* Bond trading revenue up 14 pct
* Wall Street average bond trading revenue up 49 pct
* Ongoing restructuring of investment bank
By Anjuli Davies
FRANKFURT, Oct 27 (Reuters) - Deutsche Bank benefited from the rising tide in bond trading in the thirdquarter of 2016, but as it struggles with the protractedoverhaul of its investment bank, Wall Street rivals are stealinga march.
The volatile markets between July and September, sparked byBritain's vote to leave the European Union and bouts of anxietyabout monetary policy around the world, would normally beperfect conditions for Deutsche Bank's fixed-income business toturn a hefty profit.
Indeed revenues at its cash-cow bond trading division wereup 14 percent compared with the same period last year to nearly2.1 billion euros ($2.29 billion), helping the German lenderpost an unexpected quarterly profit on Thursday.
But the rise was muted compared with that seen at U.S. bankswhich saw their combined revenue from fixed income, commoditiesand currencies (FICC) rise 49 percent, while European neighbourBarclays posted a 40 percent jump in FICC revenues.
"It was clear that the good Q3 market conditions were goingto lift all market players, even those not necessarily in greatshape, like Deutsche Bank, " analysts at Kepler Cheuvreux wrotein a note.
Back in 2013, Deutsche Bank ranked third globally for FICCtrading, according to data from industry analytics firmCoalition, and had the second-highest revenue from investmentbanking.
So far in 2016, it is ranked sixth for investment banking,and has ranked between 4th and 6th for FICC trading.
Deutsche Bank blames its relatively poor showing on theongoing cut-backs in its U.S. business and its efforts to reduceits presence in riskier asset classes.
"Market share is down in debt trading due to theacceleration of our restructuring plan and our regional skewtowards Europe and the Asia Pacific region," finance chiefMarcus Schenck said on a post-results call with analysts.
"We did not benefit the same as our U.S. peers due to thesmaller size of our U.S. credit platform and the strongperformance of securitised trading, given our exiting of thisbusiness."
Riskier markets such as securitised products, in whichDeutsche Bank used to have a large presence, tend to be volatileand come with higher capital requirements.
Deutsche Bank is in the midst of trying to boost its capitalcushions, and is aiming to achieve that in part by reducing itsholdings of risky assets.
The German lender is also under the threat of amulti-billion-dollar fine from U.S. regulators, which hasprompted its management to rethink a year-old strategic overhaulthat has made faltering progress, people close to the mattersaid earlier this month.
Its third-quarter results gave a hint at what scaling backfrom the United States, its most lucrative market, could portendfor the bank going forward.
"We've taken a conscious decision to pull out of a number ofmarkets ... which has cost us some business," said Schenck,adding that in the first nine months of the year around aquarter of the decline in revenues in the markets division couldbe explained due to the ongoing restructuring programme.
"Going forward FICC is likely to be more stable and lessseasonal".
Bond trading revenue at most banks has been grinding lowerfor about seven years as new regulation on proprietary trading,derivatives and capital have restricted what banks can do inbond markets, making the business less lucrative.
From 2010 to 2015, bond trading revenue fell 36 percentacross the industry, while equities trading revenue rose 23percent. Equities includes revenue from trading stocks andrelated derivatives, as well as prime brokerage services.
In a reversal of fortune this year, revenues from equitiestrading has declined broadly across the industry, hit byuncertain and volatile markets that have left investors moreaverse to risk.
Deutsche Bank reported a 5 percent decrease in equitiestrading revenue to 603 million euros in the third quarter.
The global markets business, which includes all the bank'strading activities, posted a meagre 3.5 percent return-on-equity(RoE). Analysts expect banks to produce a minimum RoE of about10 percent to be meeting their cost of capital.
($1 = 0.9164 euros)
(Reporting by Anjuli Davies; Editing by Rachel Armstrong andMark Potter)
Barclays (BARC)