JP Morgan Chase (JPM) had a blowout quarter with profits up 76%. Net income totaled $4.8 billion, up from $2.7 billion a year ago. Earnings per share came in at $1.09, topping Wall Street's estimates of 72 cents.

CEO Jamie Dimon cautioned that a reduction of $1.5 billion of loan losses did not reflect "normal ongoing earnings." Dimon went on to say: "[O]ur wholesale businesses experienced reduced net charge-offs that led to reductions in loan loss reserves, and are currently seeing credit costs which reflect the increasingly healthy condition of our wholesale clients."

Technician Leo Fasciocco, who focuses on stocks breaking out of resistance zones, is banking on JPMorgan (NYSE: JPM), as a breakout buy on its rise over $39. Here's the latest from Ticker Tape Digest.

"JPM is one of the dominant financial firms. It has 30 million consumer customers and the world's most prominent corporate, institutional and government clients.

"Recent tape action indicates good institutional buying interest. JPM's long-term chart shows the stock making a bottom around 15 in March. It has since rallied and double in price.

JP Morgan (NYSE: JPM) is recently trading at $20.56 in pre-open trading, above its close of $19.51. JPM reduced its quarterly dividend to 5c and provided an inline Q1 update. JPM March 20 straddle is priced at $5.55, June 20 straddle is priced at $9.55. JPM March option implied volatility of 123 is above its 26-week average of 89, according to Track Data, suggesting large price movement.

PNC Financial Services (NYSE: PNC) Financial Services closed at $24.61. PNC March option implied volatility is at 137; June is at 108; above its 26-week average of 77, according to Track Data, suggesting larger near term price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Not that I necessarily thought the data would. Revenues from continuing operations decreased a whopping 23%, coming in at $16.7 billion. Net loss from continuing operations was $3.4 billion. This compared to a net profit of $2.1 billion in last year's similar quarter. The loss per share from continuing operations was $0.71. The big driver was, of course, a major collective write-down in the Securities and Banking category. Citigroup had to eliminate $4.4 billion of value in this area. Just about all the numbers in this report inspire no confidence. As market volatility to the downside worsens, assets under management are taking a hit. The Institutional Clients Group saw a major drop in its revenue base, diving 48%. And according to this source, this is the fourth quarterly loss for Citigroup in a row. In addition, JPMorgan Chase (NYSE: JPM) is now the largest bank in terms of assets. This major financial brand has taken quite the fall.

Citigroup is going to continue to have a tough time as the market and the consumer make their way through the credit crisis. The negative wealth effect that is surely coming (if it hasn't already arrived) will cause further deterioration in Citigroup's value. Earlier in the year, I was bullish on the company as a value play. I certainly no longer am. I see the bank's stock breaking through its 52-week low. I think the company will ultimately survive, but I can't say I'm entirely confident about anything in these days of surreality.

Disclosure: I don't own any company mentioned; positions can change at any time.

With shares in Lehman Brothers (NYSE: LEH) losing another 14% of their value Monday, and the stock trading under $13, rumors are swirling as to what the bank is planning to do. While there has been speculation that the bank may be taken private, an option that I think is very interesting, others have said that another bank is going to swoop in and take over the company. At the discount levels the stock is trading, that may make sense. The only problem is who the buyer will be.

MarketWatch has an interesting article about this issue and the claim is that there really is no one out there to make a bid for the struggling investment bank. The article quotes Jeff Harte, a securities industry analyst at Sandler O'Neill & Partners, " I'm hard pressed to give you many viable buyers of Lehman. Most large banks are focused on their own capital issues. Even if a bidder did come forward, it would have to win over a lot of Lehman employees -- who control around 30% of the stock -- or risk losing them once the deal was complete."

The most obvious suitor would be JPMorgan (NYSE: JPM), but it has its hands full with Bear Stearns. Other banks like Citigroup (NYSE: C) or Wachovia (NYSE: WB) are fighting for survival. That leaves us with European banks, many of whom are also trying to stay afloat. One bank that has the money needed to finance a deal could be Deutsche Bank (NYSE: DB). It could be interested in a deal as it would gain a foothold into the fixed-income desk at Lehman. The only problem is that the bank is focused on growing its retail banking franchise, not investment banking.

Which leaves us with the first option as the best one. Go private. Clean up the balance sheet, get profitable, wait a few years for the financial storm to pass, and go public once again.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/15/08.

MAJOR PAPERS:

• According to people familiar with the discussions, the Wall Street Journal reported that Microsoft Corporation (NASDAQ: MSFT) has held discussions with Time Warner Inc (NYSE: TWX) and News Corporation (NYSE: NWS), among others, about joining it in a deal that could lead to the breakup of Yahoo! Inc (NASDAQ: YHOO). Some of the sources said the preliminary talks are unlikely to result in a deal with Yahoo!
• Johnson & Johnson (NYSE: JNJ) is reportedly in exclusive talks to sell its wound-care business Ethicon to the private-equity arm of JP Morgan Chase & Co (NYSE: JPM), according to the Wall Street Journal. Terms of the potential deal were not disclosed.

