NEW YORK/CHICAGO (Reuters) - Citigroup Inc said it was using $36.5 billion in taxpayer bailout money to boost lending as political pressure intensified for the bank to end a $400 million baseball stadium sponsorship deal.

Both developments reflect the U.S. government’s increasing sway over Citigroup, which was once the largest bank in the world but has been weakened by more than $80 billion in writedowns and credit losses.

“The government is the invisible hand at Citigroup now. You have to believe that on big strategic decisions, they are having an influence,” said Walter Todd, portfolio manager at Greenwood Capital Associates.

Citigroup said in a report on Tuesday it will use much of the bailout money to make government-backed loans, including $10 billion of home loans supported by Fannie Mae and Freddie Mac, the quasi-governmental mortgage companies that were essentially nationalized last summer.

The U.S. government has injected $45 billion of capital into Citigroup since October through the Troubled Asset Relief Program (TARP).

The extensive government support has added a new political dimension to the bank’s decisions. Citigroup is considering backing out of a $400 million marketing agreement signed in 2006 with the New York Mets baseball team, the Wall Street Journal reported Tuesday. The 20-year deal includes naming rights for a new stadium.

The potential quashing of the deal follows a letter that U.S. Rep. Dennis Kucinich and Rep. Ted Poe sent to U.S. Treasury Secretary Tim Geithner last week, suggesting the government press Citigroup to end the contract.

It is not clear how likely Citigroup is to end the deal. At least one sports banker who asked not to be named cautioned it would be difficult for Citigroup to bail out of a contract it signed.

The New York Mets said in a Tuesday statement: “In conversations this morning, Citi reinforced that they will honor our legally binding agreement.” Citigroup said the bank signed a legally binding agreement with the Mets, adding that TARP money would not be used.

If Citigroup does go through with the Mets deal, any impact on its bottom line would likely be minimal. The roughly $20 million in annual expenses from the Mets deal would be a fraction of a percent of the bank’s $61.2 billion in operating expenses in 2008.

The bank spent about $250 million on media spending in the first three quarters of 2008, according to TNS Media Intelligence.

A taxi passes a Citibank branch in Singapore, January 21, 2009. REUTERS/Alywin Chew.

“Congress seems to be spending all their time on small issues that play well in the press, like executive jets and sports deals,” said James Ellman, president at hedge fund Seacliff Capital in San Francisco.

“I don’t understand why they’re not focusing on setting up a program to resolve the banking crisis,” Ellman added.

Last week, Citigroup canceled an order for a $50 million executive jet it placed in 2005 after politicians balked at the planned purchase. Sanford “Sandy” Weill, the architect of Citigroup, said Sunday he would give up use of corporate aircraft.

Citigroup Chief Executive Vikram Pandit is among the CEOs scheduled to appear at a February 11 hearing of the U.S. House of Representatives Financial Services Committee. CEOs from Bank of America Corp, Wells Fargo & Co and Morgan Stanley are also scheduled to appear.

HARD TIMES

If Citigroup backed out of its deal, it would be more bad news for the Mets, whose owner Fred Wilpon lost money with investments in Bernard Madoff’s alleged $50 billion Ponzi scheme.

“It’s a $400 million deal and if they lose it, how do they replace it? In this economy, that’s very tough,” one sports banker said on condition of anonymity.

Some bankers have speculated that Wilpon’s losses with Madoff could be big enough to force the Mets owner to sell a piece of the franchise. The Mets have repeatedly denied any such plans.

The U.S. government has provided trillions of dollars in support to banks over the last year, including at least $300 billion of direct capital injections from TARP.

The support has come with strings attached. Senior executives at major banks that received money from TARP declined bonuses for 2008 amid political pressure, but Wall Street bonuses still totaled more than $18 billion in 2008.

U.S. President Barack Obama has called such large bonuses “shameful.”

Citigroup has received $45 billion of capital from TARP and has also issued $7 billion of preferred stock to the Treasury and the U.S. Federal Deposit Insurance Corp in exchange for the government guaranteeing a $301 billion portfolio of assets.

The capital has helped support Citigroup, which has failed to turn a quarterly profit since 2007. Citigroup said last month it was separating its assets into a unit housing its main assets, and another to house assets it is looking to shed or wind down.

One of the assets that Citigroup is looking to sell, its Japanese brokerage unit Nikko Cordial, could be put on the block as soon as this month. Sources familiar with the matter said Tuesday the deal could be worth up to $3.4 billion.

Congress and Obama are scrambling to solve the financial crisis as banks drown in bad assets. Options being discussed include setting up a government-financed bank to buy bad assets, and guaranteeing banks’ bad assets.

Citigroup shares fell 16 cents to $3.49 Tuesday on the New York Stock Exchange.

(Additional reporting by Karey Wutkowski in Washington and Paul Thomasch in New York)