11:00AM New York – JP Morgan first quarter earnings fell 50% on rising loan losses related to mortgage securities and leveraged loans.

JP Morgan reported first quarter 2008 net income of $2.4 billion or 68 cents per share compared to $4.8 billion or $1.34 per share a year ago. Net revenue in the quarter declined 9% to $17.9 billon.

Noninterest revenue of $8.5 billion was down $3.7 billion, or 31%, due to lower principal transactions revenue, which reflected markdowns on prime and Alt-A mortgages and markdowns on leveraged lending funded and unfunded commitments.

In addition, lower levels of private equity gains and investment banking fees contributed to the decline in noninterest revenue. The decline was offset partially by proceeds from the sale of Visa shares in its initial public offering, and an increase in asset management, administration and commission revenue, reflecting growth in assets under custody and management and higher brokerage commissions.

The bank reported Tier 1 capital ratio of 8.3% but took yet another charge to cover its credit market related losses. In the quarter the bank took $2.5 billion charge of which $1.1 billion is related to home equity loans.

The bank also received $1.5 billion in the sale of credit card processor Visa through initial public offering.

Investment banking revenue declined 52% to $3 billion from a year ago and a loss of $87 million compared to a profit of $1.5 billion.

Investment banking suffers and leveraged loan losses rise

Investment banking fees were $1.2 billion, down 30% from the prior year, reflecting lower debt and equity underwriting fees. Debt underwriting fees of $364 million declined 58%, reflecting lower bond underwriting and loan syndication fees, which were negatively affected by market conditions. Equity underwriting fees were $359 million, down 9% from the prior year.

Advisory fees of $483 million were up slightly from the prior year. Fixed Income Markets revenue was $466 million, down $2.1 billion, or 82%, from the prior year. The decline was due primarily to markdowns of $1.2 billion on prime, Alt-A and subprime mortgages; markdowns of $1.1 billion on leveraged lending funded and unfunded commitments; and markdowns of $266 million on collateralized debt obligation warehouses and unsold positions.

Credit Portfolio revenue was $363 million, down $31 million, or 8%, from the prior year. The provision for credit losses was $618 million, compared with $63 million in the prior year. The current-quarter provision reflects an increase of $605 million in the allowance for credit losses, reflecting the impact of the transfer of $4.9 billion of leveraged lending commitments to retained loans from held-for-sale loans and the effect of a weakening credit environment.

Average loans retained were $74.1 billion, an increase of $15.1 billion, or 26%, from the prior year, principally driven by growth in acquisition finance activity, including leveraged lending. Average fair value and held-for-sale loans were $19.6 billion, up $5.9 billion, or 43%, from the prior year.

Retail financial services revenue rises but report losses

Revenue in the retail financial services rose 15% to $4.7 billion but reported a loss of $227 million compared to net income of $859 million.

The provision for credit losses was $2.5 billion, compared with $292 million in the prior year. The current-quarter provision includes an increase of $1.1 billion in the allowance for loan losses related to home equity loans. Housing price declines have continued to exceed expectations resulting in a significant increase in estimated losses, particularly for high loan-to-value second-lien loans. Home equity net charge-offs were $447 million or 1.89% net charge-off rate, compared with $68 million or 0.32% net charge-off in the prior year.

The current-quarter provision also includes a $417 million increase in the allowance for loan losses related to subprime mortgage loans, reflecting an increase in estimated losses for this portfolio. Subprime mortgage net charge-offs were $149 million or 3.82% net charge-off, compared with $20 million or 0.92% net charge-off in the prior year.

Regional banking net revenue increased 11% to $3.4 billion but generated a net loss of $433 million compared to profit of $690 million.

The bank in the quarter added 910,000 new checking accounts or 10% to total 11.1 million accounts. Average total deposits increased 4% or $7.8 billion to $214.3 billion and home equity loans increased 10% or $8.7 billion to $95 billion. Average business loans rose 9% to $15.6 billion loan and loan origination increased 9% or $1.8 billion.

Mortgage loan originations in the quarter were up 30% from a year ago to $47.1 billion and 18% from the previous quarter. Third party mortgage loan serviced increased 15% or $81 billion to $627.1.

The provision for auto credit losses was $168 million, up $109 million. The current-quarter provision included an increase in the allowance for credit losses, reflecting higher estimated losses. The net charge-off rate was 1.10%, compared with 0.59% in the prior year.