Higher interest rates? Now, the big concern is recession.

The latest indication: Standard & Poor’s said U.S. banks’ bad loans remain at historically low levels. However, it expects loan quality to deteriorate in the next few quarters thanks to the recently rising interest rates.

“There’s absolutely no question that asset quality is deteriorating, problem loans are up, reserves and capital measures are down…But at present, the numbers still look relatively good compared to historic standards,” said Robert Swanton, an S&P analyst, according to a published report.

Most U.S. banks reserved more money in the third quarter to protect against bad loans. However, regulators recently declared as problematic a number of syndicated loans, those that banks share among themselves, S&P analysts said.

“Over the past few quarters, many of the regulatory actions have been decidedly negative,” Swanton said in the published report. “We know there are problems that will become more apparent on banks’ books over the next few quarters, and barring any improvement in the economy, continue to move towards nonperforming status.'”

Interestingly, although regulators recently downgraded about $100 billion in syndicated loans, or loans for $20 million or more and shared by three or more banks, in a recent national credit exam, this amount did not show up in the form of bad loans in the third quarter, according to S&P.

Despite all of these concerns, the analysts notes that in the third quarter, Chase Manhattan, a leader in syndicated loans, reported a decline in non-performing assets while Citigroup Inc.’s were about flat.

In a related development, consumer confidence plunged to its lowest level in a year, raising questions about the future strength of the economy and the prospects for the upcoming holiday season.

Worldcom to Issue Tracking Stocks

This has been a tough year for WorldCom Inc..

First, it had to call off its planned $120 billion merger with Sprint due to regulatory pressures. Its stock then quickly tumbled, nearly halving to the mid-$20s.

Now, the acquisitive telecom company, which was one of the first to aggressively take advantage of the 1996 Telecom deregulation bill, has decided to undo much of its hard work.

The company announced today plans to create two tracking stocks.

WorldCom stock will track its data, Internet and international services, essentially the growth vehicles of the current company. These businesses reported $4.1 billion in revenue during the September quarter.

MCI stock will track the consumer, small business and wholesale long-distance voice businesses, as well as dial-up Internet access services.

Once shareholders approve the decision, WorldCom shareholders will receive one share of MCI stock for every 25 shares of WorldCom Inc. common held immediately prior to the tracking stock distribution date, the company said.

Computer Sciences Announces Huge Contract

Computer Sciences, an information technology services company said on Wednesday that it signed a $2.2 billion pact with British defense contractor BAE Systems Plc.

The six-year deal extends to November 2006 an earlier deal between the two companies scheduled to expire in March 20004.

Computer Sciences will manage the full range of information technology operations on a transatlantic basis, from mainframe and mid- range computers, servers and desktops, to wide and local area networking, Internet services, help-desk, applications support and procurement.

Altogether, CSC has announced new business awards of more than $8.9 billion since the beginning of its fiscal year on April 1.

Tribune, Knight-Ridder to Create Online Joint Venture

Tribune Media Services and Knight Ridder have created a joint venture to merge some of their online initiatives.

Specifically, they will combine Tribune Media Services’ online content agency, NewsCom, and Knight Ridder’s online photography agency, PressLink. The company will be based in Los Angeles.

NewsCom and PressLink combined distribute Web- based news and feature photos, informational graphics and text to more than 8,000 media customers worldwide.

NewsCom, formerly part of Times Mirror Co., became a unit of Tribune Media Services following the recent merger of Tribune and Times Mirror.

Intel Inside Egypt?

Intel could be receiving a sweetheart deal from Egypt.

The chipmaker is building a $1 billion plant in the country, which could provide as many as 1,500 new jobs. As a result, the Egyptian government is considering giving tax-free status to the project, according to the London- based Arabic daily al-Hayat.

The paper quoted Mohamed el-Ghamrawi, head of the General Authority for Investment and Free Zones (GAFI), as saying the authority was studying the possibility of allowing the project to function as a free zone. The cabinet approved the construction of the project, earlier estimated to inject $500 million of investment and create about 3,000 jobs, early last month and it agreed to allocate land for the project.

Sumitomo Sues Two Banks

Sumitomo Corp. will be able to make racketeering claims against The Chase Manhattan Bank and J.P. Morgan, alleging they were part of an unauthorized trading scheme that cost Sumitomo $2.6 billion in 1996, according to a court ruling.

U.S. District Judge John Martin denied motions by the two banks to throw out litigation filed by Sumitomo alleging the defendants participated in a racketeering enterprise.

However, Martin dismissed a group of claims filed against Morgan including allegations of breach of fiduciary duty and negligence.

Sumitomo lost $2.6 billion four years ago in one of the biggest trading scandals ever. It alleges that the banks helped Sumitomo’s former chief copper trader, Yasuo Hamanaka, make unauthorized trades. The Japanese trading company alleges that the defendants made secret loans to Hamanaka even though they knew he lacked the authority to receive such credit.

Taxing the Internet

It looks like we may soon be paying taxes for stuff bought on the Internet.

The Streamlined Sales Tax Project, created by 39 states in response to requests from government and the business community, issued two sets of proposals that address problems tax collectors have identified as impediments to increased tax collection. These proposals were delivered at a hearing last Thursday.

“The hearing went great,” said Charles D. Collins, Jr. of the North Carolina Department of Revenue and co-chair of the project. “I think we will be able to finalize a report and present a model legislation proposal by the end of November.

The Project hopes to deliver model legislation to states by the end of the year.

From CFO.com’s Briefcase

• Mortgage.com said Tuesday it would begin winding down its lending operations and lay off 518, or 84% of its 618 employees. The Sunrise, Fla.-based company said it was in violation of certain loan covenant agreements it held with its mortgage loan investors and warehouse lenders. It plans to sell certain assets to pay back lenders.