Failure of US auto bailout -ve for int値 capital mkts: JPM

The US Senate failed to reach a compromise to bailout auto makers, reports CNBC. Adrian Mowat of JP Morgan said the US auto bailout failure is a negative message for global capital markets. The move will stall the rally and is bad for auto-ancillaries and financials.
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Dec 15, 2008, 01.15 PM | Source: CNBC-TV18

Failure of US auto bailout -ve for int値 capital mkts: JPM

The US Senate failed to reach a compromise to bailout auto makers, reports CNBC. Adrian Mowat of JP Morgan said the US auto bailout failure is a negative message for global capital markets. "The move will stall the rally and is bad for auto-ancillaries and financials."

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Failure of US auto bailout -ve for int値 capital mkts: JPM

The US Senate failed to reach a compromise to bailout auto makers, reports CNBC. Adrian Mowat of JP Morgan said the US auto bailout failure is a negative message for global capital markets. "The move will stall the rally and is bad for auto-ancillaries and financials."

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Adrian Mowat (more)

Chief Asian & Emerging Market Strategist, JP Morgan | Capital Expertise: Equity - Fundamental

The US Senate failed to reach a compromise to bailout auto makers, reports CNBC. A Senate aide said the debate on the bailout legislation is over for this year.

 

Reacting to this news, Adrian Mowat of JP Morgan said the US auto bailout failure is a negative message for global capital markets. "The move will stall the rally and is bad for auto-ancillaries and financials."

 

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Here is a verbatim transcript of Adrian Mowat痴 comments on CNBC-TV18. Also see the accompanying video.

 

Q: How would you react to the auto bailout package failing and do you expect to see any large impact on equity markets across the world or will be talking about too small a quantum?

 

A: This is a negative message for global capital markets. It will get the world a bit concerned about the economic impacts of the US auto industry on the global auto industry. This is not just the direct jobs which the big three (General Motors, Ford, Chrysler) provide. It is also with suppliers, the dealers etc. It is also these suppliers of suppliers which are then transplanted by the Japanese, Europeans, and lastly by US car plants. It is also important for the US banking industry because there are clearly loans to these companies, suppliers etc. So, it is negative that it has failed to pass the bailout bill.

 

These companies still have cash. It is a different situation than the talk failing to get through Congress. You desperately needed the stabilization in financial markets. These companies do have some cash to live off for the next couple of months. So, we do have a bit of time to go back to Congress with a new plan that is acceptable to the Senate. The House (of Representatives) has already accepted this plan, so we are looking for a sort out the compromise through the Senate.

 

Q: The talks failed largely because there was no agreement on the pay parity date which require auto workers in the US to come in sync with workers in foreign countries like Japan. So, that is a tough one, Do you see any agreement coming on that?

 

A: That is quite a tricky one isn稚 it, because that is a matter of United Autoworkers (UAW) and for individual employees to agree. The chief executives of the three big companies would probably be delighted to be able to cut their wage bill as soon as possible.

 

Q: Since it is such a tricky one, do you see any hope of this going back for any further negotiation or do you think that the bailout is dead?

 

A: I think that aid will be provided to the big three (General Motors, Ford, Chrysler). It is very interesting politically that the Senate has tried in the UAW to take some pretty major compromises before they are willing to give additional funding.

 

This is a very intriguing story because it isn稚 just saying that let us worry about the corporation in aggregates and let us ask corporations to take all the pain. They are saying that the workers here need to be paid here more competitively and that is quite an interesting political statement.

 

These companies do have cash and will not go out of business tomorrow because of this. What is going to happen is that all the pressure it is now going to be put on the UAW to make the necessary compromises so that the Senate approves this additional aid to the big three auto companies. So now it痴 a negative message for the markets and the markets went down.

 

Q: In terms of collateral damage for equity markets, including Asia, how much do you expect to see because we have had meaningful rallies, do you think that year-end rally might be stalling here?

 

A: Quite possibly, if this news causes US equities to fall, particularly financials and auto ancillary companies, it could stall the rally.

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Failure of US auto bailout -ve for int値 capital mkts: JPM

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