U.S. Said to Rethink Quick Sale of Citigroup Stake Just when Vikram S. Pandit thought he was out, Washington is pulling him back in. Two days after Mr. Pandit trumpeted news that Citigroup would start untangling itself from the federal government, his bank stumbled - this time, on Wall Street. Badly misreading the financial markets, the company struggled on Wednesday to raise the money it needed to repay its bailout funds. While Citigroup managed to raise $20.5 billion in the stock market and will forge ahead with the repayment, the sale went so poorly that anxious Treasury officials reversed course and delayed their plans to start unwinding the government's stake in the company immediately, according to people briefed on the matter. The turnabout represents a significant setback for Mr. Pandit and his efforts to free Citigroup from government control. It also underscores the lingering worries over Citigroup's financial health, as well as concerns that federal officials may have let Citigroup exit the bailout program too soon. Citigroup officials maintain that they did a good job considering the tough market conditions and should be lauded for pulling off the largest equity offering in American history. Some analysts have their doubts. "There are questions about why the deal didn't get done the way it was planned," said Michael Mayo, a banking industry analyst with Calyon Securities. I am not sure who has the answers. The finger-pointing has already begun. Citigroup officials contend that any government stake would be a challenge to sell in a large stock offering. Citigroup prodded the Treasury officials to sell the government stake alongside the bank's own share sale. Such a move would have encouraged private investors to bid higher prices for the new shares. As the talks enter the final stages last week, Citigroup asked the Treasury to sell at least a $5 billion stake. Treasury officials questioned whether there would be enough appetite for that much more stock but bank officials assured them there would. Federal officials, meanwhile, argued among themselves over whether Citigroup and another big bank, Wells Fargo, should have been allowed to repay the government and sell new stock at the same time. Wells Fargo, which like Citigroup announced that it would repay the government on Monday, outflanked Citigroup and sold more than $12.25 billion of its stock on Tuesday. After the close of trading in New York, Citigroup priced its new shares at $3.15 each, below the $3.25 price at which the government assumed its one-third stake in the company. Before the sale, the share price of Citigroup fell 11 cents to $3.45, as investors braced for the new stock. Shares fell more than 7 percent on Thursday, trading at about $3.20. Rather than suffer a loss for taxpayers, the Treasury Department will now hold on to the $5 billion stake it planned to sell alongside Citigroup's own $17 billion stock offering. After an initial 90-day delay, the government will try to sell its entire stake - about 7.7 billion shares - over the next six to 12 months. The trouble began on Tuesday, when Citigroup bankers started taking orders from investors for the new shares. Word began to seep out in the markets that the bank was having a hard time finding investors willing to buy the stock at the price Citigroup wanted. The Wells Fargo deal had sapped investor demand. By Tuesday evening, Treasury officials got word that the stock might be priced below $3.25 a share. By Wednesday morning, they concluded that the government would forgo selling its shares immediately. Citigroup had hoped that repaying the aid it had received under the Troubled Asset Relief Program would help the bank shed its stigma as the last Wall Street giant still tethered to Washington. While Citigroup is continuing with plans for repayment, it now seems certain the government will maintain its entire stake in the bank for many months. That might make the shares less attractive to investors. Citigroup continues to struggle to return to profitability and faces new challenges each day. On Wednesday, the Abu Dhabi Investment Authority filed a multibillion-dollar arbitration claim accusing the bank of "fraudulent misrepresentation" after its $7.5 billion investment in Citigroup went south. A Citigroup spokesman said that the claims were "entirely without merit." Questions also swirled about a waiver that allowed Citigroup to preserve a $38 billion tax deduction - a move that administration officials say was appropriate given the intent of the tax rule. Still, they spent the day trying to stamp out potential outcry.