NEW YORK -- Caught between two seemingly immoveable forces -- Argentina's refusal to comply with U.S. court orders and a Federal judge unwilling to let Buenos Aires off -- Citibank says it will exit the custody business in Argentina.
"In view of recent developments, set out below, Citibank has determined to have its Argentine branch, Citibank Argentina, develop, and execute, a plan to exit the custody business in Argentina as soon as possible," Karen Wagner, Citibank's lawyer at Davis Polk, wrote to the court.
On March 12, a US Federal Court in New York ruled that Citibank would not be allowed to transfer future payments on local law Discount and Par bonds issued in the 2005 and 2010 exchanges Argentina made for its defaulted debt.
Federal District Court Judge Thomas Griesa, who has overseen the myriad of lawsuits against Argentina in the wake of its 2001 default for over a decade, denied Citibank’s request to vacate a 28 July order that prohibited Citibank from processing payments on those bonds.
This week, Griesa denied Citibank’s request for a temporary stay while they appealed his ruling. The stay would have allowed Citibank to transfer the 31 March interest payment on local law Discount bonds.
Citibank has appealed the 28 July order which was upheld to the U.S. Second Circuit Court of Appeals, but that appeal was denied on procedural grounds. Argentina's lawyers said that they would pursue other appellate options.
"Having considered all the arguments, and having also considered all factors pertinent to obtaining a stay, the court does not believe that a stay of the March 12th Opinion and Order is warranted," Griesa wrote briefly in the denial of the stay yesterday.
At the same time, Citibank was being threatened with the loss of its business and even jail by the Argentina government.
"Citibank Argentina, as an entity registered and organized to operate in the banking and financial system of our country, has the obligation to submit itself to the National rules that regulate such activity. As anticipated in the August 6, 2014 Letter, a violation of this obligation may result in the suspension and revocation of such registration and authorization. In that connection, as acknowledged by the head office itself of that Entity in the various filings made in “NML Capital v. Republic of Argentina”: “Argentina has a legitimate interest in applying its banking laws” and 'if Citibank Argentina does not not remit to its customers the funds it receives, as will all other custodians, it will be in violation of Argentine banking law. The Republic could
revoke Citibank Argentina´s license and even impose criminal liability on its employees,'" the Argentine government threatened in a letter to Citibank (attached exhibit below).
"Thus, and given that through the Order dated July 28, 2014 Judge Griesa gave authorisation only one time for the transfer of funds corresponding to the bonds that participated in the Exchange denominated in United States dollars, that Entity is summoned once again to inform within the next 48 hours to the Secretary of Finance of the Ministry of Economy and Public
Finance what attitude shall adopt in connection with the distribution of the payments made and the ones to be made soon, taking into consideration the reasons provided in this letter," the Argentina letter concluded.
Citibank opened its Argentine unit, the first non-U.S. branch, in 1914, according to the bank’s website. It has 2,700 employees in the country, 70 branches and is the eighth-biggest private bank in terms of deposits, according to data compiled by the central bank.
Local press reports have indicated that Argentina will try to bypass the U.S. ruling and Citibank by getting the interest payments to Euroclear directly from a Caja de Valores bond depositary in Buenos Aires.
However, Euroclear is also subject to the pari passu injunction in the U.S., although in Europe where it is based, its enabling legislation exempts it from being subject to such injunctions.
Griesa rejected Citibank’s arguments that these bonds are not subject to the pari passu injunction because they were not “external indebtedness” and that Citibank is not a participant in the payment process.
The affected bonds have the following ISINs: ARARGE03E097, ARARGE03E113, ARARGE03E154, ARARGE03G688, and ARARGE03G704. There are about $8.4 billion of these bonds outstanding -- about 22% of exchange bonds.
Payments on other local law bonds, such as Bodens and Bonars, are not directly affected by this ruling.
The interest payment on the affected bonds is due to be paid March 31.
NML v Argentina - Citibank - Citibank Exiting Argentina Custody Business - 17 March 2015 by Latin American Herald Tribune
NML v Argentina - Citibank - Griesa Opinion Denying Citibank Argentina Request to Pay - 12 March 2015 by Latin American Herald Tribune
NML v Argentina - Citibank - Citibank Letter to Argentina CNV - 12 March 2015 by Latin American Herald Tribune