomorrow," he told analysts yesterday. "We would like to repay it as soon as possible, and we are waiting for guidance from the government. We want to do what is in the best interest of the United States as well as what is in the best interest of JPMorgan shareholders."

The results showed how JPMorgan is winning market share from weaker rivals. New mortgage business and car loans both surged, offsetting a $547m loss on credit cards. Overall, first-quarter earnings were $2.14bn, down 10 per cent from $2.37bn in the same period last year but about 25 per cent higher than the market had been expecting.

The results were boosted by a forecast-busting performance in the fixed income trading division of the investment bank, which returned the division to profitability. There were writedowns of $711m on leveraged loans and $214m on mortgage-related securities, but Mr Dimon said the negative impact of these so-called "toxic" investments on the banking system was waning. The focus of politicians on Capitol Hill has been on how to make the nation's biggest banks start growing their lending activities again after taking big hits to their balance sheets from such toxic investments, but Mr Dimon said that policymakers must also look elsewhere if they want fully to restore economic activity.

"I also remind people, banks are 25 per cent of the system, they are not 100 per cent of the system," he said. "The rest of the system is hedge funds and money-market funds and bond funds and pension plans and insurance companies and direct investors, investing consumers and that's where you have this enormous flow of funds taking place, which is very different than you had 50 years ago."