Citi Struggles Under Fed Oversight, About to Get More
Tottering bank may give 40% of shares to Washington
By Jason Farago,  Newser Staff
Posted Feb 25, 2009 7:45 AM CST
Citigroup has approached banking regulators about ways the government could help strengthen the bank, including the stock conversion plan, according to people familiar with the discussions.    (AP Photo/Seth Wenig)
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(Newser) – Citigroup is in talks with Washington about a restructured deal that would see the US convert its 7.8% stake of preferred shares into up to 40% of common stock. The deal would provide Citi with desperately needed capital, but would place the bank under further control of the federal government. Already, reports the Wall Street Journal, Citi execs say they're hamstrung by the conflicting demands of the state and their shareholders.

There's no one entity in Washington overseeing Citigroup, and the government has flitted between micromanagement and indifference, the Journal says. The Fed claims that it now has what it calls "observer rights" that include participation in board meetings—while Citi execs complain the government now has "unlimited power" over the bank. The confusion and red tape has made Citi so nervous that, at a recent meeting, staff members worried that they'd face accusations of wastefulness for buying cookies.