Citi, U.S. Government Closer to Deal: Report

A deal for the U.S. government to raise its stake in Citigroup could be announced Thursday, a report says. But new complications could arise from the sale.
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Citigroup

(C) - Get Report

is closing in on an agreement to boost the federal government's stake in the company to as much as 40% and a deal could be announced Thursday, the

Wall Street Journal

reports.

However, a greater stake by the U.S. government could bring a slew of new complications, particularly regarding ownership of Grupo Financiero Banamex, the No. 2 bank in Mexico by assets, the

Journal

adds.

Mexican law bars any institution that is more than 10%-owned by a foreign government from running a bank in that country. Therefore, some Citigroup executives are worried that an increased U.S. stake might subject the bank to pressure to relinquish some or all of its ownership of Banamex.

Citigroup is loath to shed Banamex, the Journal reports, but executives have concluded the issue will probably have to be resolved through diplomatic channels between the U.S. and Mexico, the

Journal

reports, citing people familiar with the matter.

Complications could arise in other parts of the world as well, as the bank operates in more than 100 countries. Executives have been scrambling this week to identify potential problems, according to the

Journal

.'

Citigroup already has received $45 billion in U.S. bailout money made up primarily of preferred shares, plus federal guarantees to cover losses on about $300 billion in risky investments. The bank also has transferred control of its Smith Barney brokerage to

Morgan Stanley

(MS) - Get Report

in return for $2.7 billion, and has prepared itself for more asset sales by splitting in two -- effectively undoing the merger that created Citigroup a decade ago.

The

Associated Press

, contrary to the

Journal

report, says a deal with the U.S. government is unlikely to be announced early Thursday, but could be hammered out within days.

AP

cited a person close to the matter.

While the exact details of the talks aren't known, they could center on the terms of converting the government's $45 billion in preferred shares into common equity.

This article was written by a staff member of TheStreet.com. AP contributed to this report.