The billionaire Saudi prince, who invested in Citicorp in 1991 when it was in financial straits, said he would raise his stake from 4 per cent to 5 per cent. At Citi’s current market value of just over $25bn, the new investment would cost about $350m.

The 26.4 per cent fall in the shares, which closed at $4.71 in New York, prompted Citi’s directors and executives to look at strategic options, includes selling part or whole of the company.

A $350m vote of confidence from Saudi prince Al-Waleed Bin Talal could not halt the rapid decline in the fortunes of Citigroup yesterday, with fears mounting that what was once the world’s biggest bank will lack adequate capital to withstand the billions of dollars of losses expected in the months to come.

The £236m investment came before the market opened yesterday, and reversed the nose-dive in the ailing bank’s share price for only 20 minutes before the sellers returned. It had been hoped that the boost in sentiment from Al-Waleed’s vote of confidence would end a two-year selloff that has wiped more than $200bn from Citigroup’s market value.

But as quickly as the share price had improved, it declined again. At one point it plunged by more than 25% to less than $4, its lowest since 1994. By the close on Wall Street it was off by more than 26% at $4.71, giving the bank a puny market value of $25bn.

In January 2007, Citigroup shares were worth more than $54 each and the company was valued at more than $250bn.

The unprecedented share drop is the bank’s eighth decline in the past nine trading days, and could spell further trouble for Citigroup. Most big institutional investors are barred from owning stocks worth less than $5 a share; they do not have to sell out immediately, but must start selling at the end of the quarter if there is no sign of improvement.

The bank is lobbying hard in Washington for further curbs on short-selling, as it blames the practice for its rapid share price decline. Short-selling is a practice that involves betting on share prices going down rather than up.

The bank has become a lightning conductor for bad news in the financial sector, but a growing number of analysts are worried that its declining market value will leave it vulnerable to future loan losses.

Al-Waleed increased his stake in Citigroup from about 4% to 5%. He tried valiantly to convince the market the bank was in better shape than the share price implied – in a statement released at 9am in New York, he described Citigroup’s shares “dramatically undervalued” and expressed “full and complete support to its management”, including the embattled chief executive, Vikram Pandit.

The Saudi has long been the biggest investor in Citigroup and has a close relationship with Sandy Weill, the bank’s founder and former chief executive. His stake in the bank was reduced in 2007 and again earlier this year as the bank raised more than $50bn in new capital from sovereign wealth funds and other investors.

Some analysts note that Al-Waleed’s opinion no longer carries as much weight as it once did. In 1991 he became one of the world’s five richest people and was described as the Warren Buffett of the Middle East by Time magazine. This year Al-Waleed’s Riyadh-based Kingdom Holding Company has slumped 63% in value, wiping out $13bn.

On Monday, Pandit announced 52,000 lay-offs in the biggest round of banking job cuts in Wall Street history. Far from reversing the decline, the announcement seemed to force the stock lower still.

Citigroup’s decline has been so steep this week that many in the market have begun to speculate it will need a further cash injection from the US government on top of the $25bn it received only weeks ago. Sources close to Citigroup scotched the rumour, though, saying the bank had no plan to ask for more help from the treasury at this stage.

Citigroup is not alone in suffering at the hands of the market. The entire US financial sector has been in negative territory for much of the week. The S&P index of financial shares tumbled 10.5% yesterday, with JP Morgan Chase off 17.9% at $23.38 by the close.