WASHINGTON - The US government Friday announced a deal with Citigroup that will give it control over as much as 36 percent of its common stock and replace a majority of its independent directors. But Indian American CEO Vikram Pandit and Chairman Richard Parsons will retain their positions at one of America’s three largest bank holding companies.

In a call with investors, Pandit said the decision was difficult because of what it would do to current investors, but that the bank had little choice.

‘In the end, our business is about confidence,’ he said. ‘We wanted to take definitive steps to put all capital issues aside.’

Pandit also insisted that Citi management would continue to be in charge, not the federal government or federal regulators, and that decisions would be made to maximise profits and shareholder return, rather than public policy agenda.

‘For those people who have a concern about nationalisation, this should put those concerns to rest,’ he said.

The deal will convert preferred shares that Treasury already holds in Citigroup for common shares, a shift that is designed to improve the embattled bank’s capital base, which in turn will hopefully allow it to increase its lending.

The US government has already given Citigroup $45 billion for which it received preferred shares and warrants in the company.

The new deal Friday did not give the bank any additional taxpayer dollars. But the government is taking on a greater risk by assuming more volatile common shares. The market price is well below the $3.25 per-share conversion price the government is paying.

Taxpayers will also lose roughly $2 billion in dividends, because the preferred shares they are giving up paid eight percent dividends. Citi suspended its common share dividend as part of the agreement.

In the deal, Treasury will convert up to $25 billion of preferred shares, matching dollars that Citigroup is able to bring in from other investors, such as sovereign wealth funds.

Shares of Citigroup, a component of the Dow Jones industrial average, have plunged about 90 percent in the past year.

With the large dilution of existing share value, Citi plunged another 40 percent in pre-market trading after the announcement. Still the bank hopes that the move will eventually help rebuild its battered share price.