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US government may end up owning even more of Citigroup

CITIGROUP Inc, the recipient of US$45 billion in United States government aid, is in talks with federal officials to increase state ownership of the bank, the Wall Street Journal said.

The government may end up holding as much as 40 percent of Citigroup's common stock, the newspaper said, citing anonymous sources familiar with the situation. Citigroup spokesman Jon Diat declined to comment on the report.

Citigroup, which slumped 22 percent in New York trading on Friday over concern it may be nationalized, proposed to its regulators that the government convert a large portion of its preferred shares into common stock in a transaction that wouldn't cost taxpayers more money, the Journal reported. Another taxpayer-funded bailout would probably cost Chief Executive Vikram Pandit his job, the report said.

Investors including William Smith, of Smith Asset Management in New York, have blamed Treasury Secretary Timothy Geithner's failure to clarify his intentions regarding Citigroup and Bank of America Corp for hurting the companies' stocks. Citigroup shares have tumbled 71 percent this year and Bank of America is down 73 percent, ranking the banks among the 10 worst performers on the S&P 500 index.

Citigroup shares traded in Tokyo reversed earlier losses, gaining as much as 3.8 percent to 230 yen after slumping as much as much as 18 percent to a record low. The stock has lost 94 percent since Citigroup listed shares on the bourse on November 5, 2007 - the day former CEO Charles Prince was ousted.

"It's the right move" for the US, said Winson Fong, who helps oversee US$2 billion at SG Asset Management Hong Kong Ltd. "This should have happened much earlier. To rescue a bank you need to give it more capital."

Banks may have to be nationalized for "a short time" to help lenders such as Citigroup and Bank of America survive the worst economic slump in 75 years, Senate Banking Committee Chairman Christopher Dodd said on Friday. Bank of America and Citigroup have received a combined US$90 billion in US aid in four months.

The administration of President Barack Obama said on Friday that a "privately held" banking system is the "correct way to go" and House Financial Services Committee Chairman Barney Frank said nationalization ought "to be avoided."

Citigroup, which is trading at its lowest level in 18 years, would prefer the government stake in the New York-based company to be closer to 25 percent, the Journal said.


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