Mortgage mess weighs on JPMorgan Chase by Colin Barr @FortuneMagazine April 13, 2011, 11:38 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons JPMorgan Chase kicked off first-quarter bank earnings season with the first of what is sure to be many mixed reports. First-quarter profits surged 67% from a year ago, beating estimates. But revenue tumbled 8% from a year earlier and the second-biggest U.S. bank complained of “extraordinarily high losses we still are bearing on mortgage-related issues.” JPMorgan Chase JPM made $5.6 billion, or $1.28 a share, which is up from $3.3 billion, or 74 cents a share, a year earlier. Revenue fell to $25.8 billion from $28.2 billion. Wall Street analysts were expecting JPMorgan to make $1.16 a share on revenue of $25 billion. The bank said results were strong at most of its businesses, including credit cards, commercial banking and asset management. But CEO Jamie Dimon conceded that the problems tied to the bank’s mortgage business will continue to be a drag on performance at its giant retail financial services business. The latest quarter included nearly $2 billion in hits to the value of the bank’s mortgage servicing business and foreclosure cleanup costs, which together knocked 21 cents a share off earnings. “Unfortunately, these losses will continue for a while,” he said in a press release. “Rest assured, we are fully engaged in fixing our problems and addressing our mistakes from the past, and we will strive to build the best mortgage business going forward.” Offsetting those losses, the bank released $2 billion from its reserve for bad credit card loans. All told, unusual items added 8 cents to latest-quarter profits. In the rough indeed The report comes as the outlook for big bank profits, which soared in the 2009 economic rebound before tapering off last year, grows mixed. The biggest financial firms have been hiring to bulk up for the next wave of growth in areas like commodities and futures, which has trimmed profit margins. Meanwhile lobbyists are lining up to fight rules aimed at preventing a repeat of the 2008 financial meltdown. Though banks are already taking evasive action and many regulations will no doubt be watered down, some of the banks’ most lucrative businesses, such as derivatives trading, could be threatened. “We believe that a strong regulatory environment is essential, and we are working hard to ensure that we meet all the new rules and requirements, both in letter and spirit,” Dimon said Wednesday. “While we expect to make numerous changes in our business, we do so with the needs and expectations of our customers foremost in our minds. As we look toward the future, we see incredible opportunities for the company, which our teams around the world are aggressively pursuing.” And from Goldman Sachs gs on down, the banks will spend billions in coming years facing legal challenges tied to their misbehavior during the bubble. The Securities and Exchange Commission may sue a former top JPMorgan executive over his role in the risky subprime debt ripoffs known as collateralized debt obligations. A suit revealed this week accused JPMorgan of playing both sides of trades – an accusation that cost Goldman $550 million in SEC settlement payments last year. The long list of legal challenges and the onset of rules forcing banks to hold more capital are certainly convenient in one way: they give the bankers a handy excuse to explain away their latest round of poor performance while still paying themselves ridiculous sums. At Chase, for instance, Jamie Dimon has made $125 million since 2006 – a span over which his firm has barely outperformed the S&P 500, which itself is only modestly in the black. It makes you wonder how much the guy might make if he actually delivered decent returns. Also on Fortune.com: Jamie Dimon’s silly housing subsidy Banks, the dumbest investment Jamie Dimon, bonus king Follow me on Twitter @ColinCBarr.