According to the Mail on Sunday, Citi is poised to take charge of the troubled record label after winning a drawn-out court case against Mr Hands, who had claimed the bank misled him ahead of his initial purchase three years ago.
However, the financier is believed to have been invited to make a fresh bid for EMI - which he values at around Â£1.6 billion (Â£2.55 billion) - once it returns to Citigroup's custody, although other potential bidders are also showing an interest.
The newspaper claims American film and music giant Warner Music is one of the companies keeping a close eye on developments, although Warner itself is believed to be a target of several private equity firms including Kohlberg Kravis Roberts.
EMI, which boasts multi-million selling artists including the Beatles, Gorillaz and the White Stripes on its roster, was purchased by Terra Firma for Â£4.2 billion just months before the global economic downturn struck.
Mr Hands borrowed Â£2.6 billion from Citi and Â£1.6 billion from other Terra Firma investors to complete the deal, as well as ploughing around Â£100 million of his own fortune into the ailing business.
If EMI fails to meet the terms of its loan by June this year, Mr Hands could lose his investment should Citigroup take over - something Citi itself appears keen to avoid, hence its decision to sound out possible suitors.
The report came after Warner chief executive Edgar Bronfman Jr was convicted of insider trading over transactions of stocks in Vivendi Universal. A court in Paris handed down a fine and a suspended sentence, although Mr Bronfman said he would appeal the ruling.
By Tony Aynsley