Citigroup and the US Treasury have reached a deal that sees the government substantially increase its stake in the ailing bank from 8% to 40%.
The deal does not require extra taxpayer investment, but is dependent on Citi raising extra private capital.
Citi shares opened down more than 30% as investors worried about their stake in the bank being diluted by the move.
As one of the banks hardest hit by the continuing credit crisis, Citi has already gained $45bn in Treasury cash.
Is AIG next, or will it be broken up?