US could take 25-40 per cent stake in Citi: Report

NEW YORK: The US government is in talks that could lead to it taking take a 25-40 per cent stake in Citigroup, a media report said on Sunday.

"While the discussions could fall apart, the government could wind up holding as much as 40 per cent of Citigroup's common stock. Bank executives hope the stake will be closer to 25 per cent," the paper reported citing unnamed people familiar with the situation.

"The proposal was made by Citigroup to its regulators. The (Barack) Obama administration hasn't indicated if it supports the plan," the report said citing people with knowledge of the talks.

Under the plan under consideration, a substantial portion of the 45 billion dollars in preferred shares held by the US government would be converted into common stock, The Journal said.

The government obtained a 7.8-per cent stake in the bank in return for pumping capital into Citigroup.

In October, Treasury poured 125 billion dollars into eight financial giants including 25 billion dollars for Citigroup, in exchange for preferred shares and warrants to buy stock.

In November, the government agreed to pump another 20 billion dollars into Citigroup as its stock tumbled. It then agreed to protect the banking company against most losses on a 301 billion dollar pool of assets.

The stock conversion wouldn't cost the US treasury additional money, but other Citigroup shareholders would see their shares diluted, the report said.

Citigroup Chief Executive Vikram Pandit huddled Sunday with his senior executives to fine-tune his pitch to the Obama administration, according to The Journal.

The paper said the talks reflect a growing fear that Citigroup and other big US banks could be overwhelmed by losses amid the recession and housing crisis.

Last week, Citigroup's share price fell below two dollars to an 18-year low, and bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide, the report noted.

If a deal is reached, it would be the US government's third bid to help Citigroup in several months.

On Friday, the Obama administration moved to quash rumors that troubled US banks will be nationalized.

"This administration continues to strongly believe that a privately held banking system is the correct way to go," White House spokesman Robert Gibbs told reporters amid speculations that Bank of America and Citigroup are among banks facing imminent nationalization.

A Bank of America spokesman said his institution's management did not see a need for nationalization.

"We see no reason to nationalize a bank that is profitable, well capitalized and actively lending," Scott Silvestri, a spokesman for the bank, said.