While most congregations look eastwards for end-year spiritual inspiration, western financial institutions have been doing so for recapitalisation. After a succession of yen bond issues in Q3, as Japan remained a source of cheap loans after the US ceased to be so, banks moved on in Q4 to selling blocks of shares into Asia and the Middle East, to help plug the balance sheet holes that started with substandard loans in North America.

Morgan Stanley has placed 9.9% of its equity with China Investment Corporation (CIC), via securities that the sovereign wealth fund will be able to convert into equities in 2010. The $5bn subscribed by CIC is central to the extra fund-raising made necessary by a $9.4bn loss on sub-prime lending.

Citigroup, whose capitalisation still keeps it above Morgan Stanley as America’s and the world’s biggest bank, retains that status courtesy of one the Abu Dhabi Investment Authority, which has paid $7.5bn for a 4.9% stake.

Another large sub-prime loser, Merrill Lynch, has turned to Singapore’s Temasek Holdings, with a share sale initially set at $4.5-5bn but now reportedly set to raise over $6bn, netting it up to 10% of the equity. Merrill thereby helps to fulfil its earlier prediction that sovereign wealth funds will become major global equity market players, raising their global holdings to around $8bn in 2010 from less than $2bn now.

Temasek is also subscribing more to Barclays, which sold it a 1.8% stake in July as it geared up for a final attempt to buy ABN-Amro. Europe’s biggest bank, UBS, has meanwhile sold a 9% stake for $9.75bn to Singapore’s Investment Corporation, another of its state-owned funds, alongside another tranche to a Middle Eastern investor. The Swiss giant again needs the funds to cover a $10bn write-off of sub-prime debt, which it has warned could push it into loss this financial year.

The American and European share sales in 2007 is a poignant reversal of 1997, when western financial institutions were among those buying discounted Asian shares after a wave of loan defaults, currency devaluations and property price crashes across Asia. Then, Malaysia became notorious for re-imposing exchange controls to try to stop investors worsening the crash by withdrawing their capital.

Ten years on, that’s become the preserve of property funds based in London and New York: Friends Provident last week joined the list of those restricting withdrawals from its £1.2bn ($2.3bn) property fund, to prevent it having to sell commercial properties into a downmarket inn order to meet cash demand.

China taking leading role as sovereign funds spread their portfolios
CIC's arrival among the sovereign wealth funds circling above US banks has fuelled speculation over the strategy the new Chinese vehicle will adopt. More than half of its initial $200bn – drawn from China's vast hard currency reserves – has already been sunk into buying domestic financial institutions that hold substantial equity in Chinese industry. Since its first big foreign venture was a 10% stake in private equity group Blackstone when it floated earlier this year, and its second is the Morgan Stanley stake, inferences are already being drawn that its focus will continue to be on strategic stakes in financial institutions that give it indirect exposure to a non-financial portfolio.

But the China Development Bank is already channelling state funds in this direction: it bought into Barclays alongside Temasek, buying a 3.1% stake for around $3bn. China International Trust and Investment Company (CITIC) is also active in the area, buying around 6% of Bear Stearns for $1bn in October. And many other rumours still circulate about CIC's intentions – notably that it intends to counter-bid against BHP-Billiton for a strategic stake in Rio Tinto or other mining giants, as part of China's move to strengthen its raw material supply lines.

Whether the sovereign funds are investing widely is another unresolved issue. Goldman Sachs, one of the few big banks to bet the right way on sub-prime debt, is using some of the profits to buy into its rivals. Their hope is that, with the world’s central banks now making large sums available cheaply to stave off a liquidity crisis, the shares they’re buying will soon bounce back. But it's not clear that the amounts they've subscribed will be enough to end banks’ current cash crisis – and if the shares slide further, there could be a repeat of the embarrassment CIC has already suffered over the slide in Blackstone’s share price since its IPO.

At Berkshire Hathaway, one of equally few US-based investment funds still with cash to spare, legendary CEO Warren Buffett has turned down invitations to buy cheaply into the banks, preferring to keep re-investing in undervalued industrial stocks. The investment errors of Japanese corporations and OPEC governments, when they first ventured onto foreign stock markets with big foreign currency reserves, continue to haunt the new generation of sovereign wealth fund strategists.