Wall Street, its capital eroded by the subprime crisis, is getting a bailout—only it's not from the Treasury Department or the Federal Reserve. It's from Asian governments.

Sovereign wealth funds, or S.W.F.'s—investment arms of governments—in the Middle East, China, and Singapore have, in just the last year and a half, agreed to invest more than $33 billion for minority stakes in a handful of banks. And more such deals are on the way.

Jason Leow and Randall Smith in the Wall Street Journal report that Temasek Holdings, the state-owned Singapore investment company, is nearing a deal to invest as much as $5 billion in Merrill Lynch.

The investment would come as Merrill's new chief executive, John Thain, is wrestling with what is expected to be an additional write-down of $8 billion on investments tied to mortgages, nearly double an earlier write-down. And it would follow a $5 billion deal by China Investment Corp. for a 9.9 percent stake in Morgan Stanley.

Mark Lee, a Temasek spokesman in Singapore, told Portfolio.com today that the company would decline to comment. A Merrill spokesman in New York similarly declined comment.

The Temasek board, which is chaired by Suppiah Dhanapalan, a former Singaporean foreign minister and diplomat—and past chairman of DBS Group Holdings, Singapore's biggest bank, which is partly owned by Temasek—has given preliminary approval to the deal. But a formal announcement may not come until pricing and regulatory issues have been fully negotiated.

There also remains the possibility that Merrill may receive an infusion of capital from the Government of Singapore Investment Corporation. The agency, known as GIC, last week bought a stake of about $9.75 billion in UBS, another financial-services institution caught in the subprime crisis. GIC, which manages Singapore's foreign-exchange reserves—estimated at $225 billion—won about 9 percent of the Swiss banking giant, thereby becoming its single biggest investor. GIC manages more than $100 billion invested in some 40 countries.

According to the organization's deputy chairman, Tony Tan, the UBS investment was the single largest of its kind that GIC had made. In addition to the GIC investment, UBS sold a smaller stake to an unnamed investor from the Middle East, reportedly a Saudi prince.

The Merrill Lynch investment would be Temasek's first formal venture on this scale in the United States. A well-placed investment banker in Singapore, however, said that Temasek had recently approached several major hedge fund managers in the U.S. with a view of participating.

Temasek, an extremely secretive company whose executive director and chief executive officer is Ho Ching—the wife of Prime Minister Lee Hsien Loong—has until now focused its investments in Asia. It is said to have assets of nearly $120 billion, which have been increasingly deployed overseas, mainly in China, where Temasek has been particularly active, buying stakes in several big government banks such as China Construction Bank, Bank of China, and Industrial and Commercial Bank of China, and where it is also planning to invest $1 billion in a private equity fund run by prominent dealmaker Fang Fenglei.

Temasek is one of the better known of the sovereign wealth funds, which have existed since the 1950s. Newer funds from China and the oil-rich Persian Gulf have been more active than Temasek in high-profile deals in the United States.

The rapid growth of S.W.F.'s—from a total of $500 billion in assets in 1990 to $3 trillion today—has raised some concerns about the aims of these government-controlled behemoths.

So far, the funds are taking minority stakes and are not asking for seats on the boards. Asked about the rise of sovereign wealth funds at a news conference this week, President Bush said that this was how free markets were supposed to work.

But the question is what sort of influence these new big shareholders will have and how that may subtly affect Wall Street firms' thinking about their business. Do they not seek clients in Israel, for example? Or do they go ahead and help finance an infrastructure project of dubious value because it will please an important investor?

The Lex column in the Financial Times looks at the more positive side of that relationship for the funds: In the case of China, the investments should help build trust and help them secure the natural resources and technology its economy needs.

Still, influence is the coin of the realm, Lex notes: "Just as investing in private equity firms should ensure a place at the front of the queue for allocation into funds, so a capital alliance with a bank should generate further benefits."