July 17 (Bloomberg) -- JPMorgan Chase & Co., the largest U.S. bank by market value, said profit fell 53 percent, a smaller drop than analysts estimated, on mortgage-related writedowns and costs from the takeover of Bear Stearns Cos.

JPMorgan rose almost 6 percent in New York trading after the company said second-quarter net income was $2 billion, or 54 cents a share, compared with estimates for 44 cents in a survey of analysts by Bloomberg. Profit was $4.23 billion, or $1.20 a share, a year earlier, the New York-based bank said in a statement today.

Writedowns, losses and credit provisions linked to the subprime mortgage-market collapse total more than $10 billion since the start of last year at JPMorgan, less than any of its four biggest competitors. The better-than-expected earnings report follows yesterday's statement from Wells Fargo & Co., which sparked the biggest gain in more than two decades for bank stocks by boosting its dividend and beating analysts' estimates.

``I'm pretty impressed,'' Jeffrey Davis, chief investment officer at Lee Munder Capital Group in Boston, which owns about 79,000 JPMorgan shares, said in an interview on Bloomberg Television. ``It potentially could continue the rally in financials today.''

Shares of the company rose $2.06 to $38 before the official open on the New York Stock Exchange.

The bank increased credit reserves by $1.3 billion to cover bad loans in the quarter, and wrote down the value of leveraged loans and mortgage-related assets by $1.1 billion. The acquisition of Bear Stearns resulted in a $540 million loss, the company said.

Credit Reserves

Chief Executive Officer Jamie Dimon, 52, said in the statement he expects ``capital markets to remain under stress'' as economic growth slows.

The economy grew at an annualized rate of 1 percent in the first quarter, capping the weakest six months in five years. Federal Reserve Chairman Ben S. Bernanke told Congress this week that the threat of an economic slowdown was increasing, after turmoil in the markets forced the Treasury and Fed to mount a rescue of mortgage providers Fannie Mae and Freddie Mac.

Revenue at JPMorgan fell 3 percent to $18.4 billion in the quarter, beating the average estimate of $16.6 billion among analysts surveyed by Bloomberg. Return on equity, a gauge of how effectively the company reinvests earnings, was 6 percent, down from 14 percent a year earlier.

The investment-banking unit had a second-quarter profit of $394 million, versus earnings of $1.2 billion a year earlier.

Revenue Decline

Consumer banking earned $606 million, a 23 percent drop from a year earlier. Chief Financial Officer Michael Cavanagh said on a conference call with reporters that mortgages had ``deteriorated,'' with late payments and losses increasing on prime, subprime and home-equity loans.

The credit-card division's profit fell to $250 million, or 67 percent below last year's results, as the bank set aside more money to cover bad loans.

``Dimon had been extraordinarily prudent in his application of capital,'' said Peter Sorrentino, who helps oversee $16.7 billion at Cincinnati-based Huntington Asset Management, including 3.6 million JPMorgan shares, in a Bloomberg Radio interview today. ``He had not followed the industry into some of the riskier vehicles and had been focused more on the business of straight forward banking and financial services.''

JPMorgan fell 28 percent during the past 12 months, compared with the 69 percent drop of Citigroup Inc. and the 54 percent decline of Bank of America Corp.

Credit-Default Swaps

Credit-default swaps on JPMorgan fell 5 basis points to 115 as of 7:40 a.m. in New York, according to broker Phoenix Partners Group.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates a deterioration in the perception of credit quality; a decline, the opposite.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.

Last Updated: July 17, 2008 08:53 EDT