VIKRAM PANDIT

The U.S. government will boost its equity stake in Citigroup Inc to as much as 36 percent, bolstering the bank's capital base in the latest emergency effort to save the ailing banking giant.

The U.S. government will boost its stake in Citigroup Inc to as much as 36 percent, bolstering the banking giant's capital base in one of the most dramatic efforts yet to prop up the ailing banking industry.

The Treasury Department announced on Friday it will convert some of the preferred stock it holds in struggling Citigroup into common stock, a step that will give it a significant stake in the bank.

The U.S. government will commit to holding a common equity stake of up to 30-40 percent in Citigroup in a deal that will see most of the group's board replaced, a person familiar with the transaction said on Friday.

The U.S. government and Citigroup have reached a deal to convert up to $25 billion in government-held preferred shares in the bank to common equity, a person familiar with the transaction said early on Friday.

Little political enthusiasm exists for further support to the banking sector. One reason is that banks that received money in the initial rescues do not seem to have increased their lending, without which monetary and fiscal stimulus are unlikely to be effective. For banks to start lending again, even more intervention may be needed.

Even if the government took a large common equity stake in Citigroup Inc, worries would likely persist about the bank's ability to absorb soaring losses in a deepening recession. The third-largest U.S. bank by assets is in talks with federal regulators on a plan for the government to increase its stake, a person familiar with the matter said. Converting $45 billion of preferred stock, which the ...