JP Morgan also reported improving credit trends
JP Morgan Chase has reported better-than-expected first quarter profits of $3.3bn (£2.1bn), boosting bank stocks.
The Wall Street firm's net income was up 55% compared with a year ago, and unchanged on the previous quarter.
The main driver was the bank's debt trading business, which produced revenues of $5.5bn.
The bank also increased the cash it holds against possible losses from lawsuits by $2.3bn, as clients it sold mortgages to threaten legal action.
JP Morgan is the first major bank to report first-quarter results. Its shares rose 4% to close at $47.73.
Other European bank stocks also jumped on the news, with Barclays up 2.9% and Deutsche Bank up 3.1%.
JP Morgan's results were driven by its investment bank, in particular resurgent business at its fixed income division which is responsible for bond trading and credit derivatives.
The bank's fixed income business has proved to be its main cash cow since the financial crisis ended, having turned in around $5bn a quarter for the first three quarters of 2009, and now $5.5bn in the quarter just gone.
Like the stock markets, bond and loan markets have rebounded over the last twelve months.
Moreover, the difference between the prices that dealers like JP Morgan buy and sell bonds for remains higher than prior to the financial crisis, meaning the bank can earn a higher profit margin on its trading activities.
Other divisions that the bank said had done well included asset management, commercial banking and retail banking.
However, JP Morgan's chief executive Jamie Dimon said: "Unfortunately, these good results were partially offset by high losses in the consumer credit portfolios."
The bank reported total credit costs of $7bn, down from $8.9bn in the previous quarter, which were mainly due to losses on its real estate portfolio and credit card business.
Despite continuing to lose money on loans it has made to consumers, the bank said that the rate at which existing consumer loans were failing to be repaid was falling.
It has also reduced the amount of cash it holds in reserve against future losses on credit cards by $1bn.
The bank predicted that the rate at which it was reporting losses on home loans could increase further during the course of the year.
The bank increased by $1.2bn its reserves against defaults on home loans at subsidiary Washington Mutual, which JP Morgan bought after it went bankrupt during the financial crisis.
In addition, like many other banks, JP Morgan faces the risk that it could be sued by clients who have lost money on mortgages the bank sold to them prior to the financial crisis.
JP Morgan's chief financial officer Mike Cavanagh said, of the $2.3bn new reserves against litigation risk, that it was "largely related to mortgage-related matters".
He also referred in particular to the risk that JP Morgan may be forced to repurchase loans from government mortgage agencies like Freddie Mac, adding that the bank was "not unique in having exposures here".