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US banking giant Citigroup has taken over the ownership of EMI, the music company where it was the major creditor.

The bank had lent money to Guy Hands' private equity firm Terra Firma to help it to buy the business in 2007.

But the £4.2bn takeover was a failure, with Terra Firma believing it massively overpaid for the company.

Now it has been forced to hand EMI over to Citi after not being able to keep up interest payments on the loans.

EMI, which is home to artists including Lily Allen, The Beatles, Coldplay and Tinie Tempah said it would continue under the same management and that it was now completely separate from its previous owner.

Citigroup said it would eventually sell EMI.

Industry speculation suggests another record label would probably be the buyer - with Warner Music among the more likely candidates for the recorded music business. Meanwhile its publishing operation may be sold to another private equity firm, KKR, says ´óÏó´«Ã½ business editor Robert Peston.

Terra Firma and its backers have lost the entire £1.7bn they put into EMI.

Meanwhile Citigroup has written down what it is owed from £3.4bn to £1.2bn - which means that it has incurred a loss of £2.2bn.

Analysts had predicted Citi would eventually seize control, but developments have happened more quickly than most had expected.

Citi vice chairman Stephen Volk said EMI now had a strong balance sheet and "the ability to invest in and grow its business".

"This is a positive development for EMI, its employees, artists, songwriters and suppliers. EMI is an iconic business and we are completely supportive of both its management and its strategy," he added.

In a statement Terra Firma said it was "pleased that EMI's debt burden has been reduced through Citi agreeing to write down a substantial proportion of EMI's debt".

In October, a New York judge dismissed a claim by Mr Hands that Citi had misled it over the acquisition.

He had argued he had not been informed that a rival bidder had already pulled out, resulting in his firm overpaying for the record company.

Last month Terra Firma said its lawyers had appealed against that decision. The US Court of Appeals will now have to decide if the appeal can go ahead.

Over the past two, Mr Hands has floated all manner of possible solutions to raise enough money to prevent the bank seizing control of EMI.

They included splitting EMI into two and even selling off assets such as the world-renowned Abbey Road studios.

But his best hope was to lease the North American rights to EMI's back catalogue to another of the Big Four major labels - but that aspiration collapsed amid arguments over price.

The purchase of EMI by the private equity firm brought it into conflict with some of its artists who said that financial matters were taking priority over creativity.

Radiohead, one of the label's biggest acts, left EMI saying the owners did not understand the music industry, with lead singer Thom Yorke later claiming music was being "devalued" by the involvement of a private equity firm treating bands "as simply part of their stock".

The Rolling Stones and Joss Stone were among others who left the label under Terra Firma's ownership.