The banking company named Sir Win Bischoff, who has been Citi's acting CEO, as its chairman, replacing Robert E. Rubin, who had stepped into the role when former CEO and chairman Charles Prince was ousted last month.
Pandit, who ran a hedge fund bought by Citi earlier this year, is seen as a careful, decisive investment banker - qualities Citi needs following the revelation that Citi's writedowns of soured mortgages could amount to as much as $17.5 billion by the end of the year.
Bischoff, meanwhile, has led Citi's European businesses, answering many shareholders' complaints that Pandit does not have the overseas experience to guide the sprawling bank's operations in Europe, Asia, Africa and Latin America.
The appointments came after a two-day meeting of Citi's board.
Pandit is well known on Wall Street, having worked at Morgan Stanley for two decades until 2005, when he and a few other disgruntled colleagues left the brokerage and founded the hedge fund Old Lane Partners.
Earlier this year, Citigroup bought Old Lane for $800 million and put Pandit in charge of Citi's alternative investments. A few months later, Pandit took over the bank's markets and banking unit, too, and then reconfigured the business to mirror the Morgan Stanley structure he was familiar with.
His performance as Citi's leader will undoubtedly be scrutinized by investors until they see positive results - including his willingness to challenge the Citi strategy of the past several years. One question on Wall Street is whether Pandit will be beholden to the Citi board, which has remained steadfastly loyal to the Sanford Weill regime. Weill, a board member, built Citigroup through a series of mergers and acquisitions over the past few decades, and many have attributed the bank's failings this year to the Weill culture: Prince was his hand-picked successor.
Bischoff was the chairman of the British investment bank Schroders PLC, then joined Salomon Smith Barney Inc., a subsidiary of Citi, when it acquired Schroders. He began his current position in May 2000.
Unlike Merrill Lynch & Co., which took just two weeks to find a replacement for Stan O'Neal, its embattled CEO and another casualty of the mortgage crisis, Citi's search dragged on. Merrill's nab of John Thain, a Goldman Sachs alum who turned around the once-troubled New York Stock Exchange, eliminated him as a possibility for Citi.
Citi, with all its bad debt - not to mention the hemorrhaging funds known as structured investment vehicles that it manages - appeared to be a beast no one wanted to tame.
According to various media reports, Citi's overtures to big names in the banking industry such as Deutsche Bank CEO Josef Ackermann and Royal Bank of Scotland CEO Frederick Goodwin were spurned. And Citi board member Rubin, the former Treasury Secretary who led the CEO search committee, decided he did not want to stay chairman.
Pandit faces multiple challenges. He must not only attract more cash to offset Citi's debt and bulk up the bank's risk management, but he also needs to strengthen Citi's lackluster consumer-oriented businesses and clean up its reputation.
Citi has shed about $120 billion in market capitalization this year, putting its market cap below that of Bank of America Corp. Citi is still the largest U.S. bank by assets, though, so while most major financial companies have seen problems navigating a surge in foreclosures and a freeze-up in credit, Citi's losses have been seen on Wall Street as particularly egregious.
Citi's cash levels will get a boost by the Abu Dhabi Investment Authority, which in late November bought a 4.9 percent stake in Citi for $7.5 billion. But the investment, while helpful in offsetting some of Citi's bad debt, is not a panacea. Many analysts and shareholders believe Pandit needs to sell more assets to bring in cash and make the huge conglomerate leaner. Citigroup has said non-essential assets selloffs are in the works, but many shareholders are hoping for more ruthless spinoffs - such as Citi's brokerage arm, Smith Barney.
A few analysts have even tossed around the idea of another big bank like JPMorgan Chase & Co. and Bank of America Corp. buying or merging with Citi. But given regulatory obstacles and the credit market problems facing even the best-positioned banks, other analysts say such a deal is unlikely at this time.
The board has been adamant about not breaking up the bank.
Rubin, who led the search committee, said after Prince's resignation that they were looking for someone to focus on Citigroup's "multiplicity of businesses."
"It is very important that whoever we have has a strong international focus - not necessarily enormous international experience, but can relate to the globalization of this institution and Chuck's (Prince's) strategy of having to ever increase that involvement," Rubin said at the time.
Pandit, though he spent his childhood in India, has little experience with banking abroad. His strengths are his Wall Street experience and his analytical mind.
"Under the circumstances, I can't think of anyone better qualified to untangle Citigroup than Vikram Pandit," said Barton Biggs, who was Morgan Stanley's top strategist and worked with Pandit for two decades. Biggs, now the head of the hedge fund firm Traxis Partners, called Pandit intelligent, and not one to make "lightning-quick decisions."
"That doesn't mean he's not decisive - he's thoughtful and careful," said Biggs, who is also a Citi shareholder. "Vikram is a very fair and honest and honorable manager. People do like working for him. A lot of people followed him from Morgan Stanley to Old Lane."
Even in the years that Morgan Stanley struggled, the investment banking unit did well, said Punk Ziegel & Co. analyst Richard Bove.
"Vikram Pandit was one of the reasons for it," Bove said. "He proved at Morgan Stanley he could build a strong capital markets business."
Bove noted that Pandit has no experience in consumer banking, however, which brings in half of the company's profit. Compared to its peers, Citi has seen lackluster results in retail banking, credit cards and consumer finance in recent years.
"I don't think any division of Citi is demonstrating above-average success," Bove said. "They're behind the curve. They're utilizing inappropriate sales techniques."
Also, Pandit has never run a large public company. And some see his lack of flash and pizazz as a drawback - though to others, a cool, quiet demeanor in the top spot could be just what is needed at a company often criticized as arrogant.