Daily Management Review

Citigroup to accept US court ruling against Argentina bond payments


US-based Citigroup has decided to not appeal a US judge's ruling that it cannot process an Argentine sovereign debt payment if he helps the bank exit its custody business in the default-hit country as swiftly as possible.

This move, as revealed by the bank’s lawyers, will create a stir in the Argentine government, which has asked the bank to handle the sovereign debt payment on March 31 or face sanctions including a loss of its operating license.

The government has noted that it will not allow the bank to walk away from the custody business as it is a custodian of some of the Argentine bonds. The bank meanwhile has urged the US judge to suspend his order blocking the payments to enable the bank to fulfill its Argentine obligations even while it exited its custody business in the country. The lawyer for the bank said, “Citibank wants to be completely out of this business and have nothing to do with processing payments on these bonds at any point ever again."
The lawyer also admitted that he was "not certain" the bank could get out of it before a June 30 payment is due.

Citigroup is currently in the middle of this court battle between Argentina and a group of New York-based hedge funds that were awarded full payment on their defaulted sovereign bonds. The judge also ruled that Argentina should be content with the funds before it paid interests to the investors who have accepted write-downs on the debt holdings. The whole issue has its epicenter in a default of $100 billion in 2012 by Argentina and this ruling by the US court has caused Argentina to default on some of its restructured debt last July.

Citigroup meanwhile has portrayed itself as a bystander in the issue as it does not want to get sued for contempt of the court. The bank group is one of the world’s leading custodian banks. This exit decision by the Citigroup may directly affect the government's efforts to pay bondholders and return to global markets.

Citigroup's decision to sell parts of its custody business or end some of its client relationships is without precedent in Argentina.

Citibank Argentina opened its first branch in 1914 and is currently the country's 12th largest bank by deposits with 22.82 billion pesos ($2.67 billion) as of December. The bank is held responsible to Argentina government by a contract with the economy ministry confirming it as a custodian of local law restructured bonds.

Under Argentina's banking regulations, it would be the Central Bank of Argentina that suspends or cancels Citibank Argentina's operating license. Argentina set a Wednesday deadline for the bank to inform authorities whether or not it planned to process the upcoming coupon payment, worth about $3.7 million.