By Tom Sims and Patricia Uhlig
FRANKFURT (Reuters) - Deutsche Bank AG <DBKGn.DE>, Germany's largest lender, reported a surprise return to a third-quarter net profit and upgraded its annual outlook for investment banking revenue, as it navigates a restructuring and the coronavirus pandemic.
The lender's investment banking division, which has long been a drag on earnings, is proving a bright spot as market volatility spurs trading. Deutsche's top executives said the revenue is expected to slow in the months ahead, but that the division will hold on to some recent market share gains.
"We see our revenue growth in the investment bank as much more than just market driven," Chief Executive Officer Christian Sewing told analysts.
The bank turned in a profit attributable to shareholders of 182 million euros ($215 million) for July-September, versus a loss of 942 million euros a year earlier. Deutsche last reported a quarterly profit in January-March 2019.
JPMorgan, which had projected a quarterly loss, called the results a "positive surprise."
Deutsche shares were up 1.9%, reversing earlier losses and were one of a few gainers in the DAX index of bluechips.
Analysts at Citi said it was a good set of results but that they remain sellers of Deutsche Bank's stock because "the investment bank industry backdrop is unlikely to be as supportive" for Deutsche in 2021.
Alexandra Annecke, portfolio manager at Deutsche shareholder Union Investment, said the road to adequate returns and attractive dividends "is still long."
Deutsche has lost money for the past five years and has been trying to reverse its fortunes through an overhaul by shedding staff and cutting costs. It has exited some unprofitable businesses, particularly in the investment bank, to allow it to focus on strengths like bond trading.
The bank has hoped to lean more heavily on its divisions serving private customers and corporations, and less on the investment bank, but revenue growth has stagnated amid the pandemic, low interest rates and fierce competition.
Analysts say the overhaul is starting to show results, but uncertainties stemming from the health crisis remain.
For the quarter just ended, Deutsche's revenue climbed 43% at the investment bank, boosted by a 47% rise in fixed income and currencies. In comparison, investment banking revenue at U.S. banks rose 21% in the quarter, analysts at Barclays said in a research note.
Andreas Thomae, a portfolio manager at Deka, an investor in Deutsche, said it was good to see the bank had won market share from its U.S. peers.
Deutsche said it expected "significantly higher" revenue at the investment bank for 2020, versus prior guidance of "higher."
The bank's executives said they were monitoring how credit losses accumulate after government measures to help businesses and consumers through the pandemic begin to taper off.
Later in the day, German Chancellor Angela Merkel is due to hold high-level talks to decide on new restrictions to break a second wave of coronavirus infections.
(Reporting by Tom Sims, Patricia Uhlig and Hans Seidenstuecker; Additional reporting by Douglas Busvine; Editing by Himani Sarkar and Jane Merriman)