* Bank says derivatives risk 'significantly reduced'
* Net income $4.96 billion vs $5.43 billion year earlier
* Q2 EPS $1.21 vs $1.27 year earlier
JPMorgan Chase & Co, the biggest U.S. bank, posted $4.4 billion of credit trading losses, but said it had cleaned up the group responsible for the bad bets.
The bank said its Chief Investment Office, which made the trades, was no longer betting on credit derivatives. Another group will manage what is left of the trades.
The CIO, which manages risk for the overall bank and invests excess deposits, will now focus on conservative investments, JPMorgan said. The problems were isolated to the group, the company added.
"We have put most of this problem behind us and we can now focus our full energy on what we do best," Chief Executive Officer Jamie Dimon said in a statement.
The trading losses have been a black eye for a CEO who was respected for keeping his bank consistently profitable during the financial crisis.
Even with the CIO losses, JPMorgan posted second-quarter net income of $4.96 billion, or $1.21 a share, compared with $5.43 billion, or $1.27 a share a year earlier.
The derivative loss after taxes reduced earnings per share by 69 cents, the company said.
JPMorgan made more mortgage loans, which helped results.
The bank also pushed $459 million of the losses from the bad credit trades into the first quarter, and said traders had misstated the value of the positions for that period. It also said it had material problems with its financial controls then.
JPMorgan expects to file new, restated first quarter results in the coming weeks.
The company's shares rose 1.8 percent to $34.65 in trading before the New York Stock Exchange opened.
The derivatives loss stemmed from a hedging strategy gone wrong in the London office, where market sources said trader Bruno Iksil was among those making whale-sized bets.
A source said on Friday that Iksil had left the bank.
Friday's financial report came three months to the day after Dimon, 56, told stock analysts that news reports about Iksil and looming losses in London were a "tempest in a teapot."
That remark, which Dimon told Congress last month was "dead wrong," added to the damage the loss has done to his reputation and his argument that his bank is not too big to be managed safely.
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