The US government and Citigroup has stepped up their talks aimed at rescuing the troubled banking giant, which is struggling to maintain its independence while facing a severe financial crisis.
Citing sources close to the negotiations, The Wall Street Journal reported in its online edition that the federal authorities and the world's top bank were close to an agreement.
Such a deal had been expected on Wall Street on Friday when Citigroup shares were in free fall, with investors skeptical about the bank's ability to recover without outside help.
The New York Times said the proposal under discussion called for the government to shoulder losses at Citigroup if those losses exceeded certain levels.
If the government should have to take on the bigger losses, it would receive a stake in Citigroup that could potentially hurt existing shareholders, the report said.
The talks on rescuing the banking giant were accelerated after a 60 percent plunge in Citigroup's stock value last week, which led executives to consider selling all or parts of the company.
Executives at the bank, once the world's largest, held weekend talks with US Federal Reserve and Treasury Department officials, the Wall Street Journal reported.
"Talks were progressing Sunday toward creation of what would essentially be a 'bad bank'," the Journal said, citing people familiar with the talks.
The new entity would hold about 50 billion dollars of assets and would help the bank "cleanse its balance sheet of billions of dollars in potentially toxic assets," sources told the paper.
The government and Citigroup had hoped to unveil the plan late Sunday, but the negotiations appeared to drag on longer than expected, The Journal said.
Treasury Secretary Henry Paulson has already briefed congressional leaders about the plan, according to the report.
Heavily involved in the negotiations with Citigroup is Timothy Geithner, who is scheduled to be named President-elect Barack Obama's Treasury secretary later Monday, according to The Washington Post.
Geithner is president of the New York Fed, which is Citi's primary regulator.
Operating in over 100 countries and with more than two trillion dollars in assets, "Citigroup is widely viewed, both in Washington and on Wall Street, as too big to be allowed to fail," The New York Times reported meanwhile.
The US Treasury Department used similar justification when it bailed out insurance giant American International Group Inc (AIG) in late September.
Citigroup, a component of the blue-chip Dow Jones Industrial Average, has tumbled more than 70 percent since the start of the year, with the bank hit by hefty writeoffs linked to the US real estate crisis. Stock prices for the New York City-based company closed at 3.77 dollars on Friday, their lowest level in years.
Last Monday, the bank announced it was slashing a near-record 50,000 jobs worldwide to cope with the global financial crisis and heavy losses. At its peak last year, the company employed 375,000 people.
The ailing bank was among the nine big US banks that agreed last month to give the US government equity stakes in exchange for a combined 125 billion dollars under a 700 billion dollar financial sector rescue plan. Citi got a 25 billion dollar injection.
Last month, Citi reported a third-quarter loss of 2.8 billion dollars, its fourth straight quarter in the red.
Details of the rescue remained murky late Sunday, although The New York Times said that "if approved, the plan could serve as a model for other banks, heralding another shift in the government's morphing financial rescue."
Copyright 2008  AFP Global Edition
