Overcoming weak trading revenues, JPMorgan Chase & Co. reported higher second quarter operating earnings compared with the same period a year ago.

The firm reported second-quarter net income of US$1.0 billion, compared to a net loss of $0.5 billion for the second quarter of 2004. The current period results include a US$1.9 billion (pre-tax) litigation reserve charge, and US$279 million of merger charges reflecting the merger with Bank One Corp. completed on July 1, 2004. Excluding these charges, operating earnings would have been US$2.3 billion. Last year, excluding litigation reserves and merger charges, operating earnings would have been US$1.8 billion.

“As we announced last month, trading performance for the second quarter was very weak,” said William Harrison Jr., chairman and CEO of the firm. “Our other major businesses, however, reported good results, with card services, treasury & securities services and asset & wealth management posting double-or triple-digit earnings growth, and investment banking fees remaining strong.”

Trading revenues for the quarter were US$614 million, down US$622 million, or 50%, from the prior year. “The disappointing trading performance reflected a challenging market environment,” the firm said, adding that this resulted in weak portfolio management results, lower proprietary trading revenues due to fewer market opportunities and reduced client flows. It also suffered specific losses that affected equity trading results. Trading revenues were generally weaker in Europe than in the U.S. and Asia, it said.

Also, trading risk increased. The trading value-at-risk for the overall investment bank increased from US$65 million to US$102 million since the first quarter. The firm says this increase was driven by higher levels in fixed income and equity value-at-risk measures, which were partially offset by diversification.

Partially offsetting the weak trading results were strong investment banking fees and continued improvement in credit quality. Investment banking fees of US$965 million were up 8% compared to the prior year. Advisory revenues of US$359 million were up 34% from the prior year and represent the highest quarter since 2000. Debt underwriting revenues increased 25% from the prior year, but equity underwriting fees were down 53%.

James Dimon, president and COO, said, “In our first full year as a combined firm, we have made significant progress in all of our businesses — both in terms of integrating the Bank One and JPMorgan Chase franchises and in executing our growth strategy.”

Commenting on the Enron litigation settlement and increased legal reserves, Harrison said, “Our resolution of the Enron class-action lawsuit substantially reduces our risk related to this matter. Given the current legal environment, litigation reserves were increased by US$1.9 billion. We believe that with this action the firm’s litigation reserves are adequate to meet its remaining litigation exposure.”