Citi in talks over bigger U.S. stake - Report

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Bank and regulators discuss plan for government to convert preferred shares, according to Wall Street Journal.

Citigroup Inc. is in discussions with regulators about a plan for the federal government to take a larger ownership stake in the bank, according to a report Sunday.

The Wall Street Journal, citing sources familiar with the matter, reported that the government would convert a large portion of its preferred Citigroup shares to common shares.

The government received the preferred shares in return for investing $45 billion in Citi as part of the $700 billion bailout of the financial system.

According to the Journal, the talks involve Citi executives and regulators at the Federal Reserve and Office of the Comptroller of the Currency. Officials in the Obama administration have not said whether they support the plan, the Journal reported.

Citigroup spokesman Michael Hanretta declined to comment on the Journal report. On Friday, the bank issued a statement saying that its capital base is "very strong" and capital reserves were among the highest in the industry at the end of the fourth quarter.

"We continue to focus and make progress on reducing the assets on our balance sheet, reducing expenses and streamlining our business for future profitable growth," Hanretta said.

The report is sure to stoke speculation about whether the Obama administration may have to nationalize large banks to stabilize the financial system.

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HONG KONG, Feb 23 (Reuters) - Asian stocks rose and the U.S. dollar tumbled on Monday after a report said the U.S. government could end up owning as much as 40 percent of Citigroup Inc (C.N), sparking some relief among investors who cut their safety trades.

U.S. equity futures rose 1 percent SPc1 after the Wall Street Journal, citing people familiar with the situation, said Citi was in talks with federal officials that could wind up giving the government a big stake in the financial group, whose stock price plunged around 44 percent last week. [ID:nHKG310337]

"The news itself is hardly positive. If anything, it's indicative of further weakness in the financial markets going forward, but at least now investors know the extent of the damage that will be done in terms of equity dilution," said Alex Wong, director at Ample Finance in Hong Kong.

The three havens that investors mainly bought last week on uncertainty about the fate of U.S. banks -- U.S. Treasuries, gold and the dollar -- dropped, as dealers sold first and worried later about the implications of such a big public stake in a major international bank.