Kuwait Investment Authority (KIA) is preparing to make further investments in American financial institutions such as Merrill Lynch and Citigroup to profit from fears that banks are still short of cash despite collectively raising nearly $300 billion (£153 billion) worldwide recently.

The Kuwaiti sovereign wealth fund's continuing interest in Wall Street came as it emerged that Lehman Brothers had contacted overseas investors seeking cash to repair the damage to its balance sheet from an estimated $4 billion of mortgage-related losses this year.

Lehman, which is also preparing a rights issue as an alternative to a cash injection from an overseas bank, is thought to have contacted at least one potential investor in South Korea. Korea Development Bank and Woori Financial have been tipped as the most likely partners.

KIA, which did not mention Lehman as a target, said that it was looking to build on previous investments in the United States, which include Visa, Merrill Lynch and Citigroup.

Bader al-Saad, KIA's managing director, said: “We are in Visa and we are already looking at other opportunities. In Citi or in Merrill, if there is a good opportunity, we will look into it.”

KIA was part of a consortium that invested $6.6 billion in Merrill in January and another investor group that injected $12.5 billion into Citigroup on the same day.

Brad Hintz, an analyst at Sanford Bernstein, said: “With Wall Street at the moment, it's very much like Dirty Harry. It's a case of: ‘Do you feel lucky, punk?' The Federal Reserve has said that it may close its discount window of cheap, emergency funds, which it opened to the brokerages last August, in mid-September and, even if you think you have enough cash, do you want to risk it?”

Although the US Federal Reserve is unlikely to close the window in September, Lehman appears to be amassing capital just to be safe and other financial institutions are likely to do the same, Mr Hintz said.

Lehman shares rebounded 4.5 per cent to $31.98 in midday trading yesterday. Their earlier drop was fuelled by concerns that the bank faces hundreds of millions of dollars in losses on investments that it made to hedge against risks in its asset portfolio. On Tuesday it denied that recently it had sought emergency funding from the Fed and sought to clarify that it had more than $40 billion of cash and other liquid assets at its disposal.

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