JPMorgan Chase kicked off the third-quarter earnings season for the banks with strong results in its investment banking division, sending financial stocks soaring.

It reported a net income of $3.6 billion (£2.3 billion) for the three months to September 30, up 72 per cent on the painful third quarter of last year, when the financial crisis was at its zenith.

With a $1.9 billion net profit, the investment banking division drove much of the gains, cheering investors who were looking for confirmation that the second quarter’s capital markets surge had continued.

The S&P 500 banks index rose almost 4 per cent to 138.28 points as traders anticipated strong investment banking performances from Goldman Sachs and Citigroup with their third-quarter results today.

Matt McCormick, analyst at Bahl & Gaynor, the fund manager, said: “It’s set expectations higher that you’ll see similar, if not better, results — particularly from Goldman, which has been able to put more leverage to work.”

JPMorgan reported revenue of $26.6 billion, up 81 per cent on the same period in 2008. Fixed income drove investment banking profits, including a $400 million gain on leveraged loans and mortgage-related securities that the bank had previously marked down.

The bank, which has been one of the strongest to emerge from last year’s credit crunch, put aside $7.3 billion to pay more than 200,000 staff, taking its compensation pool so far this year to $21.8 billion.

If the market avoids collapse in the final quarter, JPMorgan’s bankers can expect higher pay than in 2007 and 2008 when the compensation pool was about $22.7 billion for each full year.

Michael Cavanagh, chief financial officer of JPMorgan, declined to say by how much pay would be improved. “We’ll await final guidance from regulators on compensation,” he said.

Unlike its rivals, Citigroup and Bank of America, JPMorgan has repaid its loan from the Government’s $700 billion Troubled Asset Relief Programme and so escapes the requirement to have its compensation plan approved by President Obama’s pay czar. But bankers’ compensation is being scrutinised by both lawmakers and taxpayers, who were outraged when second-quarter figures were released and it became clear that compensation pools were rapidly expanding as markets surged.

All eyes today will be on Goldman Sachs and Citigroup’s compensation figures.

Goldman Sachs, which is expected to have amassed a compensation pool of almost $22 billion by the end of the year, to be shared among about 30,000 workers, is under particular pressure to avoid a return to the days of lavish pay.

However, Lloyd Blankfein, the chief executive, said at the weekend that he intended to defy public opinion. “The core of Goldman Sachs’s performance, success and longevity over this period, aside from luck, is that we’ve put ourselves in a position to be more lucky because of our people,” he told The Wall Street Journal. “And I have an obligation to keep the firm and the franchise intact.”

Fury over bonuses is likely to be fuelled by continuing pain among consumers. Jamie Dimon, chief executive of JPMorgan, warned again yesterday that consumers were defaulting on their loans in droves — a problem that is likely to hit other banks with retail businesses.

JPMorgan put an extra $2 billion in its consumer credit reserve in the third quarter, taking the total to $31.5 billion as more than 10 per cent of its credit card customers failed to pay their debts.

Mr Dimon said: “Credit costs remain high and are expected to stay elevated for the foreseeable future.”

Shares in the bank closed up 3.3 per cent at $47.17.

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