credit update 26 09 07

There appears to be a silver lining in the nimbus affair of the Northern Rock as officials of the beleaguered bank have intimated that a number of possible bidders have already approached, whetting the possibility of an offer being made. However, observers urged caveat venditor as "no price has been referred to" by the potential bidders and some of these could be from opportunists trying to cherry pick the mortgage portfolio. Meanwhile, Northern rock cancelled its £59m interim dividend due to be paid next month.

Inchoate probes on the ratings agencies' alleged role in the subprime mortage crisis have taken on a more definite shape with tightened regulation as seven of the world's leading credit-ratings agencies will have to submit themselves to the regulatory oversight of the US Securities and Exchange Commission. Attendant to this, all of the ratings agencies will have to disclose their methodologies and procedures in assigning ratings, as well as certain performance measurement statistics such as historical downgrades and default rates. It is to be noted that these ratings agencies have taken flak from various quarters with their alleged culpability in the subprime debacle as they assigned high credit ratings to complex and tenuous instruments.

The backlash from investors squeezed by collapsing firms amid the credit turmoil is in the offing. Law firms are gearing up for a slew of cases to be hurled at companies going bust in the subprime brouhaha on allegations of fraud and negligence. Earlier this month a class action against one of two Bear Stearns hedge funds that collapsed is being organized.

An incipient effect of the interest cut by the US Federal Reserve is a 40% increase in the number of customers inquiring about their home financing options as revealed by Countrywide Financial Corp, the largest US mortgage lender. Countrywide and other housing firms are stepping up efforts in marketing as the number of customers shopping for homes may start to pick up.

As enunciated in China's five-year plan that runs through 2010, it aspires to become a center of high-quality production, emulating the example set by Japan with the latter's relentless focus on quality and continuous improvement making Japanese companies and products trusted by global consumers. With China buffeted by a wave of recalls stemming from alleged dodgy, sometimes poisonous products, although a small percentage of Chinese exports, has done considerable damage to its reputation. China is set to do a herculean task of convincing the world that its products are safe.

Asia credit benchmarks iTraxx Australia and iTraxx Asia ex Japan tightened 0.56bps and 4.12bps respectively, while both Japanese credit indices remained stable.

Asian bourses are mixed as of this morning. Hong Kong is on holiday.