12.19pm: JP Morgan has kicked off perhaps the most controversial bank reporting season in Wall Street history with a strong set of annual results and the line that many outside the industry are watching like a hawk is buried right at the back of the release: pay and bonuses to its investment bank staff jumped 21% in 2009 to $9.3bn.

The bank made total profits of $11.7bn, after fourth quarter net income came in at $3.3bn, but it's still not good enough for boss Jamie Dimon who says:

Though these results showed improvement, we acknowledge that they fell short of both an adequate return on capital and the firm's earnings potential.

I'll be having a look at how it compares with what analysts were expecting and look at where all that money is coming from. The conference call is at 9am New York time, or 2pm here in London.

12.31pm: It looks like even Jamie Dimon hasn't been immune to the controversy swirling around the thorny question of bank bonuses though. My banking colleague Jill Treanor points out the rate that at which the investment bank added to its bonus pool slowed dramaticallty in the last three months of the year.

In the technical jargon, compensation accrued in fourth quarter was $549m compared to around $3bn in each of the previous quarters of 2009. Now, the end of the year is traditional a less profitable time for these banks, but the investment bank still made nearly $5bn in revenues during this time. Perhaps the message is (beginning) to get through?

12.45pm: The fourth quarter pay jump is much smaller than analysts were expecting, although others will no doubt argue it is still far too high overall. As we wrote this morning analysts were expecting $3bn in Q4, taking Wall Street as a whole to around $65bn in 2009. It will be fascinating to see whether Goldman Sachs and others are forced to start reining in their bonuses in a similar manner. Citigroup is already reported to be looking at announcing a cap on cash bonuses.

1.05pm: In its slide presentation, the bank says that the slowdown in pay growth for its 25,000-odd investment bankers was due to "lower performance-related compensation". The percentage of revenue handed out in pay and bonuses fell to just 11% in the fourth quarter - low by traditional Wall Street standards. It didn't stop the bank as a whole paying out a total of $26.9bn in pay and bonuses over the year though.

1.16pm: Let's see what others are saying. The Wall Street Journal is reporting the "surge" in profit to $3.3bn, but points out that JP Morgan shares slipped in pre-market trading due to the cautious comments from Jamie Dimon I mentioned earlier.

Fourth-quarter profit remained solidly tied to its business with Wall Street, while its business with Main Street continued to struggle with delinquent loans.

The $2 trillion-asset bank's fourth-quarter earnings quadrupled as the banking giant closed out a year in which it made it through the financial crisis more strongly than its rivals. Though its $3.3 billion profit fell 9% from the third quarter, J.P. Morgan beat analyst expectations with a clean quarter almost free of one-time items.

Reuters thinks the market is also worried about bad loans:

JPMorgan Chase & Co reported better-than-expected fourth-quarter profit on Friday, but losses on mortgages and commercial loans continued to rise and its shares fell nearly 2 percent in premarket trading.

Analysts had been hoping that JPMorgan, seen as one of the best-managed U.S. banks, would show signs that its credit costs were leveling off or even starting to fall. "I don't think we can take away from these results that we are any further along in the (economic) recovery than we thought we were," said David Dietze, chief investment officer at Point View Financial Services.

1.45pm: It is easy to obsess about pay, but it is a symptom not a cause. The real question is why investment banking has become so profitable again so quickly? Goldman Sachs gave some clues at the third quarter when it showed how profitable fixed income trading had become now that many competitors had fallen by the wayside. Interestingly, JP Morgan suggests today that these profit margins may be coming down again as competition returns a bit:

Fixed Income Markets revenue of $2.7B down from record results in 3Q09, reflecting lower overall volumes and tighter spreads across products

Instead, providing takeover advice to companies seems to have returned as the big driver of profits towards the end of the year. Investment banking fees are up 38% and JP Morgan is delighted to boast how it has overtaken Goldman Sachs in the deal-making league tables. Interesting though how little pricing pressure there still is here: only this week a big British company in the middle of a deal was moaning to me about how they were still being charged through the nose for advice - "cartel" was the word he used.

