The newspaper said the proposed deal would allow the bank to raise more than $10 billion in new capital by issuing common stock, which would help Citigroup pay back some of its bailout money. The bank's executives hope to announce a deal as early as Monday morning, the report said, noting that the agreement is not finalized and may not be done by then.
Negotiations on the deal have been ongoing for days. Sources told Reuters last Monday that Citigroup and the government disagreed over how much the bank should raise to repay taxpayers.
Citigroup has made progress with negotiations in recent days, and is hopeful it will have a deal to announce soon, a person briefed on the matter said.
The Wall Street Journal said that the new capital raised would also let Citigroup exit a program in which the government is shielding it from losses.
The report also said that Citigroup executives hope the U.S. Treasury will announce that it will sell at least some of the 34 percent stake held by the government.
Citigroup declined to comment on the report.
The bank is eager to repay the government so it can avoid the executive pay restrictions that come along with the three rounds of U.S. assistance it received.
But a partial repayment would dilute shareholders without providing them with the benefit of being out of the Troubled Asset Relief Program, and most importantly, without getting out from under the pay restrictions.
Still, a plan to extract itself from government control over time could reassure investors.
Citigroup borrowed $45 billion last year under TARP. This year, the government agreed to convert $25 billion of those funds into Citigroup common stock, leaving the United States with a roughly 34 percent stake in the bank. (Reporting by Michael Erman and Dan Wilchins, editing by Martin Golan and Diane Craft)