"Lloyd Blankfein, Goldman Sachs' chief executive, called Vikram Pandit, his Citigroup counterpart, last month to discuss a merger, in a dramatic example of the secret maneuvering that preceded the government bail-out of the financial sector," it said.

Quoting several people familiar with the events, the report said the call, which was made at the tentative suggestion of the regulatory authorities or at least with their blessing, was made shortly after Goldman had won surprise approval to convert itself from a securities firm into a commercial bank on September 21.

Further, quoting several people familiar with the events, the report added that the conversation was brief as Pandit rejected the proposal at once.

"A deal would have been structured as a Citi takeover of Goldman. In spite of the slide in Citi's shares, its market value around the time of Blankfein's call was $108 billion, roughly double Goldman's capitalisation.

"A merger between Citi and Goldman would have resulted in thousands of redundancies in their investment banking units and would have forced out several senior executives. Combining the two companies' widely different cultures would also have been a challenge," The Financial Times said.

The report said industry insiders argue that such a deal could have also benefited the US financial system by creating a counterpoint to JPMorgan Chase and Bank of America, two institutions that have significantly expanded during the recent raft of government-induced rescue deals.