Updated from 11:20 a.m. EST

Citigroup

(C) - Get Report

CEO Vikram Pandit ceding as much as a 36% stake of his company to the federal government, but he likely doesn't need to worry about his job security, at least in the near-term.

Citi

on early Friday said it had reached a deal to exchange common stock for preferred securities the U.S. government holds. The move is intended to lighten the amount of preferred dividends Citi must pay and improve its

tangible common equity

, an accounting measure investors have increasingly relied on to determine the health of financial companies.

In return, Citi pledged to further shake up its board, by bringing in a majority of new independent directors, but made no mention of Pandit. While there have been grumblings that Pandit was not the right man for the job since he replaced ex-CEO Charles Prince in late 2007, the same problem that confronted Citi then remains now: the list of attractive alternatives is limited.

"He probably is not the right guy for sure, but they're hard-pressed to find the right guy," says Carter Burgess, a managing director and head of board recruiting practice at RSR Partners in Greenwich, Conn. "I just don't think there is a better option right now," Burgess says.

Citi shares declined 39% to $1.51 in afternoon trading.

Former

NYSE Euronext

(NYX)

CEO and

Goldman Sachs

(GS) - Get Report

alum John Thain, who was once considered an option for the Citi job, instead went to run

Merrill Lynch

in late 2007. He's available again, but only because he was forced out of the Merrill job by new owner

Bank of America

(BAC) - Get Report

after being tainted by revelations of grandiose spending and the decision to move up Merrill bonuses right before the merger closed. New York State Attorney General Andrew Cuomo is probing the bonuses.

Analysis

Discussion

Stock Rating

No Silver Lining Yet For Financials

Discuss Your Take on Citi
(Add comment)

HOLD
(Get Report)

Other previous candidates, including Robert Willumstad, a former Citi executive and former chairman of troubled insurance giant

AIG

(AIG) - Get Report

, are also out of the picture.

Burgess adds that if Pandit goes then it's likely the company will also see more executives -- many of which Pandit hired -- also leave. After just repositioning the company's executive ranks, it probably won't be comforting to see a new team put in place, he says.

A Citi representative was not immediately available to comment.

Pandit may still have his job, but Citi's woes just keep getting worse.

Citi and of Bank of America have taken a recent beating over fears they could be nationalized.

Citi has so far received $45 billion from the Treasury's Troubled Asset Relief Program, with the government backing some $300 billion in potentially risky assets. As Citi's largest shareholder, the government essentially now has wide influence over the decision-making process at Citi.

For one, the government has forced the company to agree to split into two entities -- a good bank of healthier parts of the business and bad bank housing unwanted assets -- after the company repeatedly said it would not undergo a break-up of its businesses.

On a lesser scale, the government has also forced Citi's hand in agreeing to cramdown foreclosure legislation that is largely opposed by the banking sector.

Bernie McGinn, founder and CEO of McGinn Investment Management in Alexandria, Va., who owns Citi shares, says that Pandit isn't really the problem, given his relatively short tenure and the problems he inherited.

"His job can't be very safe and it has nothing to do with him. It has everything to do with the fact that the government is taking over -- at least temporarily," McGinn says. "Nobody is safe because you're job is going to depend on the last press clipping essentially."

Citi has already has shuffled its executive ranks, replacing Sir Win Bischoff with former

Time Warner

(TWX)

CEO Richard Parsons and announcing Director Robert Rubin was retiring at the end of his term. Citi is also having trouble attracting new board members to join the firm as part of additional moves to appease government officials, according to

The Wall Street Journal

.

But shareholders are pressing for more. A Delaware court dismissed claims earlier this week in an investor lawsuit alleging that Citi's board of directors breached their fiduciary responsibilities to shareholders related the company's subprime mortgage losses, the

Associated Press

reported.

Still the court did allow the investors to pursue claims related to the board's approval of a $68 million exit package for ex-CEO Prince.

If Pandit does leave the bank in the near future, one person likely on the company's short list is Edward 'Ned' Kelly, the head of Citi's of global banking, its private bank and alternative investments businesses.

Kelly was hired by Pandit in February 2008, after serving a brief stint at the

Carlyle Group

. Kelly is the former CEO and chairman of

Mercantile Bankshares

, a small mid-Atlantic banking outfit, which was sold to

PNC Financial Services

(PNC) - Get Report

in 2007. Kelly is also a former

JPMorgan Chase

(JPM) - Get Report

executive.

"I bet you a million bucks the board's thinking about him," Burgess says.

McGinn says if Pandit can hang on until the government leaves, "he is going to be running one of the premier banks."

"

Pandit needs to understand that he is dealing with politicians, so there is going to be a lot of noise each and every day," McGinn says. "Learn to ignore that. He knows where Citi is. He knows what Citi needs. He's got to do what's right for the bank."