Alwaleed has owned his Citi stake since the early 1990s and helped engineer a previous rescue plan for the bank more than a dozen years ago. According to a report on the Wall Street Journal's Web site, he is likely to keep his total stake in the bank below 5 percent to avoid regulatory scrutiny.

By raising so much captial, CEO Pandit is hoping layoffs can be kept to a minimum.

Although word of the expected layoffs was having little impact on Citigroup shares, the company's options were among the most actively traded Monday. The activity was most concentrated in the January contract, implying investors are positioning for an announcement Tuesday, according to Andrew Wilkinson, a senior market analyst at Interactive Brokers. However, some investors also were taking defensive positions in the February contract with traders entering long positions on a total volume of more than 12,000 lots at the 27.50 strike, he said.

Merrill Lynch is seeking about $4 billion in a second capital raising. According to Financial Times, the Kuwait Investment Authority is expected to be a significant investor in the deal. A deal could be announced as soon as midweek, the FT reports.

Merrill has already begun laying off people, but layoffs will be minimal. Eight hundred people are expected to leave, with a number of employees already heading for the exits because of diappointment at the size of bonuses. Merrill's writedown is expected to be in the neighborhood of $12 billion to $15 billion as newly appointed CEO John Thain raises funds from around the world. (Merrill Losses Could Hit $15 Billion).

China Opts Out

The Wall Street Journal reports that state-owned China Development Bank has decided not to buy a $2 billion stake in Citigroup. The report, citing people familiar with the situation, said senior Chinese government opposition surfaced over the weekend, but that the reason for the

decision is unclear.

In November, Citi accepted $7.5 billion in new capital from the The Abu Dhabi Investment Authority only weeks after its former chief executive officer, Charles Prince, was forced out amid news of the heavy losses related to bad bets on mortgage securities and an ailing housing markets.

-- Reported by Charlie Gasparino. Written by CNBC.com staff with wire reports.