JPMorgan Chase provided more evidence of a recovering banking sector, posting a surprisingly strong quarterly profit of 2.7 billion dollars in a critical earnings week for the industry.
Thursday's report by the second-largest US bank by assets followed a better-than-expected report from Wall Street bank Goldman Sachs earlier in the week.
The rebound in the troubled sector, into which the US government injected tens of billions of dollars to help ease a global credit crisis, gets another test Friday with quarterly results from Citigroup and Bank of America.
Both firms still are holding billions in government capital, unlike Goldman and JPMorgan, which have repaid the US Treasury.
The market expects Bank of America, the largest US bank in terms of assets, to post a profit.
Citi is expected to post a loss. The number-three bank, which needed special help from the government to weather the financial crisis, lost 18.72 billion for all of 2008 before returning to the black with first-quarter earnings of 1.6 billion dollars.
Yet the improving outlook for the sector is clouded by a potential collapse of large business lender CIT Group, which failed in its bid for a fresh government bailout and appeared headed for bankruptcy.
Simon Johnson, an economist at the Massachusetts Institute of Technology, said CIT is not "too big to fail" despite its large portfolio.
"CIT's small and mid-size customers are important to the recovery. But the reckoning is that this business can be easily sold to someone else -- after all, this is exactly what bankruptcy can get right in the US," Johnson wrote on the blog "The Baseline Scenario."
JPMorgan said its profit in the second quarter was a 36 percent increase over the same period last year, driven by record revenues and strong results from investment and retail banking.
Revenues jumped 41 percent from a year ago to to a record 27.7 billion dollars.
The profit translated to 28 cents per share, far above the four cents analysts had predicted. The market had also expected lower revenues of 25.9 billion dollars.
"JPMorgan's earnings exceeded the most positive expectations as its profits rose for the first time since 2007," said Kent Engelke, chief economic strategist at Capitol Securities Management.
Some said the results were skewed by certain segments of the business and that consumer banking remained weak.
"JPMorgan's earnings were well above forecasts, but the company said its credit card business is unlikely to make money next year," said Scott Marcouiller at Wells Fargo Advisors.
The financial giant in June repaid the US government in full for the capital injection of 25 billion dollars under the Troubled Asset Relief Program (TARP), and had paid a total of 795 million dollars in dividends on the preferred stock.
JPMorgan Chase has remained profitable throughout the worst financial crisis in decades but along with other major banks accepted US government capital as part of the effort to stabilize the financial system.
The group sought to reimburse the government after so-called stress tests to ensure major banks had enough capital to withstand a deeper downturn.
The strong quarterly results came on the heels of Goldman Sachs's report of a profit of 3.44 billion dollars, also better than expected.
Despite the robust earnings, JPMorgan Chase chairman and chief executive Jamie Dimon said "these results were negatively affected by the continued high levels of credit costs in consumer lending and card services, which we expect will remain elevated for the foreseeable future."
"Throughout this crisis, we have remained committed to doing our part to help bring stability to the communities in which we operate and to the financial system overall," the chief executive said.