• Sources familiar with the inquiry said that the Justice Department has opened a formal antitrust investigation into a deal that would allow Google Inc (NASDAQ: GOOG) to provide some search advertising for Yahoo!. The Washington Post reported that investigators will demand documents from Google and Yahoo!, as well as other large companies in the media and Internet industries.

• Reuters reported that regulators in the European Union are looking at the long-term effects of BHP Billiton Limited's (NYSE: BHP) $170B bid for Rio Tinto Group (NYSE: RTP). Sources familiar with the EU questionnaire said regulators have asked competitors and customers about effects of the deal on their businesses through 2015.

MAJOR PAPERS:

• Anheuser-Busch Companies Inc (NYSE: BUD) is going to turn down InBev's unsolicited $46.35B takeover offer and that may come before week's end, the Wall Street Journal reported. InBev is then expected to pursue a hostile takeover and Anheuser will say the offer undervalues the company. Instead, Anheuser will attempt to boost its share price by selling non-core assets such as its theme parks.
• The Wall Street Journal also reported that Belgian-Dutch financial firm Fortis NL (OTC: FORSY), in a move to increase its solvency, will attempt to raise $12.54B, and will also cancel its interim dividend and sell some assets.
• According to people familiar with the situation, the Wall Street Journal reported that JP Morgan Chase & Co (NYSE: JPM) reportedly dropped out of the bidding for General Electric Company's (NYSE: GE) $30B credit-card business. The sources said Citigroup Incorporated (NYSE: C), Bank of America Corporation (NYSE: BAC) and Capital One Financial Corporation (NYSE: COF) are not expected to submit bids, as a result of charge-offs and rising delinquencies in their own credit card portfolios.
• The Financial Times reported that the London Stock Exchange, in a joint venture with Lehman Brothers Holdings Inc (NYSE: LEH), unveiled a pan-European equities trading platform to fight rivals that are hurting its market share.

Steven Spielberg's DreamWorks baby is preparing to leave Viacom (NYSE: VIA). That sounds bad, doesn't it? I mean, Viacom should, in theory, be freaked out about losing the star asset.

Yet, an analyst working at JP Morgan has a different take on things. According to Bloomberg, Imran Khan thinks that DreamWorks may be perceived as an expensive business asset. He pointed out that the expenses associated with DreamWorks helped drive a 22% decline in operating income for Viacom's film division in 2007. He further pointed out that films with more modest budgets will aid in generating better returns and will, in fact, reduce the risk of investing in the movie business.

Khan is absolutely correct on his call. I've been talking about the need to reduce film budgets for a long time now, probably to the point where people are sick of me, so I'm always glad when I read an opinion such as this. Only problem is, will the studios listen? Well, they should. Disney (NYSE: DIS), Time Warner (NYSE: TWX), News Corp. (NYSE: NWS), and Sony (NYSE: SNE) would all benefit from increased financial restraint when it comes to the business plans of their respective film units.

MAJOR PAPERS:

• Long Island, NY's Astoria Financial Corp (NYSE: AF) has found a novel way to reduce the number of its nonperforming loans by changing its internal policy on when mortgages are classified on its books as troubled, the Wall Street Journal reported. By counting home loans as non performing when the borrower misses at least three payments, not two, Astoria reduced its non-performers to $69M from $106M in three months.
• The Wall Street Journal also reported that the indictments of Matthew Tannin and Ralph Cioffi, two former Bear Stearns hedge-fund managers, are expected to cite a personal e-mail suggesting the funds were "toast," four days before they told investors they had little to worry about. JP Morgan Chase & Co (NYSE: JPM) has said it will cover the legal costs of the fund managers.
• Hewlett-Packard Company (NYSE: HPQ) is set to reorganize its printer unit. The Wall Street Journal said that the unit's five business units will be cut down to three to become more efficient at adapting to a marketplace in which consumers are relying less on printing.
• According to people close to the situation, the Financial Times reported that Anheuser-Busch Companies Inc's (NYSE: BUD) board of directors is planning to meet this week to discuss the $46B bid from rival brewer InBev.

MAJOR PAPERS:

• The Wall Street Journal reported that executives from Ford Motor Company (NYSE: F) informed plant managers and union representatives that they intend to reduce overtime and that additional buyouts of union workers were necessary to cut costs.
• The Wall Street Journal also reported that federal prosecutors are preparing to file criminal charges against Ralph Cioffi and Matthew Tannin, two hedge fund managers at Bear Stearns, now part of JP Morgan Chase & Co (NYSE: JPM), with securities fraud.
• Investors who helped U.S. financial companies raise capital are currently losing nearly $10B on paper, according to an analysis by the Financial Times.

• Fortune reported that the materials used to build Apple Inc's (NASDAQ: AAPL) new 3G iPhone could cost as little as $100, while the components of the old iPhone cost $170, according to analysis by Portelligent, an Austin, Texas-based teardown specialist.
• Steve Jobs appeared to be extremely thin during the unveiling of Apple's new iPhone last Monday, causing speculation by observers. Fortune speculated that Jobs' weight loss over the years is being caused by a complex operation he underwent in 2004, in order to treat a rare type of pancreatic cancer.