Citigroup has struck a deal with U.S. regulators to repay $20 billion of government bailout funds, allowing the bank to exit the TARP program in 2010.

The deal appears to permit Citi to shed the executive pay restrictions that came with the taxpayer assistance that has kept it in business.

We owe the American taxpayers a debt of gratitude and recognize our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need, Chief Executive Officer Vikram Pandit said in a statement.

Pandit was scheduled to meet President Barack Obama later on Monday, along with the chiefs of Goldman Sachs JPMorgan Chase & Co and other top-tier banks. The president is expected to call on the bankers to take responsibility for helping the economy after benefiting from taxpayer-funded bailouts of the financial sector.

With the bailout repayment and the termination of its loss-sharing agreement with the U.S. government, Citi will no longer be deemed a beneficiary of exceptional financial assistance under the Troubled Asset Relief Program, the bank said.

As part of the deal with regulators, Citi will sell $17 billion of shares and use the proceeds to repay the government.

Citi 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.

The U.S. Treasury will sell up to $5 billion of its Citi stock in a secondary offering, and expects to sell the rest within six to 12 months, subject to an initial 45-day lock-up period after the secondary offering.

The bank said it was on track to pay $3.1 billion in dividends and interest to the U.S. government by year-end.

The Treasury said it was pleased Citi was moving forward with the plans.

While much work lies ahead to improve lending and spur job creation, today's announcement by Citigroup takes us another step in the right direction, the Treasury Department said in a statement, adding that

Citi's capital-raising plan includes the sale of $3.5 billion of tangible equity units, made up of about $2.8 billion of prepaid common stock purchase contracts and roughly $700 million of subordinated debt.

The company also said it might issue up to $3 billion of trust preferred securities in the first quarter of 2010.

Bank of America Corp , the largest U.S. bank, finished repaying the $45 billion it had borrowed under TARP last week, using a mix of cash from its corporate coffers and money raised as part of a $19.29 billion securities offering.

Citigroup shares were down 1 cent at $3.94 in trading before the market opened.

(Reporting by Christopher Kaufman; Editing by Lisa Von Ahn and John Wallace)