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The conversion does not call for more government funds but helps shore up the troubled banking giants capital position, according to Citi and U.S. officials.
The U.S. Treasury would convert up to the $25 billion injected in the form of preferred stock under two bailouts for Citi, once the world's biggest financial services firm.
Citigroup said the Treasury's conversion of its preferred stock from its $45 billion so far pumped into the crisis-ridden bank could see the government take a stake of up to 36 percent.
"Based on the maximum eligible conversion, the U.S. government would own approximately 36 percent of Citi's outstanding common stock and existing shareholders would own approximately 26 percent of the outstanding shares," the bank said in a separate statement.
"All investors new stakes will be determined following the exchange."
Richard Parsons, Citigroup chairman, said the banks board would be revamped. "The board unanimously decided to have a majority of new independent directors as soon as feasible," he said, AFP reported.
The action, which marks the third major Treasury intervention to aid Citigroup since mid-October, follows more than a week of negotiations between the Treasury and the firm, once the world's largest financial services group.