As quoted in the Associated Press.
The AP Buenos Aires interviewed me on the Citibank’s Catch-22 between the NY courts and Argentina’s authorities. “Instead of staying in the frying pan or hopping into the fire, Citibank decided to simply get out of the kitchen,” said Brett House, a debt expert and senior fellow at the Jeanne Sauve Foundation, a think tank in Montreal, Canada.
Citibank in Argentina to stop making bond payments
BUENOS AIRES, Argentina (AP) — Citibank said Tuesday it was getting out of the business of making bond payments for Argentina, the latest fallout from a bitter court fight between the South American country and a group of bondholders in the U.S.
In a statement, the bank said it was making plans to transfer Argentina’s debt payments to another entity because of an “unprecedented international conflict of laws.” The statement said the bank had notified the New York court overseeing the legal fight, but did not elaborate on its transition plans.
Last week, the bank found itself in a difficult position with few options. First, U.S. District Judge Thomas Griesa ordered Citibank to stop processing payments to bondholders. A day later, Argentina threatened to revoke the bank’s operating license if it refused to process those payments.
“Instead of staying in the frying pan or hopping into the fire, Citibank decided to simply get out of the kitchen,” said Brett House, a debt expert and senior fellow at the Jeanne Sauve Foundation, a think tank in Montreal, Canada.
Other banks capable of processing the bond payments would likely hesitate to do so out of fear the court could hold them in contempt, said House.
“It’s another way in which Argentina is more isolated from international financial markets,” he said.
The dispute stems from Argentina’s default in 2001 on $100 billion worth of debt. Most bondholders agreed to debt-swap deals in 2005 and 2010 that drastically cut Argentina’s payments. But a group of U.S. hedge funds led by billionaire Paul Singer demanded full payment and took the case to court. In several decisions, Griesa has ruled that the holdouts must be paid roughly $1.5 billion if Argentina pays interest to other bondholders.
It is unclear what Argentina will do to make its next payments, set for the end of March. A spokeswoman at the Ministry of Economy declined to comment.
Anna Gelpern, a Georgetown University law professor and debt expert, said in theory the country could use local channels such as an Argentine bank to continue making payments. But she said it will be difficult in practice because bond payments are made in dollars, making it nearly impossible to avoid some kind of contact with U.S.-based financial institutions presumably under Griesa’s reach.
“If you are a creditor, and you want to show up in Buenos Aires with a backpack to collect your money, that to me is about the only way you would be in the clear” from the New York court ruling, she said.
In its statement, Citibank clearly worked to distance itself from the legal fight, saying it was a “third party” to the litigation and a “mere custodian” of the bonds.
“As it is known by the markets and the public in general, the custody business, by its very nature, is one that has no meaningful connection with banking business in general,” read the statement.
Citibank has long played an important role in Argentina, South America’s second largest economy, opening its first branch here in 1914, according to the bank’s website. It’s used by many multinational companies and currently operates 74 branches nationwide.