* Chairman says bank at competitive disadvantage

* TARP payback depends on markets, economy

* Shares fall 2.9 percent

By Steve Eder and Jonathan Stempel

NEW YORK, June 15 (Reuters) - Citigroup Inc's (C.N: Quote, Profile, Research)
chairman said on Monday the bank may find it harder to retain
and attract top employees while the bank is holding on to
federal bailout money.

Richard Parsons, who was named chairman in January, made
his comments five days after Citigroup undertook an exchange
offer for preferred stock that is expected to leave the
government with 34 percent ownership in the third-largest U.S.
bank by assets.

Citigroup has taken $45 billion from the government's
Troubled Asset Relief Program, and Parsons said there is no
timetable for possible repayment. Banks receiving TARP money
are subject to limits on what they can pay top employees.

"I do worry we could be competitively disadvantaged if we
aren't able to find a way to quickly repay TARP," Parsons said
at a forum sponsored by Time Warner Inc (TWX.N: Quote, Profile, Research), where he used
to be chief executive.

Citigroup was not among the 10 large companies that
regulators last week authorized to repay their infusions,
following the completion in May of "stress tests" to gauge
banks' readiness for a deep recession.

Goldman Sachs Group Inc (GS.N: Quote, Profile, Research), JPMorgan Chase & Co (JPM.N: Quote, Profile, Research)
and Morgan Stanley (MS.N: Quote, Profile, Research) were among these 10 companies. Bank
of America Corp (BAC.N: Quote, Profile, Research), which also took $45 billion, was not.

Parsons said Citigroup recently filed with the government a
capital plan that outlines its strategy to repay TARP.

He declined to provide specifics, saying "so much of it
will depend on the cooperation of the markets."

Meanwhile, Citigroup's relationship with the Federal
Deposit Insurance Corp is frayed, and according to reports the
regulator has pushed to replace Chief Executive Vikram Pandit.

Speaking in Detroit at the National Summit, a gathering of
executives and politicians, Pandit said he was unconvinced that
capital markets would "go back to the world we were in" prior
to the credit crisis.

Still, he said: "I know the slack's going to get picked up
by the capital markets, and there are some encouraging signs of
that happening."

The bank said it has cut 20 percent of a workforce that
once numbered 375,000, and shrunk its balance sheet by nearly
25 percent.

The Obama administration is expected on Wednesday to
outline an overhaul of the nation's regulatory framework for
financial companies, including Citigroup and others considered
too big to fail.

Writing in The Washington Post, Treasury Secretary Timothy
Geithner and White House economic adviser Lawrence Summers said
the plan would include more stringent capital and liquidity
requirements for "the largest and most interconnected" firms,
and greater oversight for those thought to pose systemic risk.

Parsons said Citigroup is now better-positioned to
withstand another economic downturn.

"We can, but I hope we don't have to," he said.

Citigroup shares closed down 10 cents or 2.9 percent at
$3.37 on the New York Stock Exchange.
(Reporting by Pedro Nicolaci da Costa, Steve Eder and Jonathan
Stempel in New York, James Kelleher in Detroit and Kevin
Drawbaugh in Washington, D.C., editing by Matthew Lewis)