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The bank is also said to have contacted certain shareholders to assess their interest in increasing their stakes as as it faces an uncertain future.

Citigroup stock ended 20% lower on Friday as its board members met.

Last week the company announced 52,000 job losses worldwide on top of 23,000 job cuts previously announced.

No one from Citigroup was immediately available for comment.

There are fears that without further funding the bank might not be able to survive. Any money would be in addition to the $25bn injection it received in October from the US Treasury.

Options being discussed included a government cash injection as well as Citigroup selling some of its business, reported The Sunday Times.

Chief executive Vikram Pandit told employees on Friday that the firm did not want to change its business model, Reuters reported, citing two employees.

He also reiterated that the firm had a robust capital position.

But Sean Egan, analyst at ratings agency Egan-Jones Ratings, said, “Citigroup needs a deep-pocketed investor that is ready, willing, and able to step up in the next few days.”

“The only one who comes to mind is the government,” he said, adding that $50bn might ne needed.

In a bid to reassure investors, Citigroup is running advertisements in US and international newspapers on Sunday underlining its stability.

The agreement, which was still under discussion and could fall apart, would mark a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to absorb bad assets, on a targeted basis, from specific institutions.

The talks Sunday centered on the creation of what is sometimes called a “bad bank” — an outside entity designed to hold some of a financial firm’s worst assets. That structure would help Citigroup cleanse itself of billions of dollars in potentially toxic assets, these people said.

Under the terms being discussed with top Treasury Department and Federal Reserve officials, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold, people familiar with the matter said. The U.S. government would then absorb any additional losses, these people said. One person said the new entity is expected to hold about $50 billion of assets.

That would mean taxpayers could be on the hook if Citigroup’s massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.

It was unclear Sunday night whether the government would take an equity stake in Citigroup in return for the support. Also uncertain was whether Citigroup would get a government loan to finance the facility. The government took that approach with insurer American International Group Inc. in late September.

The amount of financial support provided for a bad bank is crucial to its success. If there is too little, investors might conclude that the bad assets will wipe it out, leaving the bank right where it was before. Such a structure was used successfully in the 1990s, with funding from private investors, to rescue Mellon Bank, now called Bank of New York Mellon, from a pile of bad debts.

Behind the push is a broad effort to shore up faith in Citigroup, which saw its stock price fall 60% last week to a 16-year low. Citigroup has been pounded by mortgage-related losses.

In addition to $2 trillion in assets it has on its balance sheet, it has another $1.23 trillion in entities that aren’t reflected there. Some of those assets are tied to mortgages, and investors have worried they could cause heavy losses if they are brought back on the company’s books.

Even as they assured employees and investors last week that the company was on sound financial footing, Citigroup executives and directors knew they needed to do something fast to stabilize their reeling company. Top government officials, including the heads of the Treasury Department and Federal Reserve, also have been scrambling to draw up contingency plans in case Citigroup’s troubles intensified.

Sunday afternoon, government officials were locked in meetings to hammer out the final terms of an arrangement that will leave the government deeply enmeshed in the inner workings of one of the world’s largest financial institutions. A Citigroup spokeswoman declined to comment on the discussions.

It wasn’t known Sunday afternoon if Citigroup will have to make changes to its executive ranks, board or elsewhere inside the company in return for government assistance. After weekend discussions, the parties were hoping to unveil an agreement Sunday evening, the people said.

As Citigroup shares fell last week, Chief Executive Vikram Pandit and other top executives insisted that the decline wasn’t a threat because the company has plenty of capital. By Friday, bank officials were hoping for a public expression of confidence from the government, believing that would help reassure clients and customers.

One rescue structure under consideration would resemble part of the $150 billion bailout plan the government struck with AIG in November, a restructuring of the previous bailout. Two vehicles, funded largely by as much as $52.5 billion in government money, were created to take on risks from some of AIG’s souring assets, including exposure to credit derivatives. That deal also reduced interest costs on AIG’s previously arranged $60 billion loan from the government.

In Citigroup’s case, the planned bad bank likely will be able to accommodate only a sliver of the company’s more than $3 trillion in assets, including its holdings in off-balance-sheet entities. Jitters about such “hidden” assets helped trigger the nose-dive in Citigroup’s stock last week.

Among the off-balance-sheet assets are $667 billion in mortgage-related securities. In a presentation to employees last week, Mr. Pandit said Citigroup doesn’t bear the credit risk for those mortgage securities and it’s “unlikely” that the “majority” of those assets will come onto its balance sheet.

Citigroup has tried repeatedly to rid itself of its exposure to those assets. In late September, the company reached an agreement for a government-financed acquisition of Wachovia Corp. Under that planned deal, Citigroup and the government were going to divvy up the losses on $312 billion of assets, with Citigroup absorbing the first $30 billion in losses and the government shouldering the remainder.

Citigroup described that arrangement as intended to insulate it from Wachovia’s risky mortgage assets. But Citigroup also would have been able to unload some of its own assets, according to people familiar with the matter.

That deal unraveled in less than a week, after Wells Fargo & Co. emerged with a higher bid that didn’t require direct government backing.

Shortly afterwards, Citigroup pitched the idea of a “bad bank” to the government, arguing that the government should help the company after Wachovia slipped away, according to a person familiar with the matter. But federal officials balked at the idea.

As recently as one month ago, Citigroup had hoped to be able to unload some of those assets to the U.S. government through its Troubled Asset Relief Program. But when Treasury Secretary Henry Paulson earlier this month shelved plans to use TARP to purchase banks’ bad assets, that option vanished.

Last Monday, Mr. Pandit mentioned in the employee meeting that Citigroup was scrapping plans to try to sell about $80 billion in risky assets. Investors and analysts interpreted the move as a sign that Citigroup either was unable to sell the assets, or would have had to incur hefty losses in the process.

Two days later, Citigroup announced it was buying $17.4 billion in assets from its structured-investment vehicles — complex entities whose holdings included risky mortgage-linked securities — and faced a $1.1 billion loss due to their diminished values.