1.59pm: Some interesting reaction coming in now - from opposite ends of the spectrum. British union leader Brendan Barber has this to say about the news that JP Morgan Chase is to pay out $26.9 billion in pay, bonuses and benefits for last year:

These obscene bonuses paid so soon after the world's taxpayers had to rescue the banking system show that there is something fundamentally wrong in the relationship between banking and the rest of the economy. Banks are meant to support society, but instead taxpayers' support guarantees that whatever happens to the economy banks will continue to pay gigantic bonuses. The best way to reintegrate banks into society is to make sure they pay a proper contribution through a transaction tax – a solution rapidly gaining support both here and abroad.

Bank analysts at rival Wall Street firm, Morgan Stanley, are more upbeat (unsurprisingly perhaps) pointing out there is better news than expected on bad debts in the economy (sorry for jargon):

JPM reported 4Q09 earnings per share of $0.74, better than our estimate of $0.54 and consensus of $0.60. Non-performing loans and credit came in better than expected. We think this is the driver for the stock. Pre-tax operating income beat us by 8 cents. Some argue FICC [fixed income] miss, but one-timers not yet disclosed. We expect details on the conference call. JPM managed down expenses such that PPOP in the investment bank was in line with expectations. Better than expected quarter for JPM with operating earnings per share of $0.74, 20 cents better than our estimate of $0.54. Beat driven primarily by lower credit, mainly in the investment bank and Card, and a lower tax rate. On a consolidated basis, non-performing loans declined 1% quarter on quarter.

2.14pm: The analyst conference call has started now and the finance director has just revealed something interesting about all the political attempts to bring the bankers to account. He says the JP Morgan compensation total was reduced by a need to "offset British tax on bonuses". The looks like it could be the first confirmation that Wall Street has decided to absorb the tax centrally rather than penalise its London operation. This would be a blow to those like Boris Johnson who argue that London will lose out. It also puts all those headlines this morning about how UK banks would be hit by President Obama's new levy into proper context. Politicians moving in lockstep make it much harder for bankers to play one country off against another.

PS. The Telegraph is now reporting that Britain's bonus tax will raise about £300m from JP Morgan - although I'm not sure how it has worked it out since there is no geographic breakdown of the compensation pool as far as I can see. Looks like a back of the envelope guess - interesting though.

2.32pm: The conference call has also just confirmed that JP Morgan is paying more of its bonuses out in shares rather than cash to comply with all the new regulations. They seem a bit irritated by this, to judge from the tone of voice. No sign of an outright cap on cash bonuses though - which we've seen from Goldman and is rumoured at Citigroup.

2.32pm: They're complaining now that President Obama's new levy on banks will have "peculiar effects".

We don't really know what it will all mean though

2.44pm: Jamie Dimon is getting quizzed more about Obama's levy and how banks should be made to pay for the protection they receive from governments. He has an interesting response:

We don't believe we are too big to fail

2.47pm: More reaction from beyond the world of finance. Oxfam argues that the surging profits at JP Morgan increase the argument for a transactions tax. Max Lawson, the charity's senior policy adviser, says:

Millions of people have been hurt by the economic crisis caused by bankers' folly. Banks have all benefited from taxpayer bailouts of the financial sector - they should repay their debt to society rather than reinstating massive bonuses. 'A tax on banks' financial transactions could repair much of the damage caused by their actions, raising billions for good causes at home and abroad. There is increasing political momentum in favour of taxing banks to help people at home and abroad hit by the economic crisis, with leaders in the UK, US, France and Germany as speaking in favour during recent months. Oxfam is calling on the UK and other countries to go beyond a one-off tax on banks or bonuses and create a permanent levy on banks to fund public services in the UK and reduce poverty in poor countries. An average global levy of just 0.05% on share, currency and derivative transactions could raise up to $700bn annually.

2.57pm: JP Morgan finance director confirms that the UK bonus tax will cost the bank "several hundred million dollars" but it won't know the exact impact on profits until the legislation is drawn up. He confirms that it has shrunk the overall bank's bonus pool (although presumably it may still be spread unequally between regions). My colleague Jill Treanor suggests this means perhaps Darling had an impact after all.

The conference call is continuing now and Jill is going to interrogate the numbers more carefully. I'll keep this open for now and return in a bit if we find anything interesting.