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Appointment as Citigroup chief executive represents a meteroic rise for Mr Pandit, who is 50 and was born in India. He was one of several senior executives to leave Morgan Stanley early in 2005 after a disagreement over strategy with Philip Purcell, the chief executive at the time.

Mr Pandit joined his present employer in May when Citigroup bought Old Lane, the hedge fund that he had set up after leaving Morgan Stanley, for $800 million (£392 million).

Initially, Mr Pandit headed Citigroup’s alternative investment group but within a few months he saw his responsibilities broaden to include the much bigger investment bank as well.

Mr Prince resigned last month after massive declines in the value of investments related to sub-prime mortgages contributed to a $6.4 billion third- quarter writedown — $500 million more than the bank had predicted just a few days earlier — and Citigroup conceded that it could need to take a further $11 billion hit this quarter.

Mr Pandit is not thought to have been Citigroup’s first choice. John Thain, chief executive of NYSE Euronext, was widely regarded as the front-runner until he accepted the top job at Merrill Lynch last month after Stan O’Neal’s resignation under another multibillion-dollar pile of losses related to sub-prime loans. Josef Ackerman, chief executive of Deutsche Bank, was also reported last week to have turned down the job and Henry Paulson, the US Treasury Secretary and former head of Goldman Sachs, was forced to dismiss suggestions that he would relinquish his government role and join Citigroup.

It is understood that, once Mr Thain removed himself from the running by taking the Merrill Lynch job, no clear choice emerged for the chief executive role at Citigroup. However, the board threw its weight behind Mr Pandit yesterday after the announcement of his appointment.

Mr Rubin said: “The board is unanimous in its conviction that, as part of a new generation of executives in this industry, Vikram is the right leader to build on the exceptional strengths of this great company and take the steps necessary to lead us forward.”

Although it was the sub-prime crisis that finally forced Mr Prince to go, investors had grown increasingly unhappy with him in recent months as he struggled to contain Citigroup’s costs, recorded flagging profits and presided over a stagnant share price.

Mr Pandit will need to address problems in Citigroup’s risk management to restore the confidence of staff and investors after the sub-prime losses. He will also need to cut Citigroup’s costs, upgrade its technology and address calls to dismantle the financial services supermarket, which offers what critics see as an unwieldy spectrum of investment and consumer banking.

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