Citigroup yesterday unveiled plans to raise up to $19.6 billion and return $20 billion to US taxpayers in a move that will free it from government supervision but could inflict further pain on its shareholders.

The decision is a milestone for the bank, which was repeatedly bailed out during the financial crisis and was one of the last banks still subject to tough government restrictions on pay and operations.

The equity offering, which could be the largest ever by a US bank, will be a test of investors’ faith in Citi’s ability to compete with healthier rivals without government support.

Under yesterday’s agreement, the US treasury will sell up to $5 billion of its shares, reducing its 34 per cent stake in the lender to below 30 per cent. The authorities have agreed to sell the rest of the government’s stake within 12 months. – Copyright The Financial Times Limited 2009