Citigroup has appointed Robert Rubin, the former Treasury Secretary, to be its chairman and Sir Win Bischoff, the group’s European head, to act as interim chief executive, as it emerged that the world’s largest bank would need to take up to $11 billion (£5.3 billion) of further writedowns relating to America’s sub-prime mortgage meltdown.

The appointments came after the position of Charles “Chuck” Prince, Citigroup’s chairman and chief executive, became untenable in the wake of huge mortgage-related writedowns in the third quarter and expectations of billions of dollars more to come.

The extent of the further writedowns, which emerged at a hastily-convened emergency board meeting last night, are far higher than the highest previous estimate of $5 billion and represent by far the biggest credit crunch-related losses reported so far.

Mr Prince, whose resignation was characterised as a retirement, said: “It is my judgment that, given the size of the recent losses in our mortgage-backed securities business, the only honourable course for me to take as chief executive officer is to step down.”

The sheer scale of the additional losses from sub-prime-related investments, which Citigroup last night estimated at between $8 billion and $11 billion, will send shockwaves across the banking industry. It will also ensure another jittery week for the markets on both sides of the Atlantic, after recording some of their biggest drops since August.

Investors will be searching for clues as to which bank could be next to announce an increase in writedowns or the departure of its chief executive as America’s mortgage crisis continues to exceed even the most pessimistic forecasts.

Citigroup’s reshuffle echoes Merrill Lynch’s hiring last week of Alberto Cribiore, a board member and founder of a private equity firm, to run the group on a temporary basis, while hunting for a successor to Stan O’Neal.

Mr Rubin, a 69-year-old former trader who worked in risk arbitrage and helped build Goldman Sachs’ bond business in the mid 1980s, will lead the hunt for a permanent chief executive to run Citigroup. Mr Rubin has collected more than $150 million in cash and stock during the eight years in which he has served as the bank’s elder statesman. Sir Win, a former chief executive at Schroders, is not on the special committee set up to find Mr Prince’s replacement.

The short list of candidates is expected to include John Thain, chief executive of NYSE Euronext, and Dick Parsons, chief executive of Time Warner and a board member of Citigroup. Mr Thain is also thought to be in the running for Mr O’Neal’s job at Merrill Lynch. The internal candidates are thought to include Vikram Pandit, who took over Citigroup’s investment banking operation in early October.

Mr Prince has no employment contract so any severance pay has to be negotiated. However, he is expected to walk away with vested stock holdings valued at $94 million. He also has a $1.74 million pension and one million stock options, although these have no value because they are under water.

Investors have long been calling for Mr Prince’s resignation. He finally responded after Citigroup reported a $6.5 billion writedown in the third quarter, much of it relating to the credit crunch. An analyst issued a note saying that the group needed to raise $30 billion to restore its capital cushion and may have to cut its dividend as a result.

Many analysts and investors expect James Cayne, head of Bear Stearns, to be the next Wall Street chief executive to go. Mr Cayne, who has resisted all calls for his resignation, has presided over the collapse of two hedge funds that invested heavily in sub-prime mortgage-backed securities.

He faced further criticism last week when a front page story in The Wall Street Journal said that he spent 10 of 21 working days in July outside the office while the hedge funds collapsed. It also said that he had smoked marijuana. Mr Cayne denied that he “engaged in inappropriate conduct” in a memo he sent to employees.

Likely replacements

External
–– John Thain: chief executive of NYSE Euronext, who spent more than 20 years at Goldman Sachs, rising to president. Also in running for top job at Merrill Lynch
–– Dick Parsons: chief executive of Time Warner and Citigroup board member

Internal:

–– Vikram Pandit: former Morgan Stanley executive recently appointed head of institutional businesses . Most likely internal candidate, although has been at the firm for only six months.
–– Robert Druskin: chief operating officer. Has been at bank since 1991
–– Gary Crittenden: joined as chief financial officer this year

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