credit update 28 09 07

Markets are still awash with speculation that Bear Stearns is whisker away from closing a sale to Warren Buffet or other potential investors. Names such as Bank of America, Wachovia, and two Chinese companies Citic Group and China Construction Bank have all been floated as potential investors.

The Organisation for Economic Cooperation and Development, one of the world's leading economic authorities, has called for the Bank of England to cut interest rates in the face of the growing threat to UK's economy from the credit crunch and the slumping housing market. Meanwhile, the British Bankers' Association has joined the chorus of voices calling for changes in UK's regulatory system but called for temperance lest inappropriate palliatives are enacted instead of meaningful reforms. It also called for the BOE to re-examine its emergency overnight lending facility, and the list of eligible loans be widened. It also expressed concern over the proposal to overhaul the deposit compensation scheme which could increase the compensation ceiling from £35,000 to £100,000.

A Goldman Sachs report warns of a likely recession in Japan and risks of the US housing slump spreading to parts of Europe, adding that Asia and Europe may not be robust enough to prevent global growth from slowing should the US falter.

Japan's Ministry of Economy, Trade and Industry reported a 3.4% surge in industrial production in August as exports rose in the aftermath of the July earthquake. Despite this and a BOJ's member saying the US housing slump will have a limited impact on Japanese exports and that the world economy will keep expanding even if US growth slows, some observers, however, still believe that a tumbling US economy will adversely impact Japanese exports. The International Monetary Fund warned this week that world growth will slow down in 2008 because of the credit shortage stemming from the US subprime turmoil.

In an effort to curb inflating property prices, China raised interest rates on some mortgages and increased minimum down payments. The government is concerned that a surge in lending is creating a bubble, with real estate development jumping 29% in the first eight months of 2007.

A report published by World Bank and the International Finance Corp, named Singapore as the world's most business-friendly economy based on ease of doing business. New Zealand was second, US was third and Hong Kong was fourth.