On the face of it, perhaps, it offered the prospect of buying Citigroup some much-needed breathing space. Prince Alwaleed bin Talal of Saudi Arabia, its biggest and most critical shareholder, issued a very public, unequivocal show of support, backing the actions of the bank's senior management and lifting his stake from just below 4 per cent to 5 per cent — and Citi's chiefs sat back and waited for Wall Street's reaction.

They must have held their heads in their hands. Instead of putting a floor under Citi's shares, they fell by 26 per cent — and this only a day after they had dropped by 23 per cent after the announcement of a 52,000 job cuts.

On Friday, Citigroup tried again, issuing a statement insisting that the bank had “a very strong capital and liquidity position”, while Vikram Pandit, its chief executive, said that rumour-mongering was at the heart of the bank's problems. Several top analysts agreed. To no avail. Citi's shares fell another 15 per cent on Friday, bringing their decline for the week to 60 per cent. By the time that traders headed for the Subway and the suburbs that night, it was clear that something dramatic was needed.

No matter what the reassurance, investors feared Citigroup would need tens of billions of dollars of additional capital, a second government cash injection, which would further dilute their ownership of the bank. Furthermore, fears grew that the share slide could prompt customers to pull out their money and clients to move their business.

Citigroup, which was the world's most valuable bank as recently as February, is now only the fifth-biggest in America. Two years ago it was worth about $250 billion; it ended the week with a market value of $20.5 billion. It has taken a total hit of about $60 billion from the credit crunch, much of it from investments in bonds backed by sub-prime mortgages, and it has recorded five consecutive quarterly group losses as a result.

Citigroup moved so heavily into collateralised debt obligations (CDOs), or pools of bonds, that it became one of the biggest owners of these toxic securities and, as a result, is one of the biggest victims of the financial crisis.These losses, in turn, have exposed flaws that had concerned critics of Citigroup for some time but which had been masked by the string of healthy profits that the credit boom ensured. Chief among these flaws is that, in its quest to become a global financial services supermarket offering retail, commercial and investment banking, Citigroup had become an unwieldy, unfocused, inefficient operation with bloated costs.

Some fingers of blame will point at Chuck Prince, the long-term Citigroup executive, who became the bank's chief executive in 2003 and was forced to resign last November. Mr Prince was promoted to run Citi's corporate and investment banking division towards the end of 2002. It is understood that he started putting pressure on Thomas Maheras, who oversaw trading at the bank, to boost the bank's profits by moving more heavily into CDOs.

From 2003 to 2005, Citigroup more than tripled the value of CDOs that it issued to $20.1 billion, keeping a large portion on its balance sheet as an investment. In 2006, that doubled to $40.9 billion, before rising to a peak of $49.3 billion in 2007, when it was the world's biggest CDO issuer.

Robert Rubin, a member of Citigroup's executive committee, also encouraged Mr Prince to increase profits by broadening its appetite for risk, providing that it was closely monitored. However, this year US Federal Reserve examiners are understood to have presented the bank with a scathing review of its risk management practices.

House prices continued to boom and the inherent risks on Citigroup's balance sheet went more or less unnoticed as its group profit soared from $17.8 billion in 2003 to $24.5 billion in 2005 and $21.5 billion in 2006.

As the tide turned, Citigroup's fall was spectacular. In the third quarter of this year alone, Citigroup made a group loss of $2.8 billion.

The need for Citigroup to take more risk can be traced back before Mr Prince's appointment to run the corporate and investment banking division. Analysts say that Sanford Weill must also bear a portion of responsibility. He was lauded for transforming Citigroup into a global financial powerhouse through a series of mergers in the 17 years that he ran the bank until he stepped down as chief executive in 2003. The most transformational of these deals was the merger, in 1998, of Citicorp and Travelers Corp. Critics say now that the conglomerate that Mr Weill created led directly to the need for greater risk-taking in the pursuit of higher profits.

Citigroup's suffered a significant setback at the end of September, when a deal that it had agreed to buy Wachovia, a rival, was trumped by an offer from Wells Fargo. Such a deal would have greatly enhanced Citigroup's retail banking presence and given it tens of billions of additional deposits, which would have boosted investor confidence significantly and may have prevented the shares from falling so steeply. In the absence of the Wachovia purchase, Citigroup was forced this weekend to look desperately for other ways in which to raise new cash, with a further injection of cash from the Government or through the sale of a business unit.

And as for those executives, they are having to ponder not only Wall Street's disquiet about their bank but also themselves. There are questions marks over the futures of several of them, including Mr Pandit. Some of the bank's directors have considered replacing Sir Win Bischoff, Citigroup's chairman, although the group's board has reiterated full support for him.

That Citigroup would find itself in this position would have been inconceivable even a few weeks ago. Whatever the eventual outcome, nothing now seems too outlandish.

Bank account

200m
Citigroup retail account holders in 106 countries

$2,000bn
Citigroup's total assets and operations in 140 countries

$250bn
Citigroup's worth two years ago - it was the world's largest bank until February

$20.5bn
Current value, making it fifth-largest US bank by market cap

$60bn
Citigroup's total writedowns in past year related to credit crunch

$20bn
Mortgage-backed bonds still on Citigroup's books

75,000
Jobs to go this year, taking Citi's global headcount to 300,000

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