Citigroup proposes new bailout plan

NEW YORK, Feb. 23 (UPI) -- Citigroup has proposed that the U.S. government convert its bank shares to common stock, greatly increasing government ownership of the bank, a source said.

The government owns $45 billion in Citigroup preferred shares, roughly 8 percent of the bank, The New York Times reported Monday. The switch would take the government close to 40 percent ownership, the Times said.

The move wouldn't involve more taxpayer funding but it would substantially dilute common stock values, which fell below $2 a share Friday, an 18-year low, The Wall Street Journal reported.

Investors have been selling bank shares with precisely this fear in mind, trying to get out before the government steps in and dilutes the value of their holdings, the Journal reported.

White House officials and U.S. Treasury Secretary Tim Geithner have said their aim is to keep banks in private hands.

But, Citigroup has proposed the switch, which would improve the bank's accounting position and cancel dividend payments to the government. It would also reduce the pressure on the bank to repay the $45 billion investment, The Washington Post said Monday.