fundamental alert

USD/JPY Edges Higher With Stock Futures as White House Announces $17.4B Auto Bailout

Friday, 19 December 2008 12:59:07 GMT  |  Terri Belkas, Currency Strategist

USD/JPY has edged higher throughout the morning after hitting an intraday low of 88.42, and the White House's announcement of a $17.4 billion bailout for the auto industry bodes well for the pair, especially as US stock market futures have climbed into positive territory. The funding is available for GM and Chrysler, but not Ford, with $13.4 billion to be paid out in December and January, while the last $4 billion must be approved by Congress since it would come as part of the second installment of TARP. A description of the plan shows that GM and Chrysler must use the money to become financially viable, and if they end up in the same spot later on, taxpayer financing will not be provided later on. 

Other terms of the plan include:

- Firms must provide warrants for non-voting stock.
- Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
- Debt owed to the government would be senior to other debts, to the extent permitted by law.
- Firms must allow the government to examine their books and records.
- Firms must report and the government has the power to block any large transactions (> $100 M).
- Firms must comply with applicable Federal fuel efficiency and emissions requirements.
- Firms must not issue new dividends while they owe government debt.

Targets:

- Reduce debts by 2/3 via a debt for equity exchange.
- Make one-half of VEBA payments in the form of stock.
- Eliminate the jobs bank.
- Work rules that are competitive with transplant auto manufacturers by 12/31/09.
- Wages that are competitive with those of transplant auto manufacturers by 12/31/09.

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