John Paulson, who recorded what was thought to be the single biggest profit in the history of the hedge fund industry last year by betting on a financial collapse, is planning a new fund to provide capital to cash-strapped banks.

Mr Paulson's New York-based Paulson & Co plans to open a new hedge fund by the end of the year to buy into financial institutions raising cash, although the plans have not yet been finalised. Investors said they expected to see documentation for the new fund next month, assuming it went ahead.