FDIC eyes Citi top management shake-up: report

By Karey Wutkowski and Dan Wilchins

WASHINGTON/NEW YORK (Reuters) - Citigroup Inc's (C.N) relationship with the Federal Deposit Insurance Corp is frayed, sources told Reuters, and the regulator wants to replace Chief Executive Vikram Pandit, the Wall Street Journal reported.

U.S. officials have spoken to former U.S. Bancorp (USB.N) Chief Executive Jerry Grundhofer, who recently joined Citigroup's board, to assess his interest in the top position at the bank, the paper reported, citing people familiar with the matter.

The FDIC, under Chairman Sheila Bair, is concerned there are too few senior executives at the bank with commercial banking experience, the paper reported.

The FDIC recently pressed another regulator to reduce its confidential ranking of Citi's health, the paper said. Such a move would let regulators control the company more tightly.

Citigroup for its part believes too many government regulators are getting involved in its operations, creating additional layers of bureaucracy in a bank long seen as bureaucratic, people familiar with the matter told Reuters.

Citigroup Chief Financial Officer Ned Kelly told the Wall Street Journal that "the FDIC is our tertiary regulator," behind the Office of the Comptroller of the Currency and the Federal Reserve.

The FDIC is heavily exposed to Citigroup. The bank had roughly $300 billion of deposits in the United States as of March 31, much of which were guaranteed by the agency. The bank has sold about $40 billion of debt guaranteed by the FDIC, according to Reuters data.

And the FDIC helped guarantee a portfolio of troubled assets that was originally about $300 billion. To pay for that insurance, Citigroup issued $3 billion of preferred stock to the FDIC, and another $4 billion to the U.S. Treasury.