credit update 24 09 07

Although Friday saw a moderate dip with the Nikkei down 0.56% and All Ords down 0.46%, the Asian bourses rose last week after the US Federal Reserve slashed its benchmark rate by half a percent.

Reeling from the Northern Rock debacle, the Bank of England admitted that it stand in need of improving its understanding of developments in the markets for money and credit to be able to formulate relevant monetary policies. The bank has recently come under fire over its handling of the Northern Rock crisis, on which it allegedly failed to act promptly to stem a full-blown crisis. Meanwhile, Chancellor Alistair Darling supports measures for customers to get up to £100,000 of their deposits within days of a bank going bust. Opposition however warns a Government guarantee such as that of the Northern Rock deposits could become a ''crooks' charter in which any dodgy bank will be able to lure in depositors with attractive interest rates, expand rapidly using Northern Rock's business model and then call in the Government when it hits trouble."

Markets around the world watch for the ripple effects this week of the Fed's half-point interest cut.

Yasuo Fukuda becomes the Japan's next prime minister after being chosen this Sunday by Japan's governing Liberal Democratic Party. He is inheriting as wobbling Japanese economy as there are still lingering concerns that a slowdown in the US housing market will cause consumption to decline and which could lead to a drop in Japanese exports. Japan's second quarter gross domestic product saw negative growth and the consumer price index has declined on the year for six straight months.

Underscoring China's key role in its business, Mattel, the world's largest toymaker, apologized for damaging China's reputation after recent large recalls of its Chinese-made toys, admitting that it targeted some goods that actually met the company's standards.

China is planning to introduce rules to allow a handful of foreign investment banks to invest in joint ventures with local securities firms. In the planned pilot programme, China would allow small number of foreign firms to acquire 20 per cent stakes in existing Chinese brokerages. Foreign investment banks would be allowed to own up to 33 per cent of a new securities industry joint venture with a local partner. Several foreign investment banks are hoping to gain access to the Chinese market, which is undergoing a massive boom in new listings.

Credit analysts are hopeful that turbulence in the overseas credit markets would draw investors to the region, strengthening the Asian credit market. They note that Asian credit's lower correlation with the rest of the world could spur a pick up in volumes as investors turn to Asian credits for diversification.

HSBC closed its non-core wholesale lending business, Decision One Mortgage, costing $880m in charges and additional $65m after-tax restructuring cost with around 750 employees affected.