Shares in Deutsche Bank surged almost 4 per cent higher this morning after Germany's largest bank delivered better-than-expected third-quarter profits and said it was well-placed to reap long-term benefits from the credit crunch.

Pre-tax profits for the three months to the end of September at Deutsche slid 19 per cent to €1.4 billion (£976 million).

The bank took a €603 million charge to cover losses on leveraged loans and a €1.56 billion trading hit on equity and debt instruments and residential mortgage-backed securities.

The German powerhouse's exposure to the downturn in the US mortgage market, and the seizure of the wholesale credit markets as a result, pushed its investment banking division into a pre-tax quarterly loss of €179 million.

However, shares rose €3.34 to €92.14, a rise of 3.76 per cent, as investors who had expected far worse breathed a sigh of relief.

Earlier this month, Josef Ackermann, Deutsche's chief executive, gave warning the bank was preparing to take writedowns totalling €2.2 billion and was expecting to post pre-tax profits of just €1.2 billion.

The high-profile bank chief, who had earlier urged Europe's banks to be transparent about their positions, had said the investment banking arm, Corporate Banking & Securities (CBS), was braced for losses of as much as €350 million.

Today, Dr Ackermann admitted that "challenges undoubtedly remain" after a period of "exceptional turbulence in financial markets". But he said the bank's "stable" businesses, which include asset management, private and retail banking, had performed well.

He said he was sticking to financial targets for next year.

Profits were also aided by the positive tax impact of a number of disposals that were booked during the quarter.

These include the sale of the bank's holdings in Allianz, the German insurer, and Linde, the European trucks group. The bank also sold off its 60 Wall Street building in the US.

Analysts at Citigroup said profits were "better than warned" and noted Mr Ackermann's comments that the bank had begun the fourth quarter well.

Vasco Moreno and Matthew Clark at Keefe, Bruyette & Woods, said: "While the group result was substantially boosted by 'one-off' items, the €200 million pre-tax loss in the CBS division is less severe than at some peers, while other divisions show a promising progression.

"We expect the resilient result and positive outlook to be well received."

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