Feb. 23 (Bloomberg) -- Senator Charles Grassley of Iowa asked Treasury Secretary Timothy Geithner to explain whether a possible move to convert the U.S. government’s stake in Citigroup Inc. from preferred to common shares would result in a “de facto nationalization of the bank?”

Grassley, the top Republican on the Senate Finance Committee, released the text of a letter he sent to Geithner in which he took note of press reports on the possible stock conversion. He asked whether the “reported new 40 percent stake in Citigroup” would “give the government effective control of the bank” and, in effect, its nationalization.

Grassley also asked Geithner whether the Treasury Department “plans to convert the Department’s preferred holdings” of other beneficiaries of the government’s Troubled Asset Relief Program.

Citigroup spokesman Jon Diat did not immediately return a phone call seeking comment. Treasury officials did not immediately return emails seeking comment.

The questions from Grassley came amid reports that Citigroup executives have discussed a plan to convert the government’s shares to help the bank withstand financial losses it has suffered.

In his letter, Grassley called on Geithner to explain the “economic impact” a stock-conversion plan involving Citigroup would have on taxpayers. He also asked whether such a move would exempt the bank’s executives from compensation restrictions in place for businesses receiving TARP money.

To contact the reporter on this story: Timothy J. Burger in Washington at tburger2@bloomberg.net

Last Updated: February 23, 2009 21:03 EST