Wells Fargo & Co sold $10.65 billion in stock on Tuesday to help repay a $25 billion bailout received from the U.S. government last year.

Wells Fargo sold its shares at $25 each, about 2 percent below their closing share price on Monday of $25.49.

Wells Fargo and Citigroup Inc are the last of the largest banks to repay money given to them by the government during the worst of the financial crisis. Citi said on Monday that it expects to raise $20 billion through a stock offering. An underwriter said the offering would price on Wednesday.

Wells Fargo's announcement on Monday that it would repay its bailout money and raise capital came as a surprise.

I think a lot of people expected them to earn their way out of TARP, said Keith Davis, an analyst at Farr Miller & Washington. It's a little more dilutive than people were expecting.

Chief Executive John Stumpf and other Wells Fargo executives have repeatedly said the bank would repay funds in a shareholder-friendly manner.

The stock offering dilutes shareholders by about 10 percent, according to analysts, and the bank said that it would result in a fourth-quarter charge of about $2 billion.

But the offering also raises the bank's Tier 1 common equity ratio, a measure of capital strength, 100 basis points to 6.2 percent, and repaying the government cuts Wells Fargo's annual dividend expense by $1.25 billion.

To make up the rest of the $25 billion it owes the government, the bank said it would raise up to $1.5 billion of equity through asset sales and selling about $1.35 billion in stock to its executives' benefit plans. Wells Fargo also has $14.6 billion in excess liquidity, analysts at Collins Stewart wrote in a report Tuesday.

The fourth-largest U.S. bank has reported record earnings in 2009. Wells Fargo bought Wachovia Corp last year after the lender collapsed under bad mortgages.

Wells Fargo said on Monday that it would pay cash for Prudential Financial Inc's minority stake in a retail brokerage joint venture that it inherited through the Wachovia acquisition. The stake is worth about $4.5 billion, according to the Collins Stewart analysts' report.

CITIGROUP

Wells Fargo's stock offering followed that of Bank of America Corp , which last week repaid $45 billion it received from the Troubled Asset Relief Program.

As Citi's offering looms, Bob Stovall, a strategist at Wood Asset Management in Sarasota, Florida, said the time of year made it difficult to raise capital.

The market may be getting saturated with offerings from major banks that have a muddy outlook in the short run, he said. There's been a collection of troubled banks trying to raise big money, and I don't think appetites are that keen.

While the largest U.S. banks have either repaid or are in the process of repaying their TARP money, regional banks including PNC Financial Services Group

have yet to repay funds they received under the program.

Wells Fargo shares were up 1.37 percent at $25.84 in early afternoon trading on the New York Stock Exchange.

(Reporting by Elinor Comlay; Additional reporting by Dan Wilchins; editing by John Wallace, Maureen Bavdek, Toni Reinhold)

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