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Oct 15 Reuters Citigroup posted a smallerthanexpected drop in profit for the third quarter thanks to gains in investment banking, particularly in debt underwriting.

The thirdlargest U.S. lender39;s dealmakers joined rivals at JPMorgan Chase and Wells Fargo in benefiting from a rebound in capital markets as corporate clients issued more debt and equity.

Investment banking was a bright spot for the second straight quarter, as revenue jumped 31 to 934 million. Wall Street executives are optimistic that the Federal Reserve39;s interestrate cut last month will pave the way for more deals and initial public offerings.

You39;ve heard me talk for a number of quarters about the pipeline and announced deal volume being strong, Chief Financial Officer Mark Mason said in a call with reporters.

The bank has always been strong in debt capital markets and continues to benefit from investment grade issuance as clients look to get back into the market, he said.

Citi39;s total operating expenses declined 2 in the third quarter.

The bank increased its total allowance for potential credit losses by about 1.9 billion, driving down net income to 3.2 billion, or 1.51 per share, from 3.5 billion, or 1.63 per share, a year earlier.

It still handily beat analysts39; average…