Bailout TV: “Saving Citi” Tonight 8pm on CNBC

Update: The government is looking to buy a substantial amount of assets from Citi, similar to a good bank, bad bank structure. The government would absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government. The deal is not finalized but could be announced tonight.

While the Feds could buy more than $100 billion nominally in the bad assets if the plans go through, that doesn’t mean it will pay Citi $100 billion, depending on the final valuation of those assets. According to people with knowledge of the discussions between Citigroup and the government, the plan for Citi resembles the original TARP proposal, in which the government would buy bad assets for financial firms at some price higher than what’s being offered in the market.

People close to the matter underscore that none of this is a done deal: Other deals, such as the Lehman Brother Good bank / Bad bank proposal blew up at the last minute. Citigroup had no immediate comment. CNBC is still waiting on comment from the Treasury and Federal Reserve.

Reports from Washington say the White House is unaware of any government talks with Citigroup. It also declined comment on whether President Bush would back a government rescue of Citigroup.

Update 2: Sources with knowledge of the deal say government officials are now getting cold feet over the plan to buy the troubled assets from Citigroup.

Situation is still fluid and people close to the company say some sort of a deal will likely be worked out tonight. one other option being considered now is for the government to put money into citigroup.

The problem with buying the assets from citi is political: people close to the deal know that other firms will line up and ask the government to purchase their troubled assets as well knowing that all brokerage stocks got crushed when treasury secretary hank paulson reversed his plan on the tarp to direct capital infusions to the banks and away from buying troubled assets.