(Adds Pandit comments from Barclays Global Financial Services Conference.)



) --


(C) - Get Report

has been vocal of late about its desire to get out from underneath the government's watchful eye, but its actions are sending mixed messages to investors.

For example, the company raised $5 billion in government-guaranteed debt on Tuesday through the sale of bonds with two and three-year maturities, according to media reports. The bonds were guaranteed by the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program, or TLGP, which is set to expire on Oct. 31.

The bond sale is confusing because it coincided with reports earlier in the day that said Citi is supposedly working with the Treasury Department to develop a plan for the company to exit the Troubled Asset Relief Program.


is said to be considering raising additional capital through a common stock offering, a move that it's believed would allow the government to begin reducing its 34% stake in the company over the next six to eight months but be tremendously dilutive to current stockholders.

Further complicating matters is a report from


Wednesday that Citi is seeking to exit the FDIC debt guarantee program when it expires next month. That would represent a step towards getting out from underneath its TARP obligations, as one of the Treasury Department's requirements for allowing companies to pay back TARP funds is that firms must be able to issue debt without government guarantees, but it seems odd considering the company saw fit to tap the program so recently.

The big question will be how the company fares in efforts to fund itself once it no longer has the TLGP available, as it won't be alone out there.

Bank of America

(BAC) - Get Report

, for one, apparently has already received approval from the FDIC to exit the program,


reports. Also,

General Electric

(GE) - Get Report

said in July that its General Electric Capital Corp. also received approval to exit the program.

Investor demand for and the terms and costs of financing and insuring the non-guaranteed debt sold by Citi in the future will be a strong indicator of the market's perception of the company's overall financial health. Citi says it has issued $13.4 billion in non-guaranteed debt so far in 2009. That figure compares to its issuance of $54.6 billion in FDIC-guaranteed debt under the TLGP program, according to the company.

A Citi spokeswoman declined to comment to


regarding the speculation in the market surrounding plans to reduce the U.S. government's stake, including the possibility of a common stock offering, according to an e-mailed response.

Citi has received $45 billion in federal bailout funds as a result of increasing loan and securities losses that left the big bank strapped for capital when the financial crisis intensified.


CEO Vikram Pandit

was interviewed by


on Monday, he was vague on the company's plans for TARP repayment. There was no mention of a stock offering during the discussion.


We're looking forward to seeing what the regulators say about what the right long-term capital structure ought to be and we'll let that guide us," Pandit said in the interview.

If the government embarks on a program to eliminate the shares it owns, it could be bad news for investors, says Richard Bove of Rochdale Securities.

"First, it suggests that the company intends to raise new common equity to replace preferred equity, further diluting shareholders," Bove writes in a note late Tuesday. "Second, it indicates that the stock now has an overhang of one-third of its shares which are to be sold in the open market."

But more importantly, the speculation, if true, "highlights the fact that there are problems with the company's capital structure that still need to be resolved contradicting all of management's statements on this point," Bove adds. "Moreover, the news suggests that the bank and the Treasury intend to resolve these problems by extracting the greatest amount of pain from shareholders that they can."

Bove is considering downgrading the stock from his current rating of "buy".

Not to confuse situation even more but Chairman

Richard Parsons

signed on Wednesday to become a senior advisor to Providence Equity Partners. He was planning to join the private equity firm earlier this year but delayed the decision while dealing with Citi's woes. It's debatable whether Citi's position has improved enough for the chairman to divert some of his attention away from the direction and management of the company.

Serving as keynote lunch speaker today at the Barclays Global Financial Services Conference held in midtown Manhattan, Pandit was relatively coy about Citi's own plans for the government's stake.

"The government holdings of common stock are not restricted and they can sell it entirely at their discretion," Pandit said during the presentation. "That leaves us with the trust preferred securities ... We anticipate repaying that once we see more concrete signs of a recovery. And obviously in conjunction with

the regulators."

Citi still has $20 billion in government bailout funds that was not part of the recently completed preferred-to-common exchange. Pandit said this capital is tier-1 preferred capital, as opposed to common equity. "So you could easily see this being paid off" and Citi would still have good capital levels, Pandit said.

"I think it's less of a capacity issue than it is a timing issue," Pandit said, referring to rules that require firms repaying TARP to be able to raise capital on their own. "As to what that means and when we're ready we will talk about it," he said.

Citi stock was recently up 3.4% to $4.26, taking back some of the ground lost during a 9% decline on Tuesday amid the TARP payback speculation. Wednesday's volume of 980 million plus shares changing hands was tops on the New York Stock Exchange by a wide margin, and well above the issue's three-month moving average of 658.1 million.


Written by Laurie Kulikowski in New York.