The Treasury Department reached a deal late Thursday to increase its stake in Citigroup to an estimated 36 percent as part of a third bailout for the struggling bank. Already, the U.S. government holds an 8 percent ownership in the New York institution.
Under the terms of the deal, the Treasury has agreed to convert up to $25 billion of its previous preferred stock investment in Citigroup into common stock. Private investors, including the government of Singapore and Saudi Arabian Prince Alwaleed Bin Talal, have also agreed to convert their preferred stock, with the Treasury Department matching the conversions dollar-for-dollar.
The new round of aid from the U.S. government does not call for more public money. Instead, it simply involves changing the terms of existing Citigroup investments to give the bank more capital to work with, a strategy that Citi proposed to administration officials earlier this week when it decided the bank needed further assistance to maintain operations in today’s challenging economic environment.

Vikram S. Pandit will continue as the bank’s chief executive, but according to a “New York Times”:http://www.nytimes.com report, Citigroup will have to shake up its board so that it has a majority of “independent directors,” a move that federal regulators have already been pushing.
The “Financial Times”:http://www.ft.com reported that Citi’s competitors are urging the government to tack on conditions to reign in the bank’s proprietary trading, prime brokerage, and its derivatives businesses to go along with any massive investment. According to FT, the bank’s rivals argue that Citi must not be given “undue power” in financial markets.
An executive of one unidentified competitor told FT, “What cannot happen is that a government-controlled Citi does better than healthier institutions because it has access to cheap funding and it is effectively backstopped by the U.S.”
Citigroup has already received $45 billion in government funding, making U.S. taxpayers Citi’s single largest shareholder. The bank has also received federal guarantees against losses on more than $300 billion in illiquid mortgage assets.
Citi’s stock price took a tumble upon news of the Treasury deal as investors worried how much the move would dilute the value of their shares.