July 18 (Bloomberg) -- JPMorgan Chase & Co., the third- largest U.S. bank, said second-quarter earnings rose 20 percent on gains from private-equity holdings and record fees from advising on mergers and arranging stock sales.

Net income climbed to $4.23 billion, or $1.20 a share, beating the average estimate of $1.09 a share in a survey of 16 analysts by Bloomberg. Revenue rose 25 percent to $18.9 billion.

JPMorgan shares fell 2.1 percent today on concern investment-banking revenue, which rose 34 percent in the second quarter, may have peaked as merger financings slow and home-loan losses rise. Chief Executive Officer Jamie Dimon, who has led a push to expand in faster-growing markets in Europe and Asia, said he's preparing ``for a less favorable environment'' in the U.S.

``It's a major source of revenue and profits that's going to be lower,'' said Charles Bobrinskoy, who helps manage $16 billion at Ariel Capital Management LLC in Chicago. ``2007 is a record year in fees earned from private-equity firms that, most likely, will be down in 2008.''

Total non-interest expenses were $11 billion, up 18 percent from a year earlier. Return on equity, a measure of how effectively the company reinvests earnings, was 14 percent compared with 13 percent a year earlier. Excluding goodwill, the company said return on equity would have been 23 percent.

Private Equity

Private-equity gains swelled to $1.3 billion from $549 million a year earlier. The value of JPMorgan's private-equity investments climbed to $6.5 billion from $5.6 billion. The increase included about $300 million in gains reported under new accounting rules, the company said.

Dimon, 51, said he's ``not particularly worried'' about so- called hung bridge loans, private-equity financings which the bank is unable to resell to other investors.

``Hung deals are out there, we are involved in a couple,'' Dimon said on a conference call with investors.

JPMorgan and other Wall Street firms have about $11 billion of loans and bonds they can't readily sell, and have had to use their own money to finance parts of at least five leveraged buyouts in the past month, data compiled by Bloomberg show.

Earnings at JPMorgan's investment bank, its most profitable division, increased 41 percent to $1.18 billion from a year earlier. The company advised clients on 76 completed takeovers valued at $177.7 billion during the quarter, data compiled by Bloomberg show. It's the fifth-placed underwriter of share sales this year, ahead of New York-based rival Citigroup Inc.

Bond Sales

JPMorgan was the No. 2 arranger of U.S. bond sales after Citigroup, the biggest U.S. bank by assets ahead of Bank of America Corp. Citigroup probably will say July 20 that second- quarter earnings rose 8 percent to $5.67 billion, according to a survey of nine analysts by Bloomberg.

Bank of America may report a 2 percent decline in earnings tomorrow to $5.36 billion, according to a Bloomberg survey. The Charlotte, North Carolina-based company relies on the U.S. for almost 90 percent of revenue, compared with about half at Citigroup and 75 percent at JPMorgan.

JPMorgan shares fell $1.04, or 2.1 percent, $48.88 in composite trading on the New York Stock Exchange, after reaching $47.83 earlier today. The stock advanced 23 percent in the 12 months ended yesterday, outperforming Citigroup's 13 percent gain and Bank of America's 2.8 percent return.

Higher Estimate

Credit Suisse raised its earnings estimates for JPMorgan after the profit figures were released. The Zurich-based company now predicts 2007 earnings per share of $4.70, compared with $4.35 previously. It increased its 2008 forecast to $4.95 from $4.65.

JPMorgan's retail banking arm, which includes mortgages, student loans and more than 3,000 branches, earned $785 million, down 10 percent from $868 million a year earlier. U.S. banks' borrowing costs have climbed following 17 Federal Reserve interest-rate increases from June 2004 to June 2006.

The managed provision for credit losses for all of JPMorgan doubled to $2.12 billion from $1.05 billion a year earlier.

Chief Financial Officer Michael Cavanagh said on a conference call with reporters the bank increased charge-offs for home-equity loans, where losses were ``driven by weak housing prices.''

The slump in the U.S. housing market is the worst in more than a decade. The share of late payments by subprime borrowers, or those at the greatest risk of default, reached the highest level since 2002 in the first quarter, the Mortgage Bankers Association reported.

Credit Cards

Wells Fargo & Co., the second-biggest mortgage lender behind Countrywide Financial Corp., said yesterday that it weathered the decline in lending profitability with higher fees from credit cards and commercial loans.

Profit at JPMorgan's card-services business fell 13 percent to $759 million.

JPMorgan's earnings from managing clients' money jumped 44 percent to $493 million as assets under management increased to $1.1 trillion, up 23 percent.

``Asset management had a great year,'' Dimon said on the conference call.

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

Last Updated: July 18, 2007 16:26 EDT