April 18 (Bloomberg) -- JPMorgan Chase & Co., the third- largest U.S. bank, said first-quarter profit rose to a record, led by fees from arranging mergers and underwriting stock and bond sales.

The company raised its dividend for the first time in six years and announced plans to buy back $10 billion of stock.

Net income climbed 55 percent to $4.79 billion, or $1.34 a share, from $3.08 billion, or 86 cents, a year earlier, the New York-based bank said today in a statement. JPMorgan's earnings topped expectations for a ninth straight quarter, beating the $1.02 average estimate among 16 analysts in a Bloomberg survey.

Profit from investment banking surged 81 percent to $1.54 billion, almost as much as the combined earnings of Lehman Brothers Holdings Inc. and Bear Stearns Cos. That helped Chief Executive Officer Jamie Dimon counter losses on subprime mortgages and higher provisions for bad credit-card debts.

``JPMorgan blew away even my expectations,'' said William Fitzpatrick, an analyst at Johnson Asset Management in Racine, Wisconsin, which holds JPMorgan shares. ``They were strong in investment banking, equity trading and merger advisory.''

Shares of the company rose $1.89, or 3.8 percent, to $52.07 in New York Stock Exchange composite trading at 4 p.m., the biggest gain since last July.

First-quarter revenue increased 25 percent to $19.7 billion, while expenses rose 9 percent to $10.6 billion. Return on equity, a measure of how effectively the company reinvests earnings, expanded to 17 percent from about 11 percent a year earlier.

Accounting Change

Investment-banking fees climbed 30 percent to $6.25 billion, driven by record debt and equity underwriting, the company said. Consumer-banking revenue increased 9 percent to $4.11 billion, while revenue from credit-card services was flat at $3.68 billion. Asset management revenue increased 20 percent to $1.9 billion, generating record profit of $425 million.

Earnings included an after-tax benefit of 11 cents per share from a change in accounting rules for valuing private-equity investments and derivative liabilities.

JPMorgan said its board authorized a $10 billion stock buyback, replacing an $8 billion program in which $850 million was unspent. The bank raised its quarterly dividend 4 cents a share to 38 cents.

Raising Estimates

The dividend boost and earnings surprise may prompt analysts to raise their estimates for 2007 profit, said Michael Morris, senior equity analyst and portfolio manager at Delaware Investments in Philadelphia, which held 1.2 million JPMorgan shares at the end of last year.

``Earnings would be headed well above $5 per share for the year, based on the first quarter,'' Morris said. Analysts surveyed by Bloomberg now estimate earnings of $4.14 for 2007.

Earnings at JPMorgan's investment bank, its most profitable division, soared as the company advised clients on 68 completed takeovers valued at $134.7 billion during the quarter, ranking seventh, according to data compiled by Bloomberg.

The business, run by Co-CEOs Steven Black and William Winters, advised on transactions including Freeport-McMoRan Copper & Gold Inc. in its $22.9 billion acquisition of Phelps Dodge Corp. and Caremark Rx Inc. in its $27.2 billion merger with CVS Corp.

JPMorgan was the No. 2 arranger of U.S. bond sales after New York-based Citigroup Inc., the country's biggest bank.

Citigroup said April 16 that first-quarter net income dropped 11 percent because of expenses to slash 17,000 jobs. Bank of America Corp., the second-largest in the U.S., probably will say earnings rose about 6 percent when it reports profit tomorrow, according to a survey of 24 analysts by Bloomberg.

Consumer Banking

JPMorgan's consumer-banking arm, which includes mortgages, student loans and more than 3,000 branches, earned $859 million, down 2 percent from a year earlier.

Earnings were hurt by the worst housing slump in more than a decade. The share of late payments by subprime borrowers, or those at the greatest risk of default, rose to a four-year high of 13.3 percent in the fourth quarter, the Mortgage Bankers Association reported.

JPMorgan more than tripled its provision for credit losses at the consumer bank to $292 million from $85 million. The jump was due to higher losses on subprime mortgages, and JPMorgan said it tightened its underwriting standards ``given the firm's current expectations for continued poor loss experience'' in the subprime market.

Bear, Lehman

Bear Stearns, the biggest underwriter of mortgage-backed bonds, last month reported $554 million in earnings for the quarter ended Feb. 28, using revenue from derivatives trading to offset the housing slowdown. Lehman, the fourth-biggest U.S. securities firm, said its first-quarter earnings rose to a record $1.15 billion as gains from stock trading helped it weather rising mortgage delinquencies. Both firms are based in New York.

Wells Fargo & Co., the biggest bank on the U.S. West Coast, said yesterday that first-quarter profit rose 11 percent to a record as borrowing by companies helped it withstand higher loan losses and a drop in the value of its subprime mortgages.

Dimon, who joined JPMorgan in the purchase of Bank One, has slashed almost $3 billion of annual expenses and invested in faster-growing businesses such as trading and hedge funds.

The bank announced today that it agreed to buy Xign Corp., a Pleasanton, California-based transaction-processing company. Terms weren't disclosed. Xign allows customers to automate electronic purchase orders, the company said.

JPMorgan shares rose 18 percent in the 12 months through yesterday, outperforming the 5.8 percent advance of the benchmark KBW Bank Index, Citigroup's 8.4 percent gain and Bank of America's 12 percent increase. Shares of New York-based Goldman Sachs Group Inc., the world's biggest securities firm, gained 33 percent over the same period.

To contact the reporter on this story: Joseph N. DiStefano in New York at jbaer1@bloomberg.net.

Last Updated: April 18, 2007 16:39 EDT