Is Citigroup going to be nationalized?

The U.S. government could soon own as much as a 40 percent stake in Citigroup (C) , according to the Wall Street Journal, but will the bank be nationalized? Stockholders feared nationalization on Friday, sending the stock below $2 a share because they assumed their ownership would be greatly diluted.

The government won't get it's 40 percent stake by putting in more money. Instead, it will agree to convert its current $45 billion of preferred stock into common stock. There's no universal definition of what constitutes nationalization of a bank, but if the government does end up with a 40 percent stake, that gets close to full control and will certainly mean the government will be calling the shots.

Citigroup also hopes to persuade other private investors who hold preferred shares to convert to common stock, including the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority, according to the WSJ. With these additional new common stockholders, government control becomes much more of a reality. Do you think these foreign entities would back the U.S. government if it wanted certain changes in the way Citigroup operates? Probably not.